-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, gIpzKM2HsJ63ZerfiM0yirpktLU1VFEw1H6KXlarI3j3AM9PkVPIQmrZUBT1jiEN 7JgbSeEzm28L6T5PCaKRkw== 0000800459-94-000010.txt : 19940926 0000800459-94-000010.hdr.sgml : 19940926 ACCESSION NUMBER: 0000800459-94-000010 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940920 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARMAN INTERNATIONAL INDUSTRIES INC /DE/ CENTRAL INDEX KEY: 0000800459 STANDARD INDUSTRIAL CLASSIFICATION: 3651 IRS NUMBER: 112534306 STATE OF INCORPORATION: A1 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09764 FILM NUMBER: 94549617 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-K 1 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, 1994 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 Exchange, Inc. (Title of class) Securities registered pursuant to section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No The aggregate market value of the voting stock held by nonaffiliates of the Registrant as of August 31, 1994, was $374,289,168. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 15,079,067 shares of Common Stock, par value $.01 per share, as of August 31, 1994. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to Stockholders for the fiscal year ended June 30, 1994, are incorporated by reference in Part I, Item 1, and Part II, Items 5, 6, 7 and 8. Portions of the Registrant's definitive Proxy Statement relating to the 1994 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 THIS PAGE LEFT BLANK INTENTIONALLY TABLE OF CONTENTS PART I Page Item 1. Business............................................ 1 Item 2. Properties..........................................18 Item 3. Legal Proceedings...................................20 Item 4. Submission of Matters to a Vote of Security Holders.20 Executive Officers of the Registrant................20 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters........................22 Item 6. Selected Financial Data.............................22 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................22 Item 8. Consolidated Financial Statements and Supplementary Data.................................22 Item 9. Disagreements on Accounting and Financial Disclosure.........................................22 PART III Item 10. Directors and Executive Officers of the Registrant..23 Item 11. Executive Compensation..............................23 Item 12. Security Ownership of Certain Beneficial Owners and Management.........................................23 Item 13. Certain Relationships and Related Transactions......23 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................24 List of Financial Statements and Financial Statement Schedules......................27 Independent Auditors' Report........................33 Index to Exhibits...................................35 Page 1 of 145 THIS PAGE LEFT BLANK INTENTIONALLY 2 PART I ITEM 1. BUSINESS General Business Harman International Industries, Incorporated ("Harman" or the "Company"), a Delaware corporation formed in 1980, is a leader in the design, manufacture and marketing of high-quality, high-fidelity audio products for professional, consumer (both home and automotive aftermarket), and automotive original equipment manufacturer ("OEM") markets in the United States and overseas. The Company's professional market includes a wide range of professional uses, from sound reinforcement, broadcast and recording and musical instrument support to commercial and public installations. The consumer market for audio entertainment systems consists of home loudspeakers and electronic components and automotive aftermarket loudspeakers and amplifiers. The Automotive OEM market includes components sold directly to automobile manufacturers (on either a branded or generic basis). The Company's product offerings in the professional audio market include: JBL, Turbosound, Precision Devices, and Quested loudspeakers; and JBL, Soundcraft, Spirit, AKG, Studer, Studer Dyaxis, Allen & Heath Brenell, DOD, Digitech, BSS, Orban, dbx, Lexicon and UREI professional electronics. The Company's product offerings in the consumer audio market include: JBL, Infinity and Pyle loudspeakers; Harman Kardon electronic components; AudioAccess in-home, multi-source, multi-zone sound system controls; and Fosgate-Audionics home theater products. The Company's product offerings in the automotive OEM market are represented by premium loudspeaker systems designed and manufactured for factory installation by automobile manufacturers, including Chrysler, Ford and Mitsubishi, bearing the brand names Infinity, JBL and, beginning in fiscal 1995, Harman Kardon. For more than 40 years, products bearing the Company's brand names have been designed to appeal to high-fidelity users, both professionals and enthusiasts, who desire premium quality and performance. The respected, established brand names and breadth of the Company's professional product offerings allow Harman to provide turnkey systems solutions as well as unique products for special market niches to professional customers. The Company offers an impressive array of world-class professional products which enable performing artists to produce high-quality, high-fidelity sound, both on stage and in the studio. The Company has identified three major areas to serve within the professional audio market: sound reinforcement, musical instrument support and broadcast and recording. The growth of compact disc players, video cassette recorders, and stereo commercial television broadcasting has stimulated consumer demand for high- quality audio products and prompted the expansion of Harman's consumer product portfolio to include wireless loudspeakers, surround sound processors and home theater products. The Company has concentrated its efforts on the higher- quality, higher-priced segment of the consumer audio market. Harman believes, based on its knowledge of the industry, that it is among the largest and most experienced domestically-based manufacturers of high-quality professional audio products, and that it offers a broader range of these products than any other domestic manufacturer. In addition, the Company and its predecessors have been leaders and innovators in loudspeaker production and technology for more than 40 years, and the Company believes its JBL and Infinity loudspeaker lines are among the world's premier loudspeaker brands. The Company's manufacturing, distribution and marketing capabilities have been expanded to support the growing markets it serves. 1 3 The Company's strategic plan for the manufacture and marketing of high- quality brand name products involves three principal interrelated elements. First, manufacturing on a highly integrated basis; second, marketing aggressively both domestically and internationally; and third, achieving competitive productivity through a balance between automation and a highly motivated, skilled work force. Management believes that JBL, Infinity, Soundcraft, Studer, AKG and the other Company brand names are well-recognized worldwide for premium quality and performance. In order to better expand and capitalize upon this reputation, Harman has invested significant management and capital resources over the years in developing an international design, engineering, manufacturing and marketing capability, while emphasizing communication among these integrated functions in order to respond more effectively to customer needs and to assure product quality and manufacturing efficiency. In collaboration with the Chrysler Corporation ("Chrysler"), Ford Motor Company ("Ford") and Mitsubishi Motor Company ("Mitsubishi"), the Company designs and manufactures customized high-fidelity automotive audio systems for factory installation. Infinity sound systems are now available on most Chrysler models, including the Dodge Intrepid, Caravan, Stealth, Ram Van and the Dakota and T-300 pickup trucks, the Eagle Vision, the Plymouth Voyager and the Chrysler Concord, New Yorker, Town & Country and LHS models. The Jeep Grand Cherokee also offers an Infinity premium audio system. "Ford/JBL" brand name systems are installed in Lincoln's Continental, Town Car and Mark VIII and Ford's Windstar, Crown Victoria, Taurus and Explorer. Infinity systems are also offered on certain Mitsubishi models, including the 3000GT, Eclipse, Diamante and Galant. In fiscal 1995, Harman branded systems will be offered in the automobiles of new customers Saab, Jaguar and Range Rover. Also, in 1995 Harman will provide a premium system for the Toyota Avalon, and in 1996 the customer base will be expanded to include BMW. The Harman Kardon brand name will be offered for use in branded audio systems for automobiles in 1995. HISTORICAL DEVELOPMENT Since its formation in 1980, the Company has developed internally and through acquisitions the capacity to design, manufacture and market its products to compete worldwide in the most significant areas of the high-quality, high- fidelity audio markets. While the Company has existed in its current form since only 1980, its significant subsidiaries have been in business for substantially longer periods, some previously as part of the same enterprise and most under their current management. In 1953, Dr. Sidney Harman, Chairman and Chief Executive Officer of the Company, co-founded Harman Kardon to design, manufacture and market high-fidelity consumer electronic audio components. Harman Kardon was the first domestic manufacturer to produce and market a high-fidelity receiver (a combination of tuner, preamplifier and power amplifier in one chassis). In 1962, Harman Kardon was acquired by a predecessor of the Company (the "Predecessor"). The Predecessor expanded its participation in the high-fidelity field in 1969 by acquiring James B. Lansing Sound (JBL), a top U.S. manufacturer of high-quality loudspeakers. Founded in 1946, JBL was a driving force in the introduction of professional loudspeakers developed for the movie industry. (Amplifiers of the 1940's had limited power, therefore, transducers had to be efficient and loud for the audience to hear the movie, thus the term loudspeaker.) JBL also extended its offerings to provide its technological legacy to consumers by producing high- quality loudspeakers for consumers who were accustomed to JBL's professional quality. 2 4 The Predecessor also formed international subsidiaries to market and distribute its audio products in Europe and Japan, where JBL and Harman Kardon were, and continue to be, top brand names. In August 1977, the Predecessor was acquired by Beatrice Foods Co. (now Beatrice Companies, Inc. ("Beatrice"), when Dr. Harman became the Under Secretary of Commerce of the United States. In January 1980, at the conclusion of his service as Under Secretary of Commerce, Dr. Harman organized the Company to re- acquire from Beatrice the JBL loudspeaker business and the international distributing companies, which together represented approximately 60% of the Predecessor's business. Harman Kardon and other parts of the business had been sold by Beatrice in the intervening years. Since 1980, the Company has grown steadily by internal expansion and a series of strategic acquisitions. Harman's growth has been fueled by a focus on three areas of the audio industry: (1) professional audio, providing a complete range of audio products offered to the broadcast, recording, sound reinforcement and music instrument markets; (2) consumer audio, broadening its range of product offerings from the traditional base of loudspeakers and electronic components to include wireless loudspeakers, surround sound processors and home theater products and broadening its customer base to include large retailers in the U.S. such as Circuit City and Best Buy; and (3) automotive/OEM audio, offering branded audio systems for installation as original equipment in automobiles and broadening its base of customers to include Chrysler, Ford, Jeep and Mitsubishi and by adding Saab, Range Rover, Jaguar and Toyota for 1995 and BMW for 1996. The JBL professional loudspeaker business provided the foundation for the development of the Company's professional audio business, which has been realized through a series of strategic acquisitions. In 1983, the Company acquired the UREI professional amplifier business to expand its presence in the professional audio electronics arena. In April 1988, the Company acquired Soundcraft, a U.K. manufacturer of professional mixing boards, as a logical progression of the exclusive U.S. distribution of Soundcraft products by JBL Professional. In March 1990, the Company acquired DOD to bring the Professional Group into the musical instrument/effects market. The digital electronics expertise of DOD and Soundcraft engineers have also contributed significantly to the Company. In September 1991, the Company acquired Allen & Heath Brennell, Limited, and its subsidiaries, a U.K. producer of professional mixing boards. In April 1993, Harman acquired Lexicon, a U.S. manufacturer of professional digital audio signal processing equipment and disk-based audio production systems, further augmenting the Company's digital audio product offerings. Austrian microphone manufacturer AKG was acquired in September 1993, providing the Company the ability to offer complete system solutions for the sound reinforcement market. The AKG product line also includes audio headphones, audio signal processing devices, professional loudspeakers and other professional audio products. Effective January 1994 the Company acquired Studer, a Swiss manufacturer of professional recording and broadcast equipment, expanding the Company's presence in these key segments of the professional audio market. As a result of the acquisition and development of these professional audio companies and the renowned brand names which they offer, management believes that Harman is now the world leader in the professional audio market. The Company's consumer business has been built around the markets served by JBL, Infinity and Harman Kardon. The Infinity consumer loudspeaker business was acquired in 1983, adding another true high-end speaker brand to the Company's product offerings. The Harman Kardon consumer electronics business was acquired from Shin Shirasuna in 1985, which had purchased Harman Kardon from Beatrice. The addition of the renowned Harman Kardon brand name served to further strengthen the Company's consumer product portfolio. Also in 1985, the Company acquired Pyle Industries to expand its presence in the automotive aftermarket loudspeaker business. The Company acquired the Epicure Products, Inc. ("EPI") 3 5 loudspeaker business in October 1986. The Company expanded its electronic audio components business and entered the home theater market through its acquisition of Fosgate, Inc. ("Fosgate-Audionics" or "Fosgate") in January 1991. The Company's consumer electronics presence was expanded further through the fiscal 1994 acquisition of AudioAccess, a manufacturer of home audio/video system control devices. In June 1981, the Company entered the automotive OEM market for loudspeakers through the acquisition of the Essex Loudspeaker Division of United Technologies, which was renamed Harman Motive, U.S. The Company strengthened its position in the European automotive OEM loudspeaker market through the acquisition of Harman Motive, Ltd. (formerly ELAC), a U.K. automotive OEM loudspeaker manufacturer, in December 1989. The Company has derived value from its strategic entry into the automotive OEM market by optimizing engineering, design and manufacturing processes and by leveraging the market strength of its brand names, such as Infinity and JBL. The loudspeaker manufacturing capabilities of the Company have been strategically expanded to include European operations. In November 1987, the Company acquired the assets of Audax, a French transducer manufacturer, and in April 1988, the Company completed its purchase of Lydig of Scandinavia A/S ("Lydig"), a loudspeaker cabinet manufacturer. Lydig manufactures speaker cabinets for JBL and Infinity which are fitted with transducers manufactured by Audax and sold in European markets. The Company's international distributing operations include operating units in Germany, France, Japan, the U.K. and Belgium. In fiscal 1994, the Company established the Harman Marketing Units ("HMU's") located in Hong Kong, Denmark, Japan, Singapore and the U.S. to support and protect the Harman brand names worldwide. These organizations maintain close contact with their markets, interpret user needs and facilitate product discussion between distributors and the Professional and Consumer Group companies. BUSINESS STRATEGY Harman is a leading manufacturer and marketer of high-fidelity audio products. The Company's goal is to capitalize on its technical expertise and reputation for superior sound and translate this expertise into increased market share in existing markets and into new product areas wherever an in-depth understanding of sound gives Harman a competitive edge. The key elements of its strategy are: Superior Sound. Harman strives to provide its customers with products that deliver high-quality, high-fidelity sound. The Company and its predecessors have been leaders and innovators in loudspeaker production and technology for more than 40 years. Brand Equity. The Company's brand names are well- recognized worldwide for premium quality and performance. Harman believes that this strong brand name recognition will enable it to expand its product offerings and market share in the professional, consumer and automotive OEM markets. Market Expansion. The Company's growth strategy has emphasized utilization of its strengths in delivering professional quality sound in the consumer and automotive OEM markets. The Company moved into the microphone and headphone market with the acquisition of AKG and moved more broadly into the broadcast and recording arenas with the acquisition of 4 6 Studer. Harman has expanded its consumer product offerings to include home theater, surround sound and wireless speaker technology. Harman has expanded its market for automotive OEM systems to Europe with the addition of Saab, Jaguar and Range Rover as customers for 1995 and BMW for 1996. New customer Toyota will also be added in 1995. Systems Solutions. The Company has emphasized the provision of professional systems solutions. The strategic acquisitions of AKG and Studer now enable Harman to provide complete systems solutions for sound reinforcement, broadcast and recording customers. Manufacturing. Harman believes that the Company's integrated manufacturing facilities are essential for the manufacture of innovative, high quality products at reasonable costs. The Company integrates the disciplines of marketing, design, engineering and manufacturing. By linking engineering to process development in the manufacturing facilities, the Company can develop manufacturing techniques that cannot be duplicated by most competitors. OPPORTUNITIES The Company's growth strategy is to continue to capitalize on its strong name brands and to provide internal support to each division within each group structure to maximize their resource utilization. Potential growth areas include: Increased Presence in Professional Markets. The Company is now offering complete systems solutions utilizing a number of Harman products to provide custom solutions for the broadcast, recording, sound reinforcement and music instrument markets. In many cases the Company provides one-stop shopping to professional customers. The Company's products including JBL, Soundcraft, Lexicon, Allen & Heath, DOD, UREI, Studer, AKG, BSS, Turbosound, dbx, Orban, Digitech and Audio Logic are among the most well-respected in the world. Operating Improvements at AKG and Studer. During fiscal 1994, the Company acquired AKG and Studer, primarily because of their strong brand names and excellent reputations for quality. The Company is in the process of updating the manufacturing facilities and engineering capabilities of AKG and Studer. In addition, the product offerings are being updated to include, among other developments, wireless microphones at AKG and additional digital products at Studer. Broadened Consumer Customer Base. The Company has broadened its range of products in the consumer loudspeaker area to accommodate both specialty audio retailers and large consumer electronics retailers such as Circuit City and Best Buy. In fiscal 1994, Infinity introduced two loudspeaker lines exclusively for sale to Circuit City. This program has been enormously successful. Broadened Base of Automotive OEM Customers. The Company is currently selling branded premium audio systems for factory installation in automobiles under the brand names Infinity and JBL to Chrysler, Ford, Jeep and Mitsubishi. New customers Saab, Jaguar, Toyota and Range Rover will be added in 1995 and BMW will be added in 1996. Significant is the addition of automobiles made in Europe as this expands the geographic base of customers. The Company will also begin offering systems under the Harman Kardon brand name in 1995, leveraging the market presence of another of the Company's brand names. 5 7 Worldwide Marketing Efforts. The Company has increased its marketing efforts to increase the public's awareness of the Company's brand names and to target "sell-through" rather than relying extensively on retailers to promote Harman products. In addition, the Company has increased its efforts in the training of retail sales people regarding Harman products. The Automotive OEM Group is also for the first time making the buying public aware of its ability to transform an automobile into a "concert hall on wheels" by promoting the Company's branded audio systems for automobiles. ORGANIZATION The Company is organized in three core groups and three functional support groups. The core groups are Professional, Consumer and Automotive OEM. The functional support groups are Manufacturing, Marketing and Distributing. The Professional Group contributed approximately 39% of fiscal 1994 total net sales, the Consumer Group accounted for approximately 38% of net sales, and the Automotive OEM Group generated approximately 23% of net sales. Financial Information about Geographic Segments Financial information about 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, 1994. Description of Business The Company's business is conducted through its wholly owned subsidiaries which include: Name Principal products AKG Acoustics GmbH Professional electronics Allen & Heath Brenell Limited Professional electronics Audax Industries, S.A. Consumer home, automotive and professional loudspeakers; automotive OEM loudspeakers DOD Electronics Corporation Professional electronics Fosgate, Inc. Consumer home electronics Harman Audio Outlet, Inc. Consumer home and automotive high- fidelity products Harman Belgium NV Consumer home, automotive and professional high-fidelity products Harman Deutschland GmbH Consumer home, automotive and professional high-fidelity products Harman France, S.A. Consumer home, automotive and professional high-fidelity products Harman International Industries, Consumer home, automotive and Limited professional high-fidelity products 6 8 Name Principal products Harman International Japan Consumer home, automotive and Co., Limited professional high-fidelity products Harman-Kardon, Incorporated Consumer home and automotive electronics Harman-Kardon Europa A/S Consumer home and automotive electronics Harman-Motive, Inc. (U.S.) Automotive OEM loudspeakers and electronics Harman-Motive, Ltd. (U.K.) Automotive OEM loudspeakers Infinity Systems, Inc. Consumer home and automotive loudspeakers and electronics JBL Incorporated Consumer and professional loudspeakers and electronics Lexicon, Incorporated Professional electronics Lydig of Scandinavia A/S Components, cabinets and loudspeaker systems Pyle Industries, Inc. Consumer automotive loudspeakers and electronics Soundcraft Electronics, Limited Professional electronics Studer Professional Audio AG Professional electronics Markets for Products Based on the Company's experience in, and knowledge of, the industry, the Company believes that the professional, consumer and automotive OEM markets, both domestic and international, have experienced significant growth in recent years. The growth of digital audio technology has changed the way music is recorded and reproduced and has led to the development of a new generation of professional and consumer audio products. The Company is well- positioned to meet the digital requirements of the professional market with the expertise of its professional companies, particularly Soundcraft, Studer, Lexicon and DOD. Harman is a leader in the design and production of premium, branded high-fidelity systems for automobile manufacturers. Consumers are placing increasing emphasis on the quality of the sound system in the automobile purchase process. The Company's Infinity, JBL, and, starting in 1995, Harman Kardon brand names have been successful in raising the standard for excellence in car audio. Products The Company designs, engineers, manufactures and markets worldwide a broad range of high-quality, high-fidelity audio loudspeakers and electronics for the professional (broadcast and recording, sound reinforcement, and musical instrument support), consumer (both home and automotive aftermarket), and automotive OEM markets. The Company also distributes a small amount of 7 9 complementary audio products manufactured by other companies. The Professional Group accounted for approximately 39% of the Company's fiscal 1994 sales. The Consumer Group contributed approximately 38% of fiscal 1994 sales, of which 82% was attributable to home loudspeaker and automotive aftermarket systems and 18% was from electronic components. The Automotive OEM Group generated approximately 23% of fiscal 1994 sales. Professional Products. The Company designs, manufactures and markets products in all significant segments of the professional market, offering complete systems solutions to professional installations and users around the world. The Professional Group includes many of the most respected names in the industry including JBL, Soundcraft, Allen & Heath, DOD, Lexicon, AKG, BSS, dbx, Orban, Turbosound, Studer and UREI. Professional installations of Harman products include stadiums, opera houses, concert halls, recording studios, broadcast studios, theaters, cinemas and touring performing artists. Sound systems incorporating components manufactured by JBL, UREI, Lexicon, AKG, Studer and Soundcraft are in use around the world in such places as Wolf Trap Farm Park for the Performing Arts and the Kennedy Center in Washington, D.C., Disney World and Epcot Center in Florida, the Great Hall of the People in Beijing, China, Tanglewood Music Shed in Massachusetts, Frankfurt Opera House in Germany, the Royal Danish Theater and Abbey Road Studio in England. Performing artists such as Neil Diamond, Bruce Springsteen, David Bowie, Madonna, Pink Floyd, Alabama, Michael Jackson, Elton John, Kenny Rogers, Billy Joel, U-2, The Rolling Stones and The Who use Harman professional equipment on tour. The professional market has advanced rapidly and is heavily involved in digital technology. Harman's Professional Group is a leader in this market. The strength of the Professional Group is derived from its ability to share research and development, engineering talent and other substantial digital resources among its divisions. Soundcraft, Lexicon, Studer and DOD each have substantial digital resources and work together to achieve common goals by blending the individual strengths and qualities of the operating units with the combined resources of the group. 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, musical instrument and sound reinforcement loudspeakers, bi-radial horns, theater systems and surround sound systems as well as industrial loudspeakers. The AKG acquisition has provided the Company with additional professional loudspeaker market strength through the addition of the Turbosound Floodlight and Flashlight loudspeaker lines and the Quested studio monitor models. 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, AKG, BSS, dbx, Orban, Studer, Audio Logic, and UREI, and are often sold in conjunction with the Company's professional loudspeakers. The Soundcraft line of high-quality sound mixing consoles extends from automated multi-track consoles for master recording studios to compact professional mixers for personal recording and home studios. Soundcraft 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. 8 10 The DOD product line is marketed under the DOD, Digitech and Audio Logic brand names, and is sold primarily to professional audio and musical instrument dealers. DOD products include signal processing equipment, equalizers, mixers and special effects devices. Performing artists who have used DOD products on tour include: Def Leppard, Damn Yankees, Skid Row, Frank Gambale, Steve Vai, George Lynch, Peter Gabriel, Marshall Tucker and Jennifer Batten (lead guitarist for Michael Jackson). Lexicon is a leader in the design, manufacture and marketing of high- quality digital audio signal processing equipment and disk-based audio production systems for professional use in the audio, video, musical entertainment and broadcasting markets worldwide. Lexicon's OPUS disk- based audio production systems are used in film and video post production studios. OPUS provides recording, non destructive editing, mixing and signal processing all in the digital domain. Broadcasters also use Lexicon products to edit, shape and synchronize their programming. Additionally, Lexicon designs, manufactures and markets a series of high-end consumer ambiance and Home Theater Surround Sound processors. AKG is one of the world's largest manufacturers of high-quality microphones. The AKG product line includes microphones, audio headphones and other professional audio products marketed under the AKG brand name. AKG also owns several companies that manufacture and market professional audio products, including: audio signal processing devices distributed worldwide under the brand names dbx and Orban; and amplifiers, loudspeakers and other professional audio products sold worldwide under the brand names BSS, Precision Devices, Quested and Turbosound. Studer Professional Audio has brought the Professional Group to a strong position in the high-end broadcast arena. Studer 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. Consumer Products. The Company designs, manufactures and markets loudspeakers principally under the JBL and Infinity brand names for the consumer market. Since its formation in 1948, JBL has designed loudspeakers to appeal to audio enthusiasts who desire superior-quality sound reproduction. JBL loudspeakers sold to the consumer market employ techniques originally developed by the Company for products used in recording studios, concert halls, theaters, airports and other acoustically demanding environments. JBL's diverse product line gives customers a wide range of speaker choices: floorstanding, bookshelf, built-in, wireless, transportable and wall of ceiling mountable loudspeakers, in styles and finishes ranging from high gloss piano lacquer to genuine wood veneers. JBL's recent introduction of wireless technology in the SoundEffects speaker system allows easy home theater and multi-room installation. From its beginning in 1968, Infinity has developed high quality loudspeakers with their own audio character, which is commonly identified as "linear," "symmetrical," or "neutral." These characteristics are expressed in sophisticated acoustic configurations utilizing injection-molded graphite speaker cone material, electro-magnetic induction tweeters and mid-range drivers. Epsilon, the latest addition to the Infinity Reference Standard line of high performance loudspeakers, features a proprietary planar monopole design which delivers wide, smooth power response with exceptional spaciousness and "air" while eliminating the drawbacks of planar dipole speaker systems. 