-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EreO7ZNAfKZHp2OUqZB4mN/0SmD+h6Pfe2/pRk4x87WIrtVt8y3ODP960MlHt1bM 9F3XEWFppdDUSIDuEGOtaw== 0000800459-96-000013.txt : 19960916 0000800459-96-000013.hdr.sgml : 19960916 ACCESSION NUMBER: 0000800459-96-000013 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960913 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARMAN INTERNATIONAL INDUSTRIES INC /DE/ CENTRAL INDEX KEY: 0000800459 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD AUDIO & VIDEO EQUIPMENT [3651] IRS NUMBER: 112534306 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09764 FILM NUMBER: 96630007 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, 1996 Commission file number 1-9764 HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED (Exact name of Registrant as specified in its charter) Delaware 11-2534306 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1101 Pennsylvania Ave., N.W., Ste. 1010, Washington, D.C. 20004 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (202) 393-1101 Securities registered pursuant Name of each Exchange on to section 12(b) of the Act: which registered: Common Stock, par value $.01 per share New York Stock (Title of class) Exchange, Inc. Securities registered pursuant to section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No. The aggregate market value of the voting stock held by nonaffiliates of the Registrant as of August 31, 1996, was $785,574,153. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 18,636,983 shares of Common Stock, par value $.01 per share, as of August 31, 1996. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to Stockholders for the fiscal year ended June 30, 1996, are incorporated by reference in Part I, Item 1, and Part II, Items 5, 7 and 8. Portions of the Registrant's definitive Proxy Statement relating to the 1996 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 Page 1 of 91 THIS PAGE LEFT BLANK INTENTIONALLY 2 TABLE OF CONTENTS PART I Page Item 1. Business............................................ 5 Item 2. Properties.......................................... 27 Item 3. Legal Proceedings............................. 28 Item 4. Submission of Matters to a Vote of Security Holders................................ 28 Executive Officers of the Registrant.. 29 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.............................................. 31 Item 6. Selected Financial Data.................... 32 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 32 Item 8. Consolidated Financial Statements and Supplementary Data.................... 32 Item 9. Disagreements on Accounting and Financial Disclosure.......................... 33 PART III Item 10. Directors and Executive Officers of the Registrant.................................... 33 Item 11. Executive Compensation.................. 33 Item 12. Security Ownership of Certain Beneficial Owners and Management.33 Item 13. Certain Relationships and Related Transactions...................................... 33 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.33 List of Financial Statements and Financial Statement Schedules......... 37 Independent Auditors' Report.......... 39 Index to Exhibits.............................. 41 3 THIS PAGE LEFT BLANK INTENTIONALLY 4 PART I ITEM 1. BUSINESS General Business Harman International Industries, Incorporated (together with its subsidiaries, "Harman" or the "Company"), a Delaware corporation formed in 1980, is a worldwide leader in the design, manufacture and marketing of high-quality, high-fidelity audio products targeted primarily at the consumer, professional and original equipment manufacturer ("OEM") markets. For almost 50 years, the Company and its predecessors have been leaders and innovators in creating loudspeaker and electronic products that deliver superior sound. The Company believes that its JBL, Infinity and Harman Kardon brand names are well- known worldwide for premium quality and performance. In order to 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 that enables it to respond effectively to customer needs, assure product quality and increase manufacturing efficiency. In the last three years, the Company's operations have been repositioned to provide better customer focus and improved efficiency. The Company's operations are now centered around three primary Groups: the Consumer Group, the Professional Group and the OEM Group. During this same three-year period, the Company completed a number of strategic acquisitions to improve its competitive position in terms of market, product and technology. These acquisitions include: AKG Akustiche und Kino-Gerate Gesselschaft m.b.H. ("AKG"), a manufacturer of microphones based in Austria; Studer Revox AG ("Studer"), a manufacturer of broadcast and recording systems based in Switzerland; Becker GmbH ("Becker"), a high technology manufacturer of automotive head units (radio/cassette deck/CD player) based in Germany; and Madrigal Audio Laboratories, Inc. ("Madrigal"), the manufacturer of the prestigious Mark Levinson and Proceed brands of consumer electronics products, based in Connecticut. Through these acquisitions, the Company believes it has positioned each Group to offer a more complete line of products, thereby enabling the Company to compete more effectively in its markets. 5 Consumer Group The Company designs, manufactures and markets loudspeakers under the JBL and Infinity brand names for the consumer market. The Company also designs, manufactures and markets a broad range of consumer electronics products. During fiscal 1996, the Company's principal consumer electronics division, Harman Kardon, Incorporated ("Harman Kardon"), achieved record sales. The Company's principal loudspeaker divisions, JBL Incorporated ("JBL") and Infinity Systems, Inc. ("Infinity"), also achieved record sales in fiscal 1996. The Company continues to capitalize on these strong brand names by targeting growing markets, such as home theater, and by developing new and innovative products. The Company continually seeks to improve its market position in its core loudspeaker business by introducing new products that offer greater efficiency and reduced size. Professional Group The Company is a leading manufacturer and marketer of professional audio electronics equipment, including loudspeakers, amplifiers, mixing consoles, signal processing equipment, microphones and broadcast and recording products. Such products are marketed worldwide under various trade names, including: JBL, Soundcraft, Allen & Heath, DOD, Lexicon, AKG, dbx, BSS, Turbosound, Orban, Spirit and Studer. The acquisitions of AKG in September 1993 and Studer in March 1994 enable the Professional Group to supply a complete range of professional audio products and turnkey systems to the principal segments of the industry, including broadcast and recording, sound reinforcement, and musical instrument support. The Professional Group is developing digital systems that are integrated by means of a proprietary digital architecture that permits all of the components to communicate and allows for a single point of control. The ability to integrate all of the audio components in the system also provides the opportunity for better performance and lower costs. OEM Group Automotive Audio Systems. Harman is one of the world's largest manufacturers of premium branded automotive OEM audio systems. During the past few years, the Company has invested heavily to streamline its manufacturing operations and establish relationships with 6 new customers. During fiscal 1995 and fiscal 1996, the Company's OEM Group recorded significant sales increases due to an increase in the number of automobile models offering the Company's audio systems and higher penetration levels within existing models. The Company's largest automotive OEM customer, Chrysler, offers Infinity branded audio systems as options in thirteen different models. Harman Kardon branded systems are offered in models from BMW, Saab, Jaguar and Range Rover. Becker supplies head units to Mercedes, BMW and Porsche. Other customers include Mitsubishi, Rover and Toyota. The Company believes significant growth opportunities continue to exist in the automotive OEM market through higher penetration levels within existing models, increases in the number of models offering the Company's audio systems and the addition of new automotive OEM customers. Furthermore, the acquisition of Becker enables the OEM Group to offer completely integrated audio systems that include the head unit, amplifiers, loudspeakers and associated electronics. The Company believes this integrated audio system provides a platform for further expansion into associated automotive electronic products such as communications, security and navigation. The Company has discontinued Ford's exclusive automotive OEM use of the JBL brand name and made it available to Toyota, Peugeot and others from whom commitments have been received beginning in model year 1998. The JBL program for the Ford Explorer will conclude with model year 1997 and for the Lincoln line with model year 1998. The Company believes that these developments will generate increased sales of JBL branded systems to a larger number of automotive manufacturers. Audio for Computers. During fiscal 1996, the Company began to design and manufacture branded audio systems and loudspeakers for manufacturers of personal computers. The Company intends to develop its computer OEM audio systems business based on the model of its established automotive OEM audio systems business. Through an alliance with Compaq Computer Corporation, the Company began production of audio systems that will be incorporated as standard equipment in Compaq's new Presario line of personal computers. Shipments to Compaq began in June 1996. The Harman designed and manufactured systems are badged "JBL-Professional." A complete Harman Kardon surround system was designed for Gateway 2000 during 1996. The surround system is offered by Gateway 7 as an option on its Destination product line. The Destination product is a new generation of "TV Computers" that combines familiar personal computer functions with traditional home high fidelity and television reception functions. The software incorporated in Destination, which facilitates reception of detailed television program information, has been developed by the Company's Smart TV Group and is branded Harman Smart TV. The Company is in discussions with a number of additional computer makers to whom it hopes to market Harman Smart TV and OEM audio and loudspeaker systems. 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 as many as fifty years previous, some as part of the same enterprise and 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 later extended its product offerings to include loudspeakers for the home in response to demand from consumers who recognized and appreciated the professional quality sound of JBL's movie theater loudspeakers. 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. 8 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) 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 such as Circuit City in the U.S. and MediaMarkt in Germany; (2) professional audio, providing a complete range of audio products offered to the sound reinforcement, broadcast and recording, and music instrument markets; and (3) OEM audio, offering branded audio systems for installation as original equipment in automobiles and broadening its base of automotive customers to include Chrysler, Mercedes, Ford, Jeep, BMW, Mitsubishi, Toyota, Porsche, Saab, Range Rover and Jaguar, as well as developing the OEM audio for computers market, including current customers Compaq and Gateway 2000. 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. The Company has made a number of small acquisitions of consumer loudspeaker and electronics companies to expand its consumer electronics portfolio and to add product expertise to meet strategic requirements. Among these, the Company expanded its electronic audio components business and entered the home theater market through its acquisition of Fosgate, Inc. in January 1991. The Company's consumer electronics 9 presence was expanded further through the fiscal 1994 acquisition of AudioAccess, a manufacturer of home audio/video system control devices and the fiscal 1996 acquisition of Madrigal, manufacturer of the renowned Mark Levinson and Proceed lines of high end electronics. 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 Electronics to bring the Professional Group into the musical instrument and digital signal processing markets. In September 1991, the Company acquired Allen & Heath Brennell, Limited, 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, adding to the Company's digital audio product offerings. Austrian microphone and headphone manufacturer AKG was acquired in September 1993, providing the Company the ability to offer complete system solutions for the sound reinforcement market. Other brands added to the Harman portfolio through the AKG acquisition include: Turbosound professional loudspeakers; BSS professional amplifiers, loudspeaker management systems and signal processing devices; and Orban broadcast electronics. In March 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 a world leader in the professional audio market. 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 10 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, JBL and Harman Kardon. In February 1995, the company expanded its automotive OEM market position with the acquisition of Becker GmbH, a German manufacturer of radios and other electronics for the automotive OEM market and the automotive aftermarket. Becker is a principal automotive audio head unit supplier to Mercedes Benz. The addition of Becker enables the OEM Group to offer completely integrated audio systems that include the head unit, amplifiers, loudspeakers and associated electronics. The Company has developed its computer OEM business through the use of internal resources such as its multimedia software capabilities, its automotive OEM marketing and management talent and its established brand names - JBL, Harman Kardon and Infinity. The manufacturing capabilities of the Company include North American and European operations. Primary manufacturing sites are located in California, Denmark, France and the United Kingdom. The Company maintains marketing offices in Hong Kong, Denmark, Japan, Singapore and Brazil 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. ORGANIZATION The Company is organized in three core groups - Consumer, Professional and OEM - with each group incorporating all related manufacturing, marketing and distribution operations. The Consumer Group contributed approximately 34% of fiscal 1996 total net sales, the Professional Group accounted for approximately 34% of net sales, and the OEM Group generated approximately 32% of net sales. Financial Information about Geographic Segments Financial information about geographic segments required to be included hereunder is incorporated by reference to Note 9 of Notes to Consolidated Financial Statements contained in the Company's Annual Report to Shareholders for the fiscal year ended June 30, 1996. 11 Description of Business The Company's business is conducted through its wholly owned subsidiaries which include: Name Principal products - --------------------------------------- ------------------------------------------ AKG Akustiche u. Kino-Gerate Gessellschaft m.b.H. Professional electronics Audax Industries, SNC Consumer home, automotive and professional loudspeakers; OEM loudspeakers Becker GmbH Automotive OEM and automotive aftermarket electronics Harman Music Group, Incorporated Professional electronics Harman Belgium NV Consumer home, automotive and professional audio products Harman Consumer Europe A/S Consumer home and automotive electronics Harman Deutschland GmbH Consumer home, automotive and professional audio products Harman France, S.N.C. Consumer home, automotive and professional audio products Harman International Industries, Consumer home and automotive, Limited automotive OEM loudspeakers and electronics and professional audio products Harman International Japan Consumer home, automotive, Co., Limited and professional audio products Harman-Kardon, Incorporated Consumer home and automotive electronics Harman-Motive, Inc. OEM loudspeakers and electronics Infinity Systems, Inc. Consumer home and automotive loudspeakers and electronics
