-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QuOBq1Ycer4n03gTjv54YJpTlH+0HN9X98dXd08ybksL9c/SCFgZcfAY93czlSJf EzGF7JNVg2t9XXX1HLFGUQ== 0000800459-99-000002.txt : 19990217 0000800459-99-000002.hdr.sgml : 19990217 ACCESSION NUMBER: 0000800459-99-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARMAN INTERNATIONAL INDUSTRIES INC /DE/ CENTRAL INDEX KEY: 0000800459 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD AUDIO & VIDEO EQUIPMENT [3651] IRS NUMBER: 112534306 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09764 FILM NUMBER: 99540031 BUSINESS ADDRESS: STREET 1: 1101 PENNSYLVANIA AVENUE N W STREET 2: STE 1010 CITY: WASHINGTON STATE: DC ZIP: 20004 BUSINESS PHONE: 2023931101 MAIL ADDRESS: STREET 1: 1101 PENNSYLVANIA AVENUE NW STREET 2: SUITE 1010 CITY: WASHINGTON STATE: DC ZIP: 20004 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended: December 31, 1998 Commission File Number: 1-9764 HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED ----------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 11-2534306 - --------------------------------- ---------------------------------- (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 1101 PENNSYLVANIA AVENUE, NW WASHINGTON, D.C. 20004 ----------------------------------------------------- (Address of principal executive offices) (Zip code) (202) 393-1101 ---------------------------------------------------- (Registrant's telephone number, including area code) NOT APPLICABLE ----------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------- ------- Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. 17,703,690 shares of Common Stock, $.01 par value, at January 31, 1999. HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION PAGE NO. Item 1. Financial Statements Condensed Consolidated Balance Sheets - December 31, 1998 and June 30, 1998 3 Condensed Consolidated Statements of Operations - Three and six months ended December 31, 1998 and 1997 4 Condensed Consolidated Statements of Cash Flows - Six months ended December 31, 1998 and 1997 5 Notes to Condensed Consolidated Financial Statements 6-9 Item 2. Management's Discussion and Analysis of the Results of Operations and Financial Condition 10-15 PART II. OTHER INFORMATION 16-17 SIGNATURES 18 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND JUNE 30, 1998 (000s omitted except per share amounts)
ASSETS 12/31/98 06/30/98 ----------- ----------- Current assets Cash and cash equivalents $ 7,746 16,204 Receivables (less allowance for doubtful accounts of $12,091 at December 31, 1998 and $10,072 at June 30, 1998) 302,710 299,881 Inventories 332,136 307,189 Other current assets 76,827 71,929 ----------- ----------- Total current assets 719,419 695,203 ----------- ----------- Property, plant and equipment, net 245,142 248,368 Excess of cost over fair value of assets acquired, net 165,499 161,712 Other assets 24,404 25,401 ----------- ----------- Total assets $1,154,464 1,130,684 ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term borrowings $ 19,840 18,333 Current portion of long-term debt 12,552 55,698 Accounts payable 92,547 113,367 Accrued liabilities 124,481 139,890 ----------- ----------- Total current liabilities 249,420 327,288 ----------- ----------- Borrowings under revolving credit facility 151,353 6,554 Senior long-term debt 258,708 253,055 Other non-current liabilities 31,917 31,253 Minority interest 690 635 Shareholders' equity Common stock, $.01 par value 177 186 Additional paid-in capital 288,971 288,336 Other comprehensive income (loss) (13,961) (21,478) Retained earnings 220,967 244,855 Less common stock held in treasury (33,778) -- ----------- ----------- Total shareholders' equity 462,376 511,899 ----------- ----------- Total liabilities and shareholders' equity $1,154,464 1,130,684 ----------- -----------
See accompanying Notes to Condensed Consolidated Financial Statements. 3 HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997 (000s omitted except per share amounts)
Three Months Ended Six Months Ended December 31, December 31, 1998 1997 1998 1997 ----------- ----------- ------------ ------------ Net sales $ 387,518 402,964 703,414 732,233 Cost of sales 303,071 292,205 535,232 532,468 ----------- ----------- ------------ ------------ Gross profit 84,447 110,759 168,182 199,765 Selling, general and administrative 84,750 80,914 150,156 151,391 Plant closures and severance 17,010 -- 17,010 -- Asset impairment 20,054 -- 20,054 -- ----------- ----------- ------------ ------------ Operating income (loss) (37,367) 29,845 (19,038) 48,374 Other expense: Interest expense 6,054 6,351 11,987 12,623 Miscellaneous, net 872 385 962 304 ----------- ----------- ------------ ------------ Income (loss) before income