9 11 The more expensive JBL and Infinity loudspeakers are housed in high- gloss lacquer or wooden veneer cabinets which complement the quality components they enclose. The Company has made significant investments in its loudspeaker cabinet production facilities at Harman Speaker Manufacturing in Northridge, California and at Lydig in Denmark and believes that they are among the most advanced cabinet production facilities in the world. Both JBL and Infinity also offer premium automotive aftermarket loudspeaker and amplifier products. The Company designs, manufactures and markets a broad range of consumer audio electronics products on a worldwide basis. The Company's consumer electronics products facilitate the marketing of complete systems incorporating the Company's loudspeakers, such as surround sound home theater installations. Founded in 1953, Harman Kardon has been a leading innovator in the development of high-quality audio components which improve the listening experience and reflect a commitment to value and ease-of-use. The realization of these principles is reflected in Harman Kardon's current product offerings, including audio-video stereo receivers, bit stream compact disc changers, "smart" tape decks and high fidelity all-in-one compact systems. Fosgate Audionics is a designer and manufacturer of high-end surround sound processors, amplifiers and loudspeakers for the growing U.S. and international home theater market. Fosgate Audionics provides solutions for all component and system needs for home theater and home audio. Fosgate offers home "THX" loudspeaker components and surround sound processor/"THX" controllers. Pyle Industries manufactures and markets aftermarket automotive speakers, amplifiers and electronics. In 1993, the Company acquired AudioAccess, which is a leader in the field of in-home, multi-source, multi-zone sound system controls. AudioAccess adds to the Consumer Group's ability to provide complete home theater solutions. Also in 1993, the Company acquired a minority interest in Madrigal, with an option on the remaining shares. Madrigal is the manufacturer of the legendary Mark Levinson amplifiers and Proceed brand high-fidelity product lines. Automotive OEM. Harman International believes it is the world's largest manufacturer of premium branded, automotive OEM audio systems. In fiscal 1994, sales of automotive OEM products accounted for approximately 23% of the Company's consolidated net sales. In its sale of loudspeakers and other audio products to the automotive OEM market, the Company takes advantage of its expertise in the design and manufacture of high-quality loudspeakers, as well as the reputation for quality associated with its JBL, Infinity and Harman Kardon brand names. In particular, the Company's expertise in designing and manufacturing transducers utilizing special materials allows the Company to collaborate with automobile manufacturers to design lighter audio sound systems, thereby contributing to increases in automobile fuel efficiency. The Company manufactures premium OEM sound systems for automobiles, including the Infinity audiophile systems sold to Chrysler and Mitsubishi and the JBL audiophile systems sold to Ford, as well as a limited amount of loudspeakers sold for installation as components of non-branded standard equipment sound systems. The Company's subsidiaries customize these automotive audio systems individually for each automobile model to maximize the acoustic performance for each model's interior. 10 12 Infinity has collaborated with Chrysler in developing customized automotive systems which are available as options under the "Chrysler/Infinity" brand name for Chrysler's Concord, New Yorker, Town & Country and LHS models; Dodge's Intrepid and Caravan models; Plymouth's Voyager model; and Eagle's Vision model. Infinity also offers customized brand name audio systems which are available as options for selected Mitsubishi models, including the Mitsubishi 3000GT, Diamante, Eclipse and Galant along with the Dodge Stealth, which is manufactured by Mitsubishi. Chrysler/Infinity systems are also offered in the Jeep Grand Cherokee and the Dodge Ram Van and Dakota and T300 pickup trucks. The Company expects that the majority of new models currently planned by Chrysler will include "Chrysler/Infinity" systems as customer options. JBL has created customized automotive audio systems utilizing various loudspeaker and amplifier configurations in collaboration with Ford. These systems are available as an option under the "Ford/JBL" brand name in Lincoln's Town Car, Continental and Mark VIII models; and Ford's Taurus, Windstar, Explorer and Crown Victoria models. The Company provides the total system, including all electronic components, other than the head unit (receiver/cassette deck/CD player) and subwoofer amplifiers, for selected models. In fiscal 1995, Harman branded systems will be offered in the automobiles of new customers Saab, Jaguar and Range Rover. Also, in 1995 Harman will provide a premium system for the all-new Toyota Avalon, and in 1996, the customer base will be expanded to include BMW. The Harman Kardon brand name will be offered for use in branded audio systems for automobiles in 1995. Strict security has been maintained with respect to the independent engineering development of the branded audio systems for each automotive customer in order to promote technical competition and to protect the proprietary interests of the automobile manufacturers. The Company's U.S. automotive OEM subsidiary (Harman Motive, U.S.) enjoys a Q-1 certified supplier rating from Ford and holds the Q-E certification from Chrysler. A Q-1 certification is awarded to suppliers that meet or exceed the rigorous requirements of the Q-1 quality evaluation process set by Ford. The Q-E certification from Chrysler recognizes superior supplier performance in the area of quality. Harman Motive was also awarded the U.S. Senate-sponsored Productivity Award. The Company's Harman Motive, Ltd. subsidiary in the United Kingdom, also a Q-1 supplier to Ford, is a specialized designer and manufacturer of loudspeakers and packaged assemblies for the automotive OEM industry in Europe. Each product is fully customized to meet the automobile manufacturer's specific mechanical and performance criteria. Harman Motive, Ltd. currently produces a variety of loudspeaker systems which are installed in such makes as Ford, Rover and Jaguar. In addition, the Company's Audax transducer manufacturer, located in France, currently manufactures and sells loudspeakers directly to automobile manufacturers in France for Peugeot, Citroen and Renault models. Harman's existing product lines continue to be augmented by the development of new products. During the past two years the following products were among the new products introduced: 1994: The Lexicon JamMan digital audio effects processor, the Soundcraft Delta Theater mixing console, the Orban 8282 TV Optimod digital television audio processor, the AKG WMS50 and WMS100 wireless microphones, the JBL C236A-S101 sound power controller, the Digitech Bass Whammy Pedal, the BSS Varicurve 11 13 remote console series, the Studer Numisys II digital audio workstation, the JBL Control 8SR/pt mini sound reinforcement system, the Turbosound Floodlight TCS612 loudspeaker system, the Lexicon Vortex digital audio effects processor, the Spirit Folio S1, 4 and RacPac portable mixers, the DOD Vintage 2 guitar processor, the JBL Control 1E Power Control 1 monitor, the dbx 242 Project 1 parametric equalizer, the AKG C535WLTM900 hand-held microphone, the Studer MultiDesk digital audio workstation, the JBL SC305 center channel loudspeaker, the Harman Kardon FL8400 front-loading carousel CD changer, the Infinity Epsilon planar monopole loudspeaker, the Pyle Driver automotive speakers, the Fosgate-Audionics Model 3A surround sound processor with amplifier, the JBL SFX Series mini surround sound loudspeaker systems, the Harman Kardon AVR15 audio/video receiver, the JBL SYN3 Synthesis Series home theater speaker system and the Infinity Reference Standard Car Audio Series automotive speakers. 1993: The JBL HT/THX Loudspeaker System, the JBL G Series loudspeakers, the JBL PS Series Powered Subwoofers, the Soundcraft Spirit Folio Portable Mixer, the JBL Array Series loudspeakers, the UREI Platform Series electronics, the M2020 Lexicon effects processor, the Pyle Multi-Element Automotive Speakers, the Soundcraft LM1 mixer, the Harman Video Series II/LD-1 Data Projector, the Concord IS5000 Surround Sound Processor, the Digitech (DOD) TR3 Multi-Effects Pedal, the Digitech (DOD) Grunge Distortion Pedal, the Fosgate-Audionics Model Four surround controller, the Fosgate-Audionics Model MC-110 speaker, the JBL Base Wave Amplifier, the Harman Kardon AVR30 audio/video receiver, the Harman Kardon HD7725 CD player, the Infinity Environmental Reference Standard Series loudspeakers (ERS), the Infinity KAPPA MKII loudspeaker series and the JBL Control Monitor Loudspeaker Series. Manufacturing The Company believes that its manufacturing capabilities are essential to maintaining and improving the quality and performance of its products. The success of the Company's conversion of its primary manufacturing facilities to a continuous flow manufacturing process has reduced product cycle times, increased flexibility and improved efficiency. The benefits of these improvements are reflected in higher product quality and lower purchase and overhead costs. The Company manufactures most of the products that it sells other than the Harman Kardon electronic components. The Company also produces some products for other loudspeaker companies on an OEM basis. Notable among the Company's manufacturing capabilities with respect to loudspeakers are the production of its own high-gloss lacquer and wooden veneer loudspeaker enclosures, the milling of its own wire, the winding of its own voice coils and the use of numerically controlled lathes and other machine tools to produce its many precision components. The Company's high degree of manufacturing integration, it believes, permits it to produce more consistently uniform high performance products. Moreover, the Company has been able to apply technology and materials developed for one line of products to other of its product lines. The Company uses common manufacturing facilities to achieve economies of scale, while maintaining competition among its subsidiaries in engineering, product development and marketing. 12 14 The Company's principal domestic manufacturing facility is located in Northridge, California where it manufactures JBL and Infinity loudspeakers, including cabinets, for professional, consumer and automotive aftermarket markets, amplifiers for the OEM and automotive aftermarket markets, and UREI electronics. The Company manufactures loudspeakers and assembles sound systems for the OEM automotive market in Martinsville, Indiana. Its Pyle subsidiary in Huntington, Indiana, manufactures loudspeakers for automotive aftermarket and OEM applications. DOD manufactures its products at its facility in Salt Lake City, Utah. Lexicon manufactures its products predominantly at its Waltham, Massachusetts facility. In addition to the Company's U.S. manufacturing capacity, the Company has established a strong international manufacturing presence to better respond to customer demands in world markets. AKG manufactures microphones and headphones in Austria, with additional manufacturing operations in India, and Studer manufactures professional recording and broadcast equipment in Switzerland. Audax, whose products include high-quality, high-performance tweeters, manufactures transducers in France, and the Company's Lydig subsidiary manufactures cabinet enclosures and assembles complete JBL and Infinity loudspeakers in Denmark for sale in European markets. Harman Motive, Ltd. manufactures automotive OEM loudspeakers and Soundcraft manufactures mixing boards at their respective facilities in the United Kingdom. Also manufactured in the United Kingdom are Turbosound loudspeakers and BSS professional amplifiers. The Company's international speaker and professional electronics manufacturing facilities enable the Company to compete more effectively in Europe. Marketing The Company's products are sold domestically and internationally in the professional, consumer, and automotive OEM markets. The Company's professional market includes a wide range of professional uses, from sound reinforcement, broadcast and recording and musical instrument support to commercial and public installations, which accounted for approximately 39% of the Company's consolidated net sales in fiscal 1994. The consumer market for audio products consists of home and automotive aftermarket products, which accounted for approximately 38% of fiscal 1994 consolidated net sales. The OEM market includes automobile manufacturers who purchase components and systems primarily on a branded basis. In fiscal 1994, sales of automotive OEM products accounted for approximately 23% of consolidated net sales. In fiscal 1994, the Company implemented marketing specialist organizations located in Denmark, Hong Kong, Singapore, Japan and the U.S. (which serves the Latin American, African and Middle Eastern markets) to support and protect the Harman brand names worldwide. These organizations, called the Harman Marketing Units ("HMU's"), stay in intimate contact with their markets, interpret user needs and facilitate product discussion between distributors and the Professional and Consumer Group companies. The HMU's also sponsor advertising and promotional events to enhance public awareness of the Company's brands. The Company's professional audio products are marketed worldwide through professional sound equipment dealers, including engineered-sound contractors which directly assist major users. The Company's sales and marketing group for its professional products is separate and independent from its consumer products sales and marketing group, although both groups are supported by the HMU's. The Company primarily markets its consumer audio products through audio and audio-video specialty stores and certain audio-video chain stores, including Circuit City and Best Buy. The Company enjoys broad distribution 13 15 of its products and particularly seeks dealers who emphasize high-quality audio systems and who are knowledgeable about the characteristics of audio products. The Company's sales and marketing activities include dealer education programs and comprehensive product literature to enable salespeople to understand and explain the price and performance features offered by the Company's products. The Company's dealers typically stock a number of home audio equipment lines including competing products (sometimes both JBL and Infinity loudspeakers) and may also carry automobile audio systems and other consumer-oriented electronics products. The Company markets its automotive products in a variety of ways. The Company currently markets its automotive aftermarket products to consumers through its existing home audio dealer network and through automotive audio specialty dealers. At the OEM level, in addition to the brand name systems described previously, the Company sells non-branded systems directly to Chrysler, Ford, Rover and other automotive manufacturers (such as Citroen, Peugeot and Renault) for installation in vehicles during production. Distributing The Company's International Distributing Group units in Germany, France, Great Britain, Japan and Belgium generally market products made by JBL, Soundcraft, Allen & Heath, DOD, UREI, AKG, Studer, Lexicon, BSS, dbx, Orban, Turbosound, Infinity, Harman Kardon, Pyle, AudioAccess and Fosgate on an exclusive basis in their respective countries. These Harman products are also distributed by other independent distributing firms in most other major world markets. Harman Deutschland, the Company's largest European distribution subsidiary, completed an agreement to withdraw from the exclusive distribution of Maxell audio and video tapes in Germany at the end of fiscal 1993. Harman Deutschland continued to provide administrative support on a fee basis for Maxell in Germany through the end of fiscal 1994. Excluding the distribution of Maxell products, which accounted for approximately $40.0 million of Harman Deutschland's sales in fiscal 1993, fiscal 1994 sales approximated the prior year despite the difficult economic conditions in Germany. The termination of Harman Deutschland's distribution of Maxell products has not materially affected the Company's earnings. Suppliers Currently, products designed by Harman Kardon in the United States are manufactured predominantly by Technol Ace Corporation in Japan. Technol Ace has provided uninterrupted delivery to Harman Kardon for the past eight years. The Company believes it has had, and continues to have, an excellent working relationship with Technol Ace; however, the uninterrupted availability of the products currently manufactured in Japan depends upon the continued cooperation of Technol Ace. The loss of this supplier would have a significant impact on the sales and earnings of Harman Kardon until a new supplier could be located. Harman Kardon has begun using multiple vendors and has thus limited its reliance on Technol Ace. One supplier provides a significant number of components to several subsidiaries of the Company. The loss of this supplier would create a significant disruption in production for these subsidiaries until alternate sources for these components could be found and could have a material impact on the cost of these products. Northridge Manufacturing relies on several suppliers for a large percentage of certain parts, such as speaker grilles, plastic molded parts 14 16 and magnets. The loss of any one of these suppliers would have a material impact on the earnings of Harman Manufacturing until alternate sources for these components could be found. Trademarks and Patents The Company markets its products under numerous trademarks and logos, including JBL, Infinity, Harman Kardon, UREI, Pyle, Citation, JB Lansing, James B. Lansing Sound, Concord, Audax, Polydax, Lydig of Scandinavia, Soundcraft, Spirit, DOD, Audio Logic, DigiTech, Fosgate-Audionics, Lexicon, AKG, Studer, Studer Dyaxis, BSS, Orban, Precision Devices, dbx, AudioAccess, Turbosound, Quested, Auto Azimuth and Dynamic Midi which 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, 1994, the Company held approximately 245 United States and foreign patents covering various products, product designs and circuits, and had approximately 136 patent applications pending around the world. The Company vigorously protects and enforces its trademark and patent rights. Seasonality Overall, the Company's consolidated net sales are not materially impacted by seasonality. However, the first fiscal quarter is usually weakest due to the July and August holidays in Europe and the automotive OEM model changeovers. Variations in seasonal demands among end-user markets may cause operating results to vary from quarter to quarter. Customers The loss of automotive OEM system sales to Chrysler and/or Ford would have a material adverse impact on the earnings of Harman Motive, U.S., Harman Motive, Ltd. and the Company as a whole. Sales to Chrysler for fiscal year 1994 accounted for 13.7% of the Company's consolidated net sales. The Company's next two largest customers accounted for an aggregate of 12.2% of its consolidated net sales for the year ended June 30, 1994. Backlog Orders Because the Company's practice is to maintain sufficient inventories of finished goods to fill orders promptly, the Company does not view the level of backlog to be an important index of future performance. The Company's backlog was approximately $27.3 million at June 30, 1994 and $26.3 million at June 30, 1993. 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 by the consumer, depending on the product. The warranty is a "limited" warranty insofar as it imposes certain shipping costs on the consumer, 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. The Company does not usually reimburse dealers for their labor in performing warranty service on its loudspeaker products. 15 17 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, including the Company's distributing subsidiaries. Competition In general, the audio industry is fragmented and competitive with many manufacturers, large and small, domestic and international, offering audio products which vary widely in price and quality and are marketed through a variety of channels. Professional products are offered through music instrument and professional dealers, contractors, installers and on a contract bid basis. Consumer products are offered through various channels including audio specialty stores, discount stores, department stores and mail order firms. The Company concentrates its efforts on the higher-quality, higher-priced segments of the audio industry. While the Company manufactures and markets many compatible and complementary products, other products that the Company manufactures and markets compete directly. For example, Soundcraft professional mixing consoles are compatible with and marketed by the same staff as JBL professional loudspeakers. However, JBL Consumer and Infinity loudspeakers compete directly and are two of the top loudspeaker brands in the world. The Company's strategy uses its brand leadership to increase market share. 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 recording and broadcast equipment. The Company competes using its ability to provide complete systems solutions to meet the complete audio requirements of its professional customers. Harman offers a product for virtually every professional audio application. The Company competes in the sound reinforcement market with many of its brand names, including JBL, Turbosound, UREI, AKG, Soundcraft and BSS. Its principal competitors in the sound reinforcement area include Electro Voice, Inc. and Altec Lansing (subsidiaries of Mark IV Industries), TOA, Tannoy, Bose, Peavy, Tascam, Klark-Teknik and Sony. The Professional Group competes in the broadcast and recording areas with its Studer, AKG, Soundcraft, Lexicon and Orban brands. Principal competitors in broadcast and recording include: Neve, Sennheiser, Denon, SSL, Shure and Audio Technica. In the Music Instrument area the Company's DOD, Digitech, dbx, Lexicon and Spirit products meet competitors Yamaha, Peavy, Rane, Roland, Furman, Alesis, Eventide and Sony. The Professional Group also competes in the industrial and architectural sound market; competitors within this market include Peavy, TOA and Siemens. The Company believes that it currently has a significant share of the consumer market for loudspeakers (home and aftermarket automotive), primarily as a result of the strength of its brand names. JBL and Infinity are two of the most recognized loudspeaker brands in the world. The Company competes based upon its ability to meet customer demands through new product introduction, the breadth of its product lines, world-class marketing and its ability to take advantage of the economies of scale resulting from the Company's use of common manufacturing facilities. The Company's principal competitors in the consumer loudspeaker market include Bose Corp., Boston Acoustics, Inc., Bowers & Wilkins, KEF, Sony Corp. 16 18 and Polk Audio, Inc. Harman's principal competitors in the consumer automotive aftermarket area include Bose, Alpine Electronics, Inc., Kenwood Corp., and Blaupunkt-Werke GmbH. 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 include Denon, Onkyo, Nakamichi Corp., Pioneer and Kenwood. In the automotive OEM market, the Company's principal competitors include Bose, International Jensen Inc., Oxford Electric, and Foster Electric Inc. The Company is the only supplier of branded loudspeaker systems for Ford, Chrysler, Jeep and Mitsubishi automobiles in the United States, and also supplies loudspeaker systems to Ford and Rover in the United Kingdom. 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 to fit the acoustic properties of each automobile model. Harman International is unique in its ability to provide multiple brands, each with its own unique characteristics and loyal consumer following. 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. 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. Research, Development and Engineering The Company's expenditures for research, development and engineering were $22,324,000, $11,980,000, and $10,689,000 for the fiscal years ending June 30, 1994, 1993 and 1992, respectively. The increase in expenditures in fiscal 1994 includes development efforts at AKG and Studer, acquired in fiscal 1994, and a full year of expenditures of Lexicon, which was acquired in the fourth quarter of fiscal 1993. 17 19 Number of Employees As of June 30, 1994, the Company had 6,849 full-time employees, including 4,043 domestic employees and 2,806 international employees. The increase in number of employees as of June 30, 1994 compared to the prior year primarily results from the AKG and Studer acquisitions. Financial Information about Foreign & Domestic Operations & Export Sales Financial information about foreign and domestic operations and export sales to be filed hereunder is incorporated by reference to Note 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 33 and 23, respectively, in the Company's Annual Report to Shareholders for the fiscal year ended June 30, 1994. ITEM 2. PROPERTIES The Company's principal activities are conducted at the facilities described in the following table. Square Owned or Percentage Location Footage Leased Utilization Northridge, California 616,792 Leased 100% Vienna, Austria 284,867 Leased 100% Ontario, California 212,600 Owned 100% Martinsville, Indiana 181,856 Owned 100% Huntington, Indiana 172,427 Owned 100% Ringkobing, Denmark 134,366 Owned 100% 20,753 Leased 100% Sandy, Utah 122,000 Leased 100% Heilbronn, Germany 56,910 Owned 92% 63,183 Leased 60% Potters Bar, UK 110,000 Leased 100% Bridgend, UK 101,400 Leased 100% Regensdorf, Switzerland 86,111 Leased 100% San Leandro, California 78,125 Leased 60% Chateau-du-Loir, France 66,712 Owned 100% Chatsworth, California 59,000 Leased 60% Chatsworth, California 55,000 Leased 100% Chatou, France 54,972 Leased 88% 18 20 Of the above facilities, the Northridge, California facility is used by JBL Incorporated and Harman Motive; the Vienna, Austria facility is used by AKG Acoustics GmbH; the Ontario, California facility is used by JBL Incorporated and Infinity Systems, Inc.; the Martinsville, Indiana facility is used by Harman Motive, Inc.; the Huntington, Indiana facility is used by Pyle Industries, Inc.; the Ringkobing, Denmark facility is used by Lydig of Scandinavia A/S; and the Sandy, Utah facility is used by DOD Electronics Corporation. The Heilbronn, Germany facility is used by Harman Deutschland GmbH; the Potters Bar, U.K. facility is used by Soundcraft Electronics, Limited; the Bridgend, U.K. facility is used by Harman Motive, Ltd.; the Regensdorf, Switzerland facility is used by Studer Professional Audio AG; the San Leandro, California facility is used by Orban; the Chateau-du-Loir, France facility is used by Audax Industries, S.A.; the Chatsworth, California facilities are used by JBL International (59,000 square feet) and Infinity Systems, Inc. (55,000 square feet); and the Chatou, France facility is used by Studer Digitec SA. The Company considers its properties to be suitable and adequate for its present needs. 19 21 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 Age at Name August 1, 1994 Position Sidney Harman 75 Chairman, Chief Executive Officer and Director of the Company Bernard A. Girod 52 President, Chief Operating Officer, Chief Financial Officer, Secretary and Director of the Company F. Michael Budd 47 President - Harman Manufacturing Group Philip J. Hart 49 President - Harman Professional Group Thomas Jacoby 40 President - Harman Consumer Group Gregory P. Stapleton 47 President - Automotive OEM Group Jerome H. Feingold 52 Vice President - Quality Frank Meredith 37 Vice President and General Counsel William S. Palin 51 Vice President and Director International Audit Sandra B. Robinson 35 Vice President - Financial Operations Floyd E. Toole 48 Vice President - Engineering Officers are elected annually by the Board of Directors and hold office at the pleasure of the Board of Directors until the next annual selection of officers or until their successors are elected and qualified. Sidney Harman, Ph.D., the Company's founder, has been Chairman of the Board and Chief Executive Officer and a director of the Company since the Company's founding in 1980. From 1977 to 1979, Dr. Harman was the Under Secretary of Commerce of the United States. From 1962 to 1977, Dr. Harman was an officer and director of the Predecessor of the Company. Bernard A. Girod has been President of the Company since March 1994, Chief Operating Officer of the Company since March 1993, a Director of the Company since July 1993, Secretary of the Company since November 1992 and 20 22 Chief Financial Officer since September 1986. From September 1979 to September 1986, Mr. Girod was the Vice President and General Manager of Permacel, a subsidiary of Avery International and Vice President of Planning and Business Development for Avery International. From 1977 to 1979, Mr. Girod was the Chief Financial Officer of the Predecessor of the Company. F. Michael Budd has been the President of the Harman Manufacturing Group since June 1989. From October 1984 to June 1989, Mr. Budd served as President of the Automotive Components division of ITT Corporation. Philip J. Hart has been President of the Harman Professional Group since November 1993. Prior to that time, Mr. Hart served as President of Soundcraft since Harman's 1988 acquisition. Prior to that time, Mr. Hart was General Manager of Soundcraft. Thomas Jacoby has been President of the Harman Consumer Group since February 1993. Prior to that time, Mr. Jacoby served as President of JBL Consumer since August 1990. From July 1988 to August 1990, Mr. Jacoby served as Executive Vice President of Harman Kardon. Gregory P. Stapleton has been President of the Automotive OEM Group since October 1987. Jerome H. Feingold has been the Vice President-Quality of the Company since January 1992. Prior to that time, Mr. Feingold served as President of Harman Speaker Manufacturing since July 1985. Prior to 1985, Mr. Feingold held various management positions within the manufacturing division of the Company. Frank Meredith has been General Counsel of the Company since August 1994. Prior to that time, Mr. Meredith served as Vice President-Tax/Legal and Assistant Secretary of the Company since July 1992. Prior to that time, Mr. Meredith held other positions within the Company since May 1985. William S. Palin has been Vice President and Director International Audit since March 1994. Prior to that time he was the director of his own accounting and consulting firm which handled numerous assignments for the Company over the years, including significant acquisition support. Prior to that time Mr. Palin was the Chief Financial Officer for Harman Europe and Managing Director of Harman Audio, both a part of the Predecessor company. 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. Floyd E. Toole, Ph.D., joined the Company as Vice President-Acoustic Research in November 1991. Prior to joining the Company, Dr. Toole spent 25 years, most recently as Senior Research Officer, with the National Research Council of Canada's Acoustics and Signal Processing Group. At the National Research Council, Dr. Toole worked to develop psychoacoustic-optimized adaptive digital techniques for improving the performance of loudspeakers in rooms. 21 23 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, 1994 (Shareholder Information on page 36). ITEM 6. SELECTED FINANCIAL DATA The information required by Part II, Item 6 is incorporated by reference to the Company's Annual Report to Shareholders for the fiscal year ended June 30, 1994 (Financial Highlights on page 1). 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, 1994 (Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 21 through 23). 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, 1994 (Consolidated Financial Statements on pages 24 through 35). ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 22 24 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 1994 Annual Meeting of Stockholders. 23 25 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 27 hereof. 2. Financial statement schedules required to be filed hereunder are indexed on page 27 hereof. 3. The exhibits required to be filed hereunder are indexed on pages 35 through 39 hereof. b) Reports on Form 8-K None. 24 26 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant): HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED By: (Signature and Title) /s/ Sidney Harman Sidney Harman, Chairman of the Board and Chief Executive Officer Date: September 19, 1994 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Sidney Harman Chairman of the Board, September 19, 1994 Sidney Harman Chief Executive Officer and Director /s/ Bernard A. Girod President, Chief Operating September 19, 1994 Bernard A. Girod Officer, Chief Financial Officer (Principal Financial Accounting Officer), Secretary and Director /s/ Shirley M. Hufstedler Director September 19, 1994 Shirley M. Hufstedler /s/ Edward Meyer Director September 19, 1994 Edward Meyer /s/ Alan Patricof Director September 19, 1994 Alan Patricof 25 27 THIS PAGE LEFT BLANK INTENTIONALLY 26 28 LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES Index to Item 14(a) Page Reference _______________________ Annual Report to Form 10-K Shareholders _______________________ Consolidated Financial Data (pages 24 through 35 of the 1994 Annual Report to Shareholders herein incorporated by reference as Exhibit 13.1): Consolidated Balance Sheets as of June 30, 1994 and 1993............................................................24 Consolidated Statements of Operations for the years ended June 30, 1994, 1993 and 1992..................................25 Consolidated Statements of Cash Flows for the years ended June 30, 1994, 1993 and 1992..................................26 Consolidated Statements of Shareholders' Equity for the years ended June 30, 1994, 1993 and 1992........................27 Notes to Consolidated Financial Statements............................28 Independent Auditors' Report...........................33.............35 Schedules for the years ended June 30, 1994, 1993 and 1992: V Property, Plant and Equipment....................28 VI Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment....29 VIII Valuation and Qualifying Accounts and Reserves...30 IX Short-Term Borrowings............................31 X Supplemental Income Statement Information........32 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. 27 29 SCHEDULE V HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED Property, Plant and Equipment Three Years Ended June 30, 1994 ($000's omitted)
