-----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, ClpIUkRiCw7f1TXe/9QbohAMRiMK7GHdNopI9vIlaZThNpTmyAjdREFD4AzgUMjt TFIjoIBW2lCIV/1ZYb+bwA== 0000800459-97-000010.txt : 19970918 0000800459-97-000010.hdr.sgml : 19970918 ACCESSION NUMBER: 0000800459-97-000010 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970916 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-K405 SEC ACT: SEC FILE NUMBER: 001-09764 FILM NUMBER: 97681085 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-K405 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, 1997 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, 1997, was $789,489,972. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 18,474,918 shares of Common Stock, par value $.01 per share, as of August 31, 1997. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Annual Report to Stockholders for the fiscal year ended June 30, 1997, 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 1997 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 YES NO Page 1 of 113 THIS PAGE LEFT BLANK INTENTIONALLY 2 TABLE OF CONTENTS PART I Page Item 1. Business.................................... 5 Item 2. Properties.................................. 28 Item 3. Legal Proceedings........................... 29 Item 4. Submission of Matters to a Vote of Security Holders........................ 29 Executive Officers of the Registrant.... 29 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters................................. 32 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.................. 33 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 Auditor's 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 loudspeakers and electronic audio products that deliver superior sound. The Company believes that its JBL, Mark Levinson, Infinity and Harman Kardon brand names are well-known worldwide for premium quality and performance. Since its formation in 1980, the Company has developed, internally and through a series of strategic acquisitions, a broad range of product offerings sold under renowned brand names in each of its three major markets. Concurrently, the Company has developed its engineering, manufacturing and distribution capabilities worldwide to achieve the benefits of vertical integration of design, manufacturing and marketing. The Company's operations are organized into three primary Groups: the Consumer Group, the Professional Group and the OEM Group. From September 1993 through March 1995, the Company completed four strategic acquisitions to strengthen the competitive position of each of the three Groups in terms of market, product and technology. The companies acquired were: 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 has broadened each Group's range of product offerings, thereby enabling the Company to offer complete systems solutions to customers in its principal markets. 5 Consumer Group The Company's Consumer Group designs, manufactures and markets loudspeakers under the JBL and Infinity brand names for home and automotive audio systems. The Company also designs, manufactures and markets a broad range of consumer electronics products under the Harman Kardon, Mark Levinson, Citation, AudioAccess and Proceed brand names. The Company has the preeminent portfolio of brand names and range of product offerings in the consumer audio market. The JBL, Infinity and Harman Kardon brands are recognized throughout the world for superior sound quality and good value. High-end amplifiers and other electronic components bearing the Mark Levinson, Citation and Proceed brand names are acclaimed for their superior build quality and state-of- the-art sound reproduction. The Company has leveraged its strong brand names in growing consumer audio markets such as the home theater/multi-channel arena and the mini-systems market. Sales of Harman Kardon audio/video receivers, JBL and Infinity surround sound loudspeaker systems and multi-channel amplifiers and digital signal processing components from Citation and Proceed have benefited from the vigorous home theater market. Integrated mini-systems, including the JBL ESC550 Simply Cinema System and the Harman Kardon Festival line, will capitalize on the Company's strong brand names in this significant segment of the consumer audio market. The Company believes the new digital versatile disc (DVD) technology will provide additional growth opportunities for its consumer brands. DVD players bearing the Harman Kardon, Mark Levinson, Citation and Proceed brands will be introduced in fiscal 1998. The Company also expects DVD to stimulate loudspeaker sales due to increased customer traffic in audio dealers' stores and the improvement in audio performance from DVD over current analog audio/video and digital audio components. Sales expectations are dependent, to a substantial extent, on discretionary spending by consumers, which may be affected by economic conditions. The Consumer Group's distribution strategy includes sale of its products through large, multi-location consumer electronics retailers, such as Circuit City in the United Sates and MediaMarkt in Europe (the Consumer Group's two largest customers), and through high-fidelity audio specialists. The Company operates marketing and distribution 6 subsidiaries in its major European and Asian markets to enhance responsiveness and service for its international customers. The Consumer Group also manufactures branded audio systems and loudspeakers for manufacturers of personal computers, including a line of JBL-branded audio systems for Compaq Computer Corporation's Presario line of personal computers and a higher-powered Harman Kardon branded sound system for Gateway's Destination "TV Computer." These audio systems provide high-quality sound and thus enhance the appeal and capability of the personal computer as an entertainment device. Professional Group The Company's Professional Group designs, manufactures and markets professional audio equipment, including loudspeakers, amplifiers, mixing consoles, signal processing equipment, microphones and effects devices. Such products are marketed on a worldwide basis under brand names including JBL, Soundcraft, Allen & Heath, DOD, Digitech, Lexicon, AKG, dbx, BSS, Turbosound, Orban, Spirit and Studer. The Professional Group is uniquely equipped to provide turnkey systems solutions for professional audio applications that offer the customer improved performance, ease of installation and reduced cost. The principal market segments served by the Professional Group are