taxes and extraordinary item (44,293) 23,109 (31,987) 35,447 Income tax expense (benefit) (13,731) 7,157 (9,916) 10,988 ----------- ----------- ------------ ------------ Income (loss) before extraordinary item (30,562) 15,952 (22,071) 24,459 ----------- ----------- ------------ ------------ Extraordinary item, net of income taxes -- -- -- ( 3,583) ----------- ----------- ------------ ------------ Net income (loss) $ (30,562) 15,952 $ (22,071) 20,876 ----------- ----------- ------------ ------------ Basic EPS before extraordinary item $ (1.73) 0.86 $ (1.22) 1.32 Extraordinary item -- -- -- (0.19) ----------- ----------- ------------ ------------ Basic earnings (loss) per share $ (1.73) 0.86 $ (1.22) 1.13 ----------- ----------- ------------ ------------ Diluted EPS before extraordinary item $ (1.73) 0.84 $ (1.22) 1.30 Extraordinary item -- -- -- (0.19) ----------- ----------- ------------ ------------ Diluted earnings (loss) per share $ (1.73) 0.84 $ (1.22) 1.11 ----------- ----------- ------------ ------------ Weighted average shares outstanding - basic 17,701 18,574 18,076 18,537 ----------- ----------- ------------ ------------ Weighted average shares outstanding - diluted 17,701 18,950 18,076 18,871 ----------- ----------- ------------ ------------
See accompanying Notes to Condensed Consolidated Financial Statements. 4 HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997 ($000s omitted)
1998 1997 ----------- ----------- Cash flows from operating activities: Net income (loss) $ (22,071) 20,876 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 29,907 25,994 Amortization of intangible assets 3,567 3,971 Special charges, net of cash paid 63,318 -- Changes in working capital, net of acquisition/ disposition effects: (Increase) decrease in: Receivables (4,821) 10,169 Inventories (48,379) (30,827) Other current assets (7,249) (12,178) Increase (decrease) in: Accounts payable (20,820) (15,136) Accrued liabilities (38,047) (2,327) ----------- ----------- Net cash provided by (used in) operating activities $ (44,595) 542 ----------- ----------- Cash flows from investing activities: Payment for purchase of companies, net of cash acquired $ -- (70,653) Net proceeds from disposition of assets -- 4,489 Capital expenditures (32,433) (34,189) Other items, net (5,274) (1,563) ----------- ----------- Net cash used in investing activities $ (37,707) (101,916) ----------- ----------- Cash flows from financing activities: Borrowings on (repayments of) lines of credit $ 1,507 (7,167) Net proceeds from issuance of long-term debt 107,306 127,075 Shares repurchases (33,778) -- Dividends paid to shareholders (1,817) (1,853) Proceeds from exercise of stock options 626 3,148 ----------- ----------- Net cash flow provided by financing activities $ 73,844 121,203 ----------- ----------- Net increase (decrease) in cash and cash equivalents ( 8,458) 19,829 Cash and cash equivalents at beginning of period 16,204 4,230 ----------- ----------- Cash and cash equivalents at end of period $ 7,746 24,059 ----------- ----------- Supplemental disclosures of cash flow information: Interest paid $ 13,336 11,518 Income taxes paid $ 3,712 6,192 Supplemental schedule of non-cash investing activities: Fair value of assets acquired $ -- 145,613 Cash paid for the assets -- 70,653 ----------- ----------- Liabilities assumed $ -- 74,960 ----------- -----------
See accompanying Notes to Condensed Consolidated Financial Statements. 5 HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements NOTE A - BASIS OF PRESENTATION The Company's Condensed Consolidated Financial Statements as of December 31, 1998, and for the three and six months ended December 31, 1998 and 1997, have not been audited by the Company's independent auditors; however, in the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the consolidated financial position of the Company and subsidiaries as of December 31, 1998 and the results of their operations and their cash flows for the periods presented. Where necessary, prior years' information has been reclassified to conform to the current year consolidated financial statement presentation. These financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 1998. The results of operations for the six months ended December 31, 1998, are not necessarily indicative of the results to be expected for the full year. NOTE B - COMPREHENSIVE INCOME Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income, was adopted as of July 1, 1998. This Statement requires reporting of changes in shareholders' equity that do not result directly from transactions with share owners. Comprehensive income and its components for the three and six months ended December 31, 1998 and 1997 are presented below.