_________________________________________________________________ ______________________ Column Column Column Column Column Column A B C D E F _________________________________________________________________ ______________________ Other Balance at Changes Balance Beginning Additions Retire- Add(Deduct) at End Classification of Period at Cost ments Describe1 of Period _________________________________________________________________ ______________________ Year Ended June 30, 1992 Land $ 4,493 $ 2 $ -- $ -- $ 4,495 Buildings and Improvements 38,565 4,203 258 2,050 44,560 Machinery and Equipment 109,682 14,249 3,329 7,172 127,774 Furniture and Fixtures 11,072 2,549 214 2,411 15,818 -------- ------- ------- - - -------- -------- TOTAL $163,812 $21,003 $ 3,801 $11,633 $192,647 ======== ======= ======= ======== ======== Year Ended June 30, 1993 Land $ 4,495 $ -- $ 546 $ -- $ 3,949 Buildings and Improvements 44,560 2,183 2,875 (1,458) 42,410 Machinery and Equipment 127,774 22,082 6,418 767 144,205 Furniture and Fixtures 15,818 1,298 449 (3,185) 13,482 -------- ------- ------- - - -------- -------- TOTAL $192,647 $25,563 $10,288 $(3,876) $204,046 ======== ======= ======= ======== ======== Year Ended June 30, 1994 Land $ 3,949 $ -- $ 324 $ 515 $ 4,140 Buildings and Improvements 42,410 3,258 1,265 11,682 56,085 Machinery and Equipment 144,205 34,045 4,557 14,586 188,279 Furniture and Fixtures 13,482 3,417 890 4,882 20,891 -------- ------- ------- - - -------- -------- TOTAL $204,046 $40,720 $ 7,036 $31,665 $269,395 ======== ======= ======= ======== ======== 1 Transfers from other assets and between fixed asset categories and effect of foreign currency translation in 1992. Purchase of Lexicon, transfers from other assets and between fixed asset categories and effect of foreign currency translation in 1993. Purchase of AKG, Studer and Beltronics, transfers from other assets and between fixed asset categories and effect of foreign currency translation in 1994. 28 30 SCHEDULE VI HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment Three Years Ended June 30, 1994 ($000's omitted)
_________________________________________________________________ ______________________ Column Column Column Column Column Column A B C D E F _________________________________________________________________ ______________________ Additions Other Balance at Charged to Changes Balance Beginning Costs and Retire- Add(Deduct) at End Classification of Period Expenses ments Describe1 of Period _________________________________________________________________ ______________________ Year Ended June 30, 1992 Buildings and Improvements $ 8,164 $ 3,031 $ 481 $ (109) $ 10,605 Machinery and Equipment 46,023 16,870 1,840 6,707 67,760 Furniture and Fixtures 5,686 1,970 198 672 8,130 -------- ------- ------- - - -------- -------- TOTAL $ 59,873 $21,871 $ 2,519 $ 7,270 $ 86,495 ======== ======= ======= ======== ======== Year Ended June 30, 1993 Buildings and Improvements 10,605 3,255 837 (348) 12,675 Machinery and Equipment 67,760 17,878 5,629 (485) 79,524 Furniture and Fixtures 8,130 1,826 973 (194) 8,789 -------- ------- ------- - - -------- -------- TOTAL $ 86,495 $22,959 $ 7,439 $(1,027) $100,988 ======== ======= ======= ======== ======== Year Ended June 30, 1994 Buildings and Improvements 12,675 4,499 119 1,575 18,630 Machinery and Equipment 79,524 23,282 2,467 996 101,335 Furniture and Fixtures 8,789 3,429 732 (611) 10,875 -------- ------- ------- - - -------- -------- TOTAL $100,988 $31,210 $ 3,318 $ 1,960 $130,840 ======== ======= ======= ======== ======== 1 Transfers between fixed asset categories and effect of foreign currency translation in 1992, 1993 and 1994. 29 31 SCHEDULE VIII HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED Valuation and Qualifying Accounts and Reserves Three Years Ended June 30, 1994 ($000's omitted)
_________________________________________________________________ ______________________ Column Column Column Column Column Column A B C D E F _________________________________________________________________ ______________________ Charged Balance at Charged to To Other Balance Beginning Costs and Accounts Deductions at End Classification of Period Expenses Describe Describe of Period _________________________________________________________________ ______________________ Year Ended June 30, 1992 Allowance for doubtful accounts $ 3,878 $ 2,373 $ 42 1 $ 2,629 2 $ 3,664 ======= ======= ======= ======= ======= Year Ended June 30, 1993 Allowance for doubtful accounts $ 3,664 $ 2,216 $ 77 3 $ 2,522 2 $ 3,435 ======= ======= ======= ======= ======= Year Ended June 30, 1994 Allowance for doubtful accounts $ 3,435 $ 2,757 $ 7,189 4 $ 3,140 2 $10,241 ======= ======= ======= ======= ======= 1 Addition due to Allen & Heath Brennell acquisition. 2 Deductions for accounts receivable written off net of recoveries. 3 Addition due to Lexicon acquisition. 4 Addition due to AKG, Studer and Harman Belgium (Beltronics) acquisitions. 30 32 SCHEDULE IX HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED Short-Term Borrowings Three Years Ended June 30, 1994 ($000's omitted)
_________________________________________________________________ ______________________ Column Column Column Column Column Column A B C D E F _________________________________________________________________ ______________________ Maximum Average Weighted Weighted Amount Amount Average Category of Balance Average Outstanding Outstanding Interest Aggregate at End Interest During the During the Rate During Short-Term Debt of Period Rate Period Period The Period1 _________________________________________________________________ ______________________ June 30, 1992 Notes payable-banks $ 63,463 8.7% $ 88,766 $ 67,025 8.9% June 30, 1993 Notes payable-banks $ 33,379 6.2% $ 75,333 $ 42,574 8.6% June 30, 1994 Notes payable-banks $ 63,140 6.3% $ 98,008 $ 52,760 6.4% 1 Weighted average interest rate during the period is computed as related interest expense divided by the average outstanding balance during the year. 31 33 SCHEDULE X HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED Supplemental Income Statement Information Three Years Ended June 30, 1994 ($000's omitted)
_________________________________________________________________ ______________________ Column A Column B _________________________________________________________________ ______________________ Charged to Cost and Expenses For the Year Ended June 30, 1992 1993 1994 _________________________________________________________________ ______________________ 1. Maintenance and repairs * * * 2. Depreciation and amortization of intangible assets * * * 3. Taxes other than payroll and income taxes * * * 4. Royalties * * * 5. Advertising costs $ 19,666 $ 20,293 $ 18,933 * Does not exceed 1% of sales. 32 34 INDEPENDENT AUDITORS' REPORT The Board of Directors Harman International Industries, Incorporated: Under date of August 12, 1994, we reported on the consolidated balance sheets of Harman International Industries, Incorporated and subsidiaries as of June 30, 1994 and 1993, 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, 1994, as contained in the 1994 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, 1994. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedules as listed in the accompanying index. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. /s/ KPMG Peat Marwick LLP Los Angeles, California August 12, 1994 33 35 THIS PAGE LEFT BLANK INTENTIONALLY 34 36 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 on a consolidated basis. Pursuant to Item 61(d)(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. Exhibit Page No. Description No. 3.1, 4.1 Restated Certificate of Incorporation, as amended, filed with the Delaware Secretary of State on October 7, 1986. (Filed as Exhibits 3.1 and 4.1 to the Registration State- ment on Form S-1 (Reg. No. 33-8538) and hereby incorporated by reference.)...................................................... ...IBR 4.3, 10.17 Composite conformed copy of the Note Purchase Agreements dated June 30, 1987, relating to the sale of $25.0 million principal amount of 10.08% Senior Notes due September 30, 1994, and $17.5 million principal amount of 10.40% Senior Notes due September 30, 1997, including as exhibits thereto the form of 10.08% Senior Notes due September 30, 1994, and 10.40% Senior Notes due September 30, 1997. (Filed as Exhibit 4 to the Quarterly Report on Form 10-Q for the quarter ended December 31, 1988 (File No. 0-15147), and hereby incorporated by reference.).....................................IBR 4.4, 10.29 Composite conformed copy of the Note Purchase Agreement dated December 1, 1988, relating to the sale of $45.0 million principal amount of 11.2% Senior Subordinated Notes due December 1, 1998, including as an exhibit thereto the form of 11.2% Senior Subordinated Notes due December 1, 1998. (Filed as Exhibit 4 to the Quarterly Report on Form 10-Q for the quarter ended December 31, 1988 (File No. 0-15147), and hereby incorporated by reference.).................................IBR 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 35 37 INDEX TO EXHIBITS (cont.) Exhibit Page No. Description No. 4.6 Indenture dated June 4, 1992, between Harman International Industries, Incorporated and Security Trust Company N.A., as Trustee, relating to $70,000,000 principal amount of 12.0% Senior Subordinated Notes due 2002, including as an exhibit thereto the form of 12.0% Senior Subordinated Notes due 2002. (Filed as Exhibit 4.6 to the Annual Report on Form 10-K for the year ended June 30, 1992 (File No. 0-15147), and hereby incorporated by reference.)...................................................... ......IBR 4.7 First Amendment to Note Agreement Dated June 30, 1987, dated as of December 14, 1988, relating to the sale of $25.0 million principal amount of 10.08% Series A Senior Notes due September 30, 1994, and $17.5 million principal amount of 10.40% Series B Senior Notes due September 30, 1997. (Filed as Exhibit 4.7 to the Registration Statement on Form S-2 (Reg. No. 33-49692) and hereby incorporated by reference.).......................IBR 10.1 Lease dated as of June 18, 1987 between Harman International Industries Business Campus Joint Venture and JBL Inc., as amended. (Filed as Exhibit 10.1 to the Annual Report on Form 10-K for the fiscal year ended June 30, 1987 (File No. 0-15147) and hereby incorporated by reference.)....................IBR 10.2 Guaranty dated as of June 18, 1987 by Harman International Industries, Inc. of Lease dated as of June 18, 1987 between Harman International Industries Business Campus Joint Venture and JBL Inc., as amended. (Filed as Exhibit 10.2 to the Annual Report on Form 10-K for the fiscal year ended June 30, 1987 (File No. 0-15147) and hereby incorporated by reference.)............................................IBR 10.3 Chatsworth Industrial Park Lease Agreement dated as of July 31, 1984, between Almo Properties and Infinity Systems, Inc. (Filed as Exhibit 10.3 to the Registration Statement on Form S-1 (Reg. No. 33-8538) and hereby incorporated by reference.)...................................................... ......IBR 10.9 Distributor Agreement dated April 27, 1981 between Maxell Europe GmbH and Harman Deutschland GmbH, as amended. (Filed as Exhibit 10.9 to the Registration Statement on Form S-1 (Reg. No. 33-8538) and hereby incorporated by reference.)..............IBR 10.10 Agreement dated as of June 20, 1985, among Harman International Industries, Inc., Harman-Motive, Inc., JBL Inc. and Ford Motor Co. (Filed as Exhibit 10.10 to the Registration Statement on Form S-1 (Reg. No. 33-8538) 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 36 38 INDEX TO EXHIBITS (cont.) Exhibit Page No. Description No. 10.19 Form of Incentive Stock Option Agreement under the 1987 Executive Incentive Plan. (Filed as Exhibit 10.19 to the Annual Report on Form 10-K for the fiscal year ended June 30, 1988 (File No. 0-15147), and hereby incorporated by reference.)........IBR 10.20 Form of Non-Qualified Stock Option Agreement under the 1987 Executive Incentive Plan. (Filed as Exhibit 10.20 to the Annual Report on Form 10-K for the fiscal year ended June 30, 1988 (File No. 0-15147), and hereby incorporated by reference.)........IBR 10.21 Form of Non-Qualified Stock Option Agreement with non-officer directors. (Filed as Exhibit 10.21 to the Annual Report on Form 10-K for the fiscal year ended June 30, 1988 (File No. 0-15147), and hereby incorporated by reference.)...................IBR 10.23 Lease Agreement dated April 28, 1988, among Alaskan Permanent Fund Corp. and the National Bank of Washington, as trustee of the National Bank of Washington Multi-Employer Property Trust 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 10.24 Promissory Note dated August 3, 1993, among Harman International Industries, Inc., JBL Incorporated and Banc One Arizona Leasing Corporation. (Filed as Exhibit 10.24 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 10.26 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 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 10.32 Note dated September 7, 1989, between Harco Properties, Incorporated and New England Mutual Life Insurance Company. (Filed as Exhibit 10.32 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1989 (File No. 0-15147), and hereby incorporated by reference.).................................IBR 37 39 INDEX TO EXHIBITS (cont.) Exhibit Page No. Description No. 10.38 Amendment to the Harman International Industries, Incorporated Supplemental Executive Retirement Plan. (Filed as Exhibit 19.1 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 10.39 Agreement dated July 1, 1992, between Harman Deutschland GmbH and Maxell Europe GmbH, related to the termination of the Distributor Agreement dated April 27, 1981. (Filed as Exhibit 10.39 to the Annual Report on Form 10-K for the fiscal year ended June 30, 1992 (File No. 0-15147), and hereby incorporated by reference.)...................................................... ...IBR 10.41 Form of Incentive Stock Option Agreement under the 1992 Executive 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 Executive 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 incorporated by reference.)...................................................... ...IBR 10.43 Form of Restricted Stock Agreement under the 1992 Executive 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 Executive 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. Executive Deferred Compensation Plan. (Filed as Exhibit 10.45 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 10.46 Harman International Industries, Inc. Executive Deferred Compensation Plan Split-Dollar Life Insurance Agreement. (Filed as Exhibit 10.46 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 10.47 Escrow Agreement, dated as of December 30, 1993, by and between the Company and PNC Bank, N.A. (Filed as Exhibit 10.47 to the Quarterly Report on Form 10-Q for the quarter ended December 31, 1993 (File No. 0-15147) and hereby incorporated by reference.)............................................IBR 38 40 INDEX TO EXHIBITS (cont.) Exhibit Page No. Description No. 10.48 Share Purchase Agreement, dated as of July 19, 1994, by and between the Company and Girocredit for purchase of remaining 24% of AKG Acoustics GmbH...............................................43 10.49 Promissory Note dated September 30, 1993 between Harman International Industries, Incorporated and PNC Bank, N.A. (Filed as Exhibit 19.5 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1993 (File No. 0-15147) and hereby incorporated by reference.)........................IBR 10.50 Promissory Note dated September 28, 1993 between Harman International Industries, Incorporated and Citicorp USA, Inc. (Filed as Exhibit 19.6 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1993 (File No. 0-15147) and hereby incorporated by reference.)....................IBR 10.51 Promissory Note dated May 17, 1994 among Harman International Industries, Incorporated, certain of its subsidiaries and Chemical Bank..........................................57 10.52 Promissory Note dated May 5, 1994 among Harman International Industries, Incorporated, certain of its subsidiaries and NationsBank. ..........................................81 13.1 Harman International Industries, Incorporated Annual Report to Shareholders for the fiscal year ended June 30, 1994.................97 21.1 Subsidiaries of the Company............................................139 23.1 Consent of Independent Auditors........................................143 27.1 EDGAR Financial Data Schedule..........................................147 39 41 THIS PAGE LEFT BLANK INTENTIONALLY 42
EX-10 2 EXHIBIT 10.48 EXHIBIT 10.48 43 THIS PAGE LEFT BLANK INTENTIONALLY 44 SHARE PURCHASE AGREEMENT Dated as of July 19, 1994 by and among HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED 8500 Balboa Boulevard Northridge, California 91329, USA HARMAN INVESTMENT COMPANY, INC. 8500 Balboa Boulevard Northridge, California 91329, USA GIROCREDIT BANK AKTIENGESELLSCHAFT DER SPARKASSEN Schubertring 5 A-1010 Vienna, AUSTRIA and GIROCREDIT VERMoGENSVERWALTUNGSGESELLSCHAFT m.b.H. Traungasse 12 A-1030 Vienna, AUSTRIA concerning shares in AKG AKUSTISCHE U. KINO-GERATE GESELLSCHAFT m.b.H. 45 SHARE PURCHASE AGREEMENT This SHARE PURCHASE AGREEMENT (this "Agreement") made as of the 19th day of July, 1994 between, Harman International Industries, Incorporated, a corporation organized under the laws of Delaware, U.S.A. (the "Purchaser") having an address at 8500 Balboa Boulevard, Northridge, California 91329 USA, Harman Investment Company, Inc., a corporation organized under the laws of Delaware, U.S.A. ("HIC") having an address at 8500 Balboa Boulevard, Northridge, California, GiroCredit Bank Aktiengesellschaft der Sparkassen, a stock corporation (Aktiengesellschaft) organized under the laws of Austria ("GiroCredit") having an address at Schubertring 5, A-1010 Vienna, Austria, and GiroCredit Vermogensverwaltungsgesellschaft m.b.H., a limited liability company organized under the laws of Austria ("Shareholder") having an address at Traungasse 12, A-1030 Vienna, Austria. Capitalized terms used and not defined herein shall have the meanings indicated in Exhibit A to this Agreement and incorporated herein by reference. ARTICLE 1 SALE AND PURCHASE 1.1 Object of Purchase: The Share. Shareholder holds a share in the nominal amount of AS 4,800,000.-- in AKG (this share of Shareholder in AKG is referred to as the "Share"). 1.2 Sale, Purchase and Transfer. (a) Sale and Purchase. Shareholder hereby sells and transfers the Share in AKG to the Purchaser. The Purchaser accepts such sale and transfer of the Share. (b) Notarial Transfers. To effect the transfers of the Share, Shareholder and the Purchaser shall on the date of this Agreement execute a transfer agreement in the form of a notarial deed in substantially the form attached hereto as Exhibit B. 46 ARTICLE 2 PURCHASE PRICES AND PAYMENTS 2.1 Share Purchase Price. The aggregate consideration for the Share is AS 41,000,000.-- (Forty One Million Austrian Schilling), payable to Shareholder, due within 15 days of the date of execution of the notarial deed of transfer. 2.2 Transfer Taxes. Purchaser shall be liable for and pay all applicable sales, documentary, recording, filing, transfer, and other similar taxes and fees payable as a result of the consummation of the transactions contemplated by Articles 1 and 2 of this Agreement, including notarial fees. ARTICLE 3 GUARANTEES (GARANTIEN), REPRESENTATIONS AND WARRANTIES OF THE SELLERS Sellers, jointly and severally, in conjunction with the remedies provided by the indemnification provisions of Article 6 hereof, absolutely, irrevocably and unconditionally guarantee, represent, and warrant to the Purchaser as of the date of this Agreement, that: 3.1 Organization; Corporate Power and Authority. Shareholder is a Gesellschaft mit beschrankter Haftung (GmbH) duly organized and existing under the laws of Austria and has all necessary power and authority to own its property and carry on its business as presently owned and conducted. GiroCredit is an Aktiengesellschaft (AG) duly organized and existing under the laws of Austria and has all necessary power and authority to own its property and carry on its business as presently owned and conducted. Each Seller has duly authorized, executed, and delivered this Agreement and has full power and authority to execute and deliver, and to perform its obligations under, this Agreement. This Agreement, when executed and delivered by all parties hereto, constitutes the valid and binding obligation of each Seller, enforceable in accordance with its terms. 3.2 Capital. The Share is owned legally and beneficially by Shareholder, free and clear of any Liens. The Share is duly authorized, validly issued, and fully paid and not subject to assessment. No Seller or any Affiliate thereof holds legally or beneficially any securities (whether issued, reserved for issuance, convertible, or outstanding) of or any other interests 47 or rights in AKG of any kind and there are no restrictions with respect to transferability of the Shares. No Seller or any Affiliate thereof holds any options, offers, warrants, conversion rights, preemptive rights, subscriptions or agreements or rights of any kind to subscribe for or to purchase, or commitments to issue (either formal or informal, firm or contingent), share or equity capital or securities of or interests or rights in AKG (whether debt, equity, or a combination thereof) or obligating AKG to grant, extend, or enter into any such agreement or commitment. Upon the sale, assignment, and delivery of the Share as herein contemplated, the Purchaser will have full legal and beneficial ownership of and title to the Share free of all Liens. 3.3 Governmental Approvals. No approval, consent, decree, or order of any Austrian Governmental Authority, other than those obtained by Sellers on or prior to the date hereof, is required in connection with the execution and delivery of this Agreement by any Seller, the performance of their obligations hereunder, or the consummation by each of them of the transactions contemplated hereby. 3.4 Third Party Consents. No consent, approval, or authorization of any Person ("Third Party Consent"), other than Third Party Consents obtained by Sellers on or prior to the date hereof, is required in connection with the execution, delivery, or performance of this Agreement by any Seller. 3.5 Brokers. No Seller is directly or indirectly obligated to anyone acting as a broker, finder, or in any similar capacity in connection with this Agreement or the transactions contemplated hereby. ARTICLE 4 GUARANTIES (GARANTIEN), REPRESENTATIONS AND WARRANTIES OF THE PURCHASER The Purchaser, in conjunction with the remedies provided by the indemnification provisions of Article 6 hereof, absolutely, irrevocably and unconditionally guarantees, represents and warrants to the Sellers as of the date of this Agreement as follows: 4.1 Organization; Corporate Power and Authority. The Purchaser is a corporation, duly organized and validly existing under the laws of Delaware, and has all necessary power and authority to own its property and carry on its business as 48 presently owned and conducted. The Purchaser has duly authorized, executed, and delivered this Agreement and has full power and authority to execute and deliver, and to perform its obligations under, this Agreement. This Agreement, when executed and delivered by all parties hereto, constitutes the valid and binding obligation of the Purchaser, enforceable in accordance with its terms. 4.2 Brokers. The Purchaser is not directly or indirectly obligated to anyone acting as a broker, finder, or in any other similar capacity in connection with this Agreement or the transactions contemplated hereby. ARTICLE 5 CERTAIN COVENANTS 5.1 Expenses. Except as otherwise provided in this Agreement, the Sellers and the Purchaser shall each bear their own costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby. 5.2 Cooperation. The Purchaser and the Sellers shall use their reasonable efforts to execute all documents or certificates as may be necessary, appropriate, or desirable, on the advice of counsel, for the consummation of the transactions contemplated by this Agreement. 5.3 Assurances. Each Seller shall take all actions and execute and deliver all documents necessary or desirable to effectively convey record and beneficial ownership, free of all Liens, of the Share to the Purchaser. 5.4 No Effect. The parties agree that this Agreement shall have no effect on and shall not in any way constitute a waiver, modification, amendment or other change in the rights, liabilities or obligations of the parties under the Original Share Purchase Agreement. 5.5 Waiver of Put and Call. HIC hereby unconditionally waives its rights under the Notariatsakt No. 9415 of the notary Dr. Christian Kleemann in Vienna dated September 24, 1993 consisting of an Option Agreement between HIC and Shareholder. Shareholder hereby unconditionally waives its rights under the Notariatsakt No. 9416 of the notary Dr. Christian Kleemann in Vienna dated September 24, 1993 consisting of an Option Agreement between Shareholder and HIC. 49 ARTICLE 6 SURVIVAL AND INDEMNIFICATION 6.1 Survival of Guarantees, Representations, and Warranties. The period during which claims under the respective guarantees, representations, and warranties of each Seller contained in Article 3 and of the Purchaser contained in Article 4 shall be pursuable in accordance with Section 6.4 hereof is two (2) years ending at midnight of July 18th, 1996, except that such period for claims under Section 3.2 (Capital) shall be 5 years. 6.2 Indemnification by Sellers. Each Seller shall, jointly and severally, defend, indemnify, and hold harmless any Indemnified Purchaser, from and against any Losses, including interest thereon, caused by or arising out of (a) any failure by a Seller to perform its covenants or obligations as set forth in this Agreement or in any instrument or agreement delivered by a Seller pursuant to this Agreement and (b) subject to the limitations contained in Sections 6.1 and 6.4, any breach by a Seller of any guarantee, representation, and warranty to Purchaser contained in Article 3 of this Agreement. 6.3 Indemnification by Purchaser. The Purchaser hereby agrees to defend, indemnify, and hold harmless any Indemnified Seller from and against any Losses, including interest thereon, caused by or arising out of (a) any failure by the Purchaser to perform its covenants or obligations to such Seller as set forth in this Agreement or in any instrument or agreement delivered by the Purchaser pursuant to this Agreement and (b) subject to the limitations contained in Sections 6.1 and 6.4, any breach by the Purchaser of any guarantee, representation, and warranty to the Sellers contained in Article 4 of this Agreement. 6.4 Indemnification Procedure. The indemnification procedure provisions set forth in Section 6.4 of the Original Share Purchase Agreement shall apply to this Agreement as if set forth fully in this Section 6.4; provided, however, that the exceptions in Section 6.4 of the Original Share Purchase Agreement relating to Sections 3.10 and 5.4 thereof shall not apply to this Agreement since they have no relevance in this Agreement. 50 ARTICLE 7 MISCELLANEOUS 7.1 Notices. Except as otherwise provided herein, any notice required hereunder shall be in writing, and shall be deemed to have been validly served, given or delivered upon delivery thereof to the party to be notified (in the case of a fax, by delivery with confirmation of receipt), in each case to the address of the party to be notified, as follows: (a) If to the Purchaser or HIC: Harman International Industries, Incorporated 8500 Balboa Boulevard Northridge, California 91329, USA Attention: Bernard A. Girod Telephone: 1-818-893-8411 Telefax: 1-818-891-7345 With copies to: Jones, Day, Reavis & Pogue Metropolitan Square 1450 G Street, N.W. Washington, D.C. 20005-2088, USA Attention: J. Lawrence Manning, Jr., Esq. Telephone: 1-202-879-3939 Telefax: 1-202-737-2832 (b) If to Shareholder: GiroCredit Vermogensverwaltungsgesellschaft m.b.H. Traungasse 12 A-1030 Vienna, AUSTRIA Attention: Dr. Michael Matt Telephone: 43-1-71194-2265 Telefax: 43-1-71-71194-2269 (c) If to GiroCredit: GiroCredit Bank Aktiengesellschaft der Sparkassen Schubertring 5 A-1010 Vienna, AUSTRIA Attention: Dr. Michael Matt Telephone: 43-1-71194-2265 Telefax: 43-1-71-71194-2269 51 or to such other address or addresses as the Purchaser, Shareholder or GiroCredit may from time to time designate by notice as provided herein. 7.2 Assignment. No party shall assign or delegate this Agreement or any rights or obligations hereunder to any Person, except with the prior written consent of the other parties; except that the Purchaser may assign or delegate the Agreement to any of its majority-owned Affiliates other than by delegation of the obligation to pay the Purchase Price. 7.3 Waiver. Any party may, by written notice to the other party, (a) extend the time for the performance of any of the obligations or other actions of such other under this Agreement; (b) waive compliance with any of the conditions or covenants of such other contained in this Agreement; or (c) waive or modify performance of any of the obligations of such other under this Agreement. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any of the covenants, conditions, agreements, or indemnities contained in this Agreement. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. 7.4 Entire Agreement. This Agreement, together with the Exhibits hereto which are incorporated into this Agreement by reference, supersedes any other agreement, whether written or oral, that may have been made or entered into by any of the parties relating to the matters contemplated hereby, and constitutes the entire agreement of the parties. 