sound reinforcement, broadcast and recording and music instrument support. JBL is the leader in the vibrant cinema market, holding a dominant share of Dolby and THX theater sound systems and serving customers such as Cineplex Odeon and United Artists Theaters. Stadiums, concert halls, houses of worship and major concert tours rely on sound reinforcement products from the Professional Group, such as Turbosound loudspeakers, JBL and BSS amplifiers, AKG microphones, Lexicon, DOD and dbx signal processing equipment, and Soundcraft and Allen & Heath mixing consoles, to produce top quality sound. Customers in the recording and broadcast segment include radio and television stations and recording studios. Customers in these markets, including AMS Westfunk Radio, Abbey Road Studios and The Hit Factory, are primarily served by Studer and Orban, with additional offerings from JBL, Lexicon, Soundcraft and AKG. 7 JBL, DOD and Spirit serve the music instrument support segment of the professional audio market. JBL manufactures and markets loudspeakers, monitors and amplifiers. DOD manufactures and markets guitar amplifiers, sound effects processors and portable mixing consoles. Spirit markets portable mixing consoles. Music instrument support products are sold through music retail stores such as Guitar Center and Sam Ash. OEM Group Harman is one of the world's largest manufacturers of premium branded automotive OEM audio systems. The Company believes excellent growth opportunities are still available 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. The Company's largest automotive OEM customer, Chrysler, offers Infinity branded audio systems in the majority of its car, truck and sport- utility vehicle platforms. Becker supplies head units to Mercedes Benz, BMW and Porsche. Harman Kardon branded audio systems are offered in cars produced by BMW, Saab, Jaguar and Range Rover. Other customers include Toyota, Mitsubishi and Ford. The loss of, or a material decrease or delay in purchasing the Company's products by, any of the Company's significant customers could have an adverse effect on the results of operations of the Company. Sales of the Company's audio products to the automotive OEM market are dependent on the sales of the automobile industry and automobile purchasers' willingness to pay for the option of a premium branded automotive audio system. In 1995, the Company withdrew Ford's exclusive use of the JBL brand name for automotive audio and made the brand name available to other automakers. The JBL program for the Ford Taurus ended with model year 1996, for the Ford Explorer ended with model year 1997 and for the Lincoln line is scheduled to conclude with model year 1998. The Company recently reached an agreement with Toyota to provide JBL branded audio systems in the majority of its broad range of vehicles beginning in fiscal 1999, including vehicles produced by Toyota for sale in Asia. In fiscal year 1998, the OEM Group will add the BMW 5-Series (Becker radio), the Toyota Aristo (JBL audio system), the Peugeot 406 8 (JBL audio system), the Hyundai Grandeur (JBL audio system), the Chrysler Durango (Infinity audio system), and the BMW Z3 (Harman Kardon audio system) to its list of offerings. The OEM Group offers integrated audio systems that provide a platform for further expansion into associated automotive electronic products such as communication, security and navigation. 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 most major segments 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. 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. 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, 9 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 two- channel stereo loudspeakers and electronic components to include multi- channel, surround-sound electronics and loudspeaker systems, powered loudspeakers, mini-systems and audio systems for computers, and broadening its customer base to include large retailers such as Circuit City in the U.S. and MediaMarkt in Europe; (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, Jeep, BMW, Toyota, Mitsubishi, Ford, Porsche, Saab, Range Rover and Jaguar. The manufacturing capabilities of the Company include North American and European operations. Primary manufacturing sites are located in California, Indiana, Germany, 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 38% of fiscal 1997 total net sales, the Professional Group accounted for approximately 32% of net sales, and the OEM Group generated approximately 30% of net sales. 10 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, 1997. Description of Business The Company's business is conducted through its wholly owned subsidiaries which include:
Name Principal products - --------------------------------- ------------------------------------ AKG Acoustics GmbH 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 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
11
Name Principal products - --------------------------------- -------------------------------- Harman-Motive, Inc. OEM loudspeakers and electronics Harman Motive Limited OEM loudspeakers and electronics Infinity Systems, Inc. Consumer home and automotive loudspeakers and electronics JBL Incorporated Consumer 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 its experience in, and knowledge of, the audio industry, the Company believes that the consumer, professional and OEM markets, both domestic and international, have experienced significant growth in recent years. In 1997, the consumer and professional audio markets slowed somewhat due to uncertainty associated with technology transitions. The transition from analog to digital audio technology has transformed music recording and reproduction and has led to the development of a new generation of consumer and professional audio products, including software-driven audio systems with integrated digital architecture that permits communication among all components. Although this transition has created near-term market weakness due to customer confusion and hesitancy, management believes that the evolution of digital audio will fuel long-term growth in the consumer and professional audio markets. 