<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: March 31, 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 (I.R.S. Employer Identification No.)
of incorporation or organization)
1101 PENNSYLVANIA AVENUE, NW WASHINGTON, D.C. 20004
----------------------------------------------------
(Address of principal executive offices) (Zip code)
(202) 393-1101
-----------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
------- -------
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
17,717,083 shares of Common Stock, $.01 par value, at April 30, 1999.
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1999 and June 30, 1998 3
Condensed Consolidated Statements of Operations -
Three and nine months ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows -
Nine months ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of the
Results of Operations and Financial Condition 10-16
PART II. OTHER INFORMATION 17
SIGNATURES 18
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND JUNE 30, 1998
(000s omitted except per share amounts)
<TABLE>
<CAPTION>
ASSETS 03/31/99 06/30/98
-------------- --------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 5,352 16,204
Receivables (less allowance for doubtful
accounts of $11,108 at March 31,
1999 and $10,072 at June 30, 1998) 299,550 299,881
Inventories 317,682 307,189
Other current assets 86,963 71,929
-------------- --------------
Total current assets 709,547 695,203
-------------- --------------
Property, plant and equipment, net 238,598 248,368
Excess of cost over fair value of assets
acquired, net 158,190 161,712
Other assets 23,448 25,401
-------------- --------------
Total assets $ 1,129,783 1,130,684
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ 19,186 18,333
Current portion of long-term debt 12,084 55,698
Accounts payable 92,986 113,367
Accrued liabilities 127,764 139,890
-------------- --------------
Total current liabilities 252,020 327,288
-------------- --------------
Borrowings under revolving credit
facility 134,983 6,554
Senior long-term debt 249,791 253,055
Other non-current liabilities 30,063 31,253
Minority interest 658 635
Shareholders' equity
Common stock, $.01 par value 177 186
Additional paid-in capital 289,168 288,336
Other comprehensive income (loss):
Cumulative translation adjustment (25,999) (21,478)
Retained earnings 232,899 244,855
Less common stock held in treasury (33,977) --
-------------- --------------
Total shareholders' equity 462,268 511,899
-------------- --------------
Total liabilities and shareholders' equity $ 1,129,783 1,130,684
-------------- --------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1999 AND 1998
(000s omitted except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 374,904 391,917 1,078,318 1,124,150
Cost of sales 269,943 281,981 805,175 814,449
-------------- -------------- ------------- --------------
Gross profit 104,961 109,936 273,143 309,701
Selling, general and administrative 80,581 80,540 230,737 231,931
Plant closures and severance -- -- 17,010 --
Asset impairment -- -- 20,054 --
-------------- -------------- ------------- --------------
Operating income 24,380 29,396 5,342 77,770
Other expense:
Interest expense 6,724 6,671 18,711 19,294
Miscellaneous, net (403) 909 559 1,213
-------------- -------------- ------------- --------------
Income (loss) before income taxes
and extraordinary item 18,059 21,816 (13,928) 57,263
Income tax expense (benefit) 5,242 6,763 (4,674) 17,751
-------------- -------------- ------------- --------------
Income (loss) before extraordinary item 12,817 15,053 (9,254) 39,512
-------------- -------------- ------------- --------------
Extraordinary item, net of income taxes -- -- -- (3,583)
-------------- -------------- ------------- --------------
Net income (loss) $ 12,817 15,053 (9,254) 35,929
-------------- -------------- ------------- --------------
Basic earnings (loss) per share
before extraordinary item $ 0.72 0.81 (0.52) 2.13
Extraordinary item --- --- --- (0.19)