7.5 Amendments, Supplements. This Agreement may be amended or supplemented only by an instrument in writing executed and delivered by a duly authorized director or officer of each of the parties hereto. 7.6 Captions. The captions in this Agreement are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement. 7.7 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument. 52 7.8 Successors and Assigns. This Agreement shall be binding upon, inure to the benefit of, and may be enforced by, the Purchaser and any Seller, and their respective successors and permitted assigns. 7.9 Governing Law. This Agreement shall be governed by the laws of Austria. 7.10 Arbitration. All disputes arising in connection with the present agreement shall be finally settled by arbitration under the Rules of Arbitration of the International Chamber of Commerce ("ICC Rules") by either one or three arbitrators appointed in accordance with the ICC Rules. The parties expressly agree that where the dispute is to be referred to three arbitrators, the party or parties submitting a request for arbitration shall jointly nominate one co-arbitrator and the party or parties designated as defendant(s) therein shall likewise jointly nominate one co-arbitrator, pursuant to the time periods set forth in Article 2 of the ICC Rules. The place of arbitration shall be Zurich, Switzerland. The language of the arbitral proceedings shall be English. 7.11 Severability. Should any provision or portion of this Agreement be held unenforceable or invalid for any reason, the remaining provisions and portions of this Agreement shall be unaffected by such holding, unless to do so would alter substantially the intended effect of this Agreement, in which case the remaining provisions or portions of this Agreement shall be read together so as to give effect to the extent possible to the intentions of the parties. 7.12 Gender and Number. The masculine, feminine, or neuter gender and the singular or plural shall each be deemed to include the others whenever the context so indicates. 53 IN WITNESS WHEREOF, the Purchaser, Shareholder and GiroCredit have duly executed and delivered this Agreement as of the date first above written. HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED By: /s/ Bernard A. Girod Name: Bernard A. Girod Title: President HARMAN INVESTMENT COMPANY, INC. By: /s/ Bernard A. Girod Name: Bernard A. Girod Title: President GIROCREDIT BANK AKTIENGESELLSCHAFT DER SPARKASSEN By: /s/ Dr. Herbert Lugmayr Name: Dr. Herbert Lugmayr Title: Vorstandsvorsitzender By: /s/ Dksm. Peter Holler Name: Dksm. Peter Holler Title: Director GIROCREDIT VERMoGENSVERWALTUNGSGESELLSCHAFT m.b.H. By: /s/ Dr. Michael Matt Name: Dr. Michael Matt Title: Bankangestellter 54 EXHIBIT A 1."Affiliate" means, with respect to any party to this Agreement, any Person controlled by or under common control with, under the control of, or controlling such party or a Person in which such party or such controlling Person owns any interest. 2."Agreement" means this Agreement of Purchase and Sale. 3."AKG" means AKG Akustische u. Kino-Gerate Gesellschaft m.b.H., an Austrian limited liability company. 4."Austrian Governmental Authority" means any Governmental Authority located in the Republic of Austria or having jurisdiction over the businesses of AKG in Austria. 5."GiroCredit" means GiroCredit Aktiengesellschaft der Sparkassen, an Austrian stock company. 6."Governmental Authority" means any court, governmental authority, governmental body, or other regulatory or administrative agency or commission of any government of any country or any private or governmental arbitration or conciliation authority or other similar body. 7."Lien" means any lien, encumbrance, restriction, or other conflicting ownership, equity, or security interest. 8."Losses" means claims asserted, actions, deficiencies, damages, losses, costs, taxes, penalties, expenses, and liabilities (including reasonable attorneys' fees, court costs, investment expenses and any other costs incident to or interest chargeable on any of the foregoing). 9."Original Share Purchase Agreement" means the Share Purchase Agreement dated September 24, 1993 between Harman International Industries, Incorporated, Harman Investment Company, Inc., GiroCredit, IU Holding Ges.m.b.H., GiroCredit Vermogensverwaltungsgesellschaft m.b.H. and AKG. 10."Person" means an individual, a corporation, a partnership, a joint stock company, a joint venture, an estate, a trust, an unincorporated organization, a Governmental Authority, or any other entity. 11."Purchaser" means Harman International Industries, Incorporated, a Delaware corporation. 12."Seller" or "Sellers" means either or both of Shareholder and GiroCredit. 13."Shareholder" means GiroCredit Vermogensverwaltungsgesellschaft m.b.H., an Austrian limited liability company. 55 14."Share" means "Share" as defined in Section 1.1 of this Agreement. 15."Third Party Consent" means "Third Party Consent" as defined in Section 3.4 of this Agreement. 56
EX-10 3 EXHIBIT 10.51 EXHIBIT 10.51 57 THIS PAGE LEFT BLANK INTENTIONALLY 58 PROMISSORY NOTE $30,000,00 New York, New York May 17, 1994 1. FOR VALUE RECEIVED, HARMAN INTERNATIONAL INDUSTRIES, INC., JBL INCORPORATED, AKG ACOUSTICS, INC., STUDER EDITECH, CORP., HARMAN KARDON, INC., HARMAN MOTIVE, INC., INFINITY SYSTEMS, INC., JBL PROFESSIONAL INC., NORTHRIDGE MANUFACTURING GROUP, EPICURE PRODUCTS, INC., PYLE INDUSTRIES, INC., DOD ELECTRONICS CORPORATION, HARCO PROPERTIES, INC., FOSGATE, INC., LEXICON, INC. AND HARMAN INVESTMENT COMPANY, INC. (individually a "Borrower" and collectively the "Borrowers"), jointly and severally, by this promissory note (the "Note") promises to pay to the order of CHEMICAL BANK (the "Bank") the principal amount of THIRTY MILLION ($30,000,000.00) DOLLARS (the "Facility") or the aggregate unpaid principal amount of all advances (individually and "Advance" and collectively "Advances"), made by the Bank to the Borrowers or any of them and recorded on the schedules attached hereto, whichever is less, as selected by the Borrowers as follows: (a) Advances made available by the Bank to a Borrower at the Lending Office and to pay interest on each such Advance on the date indicated on Schedule A attached hereto and made a part hereto at a rate per annum which may be fixed for an Interest Period. The rate to be charged on each such Advance shall be .75% above the rate per annum, adjusted as provided in the last sentence of this paragraph (a), at which U.S. dollar deposits are offered to the Lending Office in the interbank eurodollar market in which such Lending Office customarily deals as a 10:00 a.m., local time of such Lending Office, two Working Days prior to the date of such Advance in an amount equal to the amount of such Advance for delivery on the date of such Advance for the number of days such Advance will be outstanding. The interest rate determined hereunder shall be adjusted by dividing such interest rate by the number equal to 1.00 minus the blended rate (expressed as a decimal fraction) of reserves which are required to be maintained (or which will be required to be maintained), under Regulation D of the Board of Governors of the Federal Reserve System (as in effect on the date of determination of such interest rate), against "Eurocurrency liabilities" (as such term is defined in Regulation D) from time to time during the period for which the interest rate is determined; (b) Advances made available by the Bank to a Borrower, at the Bank's office located at 270 Park Avenue, New York, New York and to pay interest on each such Advance at the Bank's Prime Rate; and (c) Advances made available at the Negotiated Rate; made available by the Bank to a Borrower at the Bank's office located at 270 Park Avenue, New York, New York. 59 (d) Definitions: "Business Day" shall mean a day other than a Saturday, Sunday or other day on which the Bank is authorized to close under the laws of the State of New York. "Domestic Dollar Rate" shall mean the rate of interest described in paragraph (b) or (c) above. "Domestic Dollar Loan(s)" shall mean Advance(s) made pursuant to paragraph (b) or (c) above. "Eurodollar Rate" shall mean the rate of interest described in paragraph (a) above. "Eurodollar Rate Loan(s)" shall mean Advance(s) made pursuant to paragraph (a) above. "Fixed Rate Loan" shall mean a Eurodollar Rate Loan or a Negotiated Rate Loan. "Interest Period" shall mean with respect to each Eurodollar Rate Loan, the period beginning on the borrowing date of such Eurodollar Rate Loan and ending one, two or three months thereafter. "Lending Office" shall mean the Bank's eurodollar lending office designated by the Bank with respect to a Eurodollar Rate Loan. "Negotiated Rate" shall mean the fixed rate of interest per annum set by the Bank for a specified period of time for any particular Advance. "Negotiated Rate Loan" shall mean an Advance(s) at the Negotiated Rate. "Prime Rate" shall mean the rate of interest as is publicly announced by the Bank at its principal office from time to time as its Prime Rate, adjusted as of the date of each such change. "Prime Rate Loans" shall mean Advance(s) made pursuant to paragraph (b) above. "Working Day" shall mean any day on which dealings in currencies and exchange between banks may be carried on in New York, New York, the place where the Lending Office is located and the place where the relevant eurodollar market is located. 2. If all or a portion of any Advance hereunder shall not be paid when due (whether as stated, by acceleration or otherwise), such Advance, if a Eurodollar Rate Loan or a Negotiated Rate Loan shall be converted to a Domestic Dollar Loan at the end of the Interest Period applicable thereto, and the overdue principal amount shall bear interest at a rate per annum which is 2% above the rate which would otherwise be applicable hereunder. 3. Each Advance made pursuant to Paragraphs 1(a) and 1(c) of this Note shall be in a principal amount of not less than $500,000. Each Advance made pursuant to Paragraph 1(b) of this Note shall be in a principal amount of not less than $100,000. 60 4. Advances made pursuant to Paragraphs 1(a) or 1(c) of this Note may not be prepaid without the prior written consent of the Bank. All or any portion of Prime Rate Loans may be repaid at any time and from time to time. 5. If the Bank determines that circumstances affect the interbank eurodollar market make it impracticable to ascertain the interest rate applicable for any Interest Period or impossible to lend at the Eurodollar Rate, the Bank shall promptly notify the Borrowers of such determination and, until such notice is withdrawn, any subsequent Advance shall be a Prime Rate Loan. 6. Each Advance hereunder, the rate charged thereon, and the maturity date, if applicable, shall be noted on the schedules attached hereto and made a part hereof. This Note shall be used to record all payments of principal made hereunder until it is surrendered to the Borrowers by the Bank. The failure of the Bank, however, to record any advance shall not relieve the Borrowers of their obligation to repay such Advance with interest thereon as provided herein. 7. The total amounts advanced to the Borrowers by the Bank shall not exceed $30,000,000 at any time. The total amount advanced by the Bank hereunder shall be decreased by: (a) the aggregate outstanding principal amount of the United States dollar equivalent, as determined by the Bank in its sole discretion, of any Japanese yen overdrafts by Harman Kardon, Inc. honored by the Tokyo branch of the Bank; (b) the aggregate outstanding face amount of letters of credit issued by the Bank for the account of Harman Kardon, Inc., Epicure Products, Inc., Infinity Systems, Inc. or JBL, Incorporated, AKG Acoustics, Inc., Studer Editech, Corp., JBL Professional Inc., Harman Motive, Northridge Manufacturing Group, Lexicon, Inc. and DOD Electronics Corporation plus the aggregate outstanding amount of drafts drawn thereunder for which the Bank has not been reimbursed; (c) the aggregate outstanding principal amount of the United States dollar equivalent, as determined by the Bank in its sole discretion, of any Danish Kroner borrowings under a certain grid note dated August 16, 1993 executed by JBL, Incorporated payable to the Bank; and (d) the aggregate outstanding principal amount of the United States dollar equivalent, as determined by the Bank in its sole discretion, of any Japanese Yen borrowings under a certain grid note dated May 17, 1994 executed by JBL, Incorporated payable to the Bank. 8. Advances shall be credited to any account of the Borrower requesting such Advance maintained at the Bank and the Bank's records shall be conclusive evidence thereof. 9. Interest on Domestic Dollar Loans shall be payable monthly on the first day of each month on the first day of each month and upon payment or prepayment in full of the unpaid principal amount thereof. Interest on Eurodollar Rate Loans shall be payable on the maturity date of each such Advance and upon payment in full of the unpaid principal amount thereof. The principal amount of all Prime Rate Loans shall be payable on demand. The principal amount of all Eurodollar Rate Loans or Negotiated Rate shall be payable on the maturity date of each such Advance. 61 10. If any Domestic Dollar Loan payment becomes due and payable on a Saturday, Sunday or legal holiday under the laws of the State of New York, the maturity thereof shall be extended to the next succeeding Business Day and interest thereon shall be payable at the then applicable rate during such extension. If any Eurodollar rate Loan payment becomes due and payable on a day which is not a Working Day, such payment shall be made on, and interest payable to, the succeeding Working Day, unless the succeeding Working Day shall fall in the succeeding calendar month, in which event such payment shall be made on the preceding Working Day, and any relevant Interest Period shall be adjusted accordingly by the Bank. 11. Interest on Domestic Dollar Loans shall be computed on the basis of a 365 day year for the actual number of days elapsed. Interest on Eurodollar Rate Loans shall be computed on the basis of a 360 day year for the actual number of days elapsed. 12. All payments to be made hereunder by the Borrowers shall be made in immediately available funds at the office of the Bank located at 270 Park Avenue, New York, New York in the case of Domestic Dollar Loans at the office of the Bank located at 4 New York Plaza, New York, New York in the case of Eurodollar Rate Loans. 13(a). If any existing or future applicable law, regulation or directive, or any change therein or in the interpretation thereof, or compliance by the Bank with any request (whether or not having the force of law) of any relevant central bank or other comparable agency, subjects the Bank to any tax of any kind whatsoever with respect to this Note or changes the basis of taxation of payments to the Bank of principal, interest or any other amount payable hereunder (except for changes in the rate of any tax presently imposed on the Bank) or imposes, modifies or deems applicable any reserve, special deposit or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of the Bank which are not otherwise included in the determination of the Eurodollar Rate hereunder, or imposes on the Bank any other condition with respect to the Eurodollar market, the certificate of deposit market, this Note or the Advances evidenced hereby, and the result of any of the foregoing is to increase the cost to the Bank of maintaining Advances or credit hereunder or to reduce any amount receivable in respect thereof, then the Borrowers and each of them agree to pay to the Bank, upon demand, additional amounts which will compensate the Bank for such increased cost or reduced amount receivable as determined by the Bank with respect to this Note. The Bank's certificate as to any additional amounts payable pursuant to the preceding sentence shall be conclusive as to the amounts due in the absence of manifest error or protest of any such payment by the Borrowers. (b) If after the date hereof, the Bank shall have determined that the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Bank with any request or directive regarding capital adequacy (whether or not having the force of law) or any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the Bank's capital as a consequence of its obligations hereunder to a level below that which the Bank could have achieved but for such adoption, change or compliance (taking into consideration the Bank's policies with respect to capital adequacy) by an amount deemed by the Bank to be material, then from time to time, within 15 days after demand by the Bank, the Borrowers shall pay to the Bank such additional amount or amounts as will compensate the Bank for such reduction. The Bank will promptly notify the Borrowers of any event of which it has knowledge, occurring after the date hereof, which will entitle the Bank to compensation pursuant to this Paragraph 13(b). 62 (c) The Borrowers shall reimburse the Bank on demand for any loss incurred or to be incurred by it in the reemployment of the funds released by any prepayment or conversion of any Fixed Rate Loan required or permitted by any provision of this Note, in each case if such Advance is prepaid or converted other than on the last day of an interest period for such Advance. The Borrowers further agree to reimburse the Bank on demand for any loss incurred or to be incurred by it in the reemployment of the funds released by any refusal by the Borrowers to accept any requested Fixed Rate Loan or any requested continuation thereof or conversation thereto. If any prepayment hereunder makes it necessary to apply any principal installment payment on the Note to interest due pursuant to a Fixed Rate Loan, with an interest period extending beyond the date of such installment payment, the Borrowers shall reimburse the Bank upon demand for any loss incurred or to be incurred by the Bank (determined in accordance with the immediately preceding sentence and based on whether such prepayment was voluntary or required) in the reemployment of funds realized on such installment payment and applied to such Fixed Rate Loan. 14. The Borrowers agree to pay all of the Bank's costs and out-of-pocket expenses (including, without limitation, reasonable fees and disbursements of counsel) arising in connection with the enforcement of, and preservation of rights under, this Note. 15. The Borrowers agree to indemnify the Bank for, and to hold the Bank harmless from, any loss or expense which the Bank may sustain or incur as a consequence of the default by the Borrowers in payment of the principal amount of, or interest on, this Note, including any interest payment by the Bank to lenders of funds borrowed by it in order to make or maintain any Advance evidenced hereby. This covenant shall survive payment of this Note. 16. Upon the occurrence, with respect to any Borrower, or any endorser or guarantor of the Note, of any of the following: default in payment of this Note or any other monetary obligation of any nature or description to Bank (collectively the "Obligations"); calling a meeting of any creditors; filing of a voluntary or involuntary petition under the Federal Bankruptcy Code which, in the case of an involuntary petition, is not dismissed, discharged or bonded within 60 days; insolvency; failure to pay or remit any tax when assessed or due unless contested in good faith and by appropriate proceedings; dissolution; suspension or liquidation of usual business; failing to furnish financial information to the Bank or to permit inspection of books or records by the Bank; making any misrepresentations to the Bank in obtaining credit; or, in the Bank's opinion, material impairment of financial responsibility of any of them; then the Obligations shall be due and payable immediately without notice or demand. 17. The Bank shall have a continuing right of set-off on deposits (general and special) and credits with Bank of every Borrower and endorser, and may apply all or part of same to the Obligations (whether contingent or unmatured), at any time or times, without notice. 18. The Borrower hereby irrevocably (a) submits, in any legal proceeding relating to this Note, to the non-exclusive jurisdiction of any state or United States court of competent jurisdiction sitting in the State of New York and agrees to suit being brought in any such court, (b) agrees to service of process in any such legal proceeding by mailing of copies thereof (by registered or certified mail, if practicable) postage prepaid, or by telex, to the Borrowers at the following address: Harman International Industries, Inc. 8500 Balboa Blvd. Northridge, CA 91329 Attn: Bernard A. Girod 63 and (c) agrees that nothing contained herein shall affect the Bank's right to effect service of process in any other manner permitted by law. 19. This Note shall be governed by and construed in accordance with the laws of the State of New York. HARMAN INTERNATIONAL INDUSTRIES, INC. By: /s/ Bernard A. Girod Title: President JBL INCORPORATED By: /s/ Bernard A. Girod Title: President JBL PROFESSIONAL, INC. By: /s/ Bernard A. Girod Title: President HARMAN KARDON, INC. By: /s/ Bernard A. Girod Title: President HARMAN MOTIVE, INC. By: /s/ Bernard A. Girod Title: President INFINITY SYSTEMS, INC. By: /s/ Bernard A. Girod Title: President 64 AKG ACOUSTICS, INC. By: /s/ Bernard A. Girod Title: President STUDER EDITECH, CORP. By: /s/ Bernard A. Girod Title: President EPICURE PRODUCTS, INC. By: /s/ Bernard A. Girod Title: President PYLE INDUSTRIES, INC. By: /s/ Bernard A. Girod Title: President HARCO PROPERTIES, INC. By: /s/ Bernard A. Girod Title: President HARMAN INVESTMENT COMPANY, INC. By: /s/ Bernard A. Girod Title: President DOD ELECTRONICS CORPORATION By: /s/ Bernard A. Girod Title: President FOSGATE, INC. By: /s/ Bernard A. Girod Title: President LEXICON, INC. By: /s/ Bernard A. Girod_ Title: President HARMAN MOTIVE By: /s/ Bernard A. Girod Title: President 65 NORTHRIDGE MANUFACTURING GROUP By: /s/ Bernard A. Girod Title: President 66 SCHEDULE A (1(a) (Eurodollar Rate Loans) Interest Amount of Unpaid Date of Name of Amount of Maturity Rate Per Principal Notation Advance Borrower Advance Date Annum Paid Balance Made By 67 SCHEDULE B (1(b) (Prime Loans) Amount of Unpaid Date of Name of Amount of Principal Principal Notation Advance Borrower Advance Paid Balance Made By 68 PROMISSORY NOTE Danish Kroner (See Attached Schedule) New York, New York May 17, 1994 1. JBL, INCORPORATED (the "Borrower"), by this promissory note (the "Note") promises to pay to the order of CHEMICAL BANK (the "Bank") the aggregate unpaid principal amount of all advances (individually an "Advance" and collectively "Advances"), made by the Bank to the Borrower and recorded on the schedule attached hereto, as follows: Advances made available by the Bank to the Borrower at the Lending Office and to pay interest on each such Advance on the dates indicated on Schedule A attached hereto and made a part hereof at a rate per annum which may be fixed for an Interest Period. The rate to be charged on each Advance shall be .75% above the rate per annum, adjusted as provided in the last sentence of this paragraph, in the interbank eurocurrency market in which such Lending Office customarily deals as at 10:00 a.m., local time of such Lending Office, two Working Days prior to the date of such Advance in an amount equal to the amount of such Advance for delivery on the date of such Advance for the number of days such Advance will be outstanding. The interest rate determined hereunder shall be adjusted by dividing such interest rate by the number equal to 1.00 minus the blended rate (expressed as a decimal fraction) of reserves which are required to be maintained (or which will be required to be maintained), under Regulation D of the Board of Governors of the Federal Reserve System (as in effect on the date of determination of such interest rate), against "Eurocurrency liabilities" (as such term is defined in Regulation D) from time to time during the period for which the interest rate is determined; "Eurokroner Rate" shall mean the rate of interest described in paragraph 1 hereof. "Interest Period" shall mean with respect to each Advance hereunder, the period beginning on the borrowing date of such Advance and ending two, three and six months thereafter. "Lending Office" shall mean the Bank's eurocurrency lending office designated by the Bank with respect to an Advance hereunder. 69 "Reserve Percentage" shall mean for any day, that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor), for determining the reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding one billion dollars in respect of new non-personal time deposits in dollars in New York City having a maturity comparable to the relevant Interest Period for any advance and in an amount of $100,000 or more. "Working Day" shall mean any day on which dealings in currencies and exchange between banks may be carried on in New York, New York, the place where the relevant Lending Office is located and the place where the relevant eurocurrency market is located. 2. Each Advance made hereunder shall be in a principal amount of not less than the Danish Kroner equivalent of U.S. Dollars $100,000, as the Bank shall determine in its sole discretion. 3. Advances made hereunder may not be prepaid without the prior written consent of the Bank. 4. If the Bank determines that circumstances affecting the interbank eurocurrency market make it impracticable to ascertain the interest rate applicable for any Interest Period or impossible to lend at the Eurokroner Rate, the Bank shall promptly notify the Borrower of such determination and, if such notice is not withdrawn by the last day of such Interest Period prepay the outstanding principal of the affected Advance plus accrued interest thereon in full. 5. Each advance hereunder, the rate charged thereon, and the maturity date, if applicable shall be noted on the schedule attached hereto and made a part hereof. This Note shall be used to record all payments of principal made hereunder until it is surrendered to the Borrower by the Bank. The failure of the Bank, however, to record any Advance shall not relieve the Borrower of its obligation to repay such Advance with Interest thereon as provided herein. 6. The obligation of the Borrower hereunder to make payments in Danish Kroner shall not be discharged or satisfied by any tender or recovery pursuant to any judgement expressed in or converted into any other currency except to the extent that such tender or recovery results in the effective receipt by the Bank (and the Bank shall have an additional legal claim) for any difference between such full amount and the amount effectively received by the Bank pursuant to any such tender or recovery. The Bank's determination of amounts effectively received by it shall be conclusive. 70 7. Advances shall be credited to any account of the Borrower requesting such Advance maintained at the Bank and the Bank's records shall be conclusive evidence thereof. 8. Interest on Advances hereunder shall be payable at the maturity of each such Advance, on the ninetieth day of any Interest Period of 6 months and upon payment in full of the unpaid principal amount thereof. The principal amount of Advances hereunder shall be payable at the maturity date of each such Advance. 9. If any payment on any Advances becomes due and payable on a day which is not a Working Day, such payment shall be made on, and interest payable to, the succeeding Working Day, unless the succeeding Working Day shall fall in the succeeding calendar month, in which event such payment shall be made on the preceding Working Day, and any relevant Interest Period shall be adjusted accordingly by the Bank. 10. Interest on Advances made hereunder shall be computed on the basis of a 360 day year for the actual number of days elapsed. 11. All payments to be made hereunder shall be in immediately available funds in Danish Kroner at such banking institution in Denmark as the Bank may designate, for the account of the Nassau, Bahamas branch of the Bank, or such other Lending Office as the Bank may designate from time to time. 12. The Borrower agrees to indemnify Bank for, and hold Bank harmless from, any present or future claim or liability for any registration charge or any stamp, excise or other similar taxes and any penalties or interest with respect thereto, which may be imposed by any jurisdiction in connection with this Note or enforcement thereof. 13. (a) If any existing or future applicable law, regulation or directive, or any change therein or in the interpretation thereof, or compliance by the Bank with any request (whether or not having the force of law) of any relevant central bank or other comparable agency, subjects the Bank to any tax of any king whatsoever with respect to this Note or changes the basis of taxation of payments to the Bank of principal, interest or any other amount payable hereunder (except for changes in the rate of any tax presently imposed on the Bank) or imposes, modifies or deems applicable any reserve, special deposit or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of the Bank which are not otherwise included in the determination of the Eurokroner rate, or imposes on the Bank any other condition with respect to the eurocurrency market, this Note or the Advances evidenced hereby, and the result of any of the foregoing is to increase the cost to the Bank of maintaining Advances or credit hereunder or to reduce any amount receivable in respect thereof, then the Borrower agrees to pay to the Bank, upon demand, additional amounts which will compensate the Bank for such 71 increased cost or reduced amount receivable as determined by the Bank with respect to this Note. The Bank's certificate as to any additional amounts payable pursuant to the preceding sentence shall be conclusive as to the amounts due in the absence of manifest error or protest of any such payment by the Borrower. (b) If after the date hereof, the Bank shall have determined that the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Bank with any request or directive regarding capital adequacy (whether or not having the force of law) or any such authority, central bank or agency, has or would have the effect of reducing the rate of return on the Bank's capital as a consequence of its obligations hereunder to a level below that which the Bank could have achieved but for such adoption, change or compliance (taking into consideration the Bank's policies with respect to capital adequacy) by an amount deemed by the Bank to be material, then from time to time, within 15 days after demand by the Bank, the Borrower shall pay to the Bank such additional amount or amounts as will compensate the Bank for such reduction. The Bank will promptly notify the Borrower of any event of which it has knowledge, occurring after the date hereof, which will entitle the Bank to compensation pursuant to this Paragraph 13(b). 14. The Borrower agrees to pay all of the Bank's costs and out-of-pocket expenses (including, without limitation, reasonable fees and disbursements of counsel) arising in connection with the enforcement of, and preservation of rights under, this Note. 15. The Borrower agrees to indemnify the Bank for, and to hold the Bank harmless from, any loss or expense which the Bank may sustain or incur as a consequence of the default by the Borrower in payment of the principal amount of, or interest on, this Note, including any interest payment by the Bank to lenders of funds borrowed by it in order to make or maintain the loan evidenced hereby. This covenant shall survive payment of this Note. 16. Upon the occurrence, with respect to any Borrower, or any endorser or guarantor of the Note, of any of the following: default in payment of this Note or any other monetary obligation of any nature or description to Bank (collectively the "Obligations"); calling a meeting of any creditors; filing of a voluntary or involuntary petition under the Federal Bankruptcy Code which, in the case of an involuntary petition, is not dismissed, discharged or bonded within 60 days; insolvency; failure to pay or remit any tax when assessed or due unless contested in good faith and by appropriate proceedings; dissolution; suspension or liquidation of usual business; failing to furnish financial information to the Bank or to permit inspection of books or records by the Bank; making any misrepresentations to the Bank in obtaining credit; or, in the Bank's opinion, material impairment of financial responsibility of any of them; then the Obligations shall be due and payable immediately without notice or demand. 