Three Months Ended Six Months Ended December 31, December 31, (Dollars in thousands) 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Net income (loss) $ (30,562) 15,952 (22,071) 20,876 Foreign currency translation adjustments (1,392) (2,001) 7,517 ( 4,535) ----------- ----------- ----------- ----------- Total comprehensive income (loss) $ (31,954) 13,951 (14,554) 16,341 ----------- ----------- ----------- -----------
6 HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements NOTE C - EARNINGS PER SHARE INFORMATION
Three Months Ended December 31, 1998 1997 ----------------------- ------------------------ Basic Diluted Basic Diluted ---------- ---------- ---------- ---------- Net income (loss) $ (30,562) (30,562) 15,952 15,952 ---------- ---------- ---------- ---------- Shares of Harman common stock outstanding 17,701 17,701 18,574 18,574 Employee stock options -- -- -- 376 ---------- ---------- ---------- ---------- Total average equivalent shares 17,701 17,701 18,574 18,950 ---------- ---------- ---------- ---------- Earnings (loss) per share $ (1.73) (1.73) .86 .84 ---------- ---------- ---------- ----------
Six Months Ended December 31, 1998 1997 -------------------------- -------------------------- Basic Diluted Basic Diluted ----------- ------------ ---------- ------------ Income (loss) before extraordinary item $ (22,071) (22,071) 24,459 24,459 Extraordinary item, net of taxes -- -- (3,583) (3,583) ----------- ------------ ---------- ----------- Net income (loss) $ (22,071) (22,071) 20,876 20,876 ----------- ------------ ---------- ----------- Shares of Harman common stock outstanding 18,076 18,076 18,537 18,537 Employee stock options -- -- -- 334 ----------- ------------ ---------- ----------- Total average equivalent shares 18,076 18,076 18,537 18,871 ----------- ------------ ---------- ----------- Earnings (loss) per share before extraordinary item $ (1.22) (1.22) 1.32 1.30 Extraordinary item, net of taxes -- -- (.19) (.19) ----------- ------------ ---------- ----------- Earnings (loss) per share $ (1.22) (1.22) 1.13 1.11 ----------- ------------ ---------- -----------
Employee stock options have been excluded from the net loss per share calculation for the three and six months ended December 31, 1998, because their effect would be anti-dilutive. 7 HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements NOTE D - SPECIAL CHARGES During the second quarter of fiscal 1999, the Company completed planning and began implementation of a restructuring program designed to improve the profitability of the Consumer Group and other operations. As Company management completed its analysis and planning for the restructuring program, the following determinations were made: (1) a major re-alignment of the consumer audio dealer and distribution structure was required to strengthen the positioning of our various brands, (2) a significant number of marginally profitable product lines should be eliminated, and (3) significant overhead reductions were required due to product line eliminations and weakening consumer market conditions. As a result, during the quarter, the Company closed its El Paso manufacturing facility, closed four other facilities located in California, Japan, Brazil and France, and eliminated jobs at facilities in Switzerland, the United Kingdom, California, New York and Massachusetts. Approximately 450 full-time positions have been eliminated. The company discontinued certain product lines and reduced its dealer base. As a result, the Company wrote off certain assets that no longer provide economic benefit. These actions resulted in pre-tax charges totaling $66.4 million in the quarter. Of the $66.4 million in charges, total cash costs are projected to be $15.3 million and non-cash costs are projected to be $51.1 million. Through December 31, 1998, cash payments charged against the provision totaled $3.1 million, including $1.7 million of severance payments and $1.4 million of outlays associated with facility closures. Annual savings resulting from these initiatives are projected to be $24 million, of which $16 million are cash savings and $8 million are non- cash savings. Charges totaling $17.0 million were recorded for plant shut-down and severance activities. Severance costs totaled $5.5 million. Property, plant and equipment write-downs for closed facilities totaled $5.4 million. The majority of the El Paso factory equipment has been placed in service at other Company facilities. The remaining equipment has either been scrapped or is held for disposal at fair value less cost to sell. The property, plant and equipment at other closed facilities, primarily consisting of leasehold improvements, furniture and office equipment, 8 HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements NOTE D - SPECIAL CHARGES (continued) has been scrapped and written off. Other exit costs accrued ($6.1 million) included lease termination costs and other expenses at closed facilities through the shut-down period. Charges totaling $20.0 million were recorded for asset impairments. These charges included approximately $10 million for the scrapping and write-off of tooling and other fixed assets associated with discontinued product lines and $5 million for intangible asset write-offs. Charges associated with inventories totaling $24.3 million were recorded as cost of sales. These charges resulted from the reduction in carrying value of consumer and professional inventories of product lines that the Company has discontinued. The fair value of discontinued product line inventories was determined for each product line by Company sales personnel based upon their knowledge of current market conditions. Charges totaling $5.1 million were recorded as selling, general and administrative expenses to write off marketing assets, such as point-of-sale displays, associated with product lines and distributors that the Company has discontinued, and to accrue for other costs associated with discontinued product lines. The special charges totaling $66.4 million, net of $3.1 million in cash payments through December 31, 1998, affected the Company's balance sheet as follows: receivables were reduced by $2.0 million, inventories were reduced by $24.3 million; other current assets were reduced by $2.4 million; property, plant and equipment were reduced by $15.5 million; other assets were reduced by $1.7 million; and accruals were increased by $17.4 million. These programs were initiated in the second quarter, and the Company expects to complete much of the work by the end of the third quarter. 9 HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS - ------------------------------------ COMPARISON OF THE THREE AND SIX MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1997 Net sales for the second quarter ended December 31, 1998 were $387.5 million. Sales in the second quarter last year totaled $403.0 million. For the first half of the year, sales were $703.4 million. Sales in the same period last year totaled $732.2 million. Sales for the quarter and the first half were negatively affected by the Asian crisis, which began to impact the Company's sales in the second quarter of last year. Sales to the automakers increased over the prior year, primarily due to strong sales to Chrysler including systems for the new Jeep Grand Cherokee, Dodge Durango and the Chrysler LHS and 300M. Becker contributed to the growth with higher sales to BMW and Porsche. Sales to consumer audio retailers and distributors were lower due to declines in Asia, where sales for the first half were over 70% lower than last year, and a generally soft consumer electronics market worldwide. Sales in the professional audio market were lower due primarily to declines in Asia, where sales for the first half were over 40% lower than last year. AKG's continued sales growth partially offset that decline. During the second quarter of fiscal 1999, the Company completed planning and began implementation of a restructuring program designed to improve the profitability of the Consumer Group and other operations. As Company management completed its analysis and planning for the restructuring program, the following determinations were made: (1) a major re-alignment of the consumer audio dealer and distribution structure was required to strengthen the positioning of our various brands, (2) a significant number of marginally profitable product lines should be eliminated, and (3) significant overhead reductions were required due to product line eliminations and weakening consumer market conditions. As a result, during the quarter, the Company recorded pre-tax charges totaling $66.4 million, as discussed in Note D to the financial statements. 10 The gross profit margin for the quarter ended December 31, 1998 was 21.8 percent ($84.4 million) compared to 27.5 percent ($110.8 million) in the prior year. The gross profit margin for the first half of fiscal 1999 was 23.9 percent ($168.2 million) compared to 27.3 percent ($199.8 million) in the previous year. The decline in the gross profit margin for the quarter and the first half is due to special charges recorded in the second quarter to reduce the carrying value of inventories of discontinued product lines totaling $24.3 million. Excluding these special charges, the gross profit margin increased to 28.1 percent ($108.7 million) for the quarter and 27.4 percent ($192.4 million) for the first half. Higher margins at Harman Kardon and increased automotive OEM factory leverage contributed to the