-------------- -------------- ------------- --------------
Basic earnings (loss) per share $ 0.72 0.81 (0.52) 1.94
-------------- -------------- ------------- --------------
Diluted earnings (loss) per share
before extraordinary item $ 0.72 0.80 (0.52) 2.10
Extraordinary item --- --- --- (0.19)
-------------- -------------- ------------- --------------
Diluted earnings (loss) per share $ 0.72 0.80 (0.52) 1.91
-------------- -------------- ------------- --------------
Weighted average shares
outstanding - basic 17,704 18,619 17,954 18,556
-------------- -------------- ------------- --------------
Weighted average shares
outstanding - diluted 17,857 18,847 17,954 18,850
-------------- -------------- ------------- --------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1999 AND 1998
($000s omitted)
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (9,254) 35,929
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 41,967 41,631
Amortization of intangible assets 5,274 5,631
Special charges, net of cash paid 61,136 ---
Changes in working capital, net of acquisition/
disposition effects:
(Increase) decrease in:
Receivables (1,212) 4,840
Inventories (34,352) (24,181)
Other current assets (1,081) (9,961)
Increase (decrease) in:
Accounts payable (20,582) (15,829)
Accrued liabilities (29,886) (3,351)
(Gain) loss on disposition of assets --- (3,721)
------------- -------------
Net cash provided by operating activities $ 12,010 30,988
------------- -------------
Cash flows from investing activities:
Payment for purchase of companies,
net of cash acquired $ (568) (94,751)
Net proceeds from disposition of assets --- 6,564
Capital expenditures (53,823) (51,688)
Issuance of loans, net (16,240) ---
Other items, net 1,654 (609)
------------- -------------
Net cash used in investing activities $ (68,977) (140,484)
------------- -------------
Cash flows from financing activities:
Borrowings on (repayments of) lines of credit $ 420 (4,512)
Net proceeds from issuance of long-term debt 81,551 121,478
Shares repurchases (33,977) ---
Dividends paid to shareholders (2,702) (2,784)
Proceeds from exercise of stock options 823 3,446
------------- -------------
Net cash flow provided by financing activities $ 46,115 117,628
------------- -------------
Net increase (decrease) in cash and
cash equivalents (10,852) 8,132
Cash and cash equivalents
at beginning of period 16,204 4,230
------------- -------------
Cash and cash equivalents at end of period $ 5,352 12,362
------------- -------------
Supplemental disclosures of cash flow information:
Interest paid $ 21,697 19,613
Income taxes paid $ 3,853 10,753
Supplemental schedule of non-cash
investing activities:
Fair value of assets acquired $ 1,672 148,857
Cash paid for the assets 568 94,751
------------- -------------
Liabilities assumed $ 1,104 54,106
------------- -------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE A - BASIS OF PRESENTATION
The Company's Condensed Consolidated Financial Statements as of
March 31, 1999, and for the three and nine months ended March 31,
1999 and 1998, have not been audited by the Company's independent
auditors; however, in the opinion of management, the accompanying
unaudited Condensed Consolidated Financial Statements contain all
adjustments (consisting of only normal recurring accruals) necessary to
present fairly the consolidated financial position of the Company and
subsidiaries as of March 31, 1999 and the results of their operations and
their cash flows for the periods presented.
Where necessary, prior years' information has been reclassified to
conform to the current year consolidated financial statement
presentation.
These financial statements should be read in conjunction with the
consolidated financial statements and related notes thereto included in
the Company's Annual Report on Form 10-K for the year ended June
30, 1998.
The results of operations for the nine months ended March 31, 1999, are
not necessarily indicative of the results to be expected for the full year.