72 17. The Bank shall have a continuing right of set-off on deposits (general and special) and credits with Bank of every Borrower and endorser, and may apply all or part of same to the Obligations (whether contingent or unmatured), at any time or times, without notice. 18. The Borrower hereby irrevocably (a) submits, in any legal proceeding relating to this Note, to the non-exclusive in personam jurisdiction of any state or United States court of competent jurisdiction sitting in the State of New York and agrees to suit being brought in any such court, (b) agrees to service of process in any such legal proceeding by mailing of copies thereof (by registered or certified mail, if practicable) postage prepaid, or by telex, to the Borrower at the following address: JBL, Incorporated 8500 Balboa Boulevard Northridge, CA 91329 and (c) agrees that nothing contained herein shall affect the Bank's right to effect service of process in any other manner permitted by law. 19. This Note shall be governed by and construed in accordance with the laws of the State of New York. JBL INCORPORATED By: /s/ Bernard A. Girod Title:_President____________ 74 SCHEDULE A ADVANCES Interest Amount of Unpaid Date of Name of Amount of Maturity Rate Per Principal Principal Notation Principal Borrower Advance Date Annum Paid Balance Made By 75 PROMISSORY NOTE Japanese Yen (See Attached Schedule) New York, New York May 17, 1994 1. JBL, INCORPORATED (the "Borrower"), by this promissory note (the "Note") promises to pay to the order of CHEMICAL BANK (the "Bank") the aggregate unpaid principal amount of all advances (individually an "Advance" and collectively "Advances"), made by the Bank to the Borrower and recorded on the schedule attached hereto, as follows: Advances made available by the Bank to the Borrower at the Lending Office and to pay interest on each such Advance on the dates indicated on Schedule A attached hereto and made a part hereof at a rate per annum which may be fixed for an Interest Period. The rate to be charged on each Advance shall be .75% above the rate per annum, adjusted as provided in the last sentence of this paragraph, in the interbank eurocurrency market in which such Lending Office customarily deals as at 10:00 a.m., local time of such Lending Office, two Working Days prior to the date of such Advance in an amount equal to the amount of such Advance for delivery on the date of such Advance for the number of days such Advance will be outstanding. The interest rate determined hereunder shall be adjusted by dividing such interest rate by the number equal to 1.00 minus the blended rate (expressed as a decimal fraction) of reserves which are required to be maintained (or which will be required to be maintained), under Regulation D of the Board of Governors of the Federal Reserve System (as in effect on the date of determination of such interest rate), against "Eurocurrency liabilities" (as such term is defined in Regulation D) from time to time during the period for which the interest rate is determined; "Euroyen Rate" shall mean the rate of interest described in paragraph 1 hereof. "Interest Period" shall mean with respect to each Advance hereunder, the period beginning on the borrowing date of such Advance and ending two, three and six months thereafter. "Lending Office" shall mean the Bank's eurocurrency lending office designated by the Bank with respect to an Advance hereunder. 76 "Reserve Percentage" shall mean for any day, that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor), for determining the reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding one billion dollars in respect of new non-personal time deposits in dollars in New York City having a maturity comparable to the relevant Interest Period for any advance and in an amount of $100,000 or more. "Working Day" shall mean any day on which dealings in currencies and exchange between banks may be carried on in New York, New York, the place where the relevant Lending Office is located and the place where the relevant eurocurrency market is located. 2. Each Advance made hereunder shall be in a principal amount of not less than the Japanese Yen equivalent of U.S. Dollars $100,000, as the Bank shall determine in its sole discretion. 3. Advances made hereunder may not be prepaid without the prior written consent of the Bank. 4. If the Bank determines that circumstances affecting the interbank eurocurrency market make it impracticable to ascertain the interest rate applicable for any Interest Period or impossible to lend at the Eurokroner Rate, the Bank shall promptly notify the Borrower of such determination and, if such notice is not withdrawn by the last day of such Interest Period prepay the outstanding principal of the affected Advance plus accrued interest thereon in full. 5. Each advance hereunder, the rate charged thereon, and the maturity date, if applicable shall be noted on the schedule attached hereto and made a part hereof. This Note shall be used to record all payments of principal made hereunder until it is surrendered to the Borrower by the Bank. The failure of the Bank, however, to record any Advance shall not relieve the Borrower of its obligation to repay such Advance with Interest thereon as provided herein. 6. The obligation of the Borrower hereunder to make payments in Japanese Yen shall not be discharged or satisfied by any tender or recovery pursuant to any judgement expressed in or converted into any other currency except to the extent that such tender or recovery results in the effective receipt by the Bank of the full amount of Japanese Yen payable hereunder and the Borrower shall indemnify the Bank (and the Bank shall have an additional legal claim) for any difference between such full amount and the amount effectively received by the Bank pursuant to any such tender or recovery. The Bank's determination of amounts effectively received by it shall be conclusive. 77 7. Advances shall be credited to any account of the Borrower requesting such Advance maintained at the Bank and the Bank's records shall be conclusive evidence thereof. 8. Interest on Advances hereunder shall be payable at the maturity of each such Advance, on the ninetieth day of any Interest Period of 6 months and upon payment in full of the unpaid principal amount thereof. The principal amount of Advances hereunder shall be payable at the maturity date of each such Advance. 9. If any payment on any Advances becomes due and payable on a day which is not a Working Day, such payment shall be made on, and interest payable to, the succeeding Working Day, unless the succeeding Working Day shall fall in the succeeding calendar month, in which event such payment shall be made on the preceding Working Day, and any relevant Interest Period shall be adjusted accordingly by the Bank. 10. Interest on Advances made hereunder shall be computed on the basis of a 360 day year for the actual number of days elapsed. 11. All payments to be made hereunder shall be in immediately available funds in Japanese Yen at such banking institution in Japan as the Bank may designate, for the account of the Nassau, Bahamas branch of the Bank, or such other Lending Office as the Bank may designate from time to time. 12. The Borrower agrees to indemnify Bank for, and hold Bank harmless from, any present or future claim or liability for any registration charge or any stamp, excise or other similar taxes and any penalties or interest with respect thereto, which may be imposed by any jurisdiction in connection with this Note or enforcement thereof. 13. (a) If any existing or future applicable law, regulation or directive, or any change therein or in the interpretation thereof, or compliance by the Bank with any request (whether or not having the force of law) of any relevant central bank or other comparable agency, subjects the Bank to any tax of any king whatsoever with respect to this Note or changes the basis of taxation of payments to the Bank of principal, interest or any other amount payable hereunder (except for changes in the rate of any tax presently imposed on the Bank) or imposes, modifies or deems applicable any reserve, special deposit or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of the Bank which are not otherwise included in the determination of the Eurokroner rate, or imposes on the Bank any other condition with respect to the eurocurrency market, this Note or the Advances evidenced hereby, and the result of any of the foregoing is to increase the cost to the Bank of maintaining Advances or credit hereunder or to reduce any amount receivable in respect thereof, then the Borrower agrees to pay to the Bank, upon demand, additional amounts which will compensate the Bank for such 78 increased cost or reduced amount receivable as determined by the Bank with respect to this Note. The Bank's certificate as to any additional amounts payable pursuant to the preceding sentence shall be conclusive as to the amounts due in the absence of manifest error or protest of any such payment by the Borrower. (b) If after the date hereof, the Bank shall have determined that the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Bank with any request or directive regarding capital adequacy (whether or not having the force of law) or any such authority, central bank or agency, has or would have the effect of reducing the rate of return on the Bank's capital as a consequence of its obligations hereunder to a level below that which the Bank could have achieved but for such adoption, change or compliance (taking into consideration the Bank's policies with respect to capital adequacy) by an amount deemed by the Bank to be material, then from time to time, within 15 days after demand by the Bank, the Borrower shall pay to the Bank such additional amount or amounts as will compensate the Bank for such reduction. The Bank will promptly notify the Borrower of any event of which it has knowledge, occurring after the date hereof, which will entitle the Bank to compensation pursuant to this Paragraph 13(b). 14. The Borrower agrees to pay all of the Bank's costs and out-of-pocket expenses (including, without limitation, reasonable fees and disbursements of counsel) arising in connection with the enforcement of, and preservation of rights under, this Note. 15. The Borrower agrees to indemnify the Bank for, and to hold the Bank harmless from, any loss or expense which the Bank may sustain or incur as a consequence of the default by the Borrower in payment of the principal amount of, or interest on, this Note, including any interest payment by the Bank to lenders of funds borrowed by it in order to make or maintain the loan evidenced hereby. This covenant shall survive payment of this Note. 16. Upon the occurrence, with respect to any Borrower, or any endorser or guarantor of the Note, of any of the following: default in payment of this Note or any other monetary obligation of any nature or description to Bank (collectively the "Obligations"); calling a meeting of any creditors; filing of a voluntary or involuntary petition under the Federal Bankruptcy Code which, in the case of an involuntary petition, is not dismissed, discharged or bonded within 60 days; insolvency; failure to pay or remit any tax when assessed or due unless contested in good faith and by appropriate proceedings; dissolution; suspension or liquidation of usual business; failing to furnish financial information to the Bank or to permit inspection of books or records by the Bank; making any misrepresentations to the Bank in obtaining credit; or, in the Bank's opinion, material impairment of financial responsibility of any of them; then the Obligations shall be due and payable immediately without notice or demand. 79 17. The Bank shall have a continuing right of set-off on deposits (general and special) and credits with Bank of every Borrower and endorser, and may apply all or part of same to the Obligations (whether contingent or unmatured), at any time or times, without notice. 18. The Borrower hereby irrevocably (a) submits, in any legal proceeding relating to this Note, to the non-exclusive in personam jurisdiction of any state or United States court of competent jurisdiction sitting in the State of New York and agrees to suit being brought in any such court, (b) agrees to service of process in any such legal proceeding by mailing of copies thereof (by registered or certified mail, if practicable) postage prepaid, or by telex, to the Borrower at the following address: JBL, Incorporated 8500 Balboa Boulevard Northridge, CA 91329 and (c) agrees that nothing contained herein shall affect the Bank's right to effect service of process in any other manner permitted by law. 19. This Note shall be governed by and construed in accordance with the laws of the State of New York. JBL INCORPORATED By: /s/ Bernard A. Girod Title:_President____________ 80 SCHEDULE A ADVANCES Interest Amount of Unpaid Date of Name of Amount of Maturity Rate Per Principal Principal Notation Principal Borrower Advance Date Annum Paid Balance Made By 81
EX-10 4 EXHIBIT 10.52 EXHIBIT 10.52 81 THIS PAGE LEFT BLANK INTENTIONALLY 82 May 5, 1994 PROMISSORY NOTE FOR VALUE RECEIVED, the undersigned (the "Borrowers"), jointly and severally promise unconditionally to pay to the order of NationsBank of North Carolina, N.A., its successors or assigns (the "Bank"), during regular business hours at the office of the Bank as the Bank may from time to time designate in writing to the Borrowers), the principal amount of all Advances (as hereinafter defined), together with all interest thereon and all other amounts payable hereunder, at the times and in accordance with the terms and conditions set forth herein. 1. Advances. (a) The Borrowers, in accordance with the terms hereof, may from time to time until February 28, 1995(the "Termination Date"), request advances from the Bank for the general corporate purposes of the Borrower in U.S. Dollars based upon Offered Rates (as defined below) offered by the Bank and accepted by the Borrowers (the "U.S. Dollar Advances") or in Applicable Non-U.S. Currencies based upon Adjusted Eurocurrency Rates (as defined below) and offered by the Bank and accepted by the Borrowers (the "Eurocurrency Advances") (hereinafter the U.S. Dollar Advances and the Eurocurrency Advances shall be referred to collectively as the "Advances" or individually as an "Advance"), provided that the U.S. Dollar equivalent of the aggregate amount of such Advances at any time outstanding (as determined by the Bank in its sole discretion) shall not exceed U.S. $15,000,000.00. Upon receipt of such a request for an Advance hereunder, the Bank shall make any such Advance hereunder on the terms and conditions set forth herein; provided, however, the Bank shall not be obligated to make such Advance if immediately after the making of such Advance, the U.S. Dollar equivalent of the outstanding principal balance of all Advances (as determined by the Bank in its sole discretion) would exceed U.S. $15,000,000.00. (b) To request an offer for a Eurocurrency Advance hereunder, the Borrowers shall make a written request (hereinafter, a "Request for Eurocurrency Advance") not later than 10:30 a.m. (local time of the Lending Office) three Business Days before the proposed Eurocurrency Advance which notice shall specify (i) that the requested Eurocurrency Advance would be made under this Note, (ii) the date of the requested Eurocurrency Advance (which shall be a Business Day), (iii) the Applicable Non-U.S. Currency for the requested Eurocurrency Advance, (iv) the amount of the requested Eurocurrency Advance which shall be no less than minimum amounts established by the Bank from time to time, and (v) the requested Interest Period with respect thereto. In response to any such Request for Eurocurrency Advance, the Bank shall respond to the Borrowers by 10:30 a.m. (local time of the Lending Office) on the second Business Day before the proposed Eurocurrency Advance specifying the applicable Adjusted Eurocurrency Rate for such Eurocurrency Advance (the "Offer for Eurocurrency Advance") and the Borrowers may then in their sole discretion, accept or reject the Offer for Eurocurrency Advance. Failure by the Borrowers to accept an Offer for Eurocurrency Advance by the appropriate time shall be deemed to be rejection of such Offer for Eurocurrency Advance. The terms of each Eurocurrency Advance shall be noted on the schedule attached hereto, the terms of which shall be presumed correct absent evidence of error; provided, however that any failure to make such notation (or any inaccuracy in such notation) shall not limit or otherwise affect the obligations of the Borrowers hereunder. 83 (c) To request an offer for a U.S. Dollar Advance hereunder, the Borrowers shall make a written request (hereinafter, a "Request for U.S. Dollar Advance") not later than 10:00 a.m. (local time of the Lending Office) on the Business Day of the proposed U.S. Dollar Advance which notice shall specify (i) that the requested U.S. Dollar Advance would be made under this Note, (ii) the amount of the requested U.S. Dollar Advance which shall be no less than minimum amounts established by the Bank from time to time, and (iii) the requested Interest Period with respect thereto. In response to any such Request for U.S. Dollar Advance, the Bank shall respond to the Borrowers by 11:00 a.m. (local time of the Lending Office) on the Business Day of the proposed U.S. Dollar Advance specifying the applicable Offered Rate for such Advance (the "Offer for U.S. Dollar Advance"). The Borrowers may then by telephone or telecopy (and if by telephone, promptly confirmed by telecopy) by 12:00 noon (local time of the Lending Office) on the Business Day of the proposed U.S. Dollar Advance, in their sole discretion, accept or reject the Offer for U.S. Dollar Advance. Failure by the Borrowers to accept an Offer for U.S. Dollar Advance by the appropriate time shall be deemed to be rejection of such Offer for U.S. Dollar Advance. The terms of each U.S. Dollar Advance shall be noted on the schedule attached hereto, the terms of which shall be presumed correct absent evidence of error; provided, however that any failure to make such notation (or any inaccuracy in such notation) shall not limit or otherwise affect the obligations of the Borrowers hereunder. (d) As used herein, the following terms shall have the following meanings: "Adjusted Eurocurrency Rate" means for the respective Interest Period with respect to any Eurocurrency Advance, a per annum interest rate equal to the per annum rate obtained by dividing (a) the rate of interest determined by the Bank to be the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the per annum rates at which deposits in the Applicable Non-U.S. Currency are offered to the Lending Office in the interbank eurocurrency market in which such Lending Office customarily deals at 11:00 a.m. (local time of such Lending Office), in each case on the first day of such Interest Period in an amount substantially equal to the requested Advance and for a period equal to such Interest Period by (b) a percentage equal to 100% minus maximum reserve requirements which may be applicable with respect to such Eurocurrency Advance; "Applicable Non-U.S. Currencies" means Canadian Dollars, U.K. Pounds Sterling, German Deutsche Marks, Hong Kong Dollars, Belgium Francs, French Francs, Austrian Schillings, Danish Kroner, Swiss Francs and Japanese Yen; "Business Day" shall mean any day on which dealings in currencies and exchange between banks may be carried on in the place where the relevant Lending Office is located and in the case of Eurocurrency Advances, the place where the relevant eurocurrency market is located; "Interest Period" means (i) with respect to U.S. Dollar Advances, the period of time selected by the Borrowers and agreed to by the Bank which shall not be less than 1 day nor greater than 29 days; and (ii) with respect to Eurocurrency Advances, a period of one, two, three or six months duration as may be selected by the Borrowers; provided, however, that (A) each Interest Period which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day unless such succeeding Business Day falls in the next calendar month and then 84 in such case on the next preceding Business Day and (B) no Interest Period shall extend beyond the Termination Date; "Lending Office" shall mean (i) the Bank's eurocurrency lending office designated by the Bank with respect to a Eurocurrency Advance hereunder and (ii) the Bank's Charlotte, North Carolina office with respect to a U.S. Dollar Advance; and "Offered Rate" means with respect to any U.S. Dollar Advance, the interest rate offered by the Bank to the Borrower with respect thereto for the applicable Interest Period. 2. Principal. The outstanding principal balance of each Advance together with all accrued and unpaid interest thereon shall be due and payable ON DEMAND; provided, however, if demand is not sooner made, such amounts shall be due and payable on the earlier of (i) the last day of the respective Interest Period for such Advance or (ii) the Termination Date; provided further, if the U.S. Dollar equivalent of the outstanding principal balance of the Advances (as determined by the Bank in its sole discretion) shall at any time exceed U.S. $15,000,000.00, the Borrowers shall make an immediate repayment to the Bank for purposes of eliminating such excess. 3. Interest. Each Eurocurrency Advance shall bear interest on the outstanding balance hereunder at a per annum interest rate equal to the Adjusted Eurocurrency Rate relating to such Eurocurrency Advance plus 1.15% per annum. Each U.S. Dollar Advance shall bear interest on the outstanding principal balance thereof at a per annum interest rate equal to the Offered Rate. Unless otherwise agreed, accrued interest with respect to each Advance shall be payable in arrears on the last day of an Interest Period for such Advance, but in any event not less frequently than once every month on the first day of each month. Whenever a payment on this Note is stated to be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day with interest accruing to the date of payment. Interest hereunder shall be computed on the basis of actual number of days elapsed over a year of 360 days. 4. Payments. All payments made on a Eurocurrency Advance shall be made in the Applicable Non-U.S. Currency in which such Eurocurrency Advance was made. All payments on a U.S. Dollar Advance shall be made in U.S. Dollars. 5. Prepayments. Prepayments are not permitted prior to maturity of Interest Periods. The Borrowers agree to indemnify the Bank against all reasonable losses, expenses and liabilities sustained by the Bank on account of the Borrowers (i) failing to accept an Advance after notice to the Bank of its acceptance of any such Advance and (ii) making a prepayment on an Advance prior to the last day of an Interest period. 6. Yield Indemnification. In the event the Bank shall determine (which determination shall be presumed correct absent evidence of error) that: (i) Unavailability. On any date for determining the appropriate Adjusted Eurocurrency Rate for any Interest Period, that by reason of any changes arising on or after the date of this Note affecting the interbank eurocurrency market, deposits in the Applicable Non-U.S. Currency in the principal amount requested are not generally available or adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of Adjusted Eurocurrency Rate, then Eurocurrency Advances in such currency hereunder will not be available until such time as the Bank shall notify the Borrowers that the circumstances giving rise thereto no longer exist. (ii) Increased Costs. At any time, that the Bank shall incur increased costs or reductions in the amounts received or receivable 85 hereunder with respect to any Eurocurrency Advances because of any change since the date of this Note in any applicable law, governmental rule, regulation, guideline or order (or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, guideline or order) including without limitation the imposition, modification or deemed applicability of any reserves, deposits or similar requirements as related to any Eurocurrency Advances (such as, for example, but not limited to, a change in official reserve requirements, but, in all events, excluding reserves to the extent included in the computation of the Adjusted Eurocurrency Rate; then the Borrowers shall pay to the Bank promptly upon written demand therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as the Bank may determine in its reasonable discretion) as may be required to compensate the Bank for such increased costs or reductions in amounts receivable hereunder (written notice as to the additional amounts owed to the Bank, showing the basis for calculation thereof, shall, absent evidence of error, be binding on all parties hereto). (iii) Illegality. At any time, that the making or continuance of any Eurocurrency Advance in any Applicable Non-U.S. Currency has become unlawful by compliance by the Bank in good faith with any law, governmental rule, regulation, guideline or order (or would conflict with any such governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful), or has become impractical as a result of a contingency occurring after the date of this Note which materially and adversely affects the interbank eurocurrency market, then Eurocurrency Advances in such Applicable Non-U.S. Currency will no longer be available. 7. Capital Adequacy. If the Bank shall have determined that the adoption or effectiveness of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change after the date hereof in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation of administration thereof, or compliance by the Bank with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has the effect of materially reducing the rate of return on the Bank's capital or assets as a consequence of its commitments or obligations hereunder to a level below that which the Bank could have achieved but for such adoption, effectiveness, change or compliance (taking into consideration the Bank's policies with respect to capital adequacy), then from time to time, within 15 days after demand by the Bank the Borrowers shall pay to the Bank such additional amount or amounts as will compensate the Bank for such reduction. Upon determining in good faith than any additional amounts will be payable pursuant to this Section, the Bank will give prompt written notice thereof to the Borrowers, which notice shall set forth the basis of the calculation of such additional amounts, although the failure to give any such notice shall not release or diminish any of the Borrowers' obligations to pay additional amounts pursuant to this paragraph. Determination by the Bank of amounts owing under this paragraph shall, absent evidence of error, be binding on the parties hereto. Failure on the part of the Bank to demand compensation for any period hereunder shall not constitute a waiver of the Bank's rights to demand any such compensation in such period or in any other period. 8. Taxes. All payments made by the Borrowers hereunder will be made without (but without waiving any rights with respect to) setoff or counterclaim. Promptly upon notice from the Bank to the Borrowers, the Borrowers will pay, prior to the date on which penalties attach thereto, but without duplication, all present and future, stamp and other taxes, levies, or costs and charges whatsoever imposed, assessed, levied or collected on or in respect of Eurocurrency Advances hereunder solely as a result of the interest 86 rate being determined by reference to the Adjusted Eurocurrency Rate and/or the provisions of this Note relating to the Adjusted Eurocurrency Rate and/or the recording, registration, notarization or other formalization of any thereof and/or any payments of principal, interest or other amounts made on or in respect of advances hereunder when the interest rate is determined by reference to the Adjusted Eurocurrency Rate and any increases thereof (all such taxes, levies, costs and charges being herein collectively call "Taxes"), provided that Taxes shall not include taxes imposed on or measured by the income of the Bank by the United States of America or any political subdivision or taxing authority thereof or therein, or taxes on or measured by the overall net income of any foreign office, branch or subsidiary of the Bank by any foreign country of subdivision thereof in which that office, branch or subsidiary is doing business. Promptly after the date on which payment of any such Tax is due pursuant to applicable law, the Borrowers will at the request of the Bank, furnish to the Bank evidence, in form and substance satisfactory to the Bank, that the Borrowers have met their obligations under this paragraph. The Borrowers will indemnify the Bank against, and reimburse the Bank on demand for, any Taxes, as determined by the Bank in its good faith discretion. The Bank shall provide the Borrowers with appropriate receipts for any payments or reimbursements made by the Borrowers pursuant to this Section. 9. Late Charge. If the Borrowers fail to make any payment due hereunder within fifteen (15) days of the date such payment is due and payable, the Borrowers shall pay to the Bank on demand a late charge ("Late Charge") equal to five percent (5%) of the amount of any such payment. Such charge shall be in addition to, and not in lieu of, any other right or remedy the Bank may have, including the right to receive principal and interest and to reimbursement of costs and expenses. Such charge, if not previously paid shall, at the option of the Bank, be added to and become a part of the next succeeding payment to be made hereunder. 10. Default Interest Rate. After the maturity of this Note (whether by acceleration, declaration, extension or otherwise), the principal amount outstanding on the date of maturity plus accrued and unpaid interest earned to maturity shall bear interest at the rate of interest which is otherwise applicable on this Note, plus two percent (2%) per annum. 11. Letters of Credit. The Bank agrees to issue letters of credit (the "Letters of Credit") for the benefit of the Borrowers for the general corporate purposes of the Borrowers provided that (i) the Borrowers and the Bank have mutually agreed upon the terms and conditions of such Letters of Credit and the obligations of the Borrowers to the Bank with respect thereto prior to the issuance of any such Letter of Credit, (ii) no Letter of Credit shall have an expiration date beyond the Termination Date, (iii) the aggregate undrawn amounts of the Letters of Credit plus the outstanding principal amount of amounts drawn under the Letters of Credit and not reimbursed by the Borrowers (hereinafter collectively referred to as the "Letter of Credit Obligations") shall not exceed U.S. $5,000,000.00 at any time outstanding, (iv) the Letter of Credit Obligations shall constitute usage of the aggregate amount of Advances available to the Borrowers under this Note and (v) the U.S. Dollar equivalent of the outstanding principal balance of the Advances plus the Letter of Credit Obligations (as determined by the Bank in its sole discretion) shall not exceed U.S. $15,000,000.00 at any time outstanding. 12. Obligations. The full and punctual observance and performance of all present and future duties, covenants and responsibilities due to the Bank by the Borrowers of any nature whatsoever, including to the fullest extent permitted by applicable law, all past, present and future indebtedness and liabilities of the Borrowers to the Bank for the payment of money (extending to all principal, interest, fees, expense payments, liquidation costs, and attorney's fees and expenses), whether similar or dissimilar, related or unrelated, matured or unmatured, direct or indirect, contingent or noncontingent, primary or secondary, alone or jointly with others, now due or 87 to become due, now existing or hereafter created, and whether or not now contemplated shall collectively be referred to as the "Obligations". 