12 Name Principal products - --------------------------------------- ------------------------------------------ JBL Incorporated Consumer and professional loudspeakers and electronics Lexicon, Incorporated Professional electronics Lydig of Scandinavia A/S Components, cabinets and loudspeaker systems Madrigal Audio Laboratories, Inc. Consumer 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 consumer, professional and 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 consumer and professional audio products, including software-driven audio systems with integrated digital architecture that permits communication among all components. Market growth in consumer audio is particularly strong in home theater and multimedia. The advent of the digital video disc (DVD) will provide additional growth opportunities in the consumer market. The Company is meeting consumer demand with products carrying its respected and well-known brand names JBL, Infinity, Harman Kardon, Mark Levinson, Proceed and Citation. The Company is well-positioned to meet the digital requirements of the professional market with the expertise of its professional companies, particularly JBL, Soundcraft, Studer, Lexicon, Harman Music Group and AKG. Harman is a leader in the design and production of premium, branded high-fidelity systems for automobile manufacturers. The Company believes significant growth opportunities exist within the automotive audio market to increase sales by increasing product penetration in OEM 13 models currently supplied, expanding the number of automobile models offering its systems and adding new OEM customers. The Becker acquisition complements the Company's JBL, Infinity and Harman Kardon automotive audio programs and enables the Company to offer fully-integrated audio systems to the automobile manufacturers. The Company has broadened its OEM business to include personal computers by developing branded audio systems for Compaq, Gateway and other manufacturers of personal computers. The Company believes that the number of personal computers equipped with multimedia capabilities will continue to increase at a high rate on a worldwide basis, and that the Company is well-positioned to capitalize on this emerging market segment with its JBL, Infinity and Harman Kardon brand names. Products The Company designs, engineers, manufactures and markets worldwide a broad range of high-quality, high-fidelity audio loudspeakers and electronics for the consumer (home and automotive aftermarket), professional (sound reinforcement, broadcast and recording, and musical instrument support), and OEM (automotive and computer) markets. The Company also distributes a small amount of complementary audio products manufactured by other companies. The Consumer Group accounted for approximately 34% of the Company's fiscal 1996 sales, of which 80% was attributable to home loudspeaker and automotive aftermarket systems and 20% was from home electronic components. The Professional Group contributed approximately 34% of fiscal 1996 sales The OEM Group generated approximately 32% of fiscal 1996 sales. CONSUMER PRODUCTS. The Company designs, manufactures and markets loudspeakers principally under the JBL and Infinity brand names for the consumer market. JBL loudspeakers sold to the consumer market employ techniques originally developed 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 or ceiling mountable loudspeakers, in styles and finishes ranging from high gloss piano lacquer to genuine wood veneers. JBL's introduction of wireless technology in its SoundEffects speaker systems provides improved speaker placement flexibility and simplifies installation for home theater and multi-room applications. 14 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. Compostions, Infinity's home theater loudspeakers, have received excellent reviews from the high fidelity audio press for outstanding design and performance. 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 in California and Denmark and believes that they are among the most advanced cabinet production facilities in the world. 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, surround sound processors featuring Dolby Pro-Logic AC-3 technology and Lucasfilm Home THX, and front-loading, bit stream compact disc changers. Madrigal is a designer and manufacturer of high-end digital electronics, including amplifiers, pre-amplifiers, digital signal processors, and compact disc transports and players. Madrigal markets its products under the renowned Mark Levinson and Proceed brand names. Citation is a designer and manufacturer of high-end surround sound processors, amplifiers and loudspeakers for the growing U.S. and international home theater market. Citation products feature patented Six- Axis steering logic surround processing and provide solutions for all component and system needs for home theater and home audio. AudioAccess products provide in-home, multi-source, multi-zone sound system controls, serving home theater and multi-room applications. 15 The Company's automotive aftermarket products include loudspeakers and amplifiers marketed under the JBL and Infinity brand names and Becker head units (radios with either cassette or compact disc functions), amplifiers and compact disc changers. 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, Lexicon, AKG, Turbosound, Studer and Soundcraft are in use around the world in such places as the Great Hall of the People in Beijing, China, the Royal Danish Theater in Copenhagen and Abbey Road Studio in England. Performing artists such as Pink Floyd, U2, The Rolling Stones, Oasis and Wynton Marsalis 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 Professional Group derives value from its ability to share research and development, engineering talent and other digital resources among its divisions. Soundcraft, Lexicon, Studer and Harman Music Group each have substantial digital resources and work together to achieve common goals by sharing resources and technical expertise. The Professional Group's loudspeaker products are well-known for high quality and superior sound. The JBL Professional portfolio of products includes studio monitors, loudspeaker systems, power amplifiers, sound reinforcement systems, bi-radial horns, theater systems, surround systems and industrial loudspeakers. The Turbosound Floodlight and Flashlight professional loudspeaker lines were added to the Company's portfolio through the acquisition of AKG. 16 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. The Harman Music Group product line is marketed under the DOD, dbx, Digitech and Audio Logic brand names, and is sold primarily to professional audio and musical instrument dealers. Harman Music Group products include signal processing equipment, equalizers, mixers and special effects devices. Performers who have used Harman Music Group products on tour include: Van Halen, Aerosmith, the Rolling Stones, Trent Reznor of Nine Inch Nails, and David Gilmour of Pink Floyd. 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 digital signal processing products are used in live sound applications as well as recording studios to process sound effects and refine final mixes. 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 and headphones. The AKG product line includes microphones, audio headphones, surround-sound headphones and other professional audio products marketed under the AKG brand name. Studer Professional Audio is recognized for the high quality and reliability of its professional products, which include analog and digital tape recorders, mixing consoles, switching systems, digital audio workstations, professional compact disc players and recorders and turnkey broadcasting studio installations. 17 OEM PRODUCTS. Harman is a leading global manufacturer of premium branded automotive OEM audio systems. In its sale of loudspeakers, head units, amplifiers and other audio products to the automobile manufacturers, the Company leverages its expertise in the design and manufacture of high-quality loudspeakers, radios and other electronics, as well as the reputation for quality associated with its JBL, Infinity, Harman Kardon and Becker brand names. The Company's ability to design and manufacture transducers utilizing special materials enables the Company to collaborate with automobile manufacturers to design lighter sound systems that contribute to increases in automobile fuel efficiency. The addition of head unit and other electronics design and manufacturing capabilities through the Becker acquisition enables the Company to provide complete high-fidelity audio systems solutions to automobile manufacturers. The Company manufactures audiophile OEM sound systems for automobiles, including Infinity systems sold to Chrysler and Mitsubishi in models such as the Jeep Grand Cherokee and the Mitsubishi 3000GT, JBL systems sold to Ford in models such as the Lincoln Continental and the Ford Explorer and Harman Kardon systems sold to BMW (3-series), Jaguar, Saab and Land Rover (Range Rover), as well as a non-branded premium system sold to Toyota for the Avalon. Becker supplies head units and other electronics to Mercedes, BMW and Porsche. These premium OEM audio systems are engineered for each automobile to maximize acoustic performance and complement interior design. The Company discontinued Ford's exclusive automotive OEM use of the JBL brand name and made it available to Toyota, Peugeot and others from whom new commitments have been received beginning in model year 1998. The JBL program for the Ford Explorer will conclude with model year 1997 and for the Lincoln line with model year 1998. The Company believes these developments will generate increased sales of JBL branded systems to a larger number of automotive manufacturers. The Company manufactures a series of "JBL-Professional" branded audio systems for Compaq's Presario line of personal computers and a higher-powered Harman Kardon system for Gateway's new Destination TV-PC product. Destination also includes Harman's Smart TV. These audio systems provide high-quality sound and thus enhance the appeal and capability of the personal computer as an entertainment device. 18 Manufacturing The Company believes that its manufacturing capabilities are essential to maintaining and improving the quality and performance of its products. 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. Many of the Company's manufacturing facilities are certified as conforming to the requirements of ISO 9000 for manufacturing, engineering and service. The Company's manufacturing capabilities with respect to loudspeakers include the production of its own high-gloss lacquer and wooden veneer loudspeaker enclosures, wire milling, voice coil winding 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 enables it to maintain consistent quality levels, resulting in reliable, high-performance products. The Company capitalizes on opportunities to transfer technology and materials developments across product lines to maximize the benefits accruing from investments in engineering, design and development. The Company's principal domestic manufacturing facility is located in Northridge, California (Northridge Manufacturing) where it manufactures JBL and Infinity loudspeakers, including cabinets, for consumer, professional, automotive aftermarket and personal computer applications and amplifiers for the automotive OEM market and the automotive aftermarket. The Company manufactures loudspeakers and assembles sound systems for the OEM automotive market in Martinsville, Indiana. Harman Music Group manufactures professional electronics products at its facility in Salt Lake City, Utah. Lexicon manufactures its professional electronics products at its Waltham, Massachusetts facility. Madrigal manufactures consumer electronics at its Middletown, Connecticut facility. The Company has established a strong manufacturing presence in Europe to better respond to customer demands in that market. Audax Industries SNC ("Audax"), a manufacturer of high-quality, high- performance tweeters, manufactures speakers in France, and the Company's Lydig of Scandinavia A/S ("Lydig") subsidiary manufactures cabinet enclosures and assembles complete JBL and Infinity loudspeakers in Denmark. The Company also manufactures drivers for its Turbosound line of professional loudspeakers at its Precision Devices manufacturing 19 site in the United Kingdom. Final assembly of Turbosound loudspeakers is performed in the United Kingdom. Cabinet production will begin in the United Kingdom during fiscal 1997 at the Company's new factory in Cornwall to supply the Turbosound line and to meet increased demand for JBL Professional loudspeakers in Europe. European professional electronics manufacturing includes Soundcraft in the United Kingdom (mixing consoles), Studer in Switzerland (professional recording and broadcast equipment) and AKG in Austria (microphones and headphones) European automotive loudspeaker and electronics manufacturing includes the production of automotive OEM loudspeakers in the United Kingdom and automotive OEM and automotive aftermarket radios and other electronics at Becker in Germany. Marketing and Distribution The Company's products are sold domestically and internationally in the consumer, professional and OEM markets. The consumer market for audio entertainment systems consists of home and automotive aftermarket. The professional market includes a wide range of professional uses, including live music applications, recording facilities, entertainment venues such as concert halls, stadiums and movie theaters, broadcast facilities and music instrument support. The OEM market includes automobile manufacturers which purchase components and systems on either a branded or generic basis and manufacturers of personal computers. The Company primarily markets its consumer audio products through audio and audio-video specialty stores and certain audio-video chain stores, such as Circuit City in North America and MediaMarkt in Germany. The Company enjoys broad distribution of its products and selects dealers who emphasize high-quality audio systems and who are knowledgeable about the features and capabilities of audio products. The Company's sales and marketing activities include dealer education programs and comprehensive product literature. 