NOTE B - COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income, was adopted as of July 1, 1998. This
Statement requires reporting of changes in shareholders' equity that do
not result directly from transactions with share owners. Comprehensive
income and its components for the three and nine months ended
March 31, 1999 and 1998 are presented below.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
(Dollars in thousands) 1999 1998 1999 1998
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net income (loss) $ 12,817 15,053 (9,254) 35,929
Foreign currency
translation adjustments (12,038) (1,536) (4,521) (6,071)
------------ ------------ ------------ ------------
Total comprehensive income (loss) $ 779 13,517 (13,775) 29,858
------------ ------------ ------------ ------------
</TABLE>
6
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE C - EARNINGS PER SHARE INFORMATION
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
-------------------------- --------------------------
Basic Diluted Basic Diluted
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 12,817 12,817 15,053 15,053
------------ ----------- ----------- -----------
Weighted average shares of Harman
common stock outstanding 17,704 17,704 18,619 18,619
Employee stock options -- 153 -- 228
------------ ----------- ----------- -----------
Total average equivalent shares 17,704 17,857 18,619 18,847
------------ ----------- ----------- -----------
Earnings (loss) per share $ 0.72 0.72 0.81 0.80
------------ ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended March 31,
1999 1998
-------------------------- --------------------------
Basic Diluted Basic Diluted
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income (loss) before
extraordinary item $ (9,254) (9,254) 39,512 39,512
Extraordinary item, net of taxes -- -- (3,583) (3,583)
------------ ----------- ----------- -----------
Net income (loss) $ (9,254) (9,254) 35,929 35,929
------------ ----------- ----------- -----------
Weighted average shares of Harman
common stock outstanding 17,954 17,954 18,556 18,556
Employee stock options -- -- -- 294
------------ ----------- ----------- -----------
Total average equivalent shares 17,954 17,954 18,556 18,850
------------ ----------- ----------- -----------
Earnings (loss) per share before
extraordinary item $ (0.52) (0.52) 2.13 2.10
Extraordinary item, net of taxes -- -- (0.19) (0.19)
------------ ----------- ----------- -----------
Earnings (loss) per share $ (0.52) (0.52) 1.94 1.91
------------ ----------- ----------- -----------
</TABLE>
Employee stock options have been excluded from the net loss per share
calculation for the nine months ended March 31, 1999, because their
effect would be anti-dilutive.
7
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE D - SPECIAL CHARGES
During the second quarter of fiscal 1999, the Company completed
planning and began implementation of a restructuring program designed
to improve the profitability of the consumer 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 Company
closed its El Paso manufacturing facility, closed four other facilities
located in California, Japan, Brazil and France, and eliminated jobs at
facilities in Switzerland, the United Kingdom, California, New York
and Massachusetts. Approximately 450 full-time positions 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 pre-tax 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
March 31, 1999, cash payments charged against the provision totaled
$5.3 million, including $3.1 million of severance payments and $2.2
million of outlays associated with facility closures. Annual savings
resulting from these initiatives are projected to be $24 million, of which
$16 million are cash savings and $8 million are non-cash savings.
Charges totaling $17.0 million were recorded for plant shut-down and
severance activities. Severance costs totaled $5.5 million. Property,
plant and equipment write-downs for closed facilities totaled $5.4
million. The majority of the El Paso factory equipment has been placed
in service at other Company facilities. The remaining equipment has
either been scrapped or sold at auction. The property, plant and
equipment at other closed facilities, primarily consisting of leasehold
improvements, furniture and office equipment, has been scrapped and
written off.
8
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE D - SPECIAL CHARGES (continued)
Other exit costs accrued ($6.1 million) included lease termination costs
and other expenses at closed facilities through the shut-down period.
Charges totaling $20.0 million were recorded for asset impairments.
These charges included approximately $10 million for the scrapping and
write-off of tooling and other fixed assets associated with discontinued
product lines and $5 million for intangible asset write-offs.
Charges associated with inventories totaling $24.3 million were
recorded as cost of sales. These charges resulted from the reduction in
carrying value of consumer and professional inventories of product lines
that the Company has discontinued. The fair value of discontinued
product line inventories was determined for each product line by
Company sales personnel based upon their knowledge of current market
conditions. Charges totaling $5.1 million were recorded as selling,
general and administrative expenses to write off marketing assets, such
as point-of-sale displays, associated with product lines and distributors
that the Company has discontinued, and to accrue for other costs
associated with discontinued product lines.
Asset write-offs and other costs charged to the reserves through March
31, 1999 totaled $40.2 million, as shown below:
<TABLE>
<CAPTION>
Original Charges Remaining
Provision to reserves Balance
------------ ----------- -----------
<S> <C> <C> <C>
Plant closures and severance $ 17.0 10.0 7.0
Asset impairment 20.0 18.5 1.5
Inventories 24.3 6.6 17.7
Other 5.1 5.1 0.0
------------ ----------- -----------
Total $ 66.4 40.2 26.2
------------ ----------- -----------
</TABLE>
9
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
- ---------------------
COMPARISON OF THE THREE AND NINE MONTH PERIODS ENDED
MARCH 31, 1999 AND 1998
Net sales for the third quarter ended March 31, 1999 were $374.9
million. Sales in the third quarter last year totaled $391.9 million. For
the nine months ended March 31, 1999, sales were $1.078 billion. Sales
in the same period last year totaled $1.124 billion. Sales for the quarter
and the first nine months were negatively affected by the Asian crisis
and soft consumer audio markets.