improvement in gross margins. Selling, general and administrative costs were 21.9 percent of sales ($84.8 million) for the three months ended December 31, 1998, compared to 20.1 percent ($80.9 million) for the same period last year. For the six months ended December 31, 1998, selling, general and administrative costs were 21.3 percent of sales ($150.2 million) compared to 20.7 percent ($151.4 million) for the same period last year. Selling, general and administrative costs for the three and six months ended December 31, 1998, included $5.1 million in special charges to write off marketing assets, including point-of-sale displays, associated with product lines and distributors which the Company has determined to discontinue and to record other costs associated with discontinued product lines. Excluding the special charges, selling, general and administrative costs were 20.6 percent of sales ($79.7 million) for the second quarter and 20.6 percent ($145.0 million) for the first half, approximating prior year levels. Plant closing and severance costs of $17.0 million were 4.4 percent and 2.4 percent of sales for the quarter and the first half, respectively. Asset impairment costs of $20.0 million were 5.2 percent and 2.9 percent of sales for the quarter and the first half, respectively. The plant closing and severance costs of $17.0 million resulted from the closure of the El Paso, Texas, electronics plant, the closure of facilities in California, Japan, Brazil and France, and the elimination of jobs in Switzerland, the United Kingdom, Massachusetts, California and New York. When the program is complete, the facility closures and the elimination of approximately 450 full-time jobs are projected to result in annual savings of $20 million, of which $16 million is cash savings. The asset impairment charge of $20.0 million resulted from the write-down of tooling, factory equipment and other assets associated with discontinued product lines and other write-downs of assets that will no longer provide economic benefit to the Company. 11 Operating loss as a percentage of sales was 9.6 percent ($37.4 million) for the quarter ended December 31, 1998, and 2.7 percent ($19.0 million) for the first half. Last year, operating income as a percent of sales was 7.4 percent ($29.8 million) for the second quarter and 6.6 percent ($48.4 million) for the first half. The decreases in operating income for the quarter and the first half are due to the special charges totaling $66.4 million, discussed previously. Excluding the special charges of $66.4 million, operating income as a percent of sales for the three months ended December 31, 1998, was 7.5 percent ($29.0 million), compared to 7.4 percent ($29.8 million) in the same period last year. For the six months ending December 31, 1998, operating income excluding the special charges was 6.7 percent of sales ($47.4 million), compared to 6.6 percent ($48.4 million) in the same period last year. Operating income excluding the special charges as a percent of sales increased in both periods due to improved gross profit margins. Interest expense for the three months ended December 31, 1998 was $6.1 million compared to $6.4 million in the same quarter last year. For the six months ended December 31, 1998, interest expense was $12.0 million, down from $12.6 million last year. Average borrowings outstanding were $435.9 million for the second quarter of fiscal 1999 and $398.7 million for the first half, compared to $402.5 million and $375.4 million, respectively, for the same periods in the prior year. The weighted average interest rate on borrowings was 5.6 percent for the second quarter and 6.0 percent for the six months ended December 31, 1998. The average interest rates for the comparable periods in the prior year were 6.3 percent and 6.7 percent, respectively. The decrease in the weighted average interest rate was due to the August 1, 1997, early retirement of $64 million of 12.0% notes, funded with 10-year notes bearing interest at 7.32%, and the December 1, 1998 retirement of $45 million of 11.2% notes, funded with revolving credit facility borrowings at LIBOR plus 0.20%. Loss before income taxes and extraordinary item for the second quarter of fiscal 1999 was $44.3 million, compared to income of $23.1 million in the prior year. For the six months ended December 31, 1998, loss before income taxes and extraordinary item was $32.0 million, compared with income of $35.4 million last year. The effective tax rate for the three months and six months ended December 31, 1998, was 31.0 percent, equal to the rate reported for the same periods last year. The effective tax rates were below the U.S. statutory rate due to utilization of tax credits, realization of certain tax benefits for