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. 20 The Company's professional audio products are marketed worldwide through professional sound equipment dealers, including sound system contractors which directly assist major users. The Company's sales and marketing group for its professional products is separate and independent from its consumer product sales group. The Company markets its branded OEM audio products to automobile and personal computer manufacturers. OEM customers include Chrysler, Mercedes Benz, Ford, Mitsubishi, Toyota, BMW, Jaguar, Porsche, Range Rover and Saab in the automotive segment and Compaq and Gateway in the personal computer segment. Suppliers Products designed by Harman Kardon in the United States are manufactured by several suppliers. The Company believes it has good working relationships with these suppliers. The use of multiple vendors helps to mitigate risks associated with potential disruption. However, the loss of the largest supplier would have a material impact on the earnings of Harman Kardon until alternate sources could be found. Northridge Manufacturing relies on several suppliers for a large percentage of certain parts, such as wood, speaker grilles, plastic molded parts and magnets. The loss of any one of these suppliers would have a material impact on the earnings of Northridge 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, Citation, Concord, Audax, Becker, Soundcraft, Spirit, DOD, Audio Logic, DigiTech, Lexicon, AKG, Studer, Numisys, BSS, Orban, Precision Devices, dbx, AudioAccess, Turbosound, Mark Levinson, Proceed, EON, Harman SmartTV, Control, Compositions, Optimod, C-Audio, 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, 1996, the Company held approximately 352 United States and foreign 21 patents covering various products, product designs and circuits, and had approximately 195 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 Sales to Chrysler for fiscal year 1996 accounted for 10.4% of the Company's consolidated net sales. The loss of automotive OEM system sales to Chrysler would have a material adverse impact on the sales and earnings of Harman Motive and the Company as a whole. The Company's next largest customer, Mercedes Benz, accounted for 7.7% of the Company's consolidated net sales for the year ended June 30, 1996. The loss of automotive OEM sales to Mercedes Benz would have a material adverse impact on the sales and earnings of the Company. Backlog Orders Because the Company's practice is to maintain sufficient inventories of finished goods to fill orders promptly, the level of backlog is not considered to be an important index of future performance. The Company's backlog was approximately $36.2 million at June 30, 1996, and $31.3 million at June 30, 1995. 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 22 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. 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 retailers, professional audio dealers, contractors and 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 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, Turbosound professional loudspeakers are compatible with and marketed by the same staff as BSS professional amplifiers and loudspeaker management systems. However, JBL and Infinity home loudspeakers compete directly and are two of the leading loudspeaker brands in the world. The Company's strategy uses its brand leadership to increase market share. 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. 23 The Company's principal competitors in the consumer loudspeaker market include Bose, Boston Acoustics, Bowers & Wilkins, KEF, Celestion, Paradigm, Acoustic Research, Cambridge SoundWorks and Polk Audio. Harman's principal competitors in the consumer automotive aftermarket area include Alpine, Kenwood, Bose, Nakamichi, Clarion, Rockford-Fosgate and Blaupunkt. 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: Sony, Denon, Onkyo, Nakamichi, Pioneer and Kenwood. With the addition of Madrigal in fiscal 1996, the Company competes in the high end of the consumer electronics market with the Mark Levinson and Proceed brands. Principal competitors include: Krell, McIntosh, Audio Research, Meridian, Linn and Accuphase. The market for professional sound systems is highly competitive. The Company has historically held a leading market position in the professional loudspeaker market and has complemented its professional loudspeaker line by adding digital professional electronics products and broadcast and recording equipment. The Company competes using its ability to provide 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, AKG, Soundcraft, and BSS. Its principal competitors in sound reinforcement include Electro Voice, Inc. and Altec Lansing (subsidiaries of Mark IV Industries), Eastern Acoustic Works, Crest, Sennheiser, Tannoy, Bose, Peavy, Tascam, Klark-Teknik, Marshall, Fender 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: Sony, Neve, Sennheiser, Denon, SSL, Shure and Audio Technica. In the Music Instrument area the Company's 24 DOD, Digitech, dbx, Lexicon and Spirit products meet competitors Yamaha, Peavy, Rane, Roland, Alesis, Marshall, Fender and Sony. The Professional Group also competes in the industrial and architectural sound market; competitors within this market include Siemens, Peavy and Tannoy. In the automotive OEM market, the Company's principal competitors include Bose, International Jensen, Oxford Electric, and Foster Electric in the loudspeaker systems segment and Alpine, Blaupunkt and Panasonic in the electronics segment. The Company is the only supplier of branded loudspeaker systems for Ford, Chrysler, Jeep and Mitsubishi automobiles in the United States, and also supplies branded loudspeaker systems to BMW, Jaguar, Rover and Saab as well as supplying systems for the Toyota Avalon. Additionally, the company is a primary supplier of radio head units to Mercedes-Benz. 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 and electronics 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, and also in its ability to provide complete, branded audio systems to the automobile manufacturers. In the developing computer OEM market, the Company supplies audio systems for Compaq's Presario line of personal computers and the Gateway Destination TV-PC. Principal competitors in this segment include Bose, Altec-Lansing and LabTec. Environmental Matters The Company is subject to various federal, state, local and international environmental laws and regulations, including those governing the use, discharge and disposal of hazardous materials. The Company's manufacturing facilities are believed to be in substantial compliance with current laws and regulations. The cost of compliance with current laws and regulations has not been, and is not expected to be, material. During fiscal 1995, the Company gave notice to certain state agencies that an environmental release had occurred at one of its facilities. The Company agreed to a remediation plan with the state agency. The 25 Company has begun the remediation of this site and does not believe that the future cost will exceed $250,000. The Company has been named as a "potentially responsible party" with respect to the disposal of hazardous wastes at four hazardous waste sites. In addition, there are other sites to which the Company has sent hazardous wastes which the Company believes are currently under regulatory scrutiny. It is possible that additional environmental issues may arise in the future which the Company cannot now predict. Although ultimate liability cannot be determined with respect to the sites mentioned above, and applicable law provides that a potentially responsible party at any site may be held jointly and severally liable for the total cost of remediation, the Company believes, based upon internal investigations and information made available to the Company with regard to its potential liability at these sites, that its proportionate share of the costs related to the investigation and remedial work at these sites will not exceed $100,000. Research, Development and Engineering The Company's expenditures for research, development and engineering were $59,171,000, $40,257,000, and $22,324,000 for the fiscal years ending June 30, 1996, 1995 and 1994, respectively. The increase in expenditures in fiscal 1996 results from: the development of the new OEM audio for computers business; the addition of Becker, which was included for only six months in fiscal 1995; the inclusion of Madrigal, acquired September 1995; and increased product development activity at JBL Professional, Studer and Harman Motive. The increase in expenditures in fiscal 1995 reflects the inclusion of Becker, acquired February 1995, and a full year of development efforts at AKG and Studer, acquired in September 1993 and March 1994, respectively. Number of Employees As of June 30, 1996, the Company had 8,369 full-time employees, including 4,179 domestic employees and 4,190 international employees. The increase in number of employees as of June 30, 1996 compared to the prior year primarily results from the acquisition of Madrigal and the expansion of the Company's OEM business into the personal computer segment. 26 Financial Information - 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 9 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, 1996. Forward-Looking Statements Except for the historical information contained herein, the matters discussed herein contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those suggested in the forward-looking statements, including, without limitation, the effect of economic conditions, product demand, competitive products and other risks detailed herein and in the Company's other filings with the Securities and Exchange Commission. 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 Division - ----------------------------- ----------- ---------- ------------- ----------------- Northridge, California 693,932 Leased 100% JBL, Harman Motive Martinsville, Indiana 224,107 Owned 100% Harman Motive Ontario, California 212,600 Leased 100% JBL, Infinity Ringkobing, Denmark 145,119 Owned 100% Lydig 25,920 Leased 80%
27 Square Owned or Percentage Location Footage Leased Utilization Division - ----------------------------- ----------- ---------- ------------- ----------------- Ittersbach, Germany 169,465 Owned 61% Becker Huntington, Indiana 167,557 Owned 100% Pyle Potters Bar, UK 160,000 Leased 100% Soundcraft Vienna, Austria 128,593 Leased 100% AKG Sandy, Utah 122,000 Leased 100% Harman Music Group Heilbronn, Germany 48,571 Owned 92% Harman 63,183 Leased 60% Deutschland Bridgend, UK 101,400 Leased 100% Harman Motive Worth-Schaitt, Germany 89,640 Owned 50% Becker Regensdorf, Switzerland 86,111 Leased 100% Studer Chateau-du-Loir, France 66,712 Owned 100% Audax
The company considers its properties to be suitable and adequate for its present needs. 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. 28 EXECUTIVE OFFICERS OF THE REGISTRANT Age at Name August 1, 1996 Position - --------------------------- ------------------- ------------------------------------------------ Sidney Harman 77 Chairman of the Board of Directors and Chief Executive Officer Bernard A. Girod 54 President, Chief Operating Officer, Chief Financial Officer, Secretary and Director of the Company Philip J. Hart 51 President - Harman Professional Group Thomas Jacoby 42 President - Harman Consumer Group Gregory P. Stapleton 49 President - OEM Group Jerome H. Feingold 54 Vice President - Quality Frank Meredith 39 Vice President and General Counsel William S. Palin 53 Vice President-International Controller Sandra B. Robinson 37 Vice President - Financial Operations Floyd E. Toole 50 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, Secretary of the Company since November 1992 and a Director of the Company since July 1993. Mr. Girod also serves as Chief Financial 29 Officer of the Company, a position he held from September 1986 to August 1995 and again since March 1996. 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. 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. 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 OEM Group since October 1987. Prior to his association with the Company, Mr. Stapleton was Senior Vice President of General Electric Venture Capital Corporation from January 1986 to September 1987, and was General Manager, Industrial Products Section, Factory Automation Products Division, of General Electric Corporation from October 1982 through December 1985. 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 Vice President, General Counsel 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-International Controller of the Company since March 1994. Prior to joining the Company, Mr. Palin was a partner of MacHardy Palin & Co. from January 1982 to March 1994. From July 1978 to January 1982, Mr. Palin served as an officer of two of the Company's international subsidiaries. 30 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. 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, 1996 (Shareholder Information on page 36). 31 ITEM 6. SELECTED FINANCIAL DATA Five-Year Summary (in thousands, except per share data, for the fiscal years ended June 30) 1996 1995 1994 1993 1992 ------------ ------------ ----------- ----------- ----------- Net sales $1,361,595 $1,170,224 $862,147 $664,913 $604,454 Operating income 105,378 87,449 66,332 41,255 27,547 Income before taxes 75,024 61,157 42,686 18,570 5,893 Net income 52,042 41,161 25,664 11,246 3,487 Net income per share 3.16 2.58 1.83 .99 .37 Total assets 996,209 886,872 680,691 431,726 415,909 Long-term debt 254,611 266,021 156,577 175,583 132,675 Shareholders' equity 436,477 289,490 232,021 111,149 111,241 Dividends per share 0.20 0.17 -- -- --