13. Loan Documents. The Obligations of the Borrowers evidenced by this Note are secured by, guaranteed by, and are a part of the obligations referred to in, any note, letter agreement, line of credit agreement, commercial financing agreement, security agreement, guaranty of payment, mortgage, deed of trust, pledge agreement, loan agreement, hypothecation agreement, indemnity agreement, letter of credit application and agreement, assignment, or any other document or agreement previously, simultaneously or hereafter executed and delivered by the Borrowers and/or by any other Obligor, as hereinafter defined, singly or jointly with another person or persons to the Bank, in connection with Obligations, whether or not this Note is specifically referred to therein. (as the same may from time to time be amended, restated, supplemented or otherwise modified, collectively, the "Loan Documents"). 14. Waiver. The Borrowers and, upon signing this Note, any other Obligor (which term shall mean individually and collectively, the Borrowers, each endorser, guarantor and surety of this Note, any person who is primarily or secondarily liable for the repayment of this Note or any of the Obligations, or any portion thereof, and any person who has granted security for the repayment of this Note or any of the Obligations) hereby jointly and severally waive demand, presentment for payment, protest, notice of demand, of non-payment, of dishonor and of protest and agree that at any time and from time to time and with or without consideration, the Bank may, without notice to or further consent of the Borrowers or any such other Obligor and without in any manner releasing, lessening or affecting the obligations of the Borrowers or any Obligor hereunder and under any of the Loan Documents: (a) release, surrender, waive, add, substitute, settle, exchange, compromise, modify, extend or grant indulgences with respect to, (i) this Note, (ii) any of the Loan Documents, (iii) all or any part of any collateral or security for this Note, and/or (iv) any Obligor; (b) complete any blank space in this Note according to the terms upon which the loan evidenced hereby is made; and (c) grant any extension or other postponements of the time of payment hereof. 15. Provision of Financial Information. The Borrowers shall promptly provide, and shall cause any or all of the Obligors to promptly provide to the Bank, such financial, operational or business information in each instance and in such form as the Bank shall at any time and from time to time in its sole discretion require including: * Borrowers' fiscal year balance sheet and income statement reviewed by an independent certified public accountant, together with all relevant schedules and notes, prepared in accordance with generally accepted accounting principles, within 120 days after the fiscal year end; and * Borrowers' quarterly prepared income statements and balances sheets, prepared in accordance with generally accepted accounting principles, and upon the Bank's request, completed borrower's certificates in form and substance satisfactory to the Bank and certified by the Borrowers' chief financial officer to be true, correct and complete (or such other officer as is acceptable to the Bank) within 45 days after quarter end; and 16. Demand Note. The Borrowers acknowledge and agree that this Note is payable immediately upon demand by the Bank, and that the recitation of defaults in any of the Loan Documents is intended merely to provide examples of events which may result in the Bank making demand for payment hereunder. Under no circumstances shall the Bank's demand for payment be conditioned upon the existence or non-existence of any event of default contained in any of the Loan Documents or any other circumstance, including the imposition of any condition or duty, such as a duty of good faith or a duty to demand only upon the existence of an event of default contained in any of the Loan Documents. The Bank shall at all times be entitled to demand payment of all or any 88 portion of the Obligations at any time and from time to time in its sole and absolute discretion, without prior notice to or consent of the Borrowers or any other Obligor. 17. Rights and Remedies. If this Note is not paid upon demand, the Bank may, at its option and without notice to Borrowers or any Obligor: (a) declare all or any part of the unpaid Obligations, together with all accrued and unpaid interest thereon, to be immediately due and payable without presentment, demand or notice which are hereby expressly waived; (b) exercise its right of setoff against any money, funds, credits or other property of any nature whatsoever of Borrowers or any Obligor signing this Note, now or at any time hereafter in the possession of, in transit to or from, under the control or custody of, or on deposit with, the Bank or any affiliate of the Bank in any capacity whatsoever, including without limitation, any balance of any deposit account and any credits with the Bank or any affiliate of the Bank; and (c) exercise any or all rights, powers, and remedies provided for in the Loan Documents or now or hereafter existing at law or in equity or by statute or otherwise. Regardless of whether the Bank elects to make demand hereunder, upon any failure by the Borrowers to perform, observe or comply with any of its Obligations, the Bank may, in its sole discretion and without notice to Borrowers or any other Obligor who signs this Note, terminate any outstanding commitments of the Bank to the Borrowers or any other Obligor who signs this Note. 18. Collection. If this Note is placed in the hands of an attorney for collection after its maturity (whether by acceleration, declaration, extension or otherwise), the Borrowers shall pay to the Bank on demand all costs and expenses including, without limitation, all attorney's fees and expenses incurred by the Bank in collecting the unpaid balance of the principal amount hereunder or in successfully defending any counterclaim brought by the Borrowers contesting the Bank's right to collect the unpaid balance of such principal amount. All of such costs and expenses shall bear interest at the default rate of interest described herein, from the date of payment by the Bank until repaid in full. 19. Other Security. As security for the payment of the Obligations under this Note or any of the Loan Documents, the Borrowers and any Obligor who signs this Note hereby grants a security interest in and authorizes the Bank to offset against all property of the Borrowers and such Obligor now or at any time hereafter in the possession of, in transit to, under the control of, or on deposit with, the Bank or any affiliate of the Bank in any capacity whatsoever, including without limitation, any balance of any deposit account and any credits with the Bank or any affiliate of the Bank. 20. Environmental Laws. The Borrowers have obtained or will obtain, all permits, licenses and other authorizations,which are required under any and all federal, state, local and foreign statutes, laws, regulations and other such authorities relating to the environment or the release of any materials into the environment ("Environmental Laws"). The Borrowers are and will remain in compliance with the terms and conditions of all such permits, licenses and authorizations, and is and will remain in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any applicable Environmental Law or in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letters issued, entered, promulgated or approved thereunder. No notice, notification, demand, request for information, citation, summons or order has been issued, no complaint has been filed, no penalty has been assessed and no investigation or review is pending or threatened by any governmental or other entity (a) with respect to any alleged failure by the Borrowers to have any permit, license or authorization required in connection with the conduct of the business of the Borrowers, or (b) with respect to any generation, treatment, storage, recycling, transportation, release or disposal, or any release as defined in 42 U.S.C. 9601(22) ("Release"), of any substance regulated under Environmental Laws ("Hazardous Material") generated by the Borrowers. No oral or written 89 notification of a Release of a Hazardous Material has been filed by or on behalf of the Borrowers and no property now or previously owned or leased by the Borrowers is listed or proposed for listing on the National Priorities List under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or on any similar state list of sites requiring investigation or clean-up. There are no liens arising under or pursuant to any Environmental Laws on any of the real property or properties owned or leased by the Borrowers and no governmental actions have been taken or are in process which could subject any of such properties to such liens such that the Borrowers would be required to place any notice or restriction relating to the presence of Hazardous Materials at any property owned by it in any deed of such property. 21. Remedies Cumulative. Each right, power and remedy of the Bank hereunder, under the Loan Documents or now or hereafter existing at law or in equity by statute or other applicable laws shall be cumulative and concurrent, and the exercise of any one or more of them shall not preclude the simultaneous or later exercise by the Bank of any or all such other rights, powers or remedies. No failure or delay by the Bank to insist upon the strict performance of any one or more provisions of this Note or of the Loan Documents or to exercise any right, power or remedy consequent upon a breach thereof or default hereunder shall constitute a waiver thereof, or preclude the Bank from exercising any such right, power or remedy. By accepting full or partial payment after the due date of any amount of principal of or interest on this Note, or other amounts payable on demand, the Bank shall not be deemed to have waived the right either to require prompt payment when due and payable of all other amounts of principal of or interest on this Note or other amounts payable on demand, or to exercise any rights and remedies available to it in order to collect all such other amounts due and payable under this Note. 22. Choice of Law; Consent to Jurisdiction. This Note shall be governed by, construed and interpreted in accordance with the laws of the State of North Carolina (excluding the choice of law rules thereof). The Borrowers and all other Obligors signing this Note hereby irrevocably submit to the non-exclusive jurisdiction of any state or federal court sitting in the State of North Carolina in any action or proceeding arising out of or relating to this Note, and hereby irrevocably waive any objection they may have to the laying of venue of any such action or proceeding in any such court and any claim they may have that any such action or proceeding has been brought in an inconvenient forum. A final judgment in any such action or proceeding shall be conclusive and may be enforced in any other jurisdiction by suit on the judgment or in any other manner provided by law. 23. Service of Process. The Borrowers and each Obligor who signs this Note hereby consents to process being served in any suit, action or proceeding instituted in connection with this Note by the mailing of a copy thereof by certified mail, postage prepaid, return receipt requested, to Borrowers and such Obligor. The Borrowers and each Obligor who signs this Note hereby irrevocably agrees that such service shall be deemed to be service of process upon the Borrowers and such Obligor in any such suit, action or proceeding. Nothing in this Note shall affect the right of the Bank to serve process in any other manner otherwise permitted by law and nothing in this Note will limit the right of the Bank otherwise to bring proceedings against the Borrowers or any Obligor in the courts of any other jurisdiction or jurisdictions. 24. Notice. Any notice, demand, request or other communication which the Bank or any Obligor may be required to give hereunder shall be in writing, and shall be given: (a) by hand-delivery; (b) by facsimile transmission; (c) by commercial overnight courier; or (d) by United States regular mail, postage prepaid. Such notice, demand, request or other communication shall be addressed as follows, or to such other addresses as the parties may designate by like notice: 90 If to the Obligor: See Exhibit A If to the Bank: __________________________ __________________________ __________________________ Facsimile Number: (___) __________ ATTENTION: William White Any communication hereunder will be deemed given and effective (f) when actually received, in the case of hand delivery, (g) when deposited in the United States mail or with such courier, in the case of first class mail or overnight courier, or (h) when completely sent and received, as evidenced by a transmission report from sender's facsimile machine, in the case of facsimile transmission. 25. Invalidity of Any Part. In the event that any of one or more of the provisions of this Note shall for any reason be held to be invalid, illegal or unenforceable, in whole or in part or in any respect, or in the event that any one or more of the provisions of this Note operate or would prospectively operate to invalidate this Note, then and in any of those events, the following shall occur: (a) the provision(s) shall he enforced to the fullest extent of its validity, legality and enforceability; or, (b) if such provisions would operate so as to invalidate this entire Note, only such provision(s) shall be void as though not herein contained, and the remainder of the clauses and provisions of this Note will remain in full force and effect. In any event, if any such provision pertains to the repayment of the indebtedness evidenced by this Note, then and in such event, at the Bank's option, the outstanding principal amount hereunder, together with all accrued and unpaid interest thereon, shall become immediately due and payable. In no event shall this Note or the Loan Documents operate to cause the payment to the Bank by the Borrowers or any Obligor of any amounts, whether for the use, forbearance or detention of money or for any other matter governed by the Loan Documents, which exceed the permitted maximum amounts therefor under applicable law. If for any circumstances whatsoever fulfillment of such provision shall be proscribed by law, than the obligation to be fulfilled shall be reduced to the limit of such validity. 26. Commercial Purposes. The Borrowers acknowledge and warrant that (a) the indebtedness evidenced by this Note and the "Obligations", as used herein, are incurred for the purpose of acquiring and carrying on a business or commercial enterprise and that such indebtedness and Obligations are "commercial loans" within the meaning of Title 12 of the Commercial Law Article of the Annotated Code of Maryland (1990 Rep. Vol.), as amended, and (b) all proceeds arising from the indebtedness and Obligations will be used solely in connection with such business or commercial enterprise. 27. Miscellaneous. The paragraph headings of this Note are for convenience only, and shall not limit or otherwise affect any of the terms hereof. Words used herein shall be deemed to refer to the singular, plural, masculine, feminine or neuter as the identity of the person or entity or the context may require. This Note and related Loan Documents, if any, constitute the entire agreement between the parties with respect to their subject matter and supersede all prior letters, representations, or agreements, oral or written, with respect thereto. If this Note is a renewal, extension or modification of the terms of any existing obligation of the Borrowers to the Bank, which obligation is secured by an interest in real property, the Borrowers and the Bank agree that this Note is not intended as a novation, but is rather intended only to renew, extend or modify the Obligation to the extent applicable. The Bank may, without notice to, or consent of the Borrowers, sell, assign, transfer or grant participations in all or any part of the Obligations evidenced by this Note to others at any time and from time 91 to time, and the Bank may divulge to any potential assignee, transferee or participant, and to any affiliate or subsidiary of the Bank all information, reports, financial statements and documents obtained in connection with this Note and any other Loan Documents or otherwise. No modification, change, waiver or amendment of this Note shall be deemed to be made by the Bank unless in writing signed by the Bank, and each such waiver, if any, shall apply only with respect to the specific instance involved. No course of dealing or conduct shall be effective to amend, modify, waive, release or change any provisions of this Note or any of the other Loan Documents. In addition, notwithstanding the entry of any judgment under or in connection with this Note, the unpaid balance of the principal amount hereunder shall continue to bear interest at the applicable rate or rates provided for in this Note. All Obligations of the Borrowers to the Bank shall be binding upon and enforceable against the Borrowers and the Borrowers' personal representatives, successors, heirs and assigns. This Note may be executed in any number of counterparts, all of which, when taken together shall constitute one Note. 28. WAIVER OF JURY TRIAL. THE BORROWERS AND EACH OBLIGOR WHO SIGNS THIS NOTE HEREBY (i) COVENANT AND AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (ii) WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE BANK, THE BORROWERS AND ANY ONE OR MORE OF THE OBLIGORS MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING IN ANY WAY TO THE BORROWER-LENDER RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE BORROWERS AND EACH OBLIGOR WHO SIGNS THIS NOTE AND THE BORROWERS, AND EACH SUCH OBLIGOR HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE BANK IS HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER, THE BORROWERS AND SUCH OBLIGOR SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY. THE BORROWERS AND EACH OBLIGOR WHO SIGNS THIS NOTE REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WELL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 92 IN WITNESS WHEREOF, the Borrower(s) have duly executed this Note under seal as of the day and year first hereinabove set forth. Each of the undersigned adopts as his or her seal the word ("SEAL") appearing beside or near his or her signature below. BORROWER: [SEAL] ATTEST/WITNESS: HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED /s/ Sandra B. Robinson By: /s/ Bernard A. Girod Name: Bernard A. Girod Title: President [SEAL] ATTEST/WITNESS: JBL, INCORPORATED /s/ Sandra B. Robinson By: /s/ Bernard A. Girod Name: Bernard A. Girod Title: President [SEAL] ATTEST/WITNESS: HARMAN KARDON, INC. /s/ Sandra B. Robinson By: /s/ Bernard A. Girod Name: Bernard A. Girod Title: President [SEAL] ATTEST/WITNESS: HARMAN-MOTIVE, INC. /s/ Sandra B. Robinson By: /s/ Bernard A. Girod Name: Bernard A. Girod Title: President [SEAL] ATTEST/WITNESS: INFINITY SYSTEMS, INC. /s/ Sandra B. Robinson By: /s/ Bernard A. Girod Name: Bernard A. Girod Title: President [SEAL] ATTEST/WITNESS: HARMAN ELECTRONICS, INC. /s/ Sandra B. Robinson By: /s/ Bernard A. Girod Name: Bernard A. Girod Title: President [SEAL] ATTEST/WITNESS: EPICURE PRODUCTS, INC. /s/ Sandra B. Robinson By: /s/ Bernard A. Girod Name: Bernard A. Girod Title: President 93 [SEAL] ATTEST/WITNESS: PYLE INDUSTRIES, INC. /s/ Sandra B. Robinson By: /s/ Bernard A. Girod Name: Bernard A. Girod Title: President [SEAL] ATTEST/WITNESS: DOD ELECTRONICS CORPORATION /s/ Sandra B. Robinson By: /s/ Bernard A. Girod Name: Bernard A. Girod Title: President [SEAL] ATTEST/WITNESS: HARCO PROPERTIES, INC. /s/ Sandra B. Robinson By: /s/ Bernard A. Girod Name: Bernard A. Girod Title: President [SEAL] ATTEST/WITNESS: HARMAN INVESTMENT COMPANY, INC. /s/ Sandra B. Robinson By: /s/ Bernard A. Girod Name: Bernard A. Girod Title: President [SEAL] ATTEST/WITNESS: LEXICON, INCORPORATED /s/ Sandra B. Robinson By: /s/ Bernard A. Girod Name: Bernard A. Girod Title: President 94 Exhibit A HARMAN INTERNATIONAL INDUSTRIES 1101 Pennsylvania Avenue, N.W. Suite 1010 Washington, D.C. 20004 Fax: (202) 393-2402 JBL, INCORPORATED 8500 Balboa Blvd. Northridge, CA. 91329 Fax: (818) 891-7345 HARMAN KARDON, INC. 8500 Balboa Blvd. Northridge, CA. 91329 Fax: (818) 891-7345 HARMAN-MOTIVE, INC. 8500 Balboa Blvd. Northridge, CA. 91329 Fax: (818) 891-7345 INFINITY SYSTEMS, INC. 8500 Balboa Blvd. Northridge, CA. 91329 Fax: (818) 891-7345 HARMAN ELECTRONICS, INC. 8500 Balboa Blvd. Northridge, CA. 91329 Fax: (818) 891-7345 EPICURE PRODUCTS, INC. 8500 Balboa Blvd. Northridge, CA. 91329 Fax: (818) 891-7345 PYLE INDUSTRIES, INC. 8500 Balboa Blvd. Northridge, CA. 91329 Fax: (818) 891-7345 DOD ELECTRONICS CORPORATION 8500 Balboa Blvd. Northridge, CA. 91329 Fax: (818) 891-7345 HARCO PROPERTIES, INC. 8500 Balboa Blvd. Northridge, CA. 91329 Fax: (818) 891-7345 HARMAN INVESTMENT COMPANY, INC. 8500 Balboa Blvd. Northridge, CA. 91329 Fax: (818) 891-7345 LEXICON, INCORPORATED 8500 Balboa Blvd. Northridge, CA. 91329 Fax: (818) 891-7345 95 SCHEDULE A TO THE PROMISSORY NOTE DATED APRIL __, 1994 Name of Principal Person Applicable Amount of Applicable Payment Making Date Currency Advance Interest Rate Principal Interest Notation 96
EX-13 5 EXHIBIT 13.1 EXHIBIT 13.1 97 THIS PAGE LEFT BLANK INTENTIONALLY 98 HARMAN INTERNATIONAL 1994 ANNUAL REPORT 99 Harman International is a leader in the design, manufacture and marketing of high quality, high-fidelity audio products. We are organized in three core groups and three functional support groups. The core groups are Professional, Consumer and Automotive OEM. The functional groups are Manufacturing, Marketing and Distribution. Each of the six concentrates on a central aspect of our business and each is headed by a president who, with the Chief Executive Officer and Chief Operating Officer of Harman International, form the Company's management committee. About the front cover: The Tonhalle in Zurich, Switzerland is home to great classical performances. A Studer 990 digitally controlled sound recording and mixing console, renowned for its sonic excellence and reliability, is superimposed in the foreground. Studer professional products are used worldwide in many leading broadcast stations, recording studios and performance venues. 100 Five Year Summary
- - ----------------------------------------------------------------- - - ------- 1990 1991 1992 1993 1994 - - ----------------------------------------------------------------- - - ------- (in thousands, except per share data for the fiscal years ended June 30) Net sales $ 556,695 $ 586,941 $ 604,454 $ 664,913 $ 862,147 Operating income 42,989 3,385 27,547 41,255 66,332 Income (loss) before taxes 23,011 (20,646) 5,893 18,570 42,686 Net income (loss) 14,057 (19,764) 3,487 11,246 25,664 Net income (loss) per share1.61 (2.26) 0.39 1.04 1.921] Total assets 393,014 359,402 415,909 431,726 680,691 Long-term debt 133,476 132,809 132,675 175,583 156,577 Shareholders' equity102,003 80,781 111,241 111,149 232,021 101 Letter to the Shareholders Harman International set sales and earnings records in the fiscal year ending June 30, 1994. On sales of $862.1 million, the Company produced net income of $25.7 million equal to $1.92 per share on 13.4 million average shares outstanding. Last year, we reported sales of $664.9 million and net income of $11.2 million equal to $1.04 per share on 10.8 million shares. We continued the accelerated pace of sales and earnings growth which began in 1992-a pace which has moved Harman International into the ranks of the Fortune 500 and has generated substantial shareholder support for our Company's common stock. Through the course of the year, we fine-tuned the reorganization which began in fiscal 1993 and thus provided the organizational architecture for our next decade of growth. Today, we are a defined company, arranged in three strategic core groups to pursue the Company's goals. These groups are Professional, Consumer and Automotive OEM. They are supported functionally by the Manufacturing, Marketing and Distributing Groups. The six group presidents join me and Bernie Girod, our Chief Operating Officer, to form the management committee of the Company and to assure cohesive, long-term leadership for Harman International. Each of the core groups functions to drive, inform and illuminate the others. Thus, the Professional Group, which is now at the forefront of the recording industry, provides much of the equipment which is key to the live concerts by performing artists and to the CD recordings which reproduce those performances at home. Because our brands are so deeply engaged in the recording and professional reproducing process, public awareness of them is heightened. In similar fashion, our consumer brand names: JBL, Infinity and Harman Kardon decorate the premium in-car high fidelity systems which we design and produce for the major automobile makers. Thus the JBL brand appears in cars manufactured by Ford, the Infinity label 102 in cars manufactured by Chrysler, Jeep and Mitsubishi and the Harman Kardon label in Jaguar, Range Rover and Saab. Our eminent labels confirm the superior performance of the premium systems and legitimize the engagement of the auto makers in high fidelity. Our expanding energy in the marketing of our products is evidenced by the major advertising campaign illustrated on page 16 of this report. This promotion of our automotive systems also enhances the brand names of our consumer and professional companies. We expect that the steps we took in fiscal 1994 to strengthen our position on the professional side will produce substantial rewards in fiscal 1995. Today, we possess many of the most respected names in professional audio. The combination of JBL, Soundcraft, Lexicon, Studer, AKG, Spirit, DOD, Digitech, UREI, dbx, Allen & Heath, BSS and Turbosound represents a formidable galaxy of brand names and market position in a field we are determined to lead. This assembly places our Professional Group in a unique position to serve its markets and to provide turnkey solutions to the increasingly complex problems in the field. In the pages that follow, we offer further information on our three core groups. Principal coverage is provided for the Professional Group which is expected to represent over 40% of our total sales in fiscal 1995-a fact which may come as a surprise to some of our readers. Beyond the growing power and effectiveness of our engagement in the professional, consumer and automotive OEM segments of the industry, the past year was notable for two significant acquisitions and for major advances in our manufacturing capabilities around the world. In the September 1993 acquisition of AKG and the March 1994 acquisition of Studer, we added two world-class companies to our Professional Group. In AKG, we acquired one of the premier microphone makers in the world, and in Studer we added the 103 most respected name in the arenas of recording and broadcast. Each of these companies has had a fabled history, but each had experienced some decline in recent years. We believe that their addition strengthens our leadership in professional audio significantly. We, in turn, will provide the resources and guidance to restore them as leaders. The microphone is in major technological transformation. Wireless is a critical dimension. Happily, we find that AKG is now possessed of the most impressive technology in this field. And, fortunately, we are possessed of talent around the Company which can help AKG greatly. Studer poses a greater challenge with a potentially greater set of rewards. The recording industry is moving through seascape technological change. Analog is being replaced by digital; tape by tapeless machines. Although these changes create understandable short- term uncertainties in the marketplace, they herald the coming of powerful new activity. Our job is to harness the unique history, skills and reputation of Studer so that the Company can convert market uncertainty into market leadership. We strengthened the Consumer Group when we acquired AudioAccess this year and, through an investment, acquired a minority equity position in Madrigal Laboratories. With that investment we obtained an option to purchase the balance of the company and with it, complete control of its Mark Levinson division. We have distributed Mark Levinson in Japan for years, and know it to be the leading electronics brand at the high end of high fidelity. We have thus taken a strong step to secure our position across the full high-fidelity spectrum. This report illustrates products designed and built to respond to real consumer needs-products which reject the arrogant view that one's technological ability to produce something is reason enough to make it. We are determined to produce products which are justified by the fact that they respond to real needs of real people. In last year's report, I spoke of our determination to move from a "better mouse trap" company to a world-class marketing company. You remember the old saw that "if you build a better mouse trap the world will beat a path 104 to your door." However valid it may have been at one time, it is evident today that paraphrasing an old adage, "the world is from Missouri," and it needs to be shown. We intend to show it. Fiscal 1994 was also a year that dramatized our conviction that in our people, we hold the secret to truly impressive advances in productivity, competitiveness and profitability. Programs such as the Senior Executive Service and OLE (Off-Line Enterprises) which we reviewed in last year's report were vigorously pursued through the year. The commitment of each of our senior executives to serious time on the production lines has equipped each of us with a far better understanding of the production process, and has established close relationships between the managers and those they manage in our Company. OLE, as you know, is a series of programs designed to create a pool of serious and dignified jobs into which our people can move if and when they become redundant because of their own efforts to increase productivity. By creating the reservoir and investing in the training of our people, we have added to a substantial existing pool of goodwill. The value of that goodwill was never better expressed than after the earthquake that shattered Northridge, California on January 17, 1994. Our workers were heroic in their response and the plant was restored in astonishingly quick order. Those who have visited the Northridge, California plant since its restoration will agree that it is more effective in appearance and performance today than before the quake. Such a response would not have been possible but for the high level of mutual goodwill at the Company. We intend to build on it and to provide increased security for our employees and increased returns for our shareholders. Sincerely, /s/ Sidney Harman Sidney Harman Chairman & Chief Executive Officer 105 Results of Operations We achieved record results in fiscal 1994. Sales increased 30% to $862.1 million. Income before taxes more than doubled from $18.6 million to $42.7 million; earnings per share increased 85% to $1.92 per share. Our balance sheet was strengthened significantly through the issuance of 4.025 million shares of common stock in November 1993, increasing shareholders' equity by $87.5 million and reducing debt by a like amount. At year end, our equity exceeded total short-term and long-term debt. By contrast, last year the Company's debt equaled 1.9 times shareholders' equity. In September 1993, the Company acquired a 76% interest in AKG, a leading manufacturer of microphones and headphones headquartered in Vienna, Austria. We acquired the remaining 24% on favorable terms in July 1994. In March 1994, the Company acquired Studer-Revox, a renowned manufacturer of professional recording and broadcast equipment. With these additions, we believe that Harman International has become the leading professional audio company in the world. Our principal operating groups performed very well. The Professional Group, which represented 39% of our total sales in fiscal 1994, recorded significant gains in sales and earnings. Its JBL