Sales to the automakers increased approximately 8% over the prior year.
Becker reported higher sales to BMW and Porsche as well as increased
navigation system shipments. Higher audio system shipments for the
Dodge Durango, Jeep Grand Cherokee and Chrysler LH platforms also
contributed to the growth. Sales to personal computer manufacturers
increased due to new contracts with IBM and Dell. Sales to consumer
audio retailers and distributors were lower due to a destocking program
undertaken with our international distributors, generally soft consumer
audio market conditions and distributor transitions in the United States.
The destocking program is scheduled to continue into fiscal 2000.
Professional sales were higher due primarily to sales increases at JBL
Professional and AKG.
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. These actions resulted in pre-
tax charges totaling $66.4 million, as discussed in Note D to the
financial statements.
10
<PAGE>
The Company's restructuring program is proceeding as planned. The
El Paso, Sunnyvale, and Nagoya facilities have been closed and other
head count and cost reduction programs are near completion. Products
previously manufactured at the El Paso plant were discontinued or
transitioned to external suppliers. The North America consumer
business has completed its distribution changes.
The gross profit margin for the quarter ended March 31, 1999 of 28.0
percent ($105.0 million) approximated last year's 28.1 percent ($109.9
million). The gross profit margin for the first nine months of fiscal
1999 was 25.3 percent ($273.1 million) compared to 27.5 percent
($309.7 million) in the previous year. The decline is due to special
charges recorded in the second quarter to reduce the carrying value of
inventories of discontinued product lines totaling $24.3 million.
Excluding these special charges, the gross profit margin increased
slightly to 27.6 percent ($297.4 million) for the nine months ending
fiscal 1999.
Selling, general and administrative costs were 21.5 percent of sales
($80.6 million) for the three months ended March 31, 1999, compared
to 20.6 percent ($80.5 million) for the same period last year. For the
nine months ended March 31, 1999, selling, general and administrative
costs were 21.4 percent of sales ($230.7 million) compared to 20.6
percent ($231.9 million) for the same period last year.
In last year's third quarter, selling, general and administrative costs
were reduced by $3.6 million of income recorded on the sale of the
Company's German distribution operations. In this year's second
quarter, selling, general and administrative costs 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.
Excluding these items, selling, general and administrative costs declined
$3.5 million in the quarter and nearly $10.0 million for the nine months
due to savings resulting from restructuring programs.
Plant closing and severance costs of $17.0 million were 1.6 percent of
sales for the nine months ending March 31, 1999. Asset impairment
costs of $20.0 million were 1.9 percent of sales for the same period. The
plant closing and severance costs of $17.0 million resulted from the
closure of the El Paso, Texas, electronics plant, the closure of facilities
11
<PAGE>
in California, Japan, Brazil and France, and the elimination of jobs 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 of
$20.0 million resulted from the write-down of tooling, factory
equipment and other assets associated with discontinued product lines
and other write-downs of assets that will no longer provide economic
benefit to the Company.
Operating income as a percentage of sales was 6.5 percent ($24.4
million) for the quarter ended March 31, 1999, compared to 7.5 percent
($29.4 million) for the same period in the prior year. For the first nine
months, operating income as a percentage of sales was 0.5 percent ($5.3
million) compared to 6.9 percent ($77.8 million) in the prior year. The
operating income percentage decrease for the nine months ending fiscal
1999 is primarily due to the special charges totaling $66.4 million,
discussed previously. Excluding the special charges and the $3.6 million
gain recorded in the prior year, operating income for the nine months
ended March 31, 1999 was 6.7 percent of sales ($71.8 million),
compared to 6.6 percent ($74.2 million) in the same period last year,
resulting from the slight increase in gross profit margins and reduced
selling, general and administrative costs.