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, 1996 (Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 20 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, 1996 (Consolidated Financial Statements on pages 20 and 24 through 35). 32 ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III With the exception of information relating to the executive officers of the Company which is provided in Part I hereof, all information required by Part III (Items 10, 11, 12, and 13) of Form 10-K, including the information required by Item 405 of Regulation S-K, is incorporated by reference to the Company's definitive Proxy Statement relating to the 1996 Annual Meeting of Stockholders. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K a) 1. Financial statements required to be filed hereunder are indexed on page 37 hereof. 2. Financial statement schedules required to be filed hereunder are indexed on page 37 hereof. 3. The exhibits required to be filed hereunder are indexed on pages 41 through 48 hereof. b) Reports on Form 8-K None. 33 THIS PAGE LEFT BLANK INTENTIONALLY 34 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 13, 1996 ------------------------- 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 13, 1996 - ------------------------------ Chief Executive Officer ------------------------- Sidney Harman and Director /s/ Bernard Girod President, Chief Operating September 13, 1996 - ------------------------------ Officer, Chief Financial ------------------------- Bernard A. Girod Officer (Principal Accounting Officer), Secretary and Director /s/ Shirley M. Hufstedler Director September 13, 1996 - ------------------------------ ------------------------- Shirley M. Hufstedler /s/ Ann McLaughlin Director September 13, 1996 - ------------------------------ ------------------------- Ann McLaughlin /s/ Edward Meyer Director September 13, 1996 - ------------------------------ ------------------------- Edward Meyer
35 THIS PAGE LEFT BLANK INTENTIONALLY 36 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 20 and 24 through 35 of the 1996 Annual Report to Shareholders herein incorporated by reference as Exhibit 13.1): Financial Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Consolidated Balance Sheets as of June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Consolidated Statements of Operations for the years ended June 30, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Consolidated Statements of Cash Flows for the years ended June 30, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Consolidated Statements of Shareholders' Equity for the years ended June 30, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . 28 Independent Auditors' Report . . . . . . . . . . . . . . .39 . . . . . . . . . . . . 35 Schedules for the years ended June 30, 1996, 1995 and 1994: II Valuation and Qualifying Accounts and Reserves . . . . . . . . . . . . . . . . 38
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. 37 Schedule II HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED Valuation and Qualifying Accounts and Reserves Three Years Ended June 30, 1996 ($000's omitted) - ----------------------------------------------------------------------------------------------------------- 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, 1994 Allowance for doubtful accounts $ 3,435 $ 2,757 $ 7,189 (1) $ 3,140 (2) $10,241 Year Ended June 30, 1995 Allowance for doubtful accounts $10,241 $ 4,263 $ 2,217 (3) $ 4,408 (2) $12,313 Year Ended June 30, 1996 Allowance for doubtful accounts $12,313 $ 3,103 $ (1,405) (4) $ 4,049 (2) $ 9,962
(1) Additions due to AKG, Studer and Harman Belgium (Beltronics) acquisitions. (2) Deductions for accounts receivable written off net of recoveries. (3) Additions due to Becker, D.A.V.I.D. and Harman Interactive (NewMediaWare) acquisitions. (4) Deductions due to account reclassifications, foreign currency translation, and sale of Studer Singapore. 38 INDEPENDENT AUDITORS' REPORT - -------------------------------------------------- The Board of Directors Harman International Industries, Incorporated Under date of August 15, 1996, we reported on the consolidated balance sheets of Harman International Industries, Incorporated and subsidiaries as of June 30, 1996 and 1995, 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, 1996, as contained in the 1996 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, 1996. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule as listed in the accompanying index. The financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG Peat Marwick LLP Los Angeles, California August 15, 1996 39 THIS PAGE LEFT BLANK INTENTIONALLY 40 HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED INDEX TO EXHIBITS The following exhibits are filed as part of this report. Where such filing is made by incorporation by reference to a previously filed statement or report, such statement or report is identified in parenthesis. There are omitted from the exhibits filed with this Annual Report on Form 10-K certain promissory notes and other instruments and agreements with respect to long-term debt of the Company, none of which authorizes securities in a total amount that exceeds 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis. Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Company hereby agrees to file with the Securities and Exchange Commission copies of all such omitted promissory notes and other instruments and agreements as the Commission requests. Exhibit Page No. Description No. 3.1, 4.1 Restated Certificate of Incorporation filed with the Delaware Secretary of State on October 7, 1986, as amended by the Certificates of Amendment filed with the Delaware Secretary of State on November 13, 1986 and on November 9, 1993. (Filed as Exhibit 4.1 to Amendment 1 to the Company's Registration Statement on Form S-3 dated November 15, 1993 (File No. 1-9764) and hereby incorporated by reference.).................................IBR 3.2,4.5 Amended By-Laws of Harman International Industries, Incorporated. (Filed as Exhibit 4.5 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 1992 (File No. 0-15147) and hereby incorporated by reference.).............................................IBR
41 INDEX TO EXHIBITS (cont.) Exhibit Page No. Description No. 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 4.6 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 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
42 INDEX TO EXHIBITS (cont.) Exhibit Page No. Description No. 10.18 Harman International Industries, Inc. 1987 Executive Incentive Plan (adopted December 8, 1987). (Filed as Exhibit 10.18 to the Annual Report on Form 10-K for the fiscal year ended June 30, 1988 (File No. 0-15147), and hereby incorporated by reference.).........IBR 10.19 Form of Incentive Stock Option Agreement under the 1987 Executive Incentive Plan. (Filed as Exhibit 10.19 to the Annual Report on Form 10-K for the fiscal year ended June 30, 1988 (File No. 0-15147), and hereby incorporated by reference.)..........................IBR 10.20 Form of Non-Qualified Stock Option Agreement under the 1987 Executive Incentive Plan. (Filed as Exhibit 10.20 to the Annual Report on Form 10-K for the fiscal year ended June 30, 1988 (File No. 0-15147), and hereby incorporated by reference.).........IBR 10.21 Form of Non-Qualified Stock Option Agreement with non-officer directors. (Filed as Exhibit 10.21 to the Annual Report on Form 10-K for the fiscal year ended June 30, 1988 (File No. 0-15147), and hereby incorporated by reference.).................................IBR 10.23 Lease Agreement dated April 28, 1988, by and between Harman International Business Campus Joint Venture and Harman Electronics, Inc. (Filed as Exhibit 10.23 to the Annual Report on Form 10-K for the fiscal year ended June 30, 1988 (File No. 0-15147), and hereby incorporated by reference.).......................................................................IBR
43 INDEX TO EXHIBITS (cont.) Exhibit Page No. Description No. 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 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 10.38 Amendment to the Harman International Industries, Incorporated Supplemental Executive Retirement Plan. (Filed as Exhibit 19.1 to the Quarterly Report Report on Form 10-Q for the quarter ended March 31, 1992 (File No. 0-15147), and hereby incorporated by reference.)..............................................IBR
44 INDEX TO EXHIBITS (cont.) Exhibit Page No. Description No. 10.40 Harman International Industries, Incorporated 1992 Incentive Plan. (Filed as Exhibit A to the Definitive Proxy Statement for the fiscal year ended June 30, 1995 as approved by shareholders at the November 1995 Annual Meeting of Shareholders (File No. 001-09764) and hereby incorporated by reference..........IBR 10.41 Form of Incentive Stock Option Agreement under the 1992 Incentive Plan. (Filed as Exhibit 10.41 to the Annual Report on Form 10-K for the fiscal year ended June 30, 1993 (File No. 0-15147), and hereby incorporated by reference.)..............................................IBR 10.42 Form of Non-qualified Stock Option Agreement under the 1992 Incentive Plan. (Filed as Exhibit 10.42 to the Annual Report on Form 10-K for the fiscal year ended June 30, 1993 (File No. 0-15147), and hereby hereby incorporated by reference.)..................................IBR 10.43 Form of Restricted Stock Agreement under the 1992 Incentive Plan. (Filed as Exhibit 10.43 to the Annual Report on Form 10-K for the fiscal year ended June 30, 1993 (File No. 0-15147), and hereby incorporated by reference.)..............................................IBR 10.44 Form of Non-qualified Stock Option Agreement for Non-officer Directors under the 1992 Incentive Plan. (Filed as Exhibit 10.44 to the Annual Report on Form 10-K for the fiscal year ended June 30, 1993 (File No. 0-15147), and hereby incorporated by reference.).............................................IBR
45 INDEX TO EXHIBITS (cont.) Exhibit Page No. Description No. 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 Share Purchase Agreement between Harman International Industries, Inc., Roland Becker and Becker Holding S.A. (Filed as Exhibit 2.1 to the Current Report on Form 8-K dated February 27, 1995 (File No. 001-09764), and hereby incorporated by reference...............................................IBR 10.53 Multi-Currency, Multi-Option Credit Agreement dated September 30, 1994, among Harman International Industries, Incorporated, the Subsidiary Borrowers and Subsidiary Guarantors, and the Several Lenders named therein with Chemical Securities, Inc., as Arranger, NationsBank of North Carolina, N.A., as Co-Agent and Chemical Bank, as Administrative Agent. (Filed as Exhibit 10.53 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1994 (File No. 001-09764), and hereby incorporated by reference.)..........................IBR
46 INDEX TO EXHIBITS (cont.) Exhibit Page No. Description No. 10.54 First Amendment dated February 15, 1995, to the Multi-Currency, Multi-Option Credit Agreement dated September 30, 1994. (Filed as Exhibit 10.54 to the Annual Report on Form 10-K for the fiscal year ended June 30, 1995 (File No. 001-09764), and hereby incorporated by reference.).................................IBR 10.55 Second Amendment dated November 9, 1995, to the Multi-Currency, Multi-Option Credit Agreement dated September 30, 1994. (Filed as Exhibit 10.55 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 (File No. 001-09764), and hereby incorporated by reference.)..........................IBR 10.56 Amendment and Settlement Agreement dated March 20, 1996, between Harman International Industries, Inc., Roland Becker and Becker Holding S.A. (Filed as Exhibit 10.56 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 (File No. 001-09764), and hereby incorporated by reference.)........................................................................IBR 10.57 First Amendment to the Lease Agreement by and between Harman International Business Campus Joint Venture and Harman Electronics, Inc. dated October 1995.....................................................................49 10.58 First Amendment to the Lease Agreement by and between Harman International Business Campus Joint Venture and JBL, Inc. dated October 1995.............55
47 INDEX TO EXHIBITS (cont.) Exhibit Page No. Description No. 13.1 Pages 20 through inside back cover of Harman International Industries, Incorporated Annual Report to Shareholders for the fiscal year ended June 30, 1996....................................................................61 21.1 Subsidiaries of the Company...........................................81 23.1 Consent of Independent Auditors....................................87 27.1 EDGAR Financial Data Schedule...................................91