12 In the consumer audio market, the Company produced higher sales in fiscal 1997 despite the market uncertainty associated with new surround sound processing technologies and the new DVD digital versatile disc. Management believes that maturation and broadened acceptance of DVD and the new multi-channel audio technologies will provide growth opportunities in the consumer market. The Company's broad range of renowned consumer audio brand names includes JBL, Infinity, Harman Kardon, Mark Levinson, Proceed and Citation. The Company has developed branded audio systems for Compaq, Gateway and other manufacturers of personal computers. The Company also produces aftermarket audio systems for multimedia applications. The Company believes that the number of personal computers equipped with multimedia capabilities will continue to increase. The professional audio markets served by the Company include sound reinforcement, broadcast and recording and music instrument support. The sound reinforcement market includes theaters (cinema and live performance), stadiums, concert halls, and houses of worship. The broadcast and recording market includes radio and television stations and recording studios. The Company serves the music instrument support market primarily through the provision of portable digital signal processing components and compact, portable loudspeaker systems used by touring performers. Much of the professional audio market is undergoing a transition from analog to digital audio technology, and the Company is well-equipped for this evolutionary period with the engineering and marketing expertise of JBL, Soundcraft, Studer, Lexicon, Harman Music Group and AKG. 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 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. 13 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, automotive aftermarket and computer/multimedia), professional (sound reinforcement, broadcast and recording, and musical instrument support), and OEM automotive markets. The Company also distributes a small amount of complementary audio products manufactured by other companies. The Consumer Group accounted for approximately 38% of the Company's fiscal 1997 sales, of which 71% was attributable to home loudspeaker and automotive aftermarket systems, 23% was from home electronic components and 6% was from audio systems for computer manufacturers. The Professional Group contributed approximately 32% of fiscal 1997 sales, of which 55% was attributable to sound reinforcement, 25% was from broadcast and recording and 20% was from musical instrument support. OEM Group sales to the automakers produced approximately 30% of fiscal 1997 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 the Simply Cinema series of home loudspeaker systems, including the ESC550 mini-system, provides excellent home theater performance in an easily installed and operated system. From its inception 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. Compositions, Infinity's premier home theater loudspeaker line, has received excellent reviews from the high fidelity audio press for superior design and performance. 14 The more expensive JBL and Infinity loudspeakers are housed in high- gloss lacquer or wooden veneer cabinets that 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 that 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 receivers featuring Dolby Digital AC-3 and Lucasfilm Home THX surround sound processing capabilities and multi-channel amplifiers. Digital versatile disc (DVD) machines currently in development reflect Harman Kardon's commitment to deliver state-of-the-art audio reproduction equipment to its customers. 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. 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. 15 The Company manufactures a series of JBL-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. These audio systems provide high-quality sound and thus enhance the appeal and capability of the personal computer as an entertainment device. PROFESSIONAL PRODUCTS. The Company designs, manufactures and markets products in all significant segments of the professional audio market, offering complete systems solutions to professional installations and users around the world. The Professional Group includes many of the most respected names in the industry including JBL, 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 home theater surround sound processors and amplifiers. 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, and Harman Kardon systems sold to BMW (3-series and Z3), Jaguar, Saab and Land Rover (Range Rover), as well as premium systems sold to Toyota for the Avalon and Camry. 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 the JBL program for the Lincoln line is scheduled to conclude with model year 1998. The Company has reached agreement with Toyota to provide JBL branded sound systems for its cars and light trucks, beginning with the Toyota Aristo in Japan in model year 1998 and rolling out through the majority of the Toyota product line in model year 1999. JBL branded sound systems will also be offered in the 1998 models of the Peugeot 406 and the Korean Hyundai Grandeur. 18 Manufacturing The Company believes that its manufacturing capabilities are essential to maintaining and improving product quality and performance. The Company manufactures most of the products that it sells other than certain Harman Kardon electronic components. The Company also produces some products for other loudspeaker companies on an OEM basis. 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, Northridge Manufacturing in Northridge, California, manufactures JBL and Infinity loudspeakers, including cabinets, for consumer, professional, automotive aftermarket and personal computer applications and amplifiers for the automotive OEM market. 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 professional electronics products at its Bedford, Massachusetts facility. Madrigal manufactures consumer electronics at its Middletown, Connecticut facility. The Company manufactures automotive aftermarket amplifiers and has recently begun to manufacture consumer electronics for home use at its El Paso, Texas 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, drivers and automotive OEM loudspeakers, is located 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 19 manufactures drivers for its Turbosound line of professional loudspeakers at its Precision Devices manufacturing site in the United Kingdom. Final assembly of Turbosound loudspeakers is performed in the United Kingdom. Cabinet production was begun 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 and amplifiers 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, automotive aftermarket and personal computer (OEM and 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 either branded or generic components and systems. 