United States exports and the utilization of tax loss 12 carryforwards at certain foreign subsidiaries. The Company calculates its effective tax rate based upon its current estimate of annual results. Net loss for the three months ended December 31, 1998 was $30.6 million, compared to income of $16.0 million reported for the same period last year. Net loss for the six months ended December 31, 1998 was $22.1 million, compared to income of $24.5 million, $20.9 million after an extraordinary charge for the early retirement of debt, in the prior year. Basic and diluted loss per share for the three months ended December 31, 1998 were $1.73. In the second quarter last year, basic earnings per share were $.86, and diluted earnings per share were $.84. Basic and diluted loss per share for the six months ended December 31, 1998 were $1.22. For the first half last year, basic earnings per share before the extraordinary charge were $1.32 and diluted earnings per share were $1.30. After the extraordinary charge, basic earnings per share were $1.13 and diluted earnings per share were $1.11. FINANCIAL CONDITION - --------------------------------- Net working capital at December 31, 1998 was $470.0 million, compared with $367.9 million at June 30, 1998. The working capital increase was primarily due to higher inventory balances, lower accounts payable and accrued liabilities and the $45 million December 1, 1998 debt retirement discussed previously. Inventories increased due to lower than projected second quarter sales volumes in consumer markets and increases to meet higher next quarter sales volumes in the automotive and personal computer OEM businesses and at AKG. Accrued liabilities decreased due to the reduction of income taxes payable associated with the $66.4 million pre-tax charge recorded in the quarter ended December 31, 1998. The special charges totaling $66.4 million, net of $3.1 million in cash payments through December 31, 1998, affected the Company's balance sheet as follows: receivables were reduced by $2.0 million, inventories were reduced by $24.3 million; other current assets were reduced by $2.4 million; property, plant and equipment were reduced by $15.5 million; other assets were reduced by $1.7 million; and accruals were increased by $17.4 million. The Company initiated a common stock repurchase program in July 1998. Through December 31, 1998, the company acquired and placed 13 in treasury 960,400 shares of its common stock at a total cost of $33.8 million. The total authorization for the share repurchase program is 1.5 million shares. Borrowings under the revolving credit facility at December 31, 1998 were $157.5 million, comprised of swing line borrowings of $6.1 million, which were included in notes payable, and competitive advance borrowings and revolving credit borrowings of $151.4 million. Borrowings under the revolving credit facility at June 30, 1998 were $8.4 million, comprised of swing line borrowings of $1.8 million and competitive advance borrowings and revolving credit borrowings of $6.6 million. Borrowings under the revolving credit facility increased primarily due to higher working capital requirements, the December 1, 1998 repayment of the $45 million of 11.2% notes, and the common stock repurchases totaling $33.8 million. YEAR 2000 - --------------- The Company is evaluating and addressing risks associated with the Year 2000 problem. Potential risks associated with computer systems, embedded chips in machinery and equipment, suppliers and customers are being examined. The Company and its subsidiaries have substantially completed inventory and assessment, and are in varying stages of remediation and testing. As of December 31, 1998, the company and a majority of its subsidiaries have completed inventory and assessment of computer hardware, computer software and machinery and equipment using embedded chips. Three of the Company's 50 reporting units have not completed inventory and assessment, and they are now expected to complete these phases by March 31, 1999. The results of the completed inventories indicate that 77 percent of the hardware, software and embedded chips in use are currently Year 2000 compliant. The estimated remaining cost of replacement or upgrade for hardware, software and equipment identified as non-compliant is approximately $1.5 million. Some of these replacements and upgrades were included in fiscal 1999 capital budgets as routine infrastructure and productivity improvement expenditures. The target date for completion of all hardware, software and machinery and equipment Year 2000 compliance efforts is June 1999. Approximately 30 percent of the Company's subsidiaries have issued Year 2000 compliance surveys to their principal suppliers. These 14 