48 EX-10 2 EXHIBIT 10.57 49 THIS PAGE LEFT BLANK INTENTIONALLY 50 FIRST AMENDMENT TO LEASE AGREEMENT THIS FIRST AMENDMENT TO LEASE AGREEMENT ("Amendment") is made and entered into as of the __ day of October 1995, by and between HARMAN INTERNATIONAL BUSINESS CAMPUS JOINT VENTURE, in which the joint venturers are The Alaska Permanent Fund Corporation and The Riggs National Bank of Washington, D.C., as Trustee for the Multi-Employer Property Trust ("Landlord"), and JBL Incorporated the predecessor to HARMAN ELECTRONICS, INC., a Delaware corporation ("Tenant"). RECITALS A. Tenant is the tenant pursuant to the Lease dated as of April 28, 1988 between Landlord and Tenant (the "Lease"), pursuant to which Tenant leased from Landlord approximately 122,800 rentable square feet of space commonly known as 8400 Balboa Boulevard, Northridge, California (the "Premises"), as such Premises are more particularly described in the Lease. B. Unless otherwise defined herein, all capitalized terms used herein shall have the meanings ascribed to them in the Lease. C. Landlord and Tenant mutually desire to amend the Lease in accordance with the terms set forth below. AGREEMENT NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Lease Term. Paragraph 2 of the Lease is hereby amended to (a) extend the Lease Term to December 31, 2010, and (b) delete Tenant's option to terminate set forth in the penultimate sentence thereof. 2. Base Rent. (a) Paragraph 3.A of the Lease is hereby amended to provide that effective as of October 1, 1995, the Base Rent shall be Eighty Two Thousand Eight Hundred Ninety and 00/100 Dollars ($82,890.00) per month. 51 (b) The monthly Base Rent (as set forth in Section 2(a) above) shall be subject to adjustment as set forth in Paragraph 3.B of the Lease, except that Paragraph 3.B of the Lease is hereby modified to provide that the adjustment dates shall be April 1, 1998, and each successive thirty (30) month anniversary thereafter. 3. Base Rent Credit. Provided that Tenant is not in default under any of the terms of conditions of the Lease, as amended hereby, Tenant shall be credited with the payment of Base Rent due and payable under the Lease (as amended hereby) for the month of October, 1995, as and when the same becomes due. No such Base Rent credit shall reduce of limit any additional rent or other sum due and payable under the Lease. 4. Condition of Premises. Tenant acknowledges that it has inspected and accepts the Premises in their present "as-is", "where-is" condition as suitable for the purposes for which the Premises are leased, and Tenant hereby acknowledges and agrees that Landlord shall have no obligation whatsoever to alter, remodel, refurbish or improve all or any portion of the Premises, except as expressly stated to the contrary in the Lease. 5. No Broker. Landlord and Tenant each represent and warrant to the other that it has dealt with no broker, agent or other person in connection with this transaction and that no broker, agent or other person brought about this transaction, and Landlord and Tenant each hereby agrees to indemnify, defend, protect and hold harmless the other from and against any claims, losses, liabilities, demands, costs, expenses or causes of action by any broker, agent or other person claiming any commission or other form of compensation by virtue of having dealt with such party with regard to this transaction. 6. Further Assurances. In addition to the obligations required to be performed under the Lease, as amended hereby, Landlord and Tenant shall each perform such other acts, and shall execute, acknowledge and/or deliver such other instruments, documents and other materials, as may be reasonably required in order to accomplish the intent and purposes of this Amendment. 7. Authority. Each party hereby represents and warrants to the other that it has the due power and authority to enter into this Amendment and to be bound by the terms hereof. 52 8. Binding Effect. This Amendment shall be binding upon and inure to the benefit of Landlord, its successors and assigns and Tenant and its permitted successors and permitted assigns. 9. Attorneys' Fees. Should any party initiate a legal proceeding against any other party, including an arbitration, then the prevailing party shall be entitled to receive reasonable attorneys' fees and costs incurred in connection with such legal proceeding. 10. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument. 11. No Other Amendment. Except as modified by this Amendment, the provisions of the Lease shall remain unaffected and in full force and effect. To the extent that any terms or provisions of this Amendment are inconsistent with any terms or provisions of the Lease, the terms and provisions of this Amendment shall control. IN WITNESS WHEREOF, this Amendment is executed as of the day and year aforesaid. "LANDLORD" Harman International Business Campus Joint Venture By: The Alaska Permanent Fund Corporation, Venturer By: Kennedy Associates Real Estate Counsel, Inc. Its: Investment Advisor By: /s/ John Parker ----------------------------- John Parker Senior Vice President By: The Riggs National Bank of Washington, D.C., as Trustee for the Multi-Employer Property Trust, Venturer By: /s/ Patrick O. Mayberry -------------------------------- Its: Vice President -------------------------- 53 "TENANT" JBL Incorporated, a Delaware Corporation By: /s/ Bernard Girod ---------------------------- Its: Vice President ----------------------- CONSENT OF GUARANTOR For value received, and in consideration of the Landlord's consent to the foregoing First Amendment to Lease Agreement dated as of September 22, 1995 ("Amendment"), the undersigned (having fully read and understood said Amendment) hereby consents to the terms and conditions of such Amendment and acknowledges and agrees that Landlord's and Tenant's execution of such Amendment shall not modify, limit waive or otherwise impair the obligations of the undersigned pursuant to that certain Guaranty of Lease dated as of April 28, 1988, given by the undersigned in favor of Landlord. The undersigned specifically reaffirms the terms and conditions of said guaranty and agrees that it shall remain in full force and effect with respect to the Lease (as that term is defined in the Amendment), as amended by the Amendment. HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED, a Delaware corporation By: /s/ Bernard Girod ------------------------ Its: President ------------------- 54 EX-10 3 EXHIBIT 10.58 55 THIS PAGE LEFT BLANK INTENTIONALLY 56 FIRST AMENDMENT TO LEASE THIS FIRST AMENDMENT TO LEASE ("Amendment") is made and entered into as of the __ day of October, 1995, by and between HARMAN INTERNATIONAL INDUSTRIES BUSINESS CAMPUS JOINT VENTURE, in which the joint venturers are The Alaska Permanent Fund Corporation and The Multi-Employer Property Trust ("Landlord"), and JBL, INC., a Delaware corporation ("Tenant"). RECITALS A. Tenant is the tenant pursuant to the Lease dated as of June 18, 1987 between Landlord and Tenant (the "Lease"), pursuant to which Tenant leased from Landlord approximately 416,600 rentable square feet of space located in Northridge, California and commonly known as the JBL facility (the "Premises"), as such Premises are more particularly described in the Lease. B. Unless otherwise defined herein, all capitalized terms used herein shall have the meanings ascribed to them in the Lease. C. Landlord and Tenant mutually desire to amend the Lease in accordance with the terms set forth below. AGREEMENT NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Initial Term. The Basic Lease Information and Paragraphs 1(a)(28) and 4(a) of the Lease are hereby amended to extend the Initial Term to December 31, 2010. 2. Basic Rent. (a) The Basic Lease Information and Paragraph 5(a) of the Lease are hereby amended to provide that effective as of October 1, 1995, the Basic Rent shall be Two Hundred Eighty-One Thousand Two Hundred Five and 00/100 Dollars ($281,205.00) per month. 57 (b) The monthly Basic Rent (as set forth in Section 2(a) above) shall be subject to adjustment as set forth in Paragraph 5(b) of the Lease, except that Paragraph 5(b) of the Lease is hereby modified to provide that the adjustment dates shall be April 1, 1998, and each successive thirty (30) month anniversary thereafter. 3. Basic Rent Credit. Provided that Tenant is not in default under any of the terms or conditions of the Lease, as amended hereby, Tenant shall be credited with the payment of Basic Rent due and payable under the Lease (as amended hereby) for the month of October, 1995, as and when the same becomes due. No such Basic Rent credit shall reduce or limit any additional rent or other sum due and payable under the Lease. 4. Condition of Premises. Tenant acknowledges that it has inspected and accepts the Premises in their present "as-is", "where-is" condition as suitable for the purposes for which the Premises are leased, and Tenant hereby acknowledges and agrees that Landlord shall have no obligation whatsoever to alter, remodel, refurbish or improve all or any portion of the Premises, except as expressly stated to the contrary in the Lease. 5. No Broker. Landlord and Tenant each represent and warrant to the other that it has dealt with no broker, agent or other person in connection with this transaction and that no broker, agent or other person brought about this transaction, and Landlord and Tenant each hereby agrees to indemnify, defend, protect and hold harmless the other from and against any claims, losses, liabilities, demands, costs, expenses or causes of action by any broker, agent or other person claiming any commission or other form of compensation by virtue of having dealt with such party in regard to this transaction. 6. Further Assurances. In addition to the obligations required to be performed under the Lease, as amended hereby, Landlord and Tenant shall each perform such other acts, and shall execute, acknowledge and/or deliver such other instruments, documents and other materials, as may be reasonably required in order to accomplish the intent and purposes of this Amendment. 7. Authority. Each party hereby represents and warrants to the other that it has the due power and authority to enter into this Amendment and to be bound by the terms hereof. 58 8. Binding Effect. This Amendment shall be binding upon and inure to the benefit of Landlord, its successors and assigns and Tenant and its permitted successors and permitted assigns. 9. Attorneys' Fees. Should any party initiate a legal proceeding against any other party, including an arbitration, then the prevailing party shall be entitled to receive reasonable attorneys' fees and costs incurred in connection with such legal proceeding. 10. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument. 11. No Other Amendment. Except as modified by this Amendment, the provisions of the Lease shall remain unaffected and in full force and effect. To the extent that any terms or provisions of this Amendment are inconsistent with any terms or provisions of the Lease, the terms and provisions of this Amendment shall control. IN WITNESS WHEREOF, this Amendment is executed as of the day and year aforesaid. "LANDLORD" Harman International Business Campus Joint Venture By: The Alaska Permanent Fund Corporation, Venturer By: Kennedy Associates Real Estate Counsel, Inc. Its: Investment Advisor By: /s/ John Parker ---------------------------------- John Parker Senior Vice President By: The Riggs National Bank of Washington, D.C., as Trustee for the Multi-Employer Trust, Venturer By: /s/ Patrick O. Mayberry ---------------------------------- Its: Vice President ---------------------------- 59 "TENANT" JBL, INC., a Delaware corporation By: /s/ Bernard Girod --------------------------------- Its: Vice President ----------------------------- CONSENT OF GUARANTOR For value received, and in consideration of the Landlord's consent to the foregoing First Amendment to Lease dated as of September 22, 1995 ("Amendment"), the undersigned (having fully read and understood said Amendment) hereby consents to the terms and conditions of such Amendment and acknowledges and agrees that Landlord's and Tenant's execution of such Amendment shall not modify, limit waive or otherwise impair the obligations of the undersigned pursuant to that certain Guaranty of Lease dated as of ______________, 1987, given by the undersigned in favor of Landlord. The undersigned specifically reaffirms the terms and conditions of said guaranty and agrees that it shall remain in full force and effect with respect to the Lease (as that term is defined in the Amendment), as amended by the Amendment. HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED, a Delaware corporation By: /s/ Bernard Girod ------------------------------ Its: President ------------------------- 60 EX-13 4 EXHIBIT 13.1 61 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
Except for the historical information contained herein, the matters discussed herein contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those suggested in the forward-looking statements, including, without limitation, the effect of economic conditions, product demand, competitive products and other risks detailed herein and in the Company's other filings with the Securities and Exchange Commission. 20 62 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net sales for fiscal 1996 increased by 16.4 percent to $1,361.6 million from $1,170.2 million in fiscal 1995 and in fiscal 1995 increased by 35.7 percent from fiscal 1994 sales of $862.1 million. The sales increases for both fiscal 1996 and fiscal 1995 result from the growth of the Consumer Group, the Professional Group and the OEM Group. Higher sales were reported by the Consumer Group, resulting from increases at Infinity and Harman Kardon and the acquisition of Madrigal Audio Laboratories, Inc. ("Madrigal"), maker of the Mark Levinson and Proceed electronics lines. Infinity reported strong sales in Europe, particularly in Germany, and Harman Kardon achieved robust sales growth due to the success of its new line of audio/video receivers. The Professional Group produced higher sales for the year. The international success of the EON line of compact, portable sound reinforcement systems generated excellent growth for JBL Professional. Strong demand for the Turbosound line of professional loudspeaker systems and the BSS line of digital signal processors and loudspeaker management systems also contributed. OEM Group growth was driven by increased sales volume at Harman Motive and by the contribution of Becker GmbH ("Becker"), which was acquired in February 1995, and thus not represented in the first half last year. The growth at Harman Motive is attributable to increased shipments of Infinity high fidelity systems for the Chrysler Minivan and the Dodge Ram pickup truck, higher sales of Ford/JBL premium systems for the Ford Explorer, and the success of the Toyota Avalon, which offers a high- end audio system supplied by Harman Motive. Excellent sales growth was also reported by Harman Motive, Ltd., due to increased sales to Chrysler in Europe and the introduction of a premium branded Harman Kardon system for the BMW 3-series. Becker reported good sales to its automotive customers: Mercedes, BMW and Porsche. The Company discontinued Ford's exclusive automotive OEM use of the JBL brand name and made it available to Toyota, Peugeot and others from whom new commitments have been received beginning in model year 1998. The JBL program for the Ford Explorer will conclude with model year 1997 and for the Lincoln line with model year 1998. The Company believes that this transition will generate increased sales of JBL branded systems to a larger number of automotive manufacturers. During fiscal 1996, the Company began to design and manufacture branded audio systems and loudspeakers for manufacturers of personal computers. Production of JBL Professional branded speakers for Compaq's new Presario line of personal computers began in the fourth quarter of fiscal 1996. Overall, the Company's consolidated net sales are not materially impacted by seasonality. However, the first fiscal quarter is usually the weakest