Pro and Soundcraft divisions saw substantial expansion in the year, particularly in international markets. Sales in China and the rest of Asia were particularly brisk. DOD Electronics, Lexicon and AKG also contributed positively to operating results. The Consumer Group accounted for 38% of total sales in fiscal 1994. Its operating profit increased 37% over the previous year. These results were achieved through an 18% growth in sales and impressive penetration of emerging new markets. JBL and Infinity each recorded sales growth of approximately 25%. JBL's new SoundEffects line, a versatile modular home theater loud-speaker system, was a great success in its first year of introduction in the U.S. It will be introduced in international markets in fiscal 1995. Infinity had a number of very successful product introductions: the "Sterling" and "Crescendo" models at Circuit City, the "SL" model at Best Buy and the Epsilon audiophile product worldwide. Harman Kardon's new Festival model was introduced in 106 Europe to great critical acclaim. Pyle's sales and earnings rebounded sharply in the second half after a slow first half. Sales of the Automotive OEM Group rose over 40%. Infinity branded premium systems were introduced in the Jeep Grand Cherokee, several Dodge truck lines and certain Mitsubishi models, including the 3000 GT. Sales of our systems in the continuing Ford Explorer, Chrysler Minivan and LH increased at a robust pace. This fall, the Automotive Group will supply Harman Kardon systems for the new Jaguar X-300, the Saab 9000 and the Range Rover. The Manufacturing Group performed superbly despite the severe damage caused by the January earthquake. It made a substantial contribution to total profits through volume increases and the implementation of manufacturing improvements. The International Distributing Group had a difficult year as a result of the poor economic conditions and currency disruptions in the markets in which it operates. Although the Company's balance sheet was strengthened significantly through our equity offering in November, working capital performance slipped somewhat. The Company's inventories are valued conservatively and all appropriate reserves have been provided. Nonetheless, we believe our inventory levels are too high. We are taking aggressive corrective action, and intend to reduce inventories by mid-year despite expected sales increases. Capital expenditures totaled $40.7 million. In fiscal 1995, we expect capital expenditures to total $45 million. Our capital projects generally enjoy attractive returns and short payback periods. We are pleased with the results we achieved in fiscal 1994 and look forward to an excellent fiscal 1995. /s/ Bernard A. Girod Bernard A. Girod President and Chief Operating Officer 107 PICTURE 108 World Class Marketing MARGIN NOTE: The intensity of our marketing reflects the wide diversity of the products themselves. Our focus is: emphasize the strengths of the individual brands while clearly linking them to Harman International's reputation for the highest quality standards and sonic excellence. In earlier reports, we spoke of our commitment to convert Harman International from a traditional "better mousetrap" company, convinced that if it made the right product, customers would somehow beat a path to our door. That conversion, we said, must be to a world-class marketing company with emphasis on creating demand rather than the more familiar practice of "pushing" the product to the customer. Stimulated by the way in which we organized ourselves to do business, we have made substantial progress during the course of the year. Through the creation of the Professional Group, the Consumer Group and the Automotive OEM Group we have made it possible, for the first time, to engage in integrated marketing activities which are at once coherent within the Groups and mutually supportive among them. This report is illustrated with copies of advertisements produced by the Groups. They are, of course, only representative of our larger and increasing presence in the printed media, on billboards across the country and on selected television. We are also initiating a series of advertisements to increase awareness of our branded in-car high fidelity systems among automotive buyers. We had previously left promotion of those systems to our clients, the auto makers. We see vast new opportunities in emerging markets. China, Vietnam, India and the developing nations of Latin and South America are fertile markets for each of our three Groups - and we will cultivate them vigorously. Through concerts, seminars and other promotional activities, we intend to make our brand names widely recognized in each of these potentially enormous marketplaces. Our Company was built on engineering excellence and a commitment to quality. We will never lose that focus. In the past two years, we have brought our manufacturing competence and efficiency to a very high level. Now it is our purpose and our commitment to expand our focus to one of equivalent intensity and professionalism in marketing. 109 PICTURE 110 MARGIN NOTE: Our Professional Group brand names: JBL, Soundcraft, Spirit, Studer, Studer Dyaxis, AKG, DOD, Digitech, Lexicon, Turbosound, Orban, BSS, dbx, UREI, Allen & Heath, Audio Logic, Precision Devices and Quested. The professional audio market is complex and diverse; a mixture of large homogeneous sectors and fragmented niches. It has clients who seek the convenience of a systems solution and others who wish to be served by one company and one product. It encompasses the unknown musician aspiring to greatness and the digital multi-track recording studio where greatness, already achieved, is mixed and mastered for public consumption. It stretches from a self-operated radio station in the Australian outback to the digital production suites of the BBC studios in London and the film studios in Hollywood. Above all it is a market driven by technology, but still somewhat uncertain about the direction that technology will take. This adds up to either confusion or opportunity. It takes a special kind of company to cope with that diversity, to identify the opportunities and to exploit them. The Harman Professional Group is a unique collection of just such companies. It includes many of the most respected names in the professional audio world; names which have helped to shape the industry - names representing quality and technical excellence. All have transcended mere product and company boundaries to become world class brands. In loudspeaker design: JBL and Turbosound. In mixer technology: Soundcraft, Spirit and Allen & Heath. In signal processing: DOD, Lexicon, BSS and dbx. Our Professional Group also includes companies which produce unique products for special niches. Orban, for example, provides a highly specialized audio processor for the radio broadcast market. The acquisition of AKG in September 1993 and of Studer in March 1994 brought additional prestige brands to our professional portfolio. They complete our audio chain by providing the highest quality microphones and world renowned recording and storage devices. But the strength of our Professional Group does not lie simply in its impressive list of products. It is derived from the way in which the talent and innovation in our operating units have been harnessed. For example, the 111 PICTURE 112 MARGIN NOTE: Our Professional Group alliances focus on each of the major markets we serve: Sound Reinforcement, Musical Instrument Support and Broadcast and Recording. extraordinary advances made in the digital field by Studer's research engineers, combined with the digital signal processing (DSP) work underway at our DOD, Lexicon, BSS and Soundcraft units have generated new digital products which will come to market during the new fiscal year. Pulling together the diverse talents and skills in our Professional Group is no easy task. This is not a loose federation of independent companies. They share a vision of the future and work together to achieve common goals. To release the energy of each company, we have created three Alliances, each focused on one of the major markets we serve. The first is the Sound Reinforcement Alliance, devoted to developing products and services for tour sound, theaters, installed sound systems and cinema. Its members include JBL, Soundcraft, Turbosound, BSS and AKG. Each holds a strong position in the market, but each participates in sharing market knowledge and technology with its colleagues. The Musical Instrument Support Alliance is led by DOD and Spirit with support from dbx and Allen & Heath. Committed to the development of new products for sale through music stores around the world, the Musical Instrument Support Alliance will be one to watch for speed to market, for product innovation and for eye-catching promotions. The third Alliance is most exciting. Dedicated to the recording and broadcast markets, it gathers the digital and systems expertise of Studer, Studer Dyaxis and Lexicon to create technology standards for a new generation of broadcast and recorded products. Here, the increasing complexity and diversity of system components demand an integrated solution. Within this Broadcast and Recording Alliance, we can offer a networking system which provides central control of audio processing. Thus, our Numysis system provides central control of all functions from the scheduling of CD playlists through advertising and billing to clients. Our Professional Group responds to the diversity and complexity of the markets it serves by blending the individual strengths and qualities of the operating units with the combined resources of the full Group. We believe this to be unique in the industry and a platform for continued growth in sales and profitability. 113 PICTURE 114 MARGIN NOTE: Our Consumer Group brand names: JBL, Infinity, Harman Kardon, Pyle, AudioAccess, Fosgate and Concord. The past year was one of great change in our consumer business. We gathered JBL Consumer, Harman Kardon and Infinity into a single, coherent group, so as to harness, effectively, the substantial strengths of our market leading brands. We created the Consumer Group to meet the challenge of sweeping transformation in the consumer electronics business. That transformation can be characterized as a shift from the selling of products derived from "technology for its own sake" to interpreting the needs of consumers and providing customer satisfying solutions. The Harman Consumer Group has redirected its energy from "selling-in" to "selling-through." Our newest programs address key and still evolving customer demand patterns. JBL's SoundEffects, for example, is a fifteen-product line, designed to respond to the needs of the emerging A/V market. It encourages customers to begin with a first-class music system and to grow by reasonable steps to a complete wireless surround-sound home cinema system. Infinity's new Epsilon loudspeaker system represents a leap in high- end loudspeaker performance. Harman Kardon's Festival, an elegant, simple-to-use system for home and office, brings high fidelity component performance to the mini-system category. It has won the U.S. Electronic Industry Association's "Innovations Award." It has won the prestigious "Red Dot" design excellence award in Germany and the "European Compact System of the Year" award from the leading audio and video magazine of 13 countries in Europe. Each of the members of the Consumer Group is actively involved in the emerging surround-sound, multi-channel and home theater fields. Each is developing special skills in merchandising at the retail level. We are training a cadre of "young tigers" to become the industry's leading merchandising force and to help our dealers implement creative merchandising techniques. Beyond the Group's commitment to product and market solutions, we see major growth opportunities in emerging markets around the world. China, South America, Vietnam and India hold substantial promise for the innovative thinking and customer-centered products to which we are committed. 115 PICTURE 116 MARGIN NOTE: Our Automotive OEM brand names: Infinity, JBL and Harman Kardon The Automotive OEM Group is experiencing substantial growth, fueled by the extension of our audio systems into the light truck market and by a dramatic increase in our worldwide customer base. The automobile has become the final refuge for the enjoyment of high quality music reproduction. As a consequence, growing numbers of consumers are making automobile purchase decisions, strongly influenced by the available sound system. This relatively new phenomenon is catching on. Approximately 6 percent of the 15 million vehicles produced in the United States this past year were equipped with such premium branded systems. We provide a majority of the total, and there is impressive opportunity for significant growth. In North America, our Infinity sound systems are available on virtually all Chrysler models: the very successful new Grand Cherokee, the Dodge Intrepid, Eagle Vision, Chrysler Concorde, Chrysler New Yorker and Chrysler LHS. The new Chrysler Minivan, scheduled for introduction next year, will feature the all new Infinity Acoustic 10 System. JBL's excellence in professional and consumer audio is manifest in the impressive Ford JBL system, available in the Continental, the Mark VIII, Crown Victoria, Town Car, Windstar, Taurus and the very successful Explorer. The Infinity systems available on Mitsubishi's high performance 3000 GT and its upscale Diamante have been very successful. New systems will be featured on the Eclipse and the Galant this year. A Harman audio system will be available for the first time on a Toyota vehicle this autumn. The all-new Avalon, slated to be Toyota's U.S. produced flagship vehicle, will offer a high-end music system designed and produced by Harman Motive. In Europe, we were awarded the system worldwide for BMW's 3-Series. It will be introduced in the 1996 model year. Further, the legendary Harman Kardon brand will appear on the new Range Rover, Saab and Jaguar systems. We are buttressed against the traditionally cyclical nature of the automotive industry; first by the growing number of our clients. Second, and perhaps more important, less than 3 percent of cars and light trucks produced worldwide are equipped with such branded systems. We are confident that the percentage will grow substantially over the next decade. 117 PICTURE 118 Harman Worldwide MARGIN NOTE: Approximately 55% of our sales are effected outside of the United States. We do not think in terms of export; rather, we address the strategic and emerging markets of the world through an active presence. Opposite page: the market place in Pan Yu, southern China. A vivid and accelerating market for JBL and other Harman products currently exists in the Far East. We believe this market will grow and others will proliferate. Corporate Offices Washington, D.C. and California Primary Groups Professional Group AKG Acoustics Austria and India Precision Devices England Allen & Heath England Quested England BSS Audio England Soundcraft Electronics England dbx Utah Spirit by Soundcraft England DOD Electronics Utah Studer Digitech France JBLProfessional California Studer Editech California and Tennessee Lexicon Massachusetts Studer Professional Audio Switzerland Orban California Turbosound England Consumer Group AudioAccess California JBL Consumer California and New York Fosgate California and Utah Phoenix Systems California Harman Kardon California and New York Pyle Indiana Infinity Systems California Automotive OEM Group Harman Motive California, Indiana, Michigan and Wales Support Groups Manufacturing Group Audax France Northridge Manufacturing California Lydig of Scandinavia Denmark Polydax Massachusetts Distributing Group AKG Acoustics Germany Harman France France Harman Audio England Harman Japan Japan Harman Belgium Belgium Studer Professional Audio Harman Deutschland Germany Canada, Germany, Singapore, Japan Marketing Group Harman Marketing Asia Japan,Singapore Harman Marketing Intercontinental Harman Marketing China Hong Kong California Harman Marketing Europe Denmark 119 Financial Information Table of Contents Management's Discussion and Analysis of Financial Condition and Results of Operations 21 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 Independent Auditors' Report 35 Statement of Management Responsibility 36 Shareholder Information 36 Officers and Directors inside back cover Annual Meeting inside back cover 120 Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Net sales for fiscal 1994 increased by 29.7 percent to $862.1 million from the fiscal 1993 level of $664.9 million and in fiscal 1993 increased by 10.0 percent from fiscal 1992 sales of $604.5 million. The sales increase in fiscal 1994 primarily reflects the sales growth of the Professional Group, the Consumer Group and the Automotive OEM Group. The sales increase in fiscal 1993 was primarily driven by the performance of the Automotive OEM Group and the Consumer Group. The sales increase at the Professional Group in fiscal 1994 reflects the contributions of AKG, our Austrian microphone manufacturer acquired in September 1993, and Studer Revox acquired effective January 1, 1994. Strong sales of JBL and Soundcraft products also generated increases. Contributing to the growth at Soundcraft was the success of the Spirit line of mixing consoles. Higher sales at JBL reflect increased activity in both domestic and international markets, including significant growth in China and other emerging Asian markets. Sales increases were also reported at the Consumer Group in fiscal 1994, most significantly at JBL, Infinity and Harman Kardon. Sales of the Infinity Sterling and Crescendo loudspeaker models at Circuit City, the Infinity SL loudspeaker line at Best Buy and the Epsilon audiophile product worldwide have contributed substantially to fiscal 1994 results. Sales increases at the Automotive OEM Group were fueled by Harman Motive which reported higher sales in fiscal 1994 to the automobile manufacturers. Contributing to the growth were the successful introduction of the Infinity Gold premium audio system in the Jeep Grand Cherokee, the success of the Chrysler LH automobile line and several Dodge truck lines in which Chrysler/Infinity premium systems are installed and increased shipments of Infinity systems to Mitsubishi. Strong sales of the Ford Explorer, in which the Ford/JBL premium sound system is installed, also contributed to improved performance. The International Distributing Group continues to focus on the distribution of products manufactured by the Company's divisions. The International Distributing Group reported lower sales for fiscal 1994 due to the Company's decision to discontinue the distribution of Maxell tapes at Harman Deutschland, which accounted for approximately 6% of consolidated Company sales in fiscal 1993. Harman Deutschland provided administrative support for Maxell, on a fee basis, in fiscal 1994 while continuing to increase its focus on the distribution of products manufactured by the Company. Excluding the Maxell sales, fiscal 1994 International Distributing Group sales approximated the prior year despite the difficult economic conditions in Europe and Japan. Overall, the Company's consolidated net sales are not materially impacted by seasonality. However, the first fiscal quarter is usually weakest due to the July and August holidays in Europe and the Automotive OEM model changeovers. Variations in seasonal demands among end-user markets may cause operating results to vary from quarter to quarter. The gross profit percentage in fiscal 1994 was 31.2 percent, compared to 28.7 percent in fiscal 1993 and 27.2 percent in fiscal 1992. The increase in gross profit percentage in fiscal 1994 reflects operating leverage and favorable product mix at the Automotive OEM Group, and substantial improvements in manufacturing efficiencies at the Northridge, California and Audax (France) manufacturing operations. The increase in fiscal 1993 was primarily due to improved gross profit margins at the Automotive OEM Group, with improvements in the Company's domestic manufacturing operations also contributing to the increase. Selling, general and administrative expenses as a percentage of sales were 23.5 percent in fiscal 1994 compared with 22.5 percent in fiscal 1993 and 22.7 percent in fiscal 1992. The fiscal 1994 increase in selling, general and administrative expenses reflects the impact of increased marketing costs associated with the implementation of the Harman Marketing Units offset by cost savings in overhead personnel realized through the company-wide operating expense reduction program initiated in fiscal 1993. 121 Management's Discussion and Analysis of Financial Condition and Results of Operations, continued Operating income as a percentage of net sales was 7.7 percent for fiscal 1994 compared with 6.2 percent for fiscal 1993 and 4.6 percent for fiscal 1992. The increase for fiscal 1994 resulted primarily from the increase in gross profit percentage, and the increase in fiscal 1993 resulted from higher gross profit percentage combined with reduced selling, general and administrative expenses. Interest expense in fiscal 1994 was $22.1 million compared with $23.6 million in fiscal 1993 and $21.1 million in fiscal 1992. Interest expense decreased in fiscal 1994 despite increased levels of average borrowings due to a decrease in the weighted average interest rate. Fiscal 1994 average borrowings were $222.8 million compared with $215.5 million in fiscal 1993 and $204.3 million in fiscal 1992. The increase in average borrowings in fiscal 1994 primarily results from debt assumed in fiscal 1994 acquisitions offset by the proceeds of the November 1993 equity offering. The weighted average interest rate in fiscal 1994 was 9.9 percent, compared with 10.9 percent in fiscal 1993 and 10.3 percent in fiscal 1992. The decrease in average interest rates in fiscal 1994 reflects the impacts of the Company's re negotiation of its domestic short-term lines of credit and lower interest rates on debt assumed in fiscal 1994 acquisitions. Fiscal 1994 interest expense as a percentage of net sales was 2.6 percent, down from 3.5 percent in fiscal 1993 and 1992. In fiscal 1994 the Company reported income before income taxes, minority interest and extraordinary items of $42.7 million, compared with $18.6 million in fiscal 1993 and $5.9 million in fiscal 1992. In fiscal 1994 the Company reported income tax expense of $16.2 million, reflecting an effective tax rate of 38.1 percent. This compares with an income tax expense of $7.3 million and an effective rate of 39.4 percent in fiscal 1993. The fiscal 1992 tax provision was $2.4 million with an effective tax rate of 40.8 percent. The effective tax rates in all years are above the U.S. statutory rate primarily due to higher effective tax rates at the international subsidiaries and state income taxes. The Company reported an extraordinary charge, net of a related tax benefit, of $748,000 in the second quarter of fiscal 1994 associated with the extinguishment of $25.0 million of debt through an in-substance defeasance of the 10.08% $25.0 million Series A Senior Notes, due September 30, 1994. Net income for fiscal 1994 was $25.7 million compared with $11.2 million in fiscal 1993 and $3.5 million in fiscal 1992. Financial Condition Liquidity and Capital Resources Harman International primarily finances its working capital requirements through cash generated by operations, short-term lines of credit and normal trade credit. The Company recently began negotiations with its banks to establish a $200 million committed credit facility to replace its uncommitted lines of credit. Although there can be no assurance that negotiations will be completed successfully on terms acceptable to the Company, the Company currently believes that the facility will be established by the end of September 1994. At June 30, 1994, the Company maintained unsecured, domestic short-term lines of credit of $73.3 million and had outstanding indebtedness of $17.8 million under these lines of credit. The indebtedness at June 30, 1994 bears interest, at the option of the Company, at either (i) the prime rate of the lending bank, or (ii) the London Interbank Offered Rate of the lending bank plus .75 percent, and is payable upon demand. At June 30, 1994, the Company's international subsidiaries maintained unsecured short-term lines of credit of $90.0 million and had outstanding indebtedness of approximately $45.3 million thereunder. This indebtedness is payable upon demand and bears interest at the corporate base rate of the lending bank plus, in some cases, additional basis points. In November 1993, the Company issued 4,025,000 shares of common stock, using the net proceeds of $87.5 million to repay short- and long-term debt. 122 Capital expenditures were $40.7 million in fiscal 1994, compared with $25.6 million in fiscal 1993 and $21.0 million in fiscal 1992. Expenditures in fiscal 1994 were primarily for new product tooling and machinery and equipment required to increase manufacturing capacity. Expenditures in fiscal 1993 were principally for new product tooling, quality improvements, cost reduction programs and systems improvements. The Company anticipates capital expenditures of approximately $45 million during the next fiscal year. Firm commitments of approximately $3.7 million existed as of June 30, 1994 for capital expenditures during fiscal 1995. The Company anticipates that a portion of these capital expenditures will be financed through lease financing arrangements. Net working capital at June 30, 1994 was $215.9 million compared with $147.5 million at June 30, 1993. The increase is primarily due to the impacts of the fiscal 1994 acquisitions of AKG and Studer and the repayment of short-term borrowings with the proceeds of the November 1993 common stock offering. Inventories increased to $238.1 million at June 30, 1994 from $137.2 million at June 30, 1993. Of this increase, $41.1 million results from the acquisitions of AKG and Studer, and the balance reflects higher inventory levels required to support increased sales volumes and new product introductions as well as the effect of the Northridge, California earthquake on inventory management systems and processes. The Company believes inventory levels at June 30, 1994 are too high and plans to reduce inventories by mid-year, despite expected sales increases. Shareholders' equity was $232.0 million at June 30, 1994 compared with $111.1 million at June 30, 1993 and $111.2 million at June 30, 1992. Foreign currency translation produced a positive adjustment of $5.5 million in fiscal 1994, a negative adjustment of $11.9 million in fiscal 1993 and a positive adjustment of $8.0 million in fiscal 1992. Certain of the Company's subsidiaries may be subject to exchange controls or local bank agreements which may restrict the non domestic transfer of funds from these subsidiaries. Acquisitions In September 1993, the Company acquired 76 percent of AKG, a designer and manufacturer of high-quality microphones, audio headphones and other professional audio equipment, for 76 Austrian schillings (approximately U.S. $7.00) and assumed post-acquisition bank indebtedness of approximately 282 million Austrian schillings (approximately U.S. $24.5 million). In July 1994, the Company acquired the remaining minority interest in AKG for 41 million Austrian schillings (approximately U.S. $3.7 million). In March 1994, the Company acquired Studer Revox AG, effective January 1, 1994, for 100 Swiss francs (approximately U.S. $70.00) and assumed post-acquisition indebtedness of approximately 23 million Swiss francs (approximately U.S. $16 million). Studer is a leading company in the professional audio field with particular strength in the recording and broadcast areas. Effects of Inflation and Currency Exchange Rates The Company maintains significant assets and operations in Germany, the United Kingdom, France, Denmark, Austria, Switzerland and Japan. As a result, it has direct and continuing exposure to foreign currency gains and losses. The Company hedges a portion of its foreign currency exposure by incurring liabilities, including bank debt, denominated in the local currencies of those countries where its subsidiaries are located. The Company purchases some of its Harman Kardon electronic products at prices denominated in Japanese yen. The international subsidiaries of the Company also purchase certain products in prices denominated in Japanese yen, as well as German marks, Danish kroner, Austrian schillings, Swiss francs and U.S. dollars. As a result of its procurement of products in multiple currencies, the Company may be exposed to cost increases relative to local currencies in the markets in which it sells. To mitigate such adverse trends, the Company enters into forward purchasing contracts and other hedging activities, as appropriate. A portion of the Company's revenues and earnings relates to loudspeaker products made in the U.S. and sold abroad. As a result, sales of such products are somewhat dependent on the value of the U.S. dollar relative to other currencies. Any long- term strengthening of the U.S. dollar could have an adverse effect on these sales. Competitive conditions in the Company's markets may limit its ability to increase the prices of its products 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 currency transactions, the Company's foreign currency positions are partially offsetting. 123 HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1994 AND JUNE 30, 1993 ($000s omitted except per share amounts)
1994 1993 ----------- ---------- ASSETS Current assets Cash and short-term investments $ 9,724 2,179 Receivables (less allowance for doubtful accounts of $10,241 in 1994 and $3,435 in 1993) 206,801 127,648 Inventories (note 2) 238,095 137,191 Other current assets 35,202 21,803 ----------- ---------- Total current assets 489,822 288,821 Property, plant and equipment, net (notes 3,5 and 6) 138,555 103,058 Excess of cost over fair value of assets acquired (less accumulated amortization of $6,543 in 1994 and $5,476 in 1993) 34,360 30,244 Other assets 17,954 9,603 ----------- ---------- Total assets $ 680,691 431,726 =========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes payable (note 4) $ 63,140 33,379 Current portion of long-term debt (note 5) 6,114 4,383 Accounts payable - trade 91,516 54,375 Accrued liabilities 102,353 45,891 Income taxes payable 10,821 3,301 ----------- ---------- Total current liabilities 273,944 141,329 Senior long-term debt (note 5) 41,577 60,583 Subordinated long-term debt (note 5) 115,000 115,000 Other non-current liabilities 8,514 -- Deferred income 2,372 3,665 Minority interest 7,263 -- Shareholders' Equity (notes 5,7 and 8) Preferred Stock, $.01 par value. Authorized 5,000,000 shares; none issued and outstanding -- -- Common stock, $0.01 par value. Authorized 50,000,000 shares, issued and outstanding 15,068,027 in 1994; authorized 15,000,000 shares, issued and outstanding 10,859,957 in 1993 151 109 Additional paid-in capital 143,144 53,453 Equity adjustment from foreign currency translation 392 (5,083) Retained earnings 88,334 62,670 ----------- ---------- Net shareholders' equity 232,021 111,149 ----------- ---------- Commitments and contingencies (notes 6, 13 and 14) Total liabilities and shareholders' equity $ 680,691 431,726 =========== ========== See accompanying notes to consolidated financial statements. 124 HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1994, 1993 AND 1992 ($000s omitted except share and per share amounts)