Interest expense for the three months ended March 31, 1999 of $6.7
million approximated last year's $6.7 million. For the nine months
ended March 31, 1999, interest expense was $18.7 million, compared to
$19.3 million last year. Average borrowings outstanding were $433.8
million for the third quarter of fiscal 1999 and $408.3 million for the
first nine months, up from $417.2 million and $387.9 million,
respectively, for the same periods in the prior year.
The weighted average interest rate on borrowings was 6.2 percent for
the third quarter and 6.1 percent for the nine months ended March 31,
1999. The average interest rates for the comparable periods in the prior
year were 6.4 percent and 6.7 percent, respectively. The decrease in the
average interest rates was due to the August 1, 1997, early retirement of
$64 million of 12.0% notes, funded with 10-year notes bearing interest
at 7.32%, and the December 1, 1998 retirement of $45 million of 11.2%
notes, funded with revolving credit facility borrowings.
Income before income taxes for the third quarter of fiscal 1999 was
$18.1 million, compared to income of $21.8 million in the prior year.
12
<PAGE>
For the nine months ended March 31, 1999, loss before income taxes
and extraordinary item was $13.9 million, compared with income of
$57.3 million last year.
The effective tax rate for the third quarter of fiscal 1999 was
29.0 percent compared with 31.0 percent in the same period a year ago.
The effective tax rate for the first nine months of fiscal 1999 was 33.6
percent compared with 31.0 percent last year. The effective tax rates
were below the U.S. statutory rate due to utilization of tax credits,
realization of certain tax benefits for United States exports and the
utilization of tax loss carryforwards at certain foreign subsidiaries.
The Company calculates its effective tax rate based upon its current
estimate of annual results.
Net income for the three months ended March 31, 1999 was $12.8
million, compared to income of $15.1 million reported for the same
period last year. Net loss for the nine months ended March 31, 1999
was $9.3 million, compared to income of $39.5 million, $35.9 million
after an extraordinary charge for the early retirement of debt, in the prior
year.
Basic and diluted earnings per share for the three months ended March
31, 1999 were $.72. In the third quarter last year, basic earnings per
share were $.81, and diluted earnings per share were $.80.
Basic and diluted loss per share for the first nine months ended March
31, 1999 were $.52. For the same period last year, basic earnings per
share before the extraordinary charge were $2.13 and diluted earnings
per share were $2.10. After the extraordinary charge, basic earnings per
share were $1.94 and diluted earnings per share were $1.91.
FINANCIAL CONDITION
- -------------------
Net working capital at March 31, 1999 was $457.5 million, compared
with $367.9 million at June 30, 1998. The working capital increase was
primarily due to lower accounts payable and accrued liabilities, the $45
million December 1, 1998 debt retirement discussed previously and
higher other current assets. Accrued liabilities decreased due to the
reduction of income taxes payable associated with the $66.4 million
pre-tax charge recorded in the current year and the timing of interest and
other payments. Other current assets increased due to higher notes
receivable balances.
13
<PAGE>
The Company initiated a common stock repurchase program in July
1998. Through March 31, 1999, the company acquired and placed
in treasury 965,400 shares of its common stock at a total cost of $34.0
million.
Borrowings under the revolving credit facility at March 31, 1999 were
$141.3 million, comprised of swing line borrowings of $6.3 million,
which were included in notes payable, and competitive advance
borrowings and revolving credit borrowings of $135.0 million.
Borrowings under the revolving credit facility at June 30, 1998 were
$8.4 million, comprised of swing line borrowings of $1.8 million and
competitive advance borrowings and revolving credit borrowings of
$6.6 million. Borrowings under the revolving credit facility increased
primarily due to higher working capital requirements, the December 1,
1998 repayment of the $45 million of 11.2% notes, and the common
stock repurchases totaling $34.0 million.
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. The Company and its subsidiaries have substantially
completed inventory and assessment in all areas, and are in varying
stages of remediation, testing and contingency planning.
Hardware/Software: As of March 31, 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 testing, and remediation actions, where
necessary, are in varying stages of completion. Total Year 2000
compliance costs for computer hardware and software are projected to
be $2.6 million, much of which has already been incurred. The target
date for completion of all computer hardware and software applications
Year 2000 compliance efforts is June 1999.