due to the July and August holidays in Europe and automotive 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 1996 was 30.0 percent, compared to 31.1 percent in fiscal 1995 and 31.2 percent in fiscal 1994. The decrease in fiscal 1996 reflects the impact of aggressive pricing in consumer markets to grow market share combined with the inclusion of Becker for a full year. The slight decrease in fiscal 1995 was primarily due to the Becker acquisition, which contributed substantially to sales at a gross margin percentage lower than the Company's average, partially offset by higher margin contribution from the Professional Group and the OEM Group. Selling, general and administrative expenses as a percentage of sales were 22.2 percent in fiscal 1996 compared with 23.6 percent in fiscal 1995 and 23.5 percent in fiscal 1994. The decrease in fiscal 1996 selling, general and administrative expenses as a percentage of sales primarily reflects reorganization programs at Studer and Becker. Operating income as a percentage of net sales was 7.7 percent for fiscal 1996 compared with 7.5 percent for fiscal 1995 and 7.7 percent for fiscal 1994. The increase for fiscal 1996 resulted from the decrease in selling, general and administrative expenses, partially 21 63 offset by the decrease in gross profit percentage. The decrease for fiscal 1995 resulted from the decrease in gross profit percentage and the increase in selling, general and administrative expenses. Interest expense in fiscal 1996 was $27.5 million compared with $25.3 million in fiscal 1995 and $22.1 million in fiscal 1994. Interest expense increased in fiscal 1996 due to increased levels of average borrowings. Fiscal 1996 average borrowings were $348.3 million compared with $276.6 million in fiscal 1995 and $222.8 million in fiscal 1994. The increase in average borrowings in fiscal 1996 primarily resulted from the Becker and Madrigal acquisitions, the financing of increased working capital requirements associated with higher sales volumes, and investments in the new OEM audio for computers business. Borrowings decreased significantly in the fourth quarter of fiscal 1996 due to the utilization of proceeds from the Company's May 1996 issuance of 2.3 million common shares to pay down outstanding debt. The weighted average interest rate in fiscal 1996 was 7.9 percent, compared with 9.1 percent in fiscal 1995 and 9.9 percent in fiscal 1994. The decrease in average interest rates in fiscal 1996 reflects the increased usage of the Company's $275 million committed revolving credit facility, which bears interest at the London Interbank Offered Rate (LIBOR) plus 0.30 percent. In fiscal 1996 the Company reported income before income taxes, minority interest and extraordinary item of $75.0 million, compared with $61.2 million in fiscal 1995 and $42.7 million in fiscal 1994. In fiscal 1996 the Company reported income tax expense of $23.8 million, reflecting an effective tax rate of 31.7 percent. This compares with an income tax expense of $19.6 million and an effective tax rate of 32.1 percent in fiscal 1995. The fiscal 1994 tax provision was $16.2 million with an effective tax rate of 38.1 percent. The effective tax rate for fiscal years 1996 and 1995 is below the U.S. statutory rate due to the restructuring of certain foreign subsidiaries to take advantage of prior years' and current year tax losses and the utilization of tax loss carryforwards at certain foreign subsidiaries. The effective tax rate in fiscal 1994 was above the U.S. statutory rate due to higher effective tax rates for international subsidiaries and state income taxes. The Company reported no extraordinary charges in fiscal 1996. The Company reported extraordinary charges, net of related tax benefits, of $274,000 in fiscal 1995 due to the early extinguishment of $5.5 million of the 12.0% Senior Subordinated Notes, due August 1, 2002. The Company reported an extraordinary charge, net of a related tax benefit, of $748,000 in fiscal 1994 associated with the early extinguishment, through an in-substance defeasance, of the 10.08% $25.0 million Senior Notes, Series A, due September 30, 1994. Net income for fiscal 1996 was $52.0 million, compared with $41.2 million in fiscal 1995 and $25.7 million in fiscal 1994. FINANCIAL CONDITION Liquidity and Capital Resources Harman International primarily finances its working capital requirements through cash generated by operations, the revolving credit facility and normal trade credit. At June 30, 1996, the Company had outstanding indebtedness under the revolving credit facility of $120.9 million. The indebtedness at June 30, 1996, consists of committed rate loans, which bear interest at LIBOR plus 0.30 percent, and swing line borrowings, which bear interest at base rates. In the second quarter of fiscal 1996, the revolving credit facility was amended and increased from $220 million to $275 million and the maturity was extended one year to September 30, 2000. At June 30, 1996, certain international subsidiaries of the Company maintained unsecured short-term lines of credit of $19.9 million and had outstanding indebtedness thereunder of approximately $13.5 million. In May 1996, the Company issued 2,300,000 shares of Common Stock, using the net proceeds of $109.1 million to repay short-term and long- term debt. 22 64 Capital expenditures were $80.6 million in fiscal 1996, compared with $54.7 million in fiscal 1995 and $40.7 million in fiscal 1994. Expenditures in fiscal 1996 and fiscal 1995 were primarily for new product tooling and machinery and equipment required to increase manufacturing capacity and efficiency. The Company anticipates capital expenditures of approximately $90.0 million during the next fiscal year. Firm commitments of approximately $6.7 million existed as of June 30, 1996, for capital expenditures during fiscal 1997. The Company anticipates that a portion of these capital expenditures will be financed through lease financing arrangements. Net working capital at June 30, 1996 was $377.3 million compared with $257.6 million at June 30, 1995. The increase in working capital primarily results from higher inventory levels associated with increased sales volumes, requirements for new product launches and the acquisition of Madrigal. Excess of cost over fair value of assets acquired increased to $129.9 million at June 30, 1996, from $122.5 million at June 30, 1995. The increase reflects final acquisition accounting adjustments for Becker and the fiscal 1996 acquisition of Madrigal. Shareholders' equity was $436.5 million at June 30, 1996, compared with $289.5 million at June 30, 1995, and $232.0 million at June 30, 1994. The increase in fiscal 1996 reflects the impact of the May 1996 stock offering and fiscal 1996 earnings. Foreign currency translation produced a negative adjustment of $11.1 million in fiscal 1996, due to the strengthening of the U.S. dollar against most other major currencies during the year, and positive adjustments of $5.8 million in fiscal 1995 and $5.5 million in fiscal 1994 were recorded. ACQUISITIONS On August 30, 1995, the Company exercised its option to purchase the remaining 80 percent of the issued and outstanding shares of Madrigal, increasing its ownership to 100 percent. Harman paid approximately $9.8 million for the remaining shares and related acquisition costs. Harman funded its acquisition of Madrigal utilizing its revolving credit facility. In March 1996, the Company settled its remaining consideration due for the acquisition of Becker. The settlement resulted in total consideration paid for the Becker shares of 20.7 million German marks (U.S. $14.2 million) and 220,000 shares of Harman Common Stock and assumption of post-acquisition bank indebtedness of U.S. $57.7 million. 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 currency of those countries where its subsidiaries are located. The subsidiaries of the Company purchase certain products and parts in Japanese yen, German marks, British pounds, Danish kroner, Austrian schillings, Swiss francs, French 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 exchange contracts and other hedging activities, as appropriate. Additionally, foreign currency positions are partially offsetting and are netted against one another to reduce exposure. A portion of the Company's sales relate to 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 transactions, the Company's foreign currency positions are partially offsetting. 23 65 CONSOLIDATED BALANCE SHEETS Harman International Industries, Incorporated and Subsidiaries June 30, 1996 and 1995 ($000s omitted except share amounts) ASSETS 1996 1995 -------------- -------------- Current assets Cash and short-term investments $ 303 11,252 Receivables (less allowance for doubtful accounts of $9,962 in 1996 and $12,313 in 1995) 298,110 264,898 Inventories (note 2) 308,051 236,532 Other current assets 45,506 39,973 -------------- -------------- Total current assets 651,970 552,655 -------------- -------------- Property, plant and equipment, net (notes 3, 5 and 6) 200,958 189,823 Excess of cost over fair value of assets acquired (less accumulated amortization of $12,930 in 1996 and $8,702 in 1995) 129,940 122,504 Other assets 13,341 21,890 -------------- -------------- Total assets $ 996,209 886,872 -------------- -------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes payable (notes 4 and 5) $ 26,367 27,208 Current portion of long-term debt (note 5) 6,423 13,006 Accounts payable 109,565 90,755 Accrued liabilities 115,168 148,834 Income taxes payable 17,136 15,288 -------------- -------------- Total current liabilities 274,659 295,091 -------------- -------------- Borrowings under revolving credit facility (note 5) 107,986 106,244 Senior long-term debt (note 5) 37,125 50,277 Subordinated long-term debt (note 5) 109,500 109,500 Other non-current liabilities 29,231 31,199 Deferred income 372 1,082 Minority interest 859 3,989 Shareholders' equity (notes 5 and 7) Preferred stock, $.01 par value. Authorized 5,000,000 shares; none issued and outstanding -- -- Common stock, $.01 par value. Authorized 50,000,000 shares; issued and outstanding 18,618,064 shares in 1996 and 16,235,096 shares in 1995 186 152 Additional paid-in capital 293,993 156,257 Equity adjustment from foreign currency translation (4,906) 6,157 Retained earnings 147,204 126,924 -------------- -------------- Total shareholders' equity 436,477 289,490 -------------- -------------- Commitments and contingencies (notes 6, 12 and 13) -------------- -------------- Total liabilities and shareholders' equity $ 996,209 886,872 -------------- --------------
24 See accompanying notes to consolidated financial statements. 66 CONSOLIDATED STATEMENTS OF OPERATIONS Harman International Industries, Incorporated and Subsidiaries Years ended June 30, 1996, 1995 and 1994 ($000s omitted except share and per share amounts) 1996 1995 1994 ------------- ------------- ------------- Net sales $1,361,595 1,170,224 862,147 Cost of sales 953,470 806,143 592,985 ------------- ------------- ------------- Gross profit 408,125 364,081 269,162 Selling, general and administrative expenses 302,747 276,632 202,830 ------------- ------------- ------------- Operating income 105,378 87,449 66,332 Other expenses Interest expense 27,510 25,284 22,110 Miscellaneous, net 2,844 1,008 1,536 ------------- ------------- ------------- Income before income taxes, minority interest and extraordinary item 75,024 61,157 42,686 Income tax expense (note 8) Federal 14,401 12,012 12,589 Foreign and state 9,349 7,630 3,659 ------------- ------------- ------------- Total income tax expense 23,750 19,642 16,248 Minority interest (768) 80 26 ------------- ------------- ------------- Income before extraordinary item 52,042 41,435 26,412 Extraordinary item, net of income tax effect of $182 in 1995 and $495 in 1994 -- (274) (748) ------------- ------------- ------------- Net income $ 52,042 41,161 25,664 ------------- ------------- ------------- Income per common share before extraordinary item $ 3.16 2.60 1.88 ------------- ------------- ------------- Extraordinary item, net of tax 0.00 (0.02) (0.05) ------------- ------------- ------------- Net income per common share $ 3.16 2.58 1.83 ------------- ------------- ------------- Weighted average number of common shares outstanding 16,473,673 15,980,154 14,042,172 ------------- ------------- -------------
25 See accompanying notes to consolidated financial statements. 67 CONSOLIDATED STATEMENTS OF CASH FLOWS Harman International Industries, Incorporated and Subsidiaries Years ended June 30, 1996, 1995 and 1994 ($000s omitted) 1996 1995 1994 ------------- ------------- ------------- Cash flows from operating activities: Net income $ 52,042 41,161 25,664 ------------- ------------- ------------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 46,594 40,772 31,210 Amortization of intangible assets 5,418 4,972 2,342 Amortization of deferred income (1,078) (1,294) (1,293) Deferred income taxes 7,394 642 -- Changes in assets and liabilities, net of effects from purchase of companies: Decrease (increase) in: Receivables (31,044) (38,053) (35,566) Inventories (67,646) 23,837 (56,510) Other current assets (2,466) (5,150) (8,253) Increase (decrease) in: Accounts payable 17,960 (18,340) 14,052 Accrued liabilities (47,564) (11,010) 12,035 ------------- ------------- ------------- Total adjustments $ (72,432) (3,624) (41,983) ------------- ------------- ------------- Net cash provided by (used in) operating activities $ (20,390) 37,537 (16,319) ------------- ------------- ------------- Cash flows from investing activities: Payment for purchase of companies, net of cash acquired $ (18,650) (9,457) 6,852 Proceeds from asset dispositions 16,670 1,257 1,418 Investments in unconsolidated subsidiaries -- -- (2,500) Capital expenditures for property, plant and equipment (80,554) (54,654) (40,720) Other items, net 8,689 (1,011) (3,637) ------------- ------------- ------------- Net cash used in investing activities $ (73,845) (63,865) (38,587) ------------- ------------- ------------- Cash flows from financing activities: Net repayments of lines of credit $ (936) (80,598) (8,007) Proceeds from issuance of long-term debt 5,083 114,991 7,559 Repayments of long-term debt (19,236) (11,482) (32,309) Proceeds from issuance of common stock 109,069 -- 87,488 Dividends paid to shareholders (3,210) (2,571) -- Effect of stock option program 3,579 1,751 2,245 Net change, foreign currency translation (11,063) 5,765 5,475 ------------- ------------- ------------- Net cash flow provided by financing activities $ 83,286 27,856 62,451 ------------- ------------- ------------- Net increase (decrease) in cash and short-term investments (10,949) 1,528 7,545 Cash and short-term investments at beginning of year 11,252 9,724 2,179 ------------- ------------- ------------- Cash and short-term investments at end of year $ 303 11,252 9,724 ------------- ------------- ------------- Supplemental schedule of non-cash investing activities: Fair value of assets acquired $ 14,650 153,071 138,861 Cash paid for the capital stock 11,757 10,610 1,858 ------------- ------------- ------------- Liabilities assumed $ 2,893 142,461 137,003 ------------- ------------- -------------