1994 1993 1992 ---------- ---------- - - ---------- Net sales $ 862,147 664,913 604,454 Cost of sales 592,985 474,350 439,832 ---------- ---------- - - ---------- Gross profit 269,162 190,563 164,622 Selling, general and administrative expenses 202,830 149,308 137,075 ---------- ---------- - - ---------- Operating income 66,332 41,255 27,547 Other expenses (income) Interest expense 22,110 23,566 21,075 Miscellaneous, net 1,536 (881) 579 ---------- ---------- - - ---------- Income before income taxes, minority interest and extraordinary item 42,686 18,570 5,893 Income tax expense (note 9) Federal 12,589 2,825 519 Foreign and state 3,659 4,499 1,887 ---------- ---------- - - ---------- Total income tax expense 16,248 7,324 2,406 Minority interest 26 -- -- ---------- ---------- - - ---------- Income before extraordinary item 26,412 11,246 3,487 Extraordinary item, net of income tax effect of $495 in 1994 (748) -- -- ---------- ---------- - - ---------- Net income $ 25,664 11,246 3,487 ========== ========== ========== Income per common share before extraordinary item $ 1.98 1.04 0.39 Extraordinary item, net of tax (.06) -- -- ---------- ---------- - - ---------- Net income per common share $ 1.92 1.04 0.39 ========== ========== ========== Weighted average number of common shares outstanding 13,373,497 10,825,608 8,924,799 ========== ========== ========= See accompanying notes to consolidated financial statements. 125 HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 1994, 1993 AND 1992 ($000s omitted)
1994 1993 1992 ---------- - - ---------- ---------- Cash flows from operating activities: Net income $ 25,664 11,246 3,487 ---------- - - ---------- ---------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 31,210 22,959 21,871 Amortization of intangible assets 2,342 1,414 1,564 Amortization of deferred income (1,293) (1,294) (1,294) Changes in assets and liabilities, net of effects from purchase of companies: (Increase) in: Receivables (35,566) (12,485) (14,798) Inventories (56,510) (425) (30,232) Other current assets (8,253) (2,608) (4,363) Increase (decrease) in: Accounts payable - trade 14,052 (528) 9,675 Accrued liabilities 12,035 4,415 7,678 ---------- - - ---------- ---------- Total adjustments $ (41,983) 11,448 (9,899) - - ---------- ---------- - - ---------- Net cash provided by (used in) operating activities $ (16,319) ------------ 22,694 (6,412) -------- ---------- Cash flow from investing activities: Proceeds from sale of property, plant and equipment 1,418 2,847 1,282 Payment for purchase of companies, net of cash acquired 6,852 (4,697) 24 Investments in unconsolidated subsidiaries (2,500) -- -- Capital expenditures for property, plant and equipment (40,720) (25,563) (21,003) Other items, net (3,637) (2,482) (6,357) ---------- - - ---------- ---------- Net cash used in investing activities $ (38,587) (29,895) (26,054) ---------- - - ---------- ---------- Cash flow from financing activities: Net borrowings (repayments) under lines of credit $ (8,007) (30,084) 8,531 Proceeds from issuance of long-term debt 7,559 76,112 2,485 Repayments of long-term debt (32,309) (28,129) (6,460) Proceeds from issuance of common stock 87,488 -- 18,908 Proceeds from exercise of stock options 2,245 521 80 Net change, foreign currency translation 5,475 (11,859) 7,985 ---------- - - ---------- ---------- Net cash flow provided by financing activities $ 62,451 6,561 31,529 ---------- - - ---------- ---------- Net increase (decrease) in cash and short-term investments 7,545 (640) (937) Cash and short-term investments at beginning of year 2,179 2,819 3,756 ---------- - - ---------- ---------- Cash and short-term investments at end of year $ 9,724 2,179 2,819 - - ---------------------------------- ========== ========== ========== Supplemental schedule of noncash investing activities: Fair value of assets acquired $ 138,861 7,484 2,915 Cash paid for the capital stock 1,858 4,994 25 ---------- - - ---------- ---------- Liabilities assumed $ 137,003 2,490 2,890 ========== ========== ========== See accompanying notes to consolidated financial statements. 126 HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED JUNE 30, 1994, 1993 AND 1992 ($000s omitted)
Equity Common adjustment Net Stock Additional from foreign share- $.01 par Paid-in currency Retained holders' value capital translation earnings equity -------- --------- ---------- -------- ------- Balance, June 30, 1991 $ 88 33,965 (1,209) 47,937 80,781 Issuance of common stock 20 18,888 -- -- 18,908 Exercise of stock options -- 80 -- -- 80 Foreign currency equity adjustment -- -- 7,985 -- 7,985 Net income -- -- -- 3,487 3,487 -------- --------- ---------- -------- ------- Balance, June 30, 1992 $ 108 52,933 6,776 51,424 111,241 Exercise of stock options 1 520 -- -- 521 Foreign currency equity adjustment -- -- (11,859) -- (11,859) Net income -- -- -- 11,246 11,246 -------- --------- ---------- -------- ------- Balance, June 30, 1993 $ 109 53,453 (5,083) 62,670 111,149 Issuance of common stock 40 87,448 -- -- 87,488 Exercise of stock options 2 2,243 -- -- 2,245 Foreign currency equity adjustment -- -- 5,475 -- 5,475 Net income -- -- -- 25,664 25,664 -------- --------- ---------- -------- ------- Balance, June 30, 1994 $ 151 143,144 392 88,334 232,021 ======== ========= ========== ======== ======= See accompanying notes to consolidated financial statements. 127 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 1994 consolidated financial statement presentation. Inventories Inventories are valued at the lower of cost or market. Cost is determined principally by the first-in, first-out method. Property, Plant and Equipment Property, plant and equipment is recorded at cost or, in the case of capitalized leases, at the present value of the future minimum lease payments. Depreciation and amortization of property, plant and equipment is provided primarily using the straight-line method over useful lives estimated from 3 to 35 years. Amortization of leasehold improvements is provided by the straight-line method over the estimated useful lives of the assets or the terms of the lease, whichever is shorter. Income Taxes Effective July 1991, the Company adopted Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes." Adoption of SFAS No. 109 at June 30, 1991 did not affect income tax accounts prepared using SFAS No. 96. Therefore, no cumulative effect adjustment was required for the adoption of SFAS No. 109. Under SFAS No. 109, a deferred income tax asset or liability is determined by applying currently enacted tax laws and rates to the expected reversal of the cumulative temporary differences between the carrying value of assets and liabilities for financial statement and income tax purposes. Deferred income tax expense is measured by the change in the net deferred income tax asset or liability during the year. The Company accrues, as an expense, income taxes attributable to the undistributed earnings of the foreign subsidiaries. Such income taxes are substantially offset by foreign tax credits. Some nondomestic subsidiaries may be subject to exchange controls or local bank agreements which may restrict transfer of funds from these subsidiaries. Net Income per Common Share Net income per common share is based upon the weighted average number of shares outstanding during each period, adjusted for stock options which are considered common stock equivalents, when dilutive. Foreign Currency Translation Assets and liabilities of foreign operations 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. Deferred Income Deferred income, which arose principally from the sale and leaseback of the Northridge, California property in June 1986, is being amortized as an offset to rental expense over the noncancelable term of the lease. 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 not to exceed 40 years, using the straight-line method. The Company evaluates the recoverability of intangible assets through comparisons of projected cash flows from the related assets. 128 Research and Development Research and development costs are expensed as incurred. The Company's expenditures for research and development were $22,324,000, $11,980,000 and $10,689,000 for the fiscal years ending June 30, 1994, 1993 and 1992, respectively. 2. Inventories Inventories consist of the following:
Raw materials and supplies $ 66,469 $ 38,518 Work in process 20,200 11,992 Finished goods and inventory purchased for resale 151,426 86,681 --------- --------- Total $238,095 137,191 ========= ========= 3. Property, Plant and Equipment Property, plant and equipment are composed of the following:
June 30 ($000s omitted) 1994 1993 Land $ 4,140 $ 3,949 Buildings and improvements 56,085 42,410 Machinery and equipment 188,279 144,205 Furniture and fixtures 20,891 13,482 ---------- ---------- 269,395 204,046 Less accumulated depreciation and amortization (130,840) (100,988) ---------- ---------- Property, plant and equipment, net $ 138,555 $ 103,058 ========== ========== 4. Notes Payable At June 30, 1994, the Company had unsecured short-term lines of credit with various banks aggregating $163.3 million. Interest rates based on various indices varied from 3.0% in Japan to 19.5% in India. Unused lines of credit were $100.2 million at June 30, 1994. 5. Long-Term Debt The Company must comply with the terms of its long-term debt agreements. Under the most restrictive provisions, limited amounts of dividends may be paid as of June 30, 1994. The Company's 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, restrict the Company's ability to issue capital stock of its subsidiaries and allow each holder of the 12.0% notes to require the Company to repurchase such notes above par upon the occurrence of a Change of Control, as defined in the agreements. Interest paid for both short- and long-term borrowings was $22,443,000, $18,364,000 and $18,916,000 during fiscal years ended June 30, 1994, 1993 and 1992, respectively. Long-term debt is composed of the following:
June 30 ($000s omitted) 1994 1993 --------- ---------- Series A unsecured senior notes, due September 30, 1994, interest payments due semiannually at 10.08% $ -- 25,000 Series B unsecured senior notes, due September 30, 1997, interest payments due semiannually at 10.4% 17,500 17,500 Senior subordinated notes, unsecured, due December 1, 1998, interest payments due semiannually at 11.2% 45,000 45,000 Senior subordinated notes, unsecured, due August 1, 2002, interest payments due semiannually at 12.0% 70,000 70,000 Obligations under capital leases (note 6) 11,044 7,847 Other unsubordinated loans, due in installments through 2012, some of which vary with the prime rate, bearing interest at an average effective rate of 9.6% at June 30, 1994 19,147 14,619 --------- --------- Total 162,691 179,966 Less current installments (6,114) (4,383) --------- --------- Long-term debt $156,577 $175,583 ========= ========= 129 Notes to Consolidated Financial Statements, continued Harman International Industries, Incorporated and Subsidiaries In December 1993, the Company utilized funds from the November 1993 Common Stock offering to purchase United States government securities at a cost of $26.9 million which were deposited irrevocably with PNC Bank, N. A. to satisfy principal and interest payments through the stated maturity on the Company's $25.0 million 10.08% Series A Senior Notes, due September 30, 1994. The debt and accrued interest thereon were removed from the balance sheet in an in-substance defeasance transaction resulting in an extraordinary loss, net of tax benefit, of $748,000. Long-term debt, including obligations under capital leases, maturing in each of the next five fiscal years ($000s omitted) is as follows: 1995 $6,114 1996 5,665 1997 9,418 1998 19,449 1999 46,171 Thereafter 75,874 6. Leases The following analysis represents property under capital leases:
June 30 ($000s omitted) 1994 1993 --------- --------- Machinery and equipment $ 40,136 $ 35,214 Less accumulated amortization (22,663) (18,646) --------- --------- $ 17,473 $ 16,568 ========= ========= At June 30, 1994, the Company is liable for the following minimum lease commitments under terms of noncancelable lease agreements (the operating lease commitments do not reflect the offset of the amortization of deferred income - note 1):
Capital Operating ($000S Omitted) leases leases --------- --------- Fiscal year: 1995 $ 4,273 $ 14,442 1996 2,370 13,379 1997 2,098 12,494 1998 1,443 11,447 1999 821 10,766 Thereafter 3,105 31,721 --------- --------- Total minimum lease payments 14,110 $ 94,249 Less interest (3,066) ========= --------- Present value of minimum lease payments $ 11,044 ========= Operating lease expense, net of deferred income amortization ($1,293,000, $1,294,000 and $1,294,000 for the years ended June 30, 1994, 1993 and 1992, respectively) and subrental income under operating leases having noncancelable terms of greater than one year for the years ended June 30, 1994, 1993 and 1992 was $15,677,000, $11,329,000 and $10,544,000, respectively. 7. Capital Stock In fiscal 1994 the total number of shares of capital stock the Company is authorized to issue was increased to 55,000,000, including 5,000,000 shares authorized for $.01 preferred stock and 50,000,000 shares authorized for common stock. The rights, preferences and restrictions of the preferred stock, none of which has been issued, will be established by the Board of Directors at the time of issuance. 130 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 and key employees 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 is intended to supplement the Company's 1987 Plan (the 1987 Plan) and to add the automatic grant feature for non-officer directors. While both plans remain in effect, the Compensation and Option Committee will retain the ability to make awards under both Plans. The 1987 Plan will be terminated upon the grant of awards with respect to the shares of Common Stock remaining available thereunder. Automatic awards to non-officer directors will only be made under the 1992 Plan. When the 1987 Plan is ultimately terminated, options previously granted pursuant to the 1987 Plan will remain outstanding and will be exercisable in accordance with the terms of the 1987 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 rights or performance units were outstanding at June 30, 1994. 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. Options granted pursuant to the 1987 and 1992 plans generally vest over five years and expire ten years from the date of grant. Changes in the status of options are summarized as follows:
Year ended June 30 1994 1993 1992 --------- --------- - - --------- Balance at beginning of year 625,720 781,450 516,850 Granted 553,500 63,000 292,000 Canceled (85,400) (153,810) (18,600) Exercised (183,070) (64,920) (8,800) --------- --------- - - --------- Balance at end of year 910,750 625,720 781,450 ========= ========= ========= Exercisable stock options 487,545 278,600 233,945 ========= ========= ========= Price range of options: Outstanding at end of period $ 6.63-33.94 6.63-20.63 6.63-20.63 ------------ ------------ - - ------------ Granted during period $19.25-33.94 10.63-16.88 7.75-12.50 ------------- ------------ - - ------------ Exercised during period $ 6.63-20.625 6.63-12.63 6.63-12.63 ============= ============ ============ At June 30, 1994, 71,010 shares of common stock were reserved for issuance under the 1987 Plan and 160,750 were reserved for issuance under the 1992 Plan. 9. Income Taxes Income tax expense (benefit) consists of the following:
Year ended June 30 ($000s omitted) 1994 1993 1992 --------- --------- --------- Current: Federal $ 16,716 554 (1,517) State 1,894 620 40 Foreign 2,246 4,086 2,593 --------- --------- --------- 20,856 5,260 1,116 --------- --------- --------- Deferred: Federal (4,127) 2,271 2,036 State (481) (207) (746) --------- --------- --------- (4,608) 2,064 1,290 --------- --------- --------- Total $ 16,248 7,324 2,406 ========= ========= ========= 131 Notes to Consolidated Financial Statements, continued Harman International Industries, Incorporated and Subsidiaries The tax provisions and analysis of effective income tax rates are comprised of the following items:
Year ended June 30 ($000s omitted) 1994 1993 1992 --------- --------- --------- Provision for Federal income taxes before credits at statutory rate $ 14,940 6,314 2,004 State income taxes 1,413 413 40 Difference between Federal statutory rate and foreign effective rate (1,466) 454 915 Permanent differences between financial and tax accounting income 211 200 140 Tax-exempt foreign sales corporation earnings (1,136) (386) -- Utilization of tax loss carryforward -- -- (2,107) Change in valuation reserve 1,973 (1,137) -- Losses without income tax benefit 1,683 1,466 1,414 Federal income tax credits (250) -- -- Other impacts including deferred tax impact of Federal rate increase (1,120) -- -- --------- --------- --------- Total $ 16,248 7,324 2,406 ========= ========= ========= Deferred taxes are recorded based upon differences between the financial statement and tax basis of assets and liabilities and available tax loss carryforwards. The following deferred taxes are recorded:
Assets/(liabilities) June 30 ($000s omitted) 1994 1993 --------- --------- Inventory costing differences $ 2,065 1,298 Deferred income 901 1,479 Valuations and other reserves 14,351 7,583 --------- --------- Total gross deferred tax asset $ 17,317 10,360 Less valuation reserve (4,826) (2,853) --------- --------- Deferred tax asset $ 12,491 7,507 --------- --------- Total gross deferred tax liability from fixed asset depreciation $ (3,191) (3,077) --------- --------- Net deferred tax asset $ 9,300 4,430 ========= ========= Management believes the results of future operations will generate sufficient taxable income to realize the net deferred tax asset. The Company has loss carryforwards from foreign subsidiaries AKG and Studer of approximately 250 million Austrian schillings and 70 million Swiss francs, respectively. These loss carryforwards expire within 5 to 7 years, and their effect has not been included in the preceding schedules. Future recognition of tax benefits related to these loss carryforwards will be applied to reduce the goodwill recorded for the associated entity. Cash paid for Federal, state and foreign income taxes was $14,095,000, $4,701,000 and $1,345,000, during fiscal years ended June 30, 1994, 1993 and 1992, respectively. 132 10. Business Segment Data The Company's predominant business is the design, manufacture and distribution of high fidelity audio products. The Company's activities comprise the domestic and international distribution of products manufactured by the Company and by other manufacturers. In the domestic and international segments, one customer accounted for approximately 13.7% of consolidated net sales for the year ended June 30, 1994. Another customer accounted for 10.5% of consolidated net sales in fiscal 1993 and 10.4% in fiscal 1992. The following tables show net sales, operating income and other financial information by geographic segment for the years ended June 30, 1994, 1993 and 1992. The net sales shown below for the United States include export and military sales of $179.1 million, $154.5 million and $129.1 million for the fiscal years ended June 30, 1994, 1993 and 1992, respectively. Geographic Segmentation
Year ended June 30 ($000s omitted) 1994 1993 1992 ---------- ---------- ---------- Net sales: U.S. $ 673,305 499,254 451,512 International 282,191 228,052 217,248 Intercompany/ interregion (93,349) (62,393) (64,306) ---------- ---------- ---------- $ 862,147 664,913 604,454 ========== ========== ========== Operating income: U.S. $ 73,539 33,479 22,693 International 12,039 10,330 9,960 Unallocated operating expenses (19,246) (2,554) (5,106) ---------- ---------- ---------- $ 66,332 41,255 27,547 ========== ========== ========== Identifiable assets: U.S. $ 418,840 295,097 255,427 International 252,360 122,367 146,619 Corporate 9,491 14,262 13,863 ---------- ---------- ---------- $ 680,691 431,726 415,909 ========== ========== ========== 11. Employee Benefit Plans Under the Retirement Savings Plan, domestic employees may contribute to the Retirement Savings Plan by deferring up to 12.0% of their pretax compensation. With the approval of the Board of Directors, each division may also make a basic contribution equal to 2.0% of a participating employee's salary; a matching contribution of up to 3.0% (50.0% on the first 6.0% of an employee's tax-deferred contribution); and a profit sharing contribution. Profit sharing and matching contributions vest at a rate of 25.0% for each year of service with the employer, beginning with the third full year of service. Expenses related to the Retirement Savings Plan for the years ended June 30, 1994, 1993 and 1992 totaled $3,536,000, $2,556,000 and $2,229,000, 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, 1994, 1993 and 1992 were $667,000, $646,000 and $433,000, respectively. Additionally, certain nondomestic subsidiaries maintain defined benefit pension plans. These plans are not material to the accompanying consolidated financial statements. 12. Fair Value of Financial Instruments Statement of Financial Accounting Standards No. 107 ("SFAS No. 107"), "Disclosures about Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments. 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-The fair value of foreign currency contracts used for hedging purposes is estimated by obtaining quotes from brokers. The cost of the foreign currency contracts approximated fair value at June 30, 1994. 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 133 Notes to Consolidated Financial Statements, continued Harman International Industries, Incorporated and Subsidiaries obligations under capital leases and unsubordinated loans are $132.5 million and $149.6 million, respectively, at June 30, 1994. In August 1992, the Company entered two non-hedge variable interest rate swap agreements. The agreements were terminated six months later and the resulting income of approximately $1.0 million was included in other income in fiscal 1993. 13. Foreign Currency Transactions The Company enters into foreign exchange contracts as a hedge against transactions denominated in foreign currencies. At June 30, 1994, the Company had contracts maturing through October 1994 to purchase approximately 171,600,000 Japanese yen and 260,000 German marks, equivalent to approximately U.S. $1,800,000 at the spot rate on the maturity date. The Company had contracts maturing through December 1994 to purchase approximately U.S. $12,800,000 with approximately 3,300,000 Austrian schillings, 11,200,000 French francs, 12,400,000 Danish kroner, 10,000,000 German marks, 100,000 British pounds and 242,900,000 Japanese yen at the spot rate on the maturity date. 14. Commitments and Contingencies The Company and its subsidiaries are involved in several legal actions. The results cannot be predicted with certainty; however, management, based upon advice from legal counsel, believes such actions are either without merit or do not represent a potential material liability. Commitments as of June 30, 1994 arising out of normal business operations include outstanding letters of credit of approximately $14.0 million. The Company experienced damages as a result of the January 17, 1994 Northridge, California earthquake and has filed various claims under its insurance policy. The Company does not believe it will sustain any expenses in addition to those reflected in the current year consolidated statement of operations. 15. Acquisitions In September 1993, the Company acquired a 76% interest in AKG, a leading manufacturer of microphones, headphones and other professional audio equipment headquartered in Vienna, Austria. The Company subsequently acquired the remaining 24% of AKG in July 1994. In March 1994, the Company acquired Studer Revox AG, a prominent manufacturer of professional recording and broadcast equipment. The purchase was effective January 1, 1994. Both acquisitions were recorded using the purchase method of accounting. Neither AKG nor Studer prepared interim consolidated financial statements since both were domiciled in countries where such financial statements were neither customarily prepared nor required. Therefore, interim financial statements needed to prepare pro forma financial statements, giving effect to the acquisitions as of July 1, 1992, are not available and such preparation is not practical. The Company has prepared pro forma financial data assuming the acquisitions occurred on January 1, 1991 based upon the calendar year-ends of the acquired companies and combining comparable quarterly financial data of the Company. Unaudited pro forma data is presented below:
12 months ended December 31 1993 1992 ---------- ---------- Net sales $ 865,808 836,033 Net income before extraordinary item $ 17,399 7,975 Net income $ 16,651 7,975 Income per share before extraordinary item $ 1.54 .82 Income per share $ 1.48 .82 134 16. Quarterly Summary of Operations (Unaudited) The following is a summary of operations by quarter for fiscal 1994 and 1993
Fiscal 1994 ($000s omitted except per share amounts): Three months ended Sept. 30 Dec. 31 Mar. 31 Jun. 30 ---------- ---------- ---------- - - ---------- Net sales $ 163,661 222,726 222,915 252,845 Gross profit 46,792 70,357 72,128 79,885 Income before extraordinary item $ 1,044 7,567 8,179 9,622 Net income $ 1,044 6,819 8,179 9,622 Income per share before extraordinary item* $ .10 .59 .55 .64 Net income per common share* $ .10 .54 .55 .64 * Quarters do not add to full-year for fiscal 1994 due to differences in number of shares outstanding in the quarters. _________________________________________________________________ _________________
Fiscal 1993 ($000s omitted except per share amounts): Three months ended Sept. 30 Dec. 31 Mar. 31 Jun. 30 ---------- ---------- ---------- - - ---------- Net sales $ 144,745 177,314 167,581 175,273 Gross profit $ 39,576 49,407 49,201 52,379 Net income (loss) $ (1,364) 3,335 4,001 5,274 Net income (loss) per common share $ (.13) .31 .37 .49 _________________________________________________________________ _________________ The Board of Directors and Shareholders Harman International Industries, Incorporated: We have audited the accompanying consolidated balance sheets of Harman International Industries, Incorporated and subsidiaries as of June 30, 1994 and 1993 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, 1994. 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, 1994 and 1993 and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 1994 in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP Los Angeles, California August 12,1994 135 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 judgments. 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 an 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 Bernard A. Girod President & Chief Operating Officer _________________________________________________________________ _________________ Shareholder Information
Fiscal 1994 Fiscal 1993 Fiscal 1992 Market Price High Low High Low High Low First quarter ended September 30 $ 21.50 $ 17.75 $ 12.75 $ 9.00 $ 11.125 $ 9.875 Second quarter ended December 31 29.125 18.875 15.25 9.25 10.125 6.625 Third quarter ended March 31 33.25 27.375 18.25 14.50 14.25 8.875 Fourth quarter ended June 30 31.125 25.125 21.00 16.00 14.00 10.25 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, 1994, the Company's Common Stock was held by approximately 207 record holders. The table above sets forth the reported high and low sales prices of the Company's Common Stock for each quarterly period for fiscal years ending June 30, 1994, 1993, and 1992. The information set forth in the table represents the reported high and low sales prices on the New York Stock Exchange Composite Tape. The Company paid a dividend on August 15, 1994 of $0.04 per share to owners of record as of July 29, 1994. 136 Corporate Officers Sidney Harman Chairman & Chief Executive Officer Bernard A. Girod President, Chief Operating Officer & Chief Financial Officer Jerome H. Feingold Vice President-Quality Frank Meredith Vice President & General Counsel William S. Palin Vice President-International Audit Sandra B. Robinson Vice President-Financial Operations Floyd E. Toole Vice President-Engineering Group Presidents Philip Hart Professional Group Thomas Jacoby Consumer Group Gregory Stapleton Automotive/OEM Group F. Michael Budd Manufacturing Group Niels Jespersen Marketing Group Klaus Schulz-Hanssen International Distributing Group Directors Sidney Harman Bernard A. Girod Shirley Mount Hufstedler Hufstedler & Kaus Edward H. Meyer Grey Advertising, Inc. Alan Patricof Patricof & Co. Annual Meeting The annual meeting of shareholders will be held on November 2, 1994, at Chemical Bank, 270 Park Avenue, New York, New York 10017 at 11:00 a.m. EST. A proxy statement was sent to shareholders on or about September 28, 1994, at which time proxies for the meeting were requested. Registrar and Transfer Agent Chemical Trust Company of California 300 South Grand Avenue Los Angeles, CA 90071 (213) 621-8251 Securities Traded New York Stock Exchange Symbol: HAR Independent Auditors KPMG Peat Marwick LLP 725 South Figueroa Street Los Angeles, CA 90017 (213) 972-4000 Corporate Headquarters 1101 Pennsylvania Avenue, NW Suite 1010 Washington, D.C. 20004 (202) 393-1101 137 PAGE HARMAN INTERNATIONAL 1994 ANNUAL REPORT 138
EX-21 6 EXHIBIT 21.1 EXHIBIT 21.1 139 THIS PAGE LEFT BLANK INTENTIONALLY 140 HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED LIST OF SUBSIDIARIES Subsidiary Jurisdiction AKG Acoustics GmbH Germany AKG Acoustics, Inc. Delaware AKG Acoustics India, Ltd. India AKG Acoustics plc United Kingdom AKG Akustische u. Kino-Gerate Gessellschaft m.b.H. Republic of Austria Allen & Heath Brenell Limited United Kingdom Amek Systems and Controls Ltd. United Kingdom Amek Technology Group Plc United Kingdom Atlantex Music Limited United Kingdom Audax Industries, S.A. France Audax of America, Inc. Delaware Bandive Limited United Kingdom BSS Audio Ltd United Kingdom DOD Electronics Corporation Utah Edge Technology Group Ltd. United Kingdom Entel, Ltd. United Kingdom Environmental Investments, Ltd. United Kingdom Epicure Products, Inc. Delaware Fosgate, Inc. Delaware Gatehit Limited United Kingdom Hall Effects Laboratories, Ltd United Kingdom Harco Properties, Inc. Delaware Harman Belgium NV Kingdom of Belgium Harman Deutschland GmbH Germany Harman France, S.A. France Harman Holding A/S Denmark Harman Integrated Design Group Incorporated Delaware Harman International Foreign Sales Corporation Guam Harman International Industries Limited United Kingdom Harman International Japan Co., Limited Japan Harman Investment Company, Inc. Delaware Harman-Kardon Europa A/S Denmark Harman-Kardon, Incorporated Delaware Harman-Motive, Inc. Delaware 141 HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED LIST OF SUBSIDIARIES Subsidiary Jurisdiction Harman Motive Limited United Kingdom Harman Audio Outlet, Inc. Delaware Harman UK Limited United Kingdom Infinity Systems, Inc. California JBL Incorporated Delaware JBL TM Corporation Delaware Lexicon, Incorporated Massachusetts Lydig Export A/S Denmark Lydig of Scandinavia A/S Denmark MBI Broadcast Systems Limited United Kingdom MBI Consulting and Commissioning Limited United Kingdom Precision Devices, Ltd United Kingdom Pyle Industries, Inc. Indiana Quested Monitoring Systems Limited United Kingdom Riverend Limited United Kingdom SCJ and AKG Ltd. Japan Sescord Limited United Kingdom Son-Audax Loudspeakers Limited United Kingdom Soundcraft Electronics, Limited United Kingdom Soundcraft Magnetics Limited United Kingdom Studer Capital Inc. Tennessee Studer Deutschland GMBH Germany Studer Editech Corp. California Studer Professional Audio AG Switzerland Studer Canada Limited Canada Studer Japan Ltd. Japan Studer S.E. Asia Pte Ltd Singapore Studer U.K. Limited United Kingdom Studer Wien Ges.MbH Republic of Austria Studer Digitec S.A. France Total Audio Concepts Ltd. United Kingdom Turbo Sound Ltd. United Kingdom Turbo Sound Rentals Ltd. United Kingdom Turbo Sound Sales, Ltd. United Kingdom Turnkey Ltd. United Kingdom 142
EX-23 7 EXHIBIT 23.1 EXHIBIT 23.1 143 THIS PAGE LEFT BLANK INTENTIONALLY 144 CONSENT OF INDEPENDENT AUDITORS 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 and 33-60236 on Form S-8 of Harman International Industries, Incorporated of our report dated August 12, 1994, relating to the consolidated balance sheets of Harman International Industries, Incorporated and subsidiaries as of June 30, 1994 and 1993, and the related consolidated statements of operations, cash flows and shareholders' equity and related schedules for each of the years in the three year period ended June 30, 1994, which report appears in the June 30, 1994 annual report on Form 10-K of Harman International Industries, Incorporated. /s/ KPMG Peat Marwick LLP Los Angeles, California September 19, 1994 145 THIS PAGE LEFT BLANK INTENTIONALLY 146 EXHIBIT 27.1 147 THIS PAGE LEFT BLANK INTENTIONALLY 148
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