14
<PAGE>
Communications: As of March 31, 1999, the Company and its
subsidiaries have completed inventory and assessment of
communications equipment and software. Testing is substantially
complete, and remediation actions, where necessary, are also
substantially complete. Total Year 2000 compliance costs for
communications equipment and software is not material. The target
date for completion of all communications equipment and software Year
2000 compliance efforts is June 1999.
Facilities: As of March 31, 1999, the Company and its subsidiaries
have substantially completed inventory and assessment, testing and
remediation of facilities infrastructure. Total Year 2000 compliance
costs for facilities infrastructure is not material. The target date for
completion of all facilities infrastructure Year 2000 compliance efforts
is June 1999.
Operating / Manufacturing Equipment: As of March 31, 1999, the
Company and its subsidiaries have substantially completed inventory
and assessment of operating and manufacturing equipment. Testing and
remediation is substantially complete at most major facilities. Total
Year 2000 compliance costs for operating and manufacturing equipment
is not material. The target date for completion of all operating and
manufacturing equipment Year 2000 compliance efforts is June 1999.
Suppliers: As of March 31, 1999, the Company and its subsidiaries
have substantially completed issuance of Year 2000 compliance surveys
to important suppliers. Evaluation of survey results is in varying stages
of completion. The target date for completion of all supplier survey
evaluations is June 1999. As these evaluations are completed,
contingency planning processes, including qualification of alternate
sources, will be undertaken as appropriate. Certain subsidiaries of the
Company have already completed alternate source selection and
qualification.
Customers: As of March 31, 1999, the Company and its subsidiaries
have substantially completed issuance of Year 2000 compliance surveys
to customers. The Company is participating in Year 2000 compliance
programs with its major automotive customers, such as
DaimlerChrysler, Toyota and BMW, including both scheduled and
surprise audits. The target date for completion of all customer survey
evaluations is June 1999. As these evaluations are completed,
contingency planning processes will be considered as appropriate.
15
<PAGE>
The failure by the Company and its subsidiaries or its suppliers or its
customers to correct a Year 2000 problem could interrupt normal
business activities. Management believes that its plans provide
reasonable assurance that the Company's primary computer systems,
manufacturing processes and distribution processes will not be
materially impacted by a Year 2000 problem. The Company cannot
provide assurance that all principal customers and suppliers will
successfully complete Year 2000 compliance plans in a timely manner.
However, management believes that its plans should reduce the risk of
business interruptions due to supplier or customer difficulties.
Except for historical information contained herein, the matters discussed are
forward-looking statements which involve risks and uncertainties that could
cause actual results to differ materially from those suggested in the forward-
looking statements, including, but not limited to, the effect of economic
conditions, product demand, currency exchange rates, competitive products
and other risks detailed in the Company's other Securities and Exchange
Commission filings. In addition to the foregoing, the Company's ability to
realize the anticipated benefits resulting from the restructuring program
involves risks and uncertainties, including, but not limited to, market
conditions, the timing and effectiveness of the product line and distributor
repositioning, and effective and efficient execution by the external suppliers
of products formerly manufactured in the El Paso, Texas, facility. The
Company's ability to avoid interruptions due to Year 2000 problems involves
risks and uncertainties, including, but not limited to, suppliers', customers'
and the Company and its subsidiaries' ability to complete remediation which
could be affected by factors such as delays and increased costs.
16
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are various legal proceedings pending against the
registrant and its subsidiaries, but, in the opinion of
management, liabilities, if any, arising from such claims will
not have a materially adverse effect upon the consolidated
financial condition of the registrant.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
None.
(b) Reports on Form 8-K
None.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
(Registrant)
DATE: May 14, 1999 BY: /s/ Bernard A. Girod
--------------------------
Bernard A. Girod
Chief Executive Officer
DATE: May 14, 1999 BY: /s/ Frank Meredith
--------------------------
Frank Meredith
Vice President of Finance
and Administration, Chief
Financial Officer and
Secretary
18
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