26 See accompanying notes to consolidated financial statements. 68 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Harman International Industries, Incorporated and Subsidiaries Years ended June 30, 1996, 1995 and 1994 ($000s omitted) Equity adjustment Common Additional from foreign Net Stock $.01 paid in currency Retained shareholders' par value capital translation earnings equity ------------- ------------- ------------- ------------- ------------- 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 ------------- ------------- ------------- ------------- ------------- Exercise of stock options 1 1,195 -- -- 1,196 Tax benefit attributable to stock option plan -- 555 -- -- 555 Foreign currency equity adjustment -- -- 5,765 -- 5,765 Stock to be issued for Becker acquisition -- 11,363 -- -- 11,363 Dividends ($.17 per share) -- -- -- (2,571) (2,571) Net income -- -- -- 41,161 41,161 ------------- ------------- ------------- ------------- ------------- Balance, June 30, 1995 $ 152 156,257 6,157 126,924 289,490 ------------- ------------- ------------- ------------- ------------- Issuance of common stock 23 109,046 -- -- 109,069 Exercise of stock options 2 2,467 -- -- 2,469 Tax benefit attributable to stock option plan -- 1,110 -- -- 1,110 Foreign currency equity adjustment -- -- (11,063) -- (11,063) Final settlement of Becker acquisition 2 (3,429) -- -- (3,427) Stock dividend (5%) 7 28,542 -- (28,552) (3) Dividends ($.20 per share) -- -- -- (3,210) (3,210) Net income -- -- -- 52,042 52,042 ------------- ------------- ------------- ------------- ------------- Balance, June 30, 1996 $ 186 293,993 (4,906) 147,204 436,477 ------------- ------------- ------------- ------------- -------------
27 See accompanying notes to consolidated financial statements. 69 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 1996 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. The deferred income tax asset or liability is determined by applying currently enacted tax laws and rates to the expected reversal of the cumulative temporary differences between the carrying value of assets and liabilities for financial statement and income tax purposes. Deferred income tax expense is measured by the change in the net deferred income tax asset or liability during the year. The Company accrues, as an expense, income taxes attributable to the undistributed earnings of foreign subsidiaries. Such income taxes are substantially offset by foreign tax credits. 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 dilutive stock options, and gives effect to the 5 percent stock dividend paid on August 25, 1995. Foreign Currency Translation. Assets and liabilities in foreign functional currencies are translated into U.S. dollars based upon the prevailing currency exchange rates in effect at the balance sheet date. Translation gains and losses are not included in the determination of net income but are accumulated in a separate component of shareholders' equity. 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 the intangible assets through comparisons of projected cash flows from the related assets. Research and Development. Research and development costs are expensed as incurred. The Company's expenditures for research and development were $59,171,000, $40,257,000 and $22,324,000 for the fiscal years ending June 30, 1996, 1995 and 1994, respectively. Use of Estimates. Estimates and assumptions have been made relating to the reporting of assets and liabilities to prepare the consolidated financial statements in conformity with generally accepted accounting principles. Actual results may differ from those estimates. Recent Accounting Pronouncements. In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed of." SFAS No. 121 provides guidelines for the recognition of impairment losses related to long-term assets and is effective for the Company's fiscal year ending June 30, 1997. The effect of adoption of SFAS No. 121 is expected to be immaterial to the consolidated financial statements of the Company. 28 70 In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123, which is effective for the Company's fiscal year ending June 30, 1997, encourages (but does not require) adoption of the fair value method of accounting for stock-based compensation plans. The statement requires pro forma disclosures presenting the effect of the fair value method for those entities that do not elect to adopt it. At this time, the Company has not determined whether it will adopt the fair value method. 2. Inventories Inventories consist of the following: June 30 ($000s omitted) 1996 1995 ----------- ----------- Raw materials and supplies $ 82,638 61,988 Work in process 25,029 28,412 Finished goods and inventory purchased for resale 200,384 146,132 ----------- ----------- Total $308,051 236,532 ----------- -----------
3. Property, Plant and Equipment Property, plant and equipment are composed of the following: June 30 ($000s omitted) 1996 1995 ----------- ----------- Land $ 3,282 6,050 Buildings and improvements 79,025 80,484 Machinery and equipment 279,125 228,468 Furniture and fixtures 32,716 32,401 ----------- ----------- 394,148 347,403 Less accumulated depreciation and amortization (193,190) (157,580) ----------- ----------- Property, plant and equipment, net $200,958 189,823 ----------- -----------
4. Notes Payable At June 30, 1996, the Company had unsecured short-term lines of credit for certain international subsidiaries aggregating $19.9 million with outstanding borrowings of approximately $13.5 million. Interest rates based on various indices ranged from 4.0 percent in Austria to 19.8 percent in India. The Company utilizes the swing line feature of the revolving credit facility to meet its short-term borrowing requirements. At June 30, 1996, the Company had $12.9 million drawn on its swing lines at base rates in the local countries where the funds were drawn, ranging from 1.6 percent in Japan to 6.5 percent in Canada. 5. Long-Term Debt On September 30, 1994, the Company and certain of its subsidiaries entered into a five-year multi-currency revolving credit facility with a group of eleven banks committing $220 million to the Company for cash borrowings and letters of credit. In November 1995, the revolving credit facility was amended and increased from $220 million to $275 million, and the maturity was extended one year to September 30, 2000. At June 30, 1996, the Company had borrowings of $120.9 million on the revolving credit facility (including swing line, competitive advance and revolving credit borrowings) and outstanding letters of credit of $5.4 million. The unused credit under the revolving credit facility at June 30, 1996, was $148.7 million. Interest rates, based on the London Interbank Offered Rate of the lending bank plus 0.30 percent, ranged from 0.8 percent in Japan to 6.2 percent in the United Kingdom. The Company is required under the revolving credit agreement to maintain certain financial ratios and meet certain net worth and indebtedness tests. Additionally, 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 29 71 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued Harman International Industries, Incorporated and Subsidiaries of the 12.0% notes to require the Company to repurchase such notes above face upon the occurrence of a Change of Control, as defined in the agreements. 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, 1996. Interest paid for both short- and long-term borrowings was $26,675,000, $23,148,000 and $22,443,000 during the fiscal years ended June 30, 1996, 1995 and 1994, respectively. Long-term debt is composed of the following: June 30 ($000s omitted) 1996 1995 ----------- ----------- 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% 64,500 64,500 Borrowings under revolving credit facility, due September 30, 2000, with rates ranging from 0.8% to 6.2% at June 30, 1996 107,986 106,244 Obligations under capital leases (note 6) 9,739 9,893 Other unsubordinated loans due in installments through 2012, some of which vary with the prime rate, bearing interest at an average effective rate of 8.6% at June 30, 1996 16,309 35,890 ----------- ----------- Total 261,034 279,027 Less current installments (6,423) (13,006) ----------- ----------- Long-term debt $254,611 266,021 ----------- -----------
In fiscal 1995, the Company purchased at a premium $5.5 million of the 12.0% Senior Subordinated Notes, due August 1, 2002. The purchases resulted in extraordinary charges of $274,000, net of related tax benefits, or $.02 per share. 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: 1997 $ 6,423 1998 24,008 1999 48,672 2000 2,938 2001 109,505 Thereafter 69,488 6. Leases The following analysis represents property under capital leases: June 30 ($000s omitted) 1996 1995 ----------- ----------- Capital lease assets $ 14,848 14,822 Less accumulated amortization (5,021) (4,625) ----------- ----------- Net $ 9,827 10,197 ----------- -----------
30 72 At June 30, 1996, 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): Capital Operating ($000s omitted) Leases Leases ----------- ----------- 1997 $ 3,399 $ 19,324 1998 2,674 17,416 1999 1,894 16,010 2000 1,363 15,093 2001 646 12,461 Thereafter 2,320 71,530 ----------- ----------- Total minimum lease payments 12,296 $151,834 less interest (2,557) ----------- ----------- Present value of minimum lease payments $ 9,739 -----------
Operating lease expense, net of deferred income amortization ($1,078,000, $1,294,000 and $1,293,000 for the years ended June 30, 1996, 1995 and 1994, respectively) and subrental income under operating leases having noncancelable terms of greater than one year for the years ended June 30, 1996, 1995 and 1994 was $25,871,000, $21,849,000 and $15,677,000, respectively. 7. Stock Option Plan The 1992 Incentive Plan (the 1992 Plan) provides for the grant of stock options, stock appreciation rights in tandem with options, restricted stock and performance units to officers, key employees and consultants of the Company and its subsidiaries. In addition, the 1992 Plan provides for the automatic annual grant of options to the non-officer directors of the Company and for a further automatic grant to such non-officer directors each year in which the Company achieves a specified level of return on consolidated equity. The 1992 Plan 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, 1996. Options to purchase shares of Common Stock have been granted under both Plans. Options granted are at prices not less than market value on the date of grant and, under the terms of the 1992 Plan, may not be repriced. Options granted pursuant to the 1987 and 1992 Plans generally vest over five years and expire ten years from the date of grant. 31 73 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued Harman International Industries, Incorporated and Subsidiaries Changes in the status of options are summarized as follows: Years ended June 30 1996 1995 1994 ------------- ------------- ------------- Balance at beginning of year 1,250,770 910,750 625,720 Stock Dividend 62,550 -- -- Granted 95,500 464,250 553,500 Canceled (78,859) (30,260) (85,400) Exercised (185,878) (93,970) (183,870) ------------- ------------- ------------- Balance at end of year 1,144,083 1,250,770 910,750 ------------- ------------- ------------- Exercisable stock options 707,716 618,960 487,545 ------------- ------------- ------------- Price range of options: Outstanding at end of period $ 6.31-52.50 6.63-38.88 6.63-33.94 ------------- ------------- ------------- Granted during period $36.75-52.50 25.13-38.88 19.25-33.94 ------------- ------------- ------------- Exercised during period $ 6.31-37.02 6.63-25.63 6.63-20.63 ------------- ------------- -------------
At June 30, 1996, a total of 33,484 shares of Common Stock were reserved for issuance under the 1987 Plan and 513,335 were reserved for issuance under the 1992 Plan. 8. Income Taxes Income tax expense (benefit) consists of the following: Years ended June 30 1996 1995 1994 ($000s omitted) ------------- ------------- ------------- Current: Federal $ 14,281 8,566 16,716 State 585 923 1,894 Foreign 8,796 6,501 2,246 ------------- ------------- ------------- 23,662 15,990 20,856 ------------- ------------- ------------- Deferred: Federal 120 3,446 (4,127) State (32) 206 (481) ------------- ------------- ------------- 88 3,652 (4,608) ------------- ------------- ------------- Total $ 23,750 19,642 16,248 ------------- ------------- -------------
The tax provisions and analysis of effective income tax rates are comprised of the following: Years ended June 30 1996 1995 1994 ($000s omitted) ------------- ------------- ------------- Provision for Federal income taxes before credits at statutory rate $ 26,258 21,405 14,940 State income taxes 553 1,126 1,413 Difference between Federal statutory rate and foreign effective rate (4,947) (999) (1,466) Permanent differences between financial and tax accounting income 141 354 211 Tax exempt foreign sales corporation earnings (1,089) (883) (1,136) Change in valuation allowance -- 4,204 1,973 Losses without (with) income tax benefit 1,164 (4,944) 1,683 Federal income tax credits (858) (514) (250) Other 2,528 (107) (1,120) ------------- ------------- ------------- Total $ 23,750 19,642 16,248 ------------- ------------- -------------
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) 1996 1995 June 30 ($000s omitted) ------------- ------------- Inventory costing differences $ 6,284 4,950 Deferred income -- 410 Valuations and other allowances 15,503 12,959 ------------- ------------- Total gross deferred tax asset $ 21,787 18,319 Less valuation allowance (9,418) (9,418) ------------- ------------- Deferred tax asset $ 12,369 8,901 ------------- ------------- Total gross deferred tax liability from fixed asset depreciation (7,624) (4,159) ------------- ------------- Net deferred tax asset $ 4,745 4,742 ------------- -------------