subsidiaries have reported response rates between 20 percent and 100 percent, with varying degrees of compliance reported. The target date for issuance of all supplier surveys is March 1999, and completion of evaluation of the results is scheduled for June 1999. As these evaluations are completed, contingency planning processes will be considered as appropriate. Approximately 20 percent of the Company's subsidiaries have issued Year 2000 compliance surveys to their principal customers. The Company is participating in Year 2000 compliance programs with its major automotive customers, such as Daimler Chrysler, Toyota and BMW, including formal audits. The target date for issuance of all principal customer surveys is March 1999, and completion of evaluation of the results is scheduled for June 1999. As these evaluations are completed, contingency planning will be considered as appropriate. The failure by the Company and its subsidiaries or its suppliers or its customers to correct a Year 2000 problem could interrupt normal business activities. Management believes that its plans provide reasonable assurance that the Company's primary computer systems, manufacturing processes and distribution processes will not be materially impacted by a Year 2000 problem. The Company cannot provide assurance that all principal customers and suppliers will successfully complete Year 2000 compliance plans in a timely manner. However, management believes that its plans should reduce the risk of business interruptions due to supplier or customer difficulties. Except for historical information contained herein, the matters discussed are forward-looking statements which involve risks and uncertainties that could cause actual results to differ materially from those suggested in the forward- looking statements, including, but not limited to, the effect of economic conditions, product demand, currency exchange rates, competitive products and other risks detailed in the Company's other Securities and Exchange Commission filings. In addition to the foregoing, the Company's ability to realize the anticipated benefits resulting from the restructuring program involves risks and uncertainties, including, but not limited to, market conditions, the timing and effectiveness of the product line and distributor repositioning, and effective and efficient execution by the external suppliers of products formerly manufactured in the El Paso, Texas, facility. The Company's ability to avoid interruptions due to Year 2000 problems involves risks and uncertainties, including, but not limited to, suppliers', customers' and the Company and its subsidiaries' ability to complete remediation which could be affected by factors such as delays and increased costs. 15 HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1. Legal Proceedings There are various legal proceedings pending against the registrant and its subsidiaries, but, in the opinion of management, liabilities, if any, arising from such claims will not have a materially adverse effect upon the consolidated financial condition of the registrant. Item 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders (a) The date of the annual meeting of stockholders was November 10, 1998. (b) Mr. Bernard Girod was re-elected as a director of the Company with 16,036,425 affirmative votes and 77,789 votes withholding authority. Mr. Girod will serve a three- year term expiring at the 2001 Annual Meeting of Stockholders. Ms. Ann McLaughlin was re-elected as a director of the Company with 16,033,160 affirmative votes and 81,054 votes withholding authority. Ms. McLaughlin will serve a three-year term expiring at the 2001 Annual Meeting of Stockholders. Item 5. Other Information None. 16 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits required by Item 601 of Regulation S-K None. (b) Reports on Form 8-K Form 8-K, dated January 26, 1999, filed on January 27,1999, containing the following items: Item 5. Press release announcing second quarter and first half results, including special charges, and other information concerning these periods and future periods. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED (Registrant) DATE: February 16, 1998 BY: /s/ Bernard A. Girod ---------------------- Bernard A. Girod President, Chief Operating officer and Secretary DATE: February 16, 1998 BY: /s/ Frank Meredith ----------------------- Frank Meredith Vice President of Finance and Administration and Chief Financial Officer 18 EX-27 2 ART 5 FDS FOR 10-Q
5 1000 6-MOS JUN-30-1999 DEC-31-1998 7672 74 314801 12091 332136 719419 471913 226771 1154464 249420 410061 177 0 0 462199 1154464 703414 703414 387796 535232 0 2599 11987 (31987) (9916) (22071) 0 0 0 (22071) (1.22) (1.22)
-----END PRIVACY-ENHANCED MESSAGE-----