32 74 Management believes the results of future operations will generate sufficient taxable income to realize the net deferred tax asset. The Company acquired tax loss carryforwards from foreign subsidiaries Becker, AKG and Studer of approximately 100 million German marks, 250 million Austrian schillings and 70 million Swiss francs, respectively. The AKG and Studer tax losses expire within 5 to 7 years from the date incurred. An asset has not been booked to reflect the potential benefit of these carryforwards. Goodwill is reduced, to the extent available, for the benefits related to the utilization of these losses. Goodwill reduction resulting from tax loss carryforward utilization in fiscal 1996 was 4.7 million German marks for Becker and 1.2 million Swiss francs for Studer, and in fiscal 1995 was 0.7 million Swiss francs for Studer. Cash paid for Federal, state and foreign income taxes was $15,637,000, $12,422,000 and $14,095,000, during fiscal years ended June 30, 1996, 1995 and 1994, respectively. 9. 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 10.4%, 9.5% and 13.7% of consolidated net sales for the years ended June 30, 1996, 1995 and 1994. The following tables show net sales, operating income and other financial information by geographic segment for the years ended June 30, 1996, 1995 and 1994. The net sales shown below for the United States include export and military sales of $259.1 million, $209.5 million and $179.1 million for the fiscal years ended June 30, 1996, 1995 and 1994, respectively. Geographic Segmentation Years ended June 30 1996 1995 1994 ($000s omitted) ------------- ------------- ------------- Net sales: U.S. $ 908,111 784,989 673,305 International 635,452 502,809 282,191 Intercompany/Interregion (181,968) (117,574) (93,349) ------------- ------------- ------------- Total $ 1,361,595 1,170,224 862,147 ------------- ------------- ------------- Operating income: U.S. $ 78,710 81,901 73,539 International 40,695 20,871 12,039 Unallocated operating expenses (14,027) (15,323) (19,246) ------------- ------------- ------------- Total $ 105,378 87,449 66,332 ------------- ------------- ------------- Identifiable assets: U.S. $ 519,422 427,777 418,840 International 463,466 438,435 252,360 Corporate 13,321 20,660 9,491 ------------- ------------- ------------- Total $ 996,209 886,872 680,691 ------------- ------------- -------------
10. 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, 1996, 1995 and 1994 totaled $4,388,000, $4,152,000 and $3,536,000, respectively. The Company also has a Supplemental Executive Retirement Plan (SERP) that provides normal retirement, pre-retirement and termination benefits, as defined, to certain key executives designated by 33 75 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued Harman International Industries, Incorporated and Subsidiaries the Board of Directors. Expenses related to the SERP for the years ended June 30, 1996, 1995 and 1994 were $214,000, $875,000 and $667,000, respectively. Additionally, certain of the Company's non-domestic subsidiaries maintain defined benefit pension plans. These plans are not material to the accompanying consolidated financial statements. 11. Fair Value of Financial Instruments The estimated fair value amounts of the Company's financial instruments have been determined using appropriate market information and valuation methodologies. In the measurement of the fair value of certain financial instruments, quoted market prices were unavailable and other valuation techniques were utilized. These derived fair value estimates are significantly affected by the assumptions used. Foreign currency contracts. The fair value of foreign currency contracts used for hedging purposes is estimated by obtaining quotes from brokers. The cost of foreign currency contracts approximated fair value at June 30, 1996. Long-term debt. Fair values of long-term debt are based on market prices when available. When quoted market prices are not available, fair values are estimated using discounted cash flow analysis, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. The carrying value and fair value of long-term debt, excluding obligations under capital leases and unsubordinated loans are $235.0 million and $240.3 million, respectively, at June 30, 1996. 12. Foreign Currency Transactions The Company enters into foreign exchange contracts as a hedge against transactions denominated in foreign currencies. At June 30, 1996, the Company had contracts maturing through December 1996 to purchase and sell the equivalent of approximately $25.5 million of various currencies. 13. 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. 14. Acquisitions On August 30, 1995, the Company exercised its option to purchase the remaining 80 percent of the issued and outstanding shares of Madrigal, increasing its ownership to 100 percent. Harman paid approximately $9.8 million for the remaining shares and related acquisition costs. The acquisition would not significantly affect prior years' results. In February 1995, the Company acquired Becker, a German manufacturer of automotive OEM and automotive aftermarket electronics. Final settlement of the transaction in March 1996 resulted in total consideration paid for the Becker shares of approximately U.S. $14.2 million and 220,000 shares of Harman Common Stock and assumption of post- acquisition bank indebtedness of approximately U.S. $57.7 million. In March 1994 the Company acquired Studer, a manufacturer of professional recording and broadcast equipment, for consideration of approximately U.S. $70.00 and assumption of post-acquisition bank indebtedness of approximately U.S. $16 million. In September 1993, the Company acquired a 76% interest in AKG, a manufacturer of microphones, headphones and other professional audio equipment headquartered in Vienna, Austria, for consideration of approximately U.S. $7.00 and assumption of post-acquisition bank indebtedness of approximately U.S. $24.5 million. The Company subsequently acquired the remaining 24% of AKG in July 1994 for consideration of approximately U.S. $3.7 million. 34 76 15. Quarterly Summary of Operations (Unaudited) The following is a summary of operations by quarter for fiscal 1996 and 1995: Three months ended: ($000s omitted except per share amounts) Fiscal 1996 Sept 30 Dec 31 Mar 31 Jun 30 Net sales $300,474 348,669 339,339 373,113 Gross profit $ 89,486 107,915 103,430 107,294 Income before extraordinary items $ 5,904 15,462 13,887 16,789 Net income $ 5,904 15,462 13,887 16,789 Income per share before extraordinary items* $ .36 .95 .86 .97 Net income per common share* $ .36 .95 .86 .97 *Quarters do not add to full year for fiscal 1996 due to differences in number of shares outstanding in the quarters. Fiscal 1995 Net sales $228,607 288,718 310,493 342,406 Gross profit $ 75,866 90,837 93,895 103,483 Income before extraordinary items $ 4,198 12,170 11,372 13,695 Net income $ 4,150 11,944 11,372 13,695 Income per share before extraordinary items $ .27 .77 .72 .84 Net income per common share $ .27 .75 .72 .84
INDEPENDENT AUDITORS' REPORT 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, 1996 and 1995 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, 1996. 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, 1996 and 1995 and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 1996 in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP Los Angeles, California August 15, 1996 35 77 STATEMENT OF MANAGEMENT RESPONSIBILITY Harman International Industries, Incorporated and Subsidiaries The consolidated financial statements and accompanying information were prepared by, and are the responsibility of, the management of Harman International Industries, Incorporated. The statements were prepared in conformity with generally accepted accounting principles, and, as such, include amounts that are based on management's best estimates and judgements. The Company's internal control systems are designed to provide reliable financial information for the preparation of financial statements, to safeguard assets against loss or unauthorized use and to ensure that transactions are executed consistent with Company policies and procedures. Management believes that existing internal accounting control systems are achieving their objectives and that they provide reasonable assurance concerning the accuracy of financial statements. Oversight of management's financial reporting and internal accounting control responsibilities is exercised by the Board of Directors through 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 and Chief Financial Officer Shareholder Information Market Price Fiscal 1996 Fiscal 1995 Fiscal 1994 High Low High Low High Low ------------------ ------------------ ------------------ First quarter ended September 30 $ 49.75 35.596 $ 33.334 24.048 $ 20.953 16.548 Second quarter ended December 31 48.875 39.75 36.191 30.477 27.858 17.977 Third quarter ended March 31 41.25 32.00 40.001 34.048 32.024 25.953 Fourth quarter ended June 30 56.50 37.375 39.048 32.382 29.763 23.334
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, 1996, the Company's Common Stock was held by approximately 214 record holders. The table above sets forth the reported high and low sales prices of the Company's Common Stock, as reported on the New York Stock Exchange, for each quarterly period for fiscal years ended June 30, 1996, 1995 and 1994. The Company paid dividends during fiscal 1996 of $.20 per share, with a dividend of $.05 paid in each of the four quarters. In August 1995, a special 5 percent stock dividend was paid. 36 78 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 Controller 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 OEM Group Advanced Technology Council Michael Watts Chairman Erich Geiger Vice Chairman High-End Council Sanford Berlin Chairman Cover photograph shot on location at the Levine School of Music, Washington, D.C. with young music students: Timothy Abbondelo, Jackie Garlock, Scott Geiser, Mecca Hayes, and Chris Johnson. DIRECTORS Bernard A. Girod Sidney Harman Shirley Mount Hufstedler Ann McLaughlin Edward H. Meyer Annual Meeting The annual meeting of shareholders will be held on November 13, 1996, at Chase Manhattan 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 18, 1996, at which time proxies for the meeting were requested. Registrar and Transfer Agent ChaseMellon Shareholder Services 15821 Ventura Boulevard Encino, CA 91436 (818) 971-4751 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, DC 20004 (202) 393-1101 Design: Fitch Inc. Photography: John Shotwell Photograph facing AKG microphone: Frank Stewart Photograph with President Clinton: Fancher Murray Except for the historical information contained in this Annual Report, the matters discussed herein contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those suggested in the forward-looking statements, including, without limitation, the effect of economic conditions, product demand, competitive products and other risks detailed herein and in the Company's other filings with the Securities and Exchange Commission. 79 (BACK COVER OF ANNUAL REPORT) (PICTURE HERE) (Harman International logo here) Harman International Industries, Incorporated 1101 Pennsylvania Avenue, NW, Suite 1010, Washington,DC 20004 (202) 393-1101 80 EX-21 5 EXHIBIT 21.1 81 THIS PAGE LEFT BLANK INTENTIONALLY 82 HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED LIST OF SUBSIDIARIES Subsidiary Jurisdiction ------------- -------------- AKG Acoustics GmbH Germany AKG Acoustics India, Ltd. India AKG Akustische u. Kino-Gerate Gessellschaft m.b.H. Republic of Austria Allen & Heath Limited United Kingdom Audax Industries, SNC France Audax of America, Inc. Delaware Becker Automotive (Pty) Ltd. South Africa Becker GmbH Germany Becker Holding GmbH Germany Becker of North America, Inc. Delaware Becker Service und Verwaltungs GmbH Germany BSS Audio Ltd United Kingdom D.A.V.I.D. GmbH Germany Edge Technology Group Ltd. United Kingdom Fosgate, Inc. Delaware Harco Properties, Inc. Delaware Harman Audio Outlet, Inc. Delaware Harman Belgium NV Kingdom of Belgium
83 HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED LIST OF SUBSIDIARIES Subsidiary Jurisdiction ------------- -------------- Harman Consumer Europe A/S Denmark Harman Consumer Manufacturing - El Paso, Inc. Delaware Harman Consumer Netherlands BV Netherlands Harman Deutschland GmbH Germany Harman Enterprises, Inc. Delaware Harman France, S.N.C. France Harman Holding Europe A/S Denmark Harman Interactive, Inc. California Harman International Foreign Sales Corporation Guam Harman International Industries Limited United Kingdom Harman International Japan Co., Limited Japan Harman International Singapore PTE., Limited Singapore Harman Investment Company, Inc. Delaware Harman-Kardon, Incorporated Delaware Harman Marketing Europe A/S Denmark Harman-Motive, Inc. Delaware
84 HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED LIST OF SUBSIDIARIES Subsidiary Jurisdiction ------------- -------------- Harman Motive Limited United Kingdom Harman Music Group Incorporated Utah Harman Pro North America, Inc. Delaware Harman UK Limited United Kingdom Infinity Systems A/S Denmark Infinity Systems, Inc. California JBL Europe A/S Denmark JBL Incorporated Delaware Lexicon, Incorporated Massachusetts Lydig of Scandinavia A/S Denmark Madrigal Audio Laboratories, Inc. Connecticut Orban, Inc. Delaware Precision Devices, Ltd United Kingdom Pyle Industries, Inc. Indiana Soundcraft Electronics, Limited United Kingdom Soundcraft Magnetics Limited United Kingdom Spirit by Soundcraft, Inc. Delaware Studer Deutschland GMBH Germany
85 HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED LIST OF SUBSIDIARIES Subsidiary Jurisdiction ------------- -------------- Studer Digitec S.A. France Studer Editech Corp. California Studer Professional Audio AG Switzerland Studer Canada Limited Canada Studer Japan Ltd. Japan Studer U.K. Limited United Kingdom Turbosound Ltd. United Kingdom
86 EX-23 6 EXHIBIT 23.1 87 THIS PAGE LEFT BLANK INTENTIONALLY 88 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, 33-60236, 33-59605 and 333-02917 on Form S-8 of Harman International Industries, Incorporated of our report dated August 15, 1996, relating to the consolidated balance sheets of Harman International Industries, Incorporated and subsidiaries as of June 30, 1996 and 1995, and the related consolidated statements of operations, cash flows and shareholders' equity and related schedule for each of the years in the three year period ended June 30, 1996, which report appears in the June 30, 1996 annual report on Form 10-K of Harman International Industries, Incorporated. /s/ KPMG Peat Marwick LLP Los Angeles, California September 13, 1996 89 THIS PAGE LEFT BLANK INTENTIONALLY 90 EX-27 7 ART 5 FDS FOR 10-K
5 1000 YEAR JUN-30-1996 JUN-30-1996 (74) 377 308072 9962 308051 651970 394148 193190 996209 274659 254611 186 0 0 436291 996209 1361595 1361595 772736 953470 0 3103 27510 75024 23750 52042 0 0 0 52042 3.16 3.16
-----END PRIVACY-ENHANCED MESSAGE-----