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 Europe. The Company enjoys broad distribution of its products and selects dealers who emphasize high-quality audio systems and who are knowledgeable about the features and capabilities of audio products. 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 20 products. The Company's principal customers in the personal computer audio segment are Compaq and Gateway. The Company's professional audio products are marketed worldwide through professional sound equipment dealers, including sound system contractors that directly assist major users. The Company's sales and marketing group for its professional products is separate and independent from its consumer product sales group. The Company markets its branded OEM audio products to automobile manufacturers. OEM customers include Chrysler, Mercedes Benz, Toyota, Ford, Mitsubishi, BMW, Jaguar, Porsche, Range Rover and Saab in the automotive 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. In addition, the Company is developing the electronics manufacturing capabilities of its El Paso, Texas facility, in order to enable the manufacture of certain Harman Kardon products in its own domestic factory. 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, Allen & Heath, AudioAccess, Turbosound, Mark Levinson, Proceed, Revel, VMAx, EON, Harman, Control, Compositions, Optimod, C- Audio, Auto Azimuth and Dynamic Midi which are registered or otherwise protected in substantially all major industrialized countries. 21 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, 1997, the Company held approximately 221 United States and foreign patents covering various products, product designs and circuits, and had approximately 227 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 1997 accounted for 9.9% 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 6.2% of the Company's consolidated net sales for the year ended June 30, 1997. 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 $23.8 million at June 30, 1997. Warranties Harman generally warrants its home products to be free from defects in materials and workmanship for a period ranging from 90 days to five years from the date of purchase, depending on the product. The warranty is a "limited" warranty insofar as it imposes certain shipping costs on the 22 customer, and excludes deficiencies in appearance except for those evident when the product is delivered. Harman dealers normally perform warranty service for loudspeakers in the field, using parts supplied on an exchange basis by the Company. Warranties in the international markets are generally similar to those in the domestic market, although claims arising under these warranties are the responsibility of the distributor, 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 that 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. The Company's principal competitors in the consumer loudspeaker market include Bose, Boston Acoustics, Bowers & Wilkins, KEF, 23 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, Kenwood and Yamaha. 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. In the personal computer audio 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. The market for professional sound systems is highly competitive. The Company has historically held a leading market position in the professional loudspeaker market and has complemented its professional loudspeaker line by adding digital professional electronics products and broadcast and recording equipment. The Company competes using its ability to provide systems solutions to meet the complete audio requirements of its professional customers. Harman offers 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. Principal competitors in sound reinforcement include Electro Voice, Inc., Altec Lansing, Eastern Acoustic Works, Crest, Sennheiser, Tannoy, 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 recording and broadcast competitors include: Sony, Neve, Sennheiser, Denon, SSL, 24 Shure and Audio Technica. In the Music Instrument area, competitors for the Company's DOD, Digitech, dbx, Lexicon and Spirit products include Yamaha, Peavey, 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, Peavey and Tannoy. In the automotive OEM market, the Company's principal competitors include Bose, International Jensen 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 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 non-branded systems for the Toyota Avalon and Camry. Beginning in fiscal year 1999, the Company will supply JBL branded loudspeaker systems for Toyota cars and light trucks worldwide. 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. 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 remediation process has proceeded in accordance with the plan, and the Company believes that the future cost to complete remediation will not exceed $130,000. 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 $66,451,000, $59,171,000, and $40,257,000 for the fiscal years ending June 30, 1997, 1996 and 1995, respectively. The increase in expenditures in fiscal 1997 resulted from increased consumer electronics product development activity and product development programs at Harman Motive and Becker. The increase in fiscal 1996 was due to: the development of the audio for computers business; the addition of Becker, which was only included for six months in fiscal 1995; the inclusion of Madrigal, acquired September 1995; and increased product development activity at JBL Professional, Studer and Harman Motive. Number of Employees As of June 30, 1997, the Company had 8,384 full-time employees, including 4,137 domestic employees and 4,247 international employees, compared to 8,369 employees at June 30, 1996. 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 46 and 34, respectively, in the Company's Annual Report to Shareholders for the fiscal year ended June 30, 1997. Forward-Looking Statements Except for the historical information contained herein, the matters discussed herein contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those suggested in the forward-looking statements, including, without limitation, the effect of economic conditions, product demand, currency exchange rates, competitive products and other risks detailed herein and in the Company's other filings with the Securities and Exchange Commission. 27 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 722,715 Leased 94% JBL, Infinity, Harman Motive Ontario, California 212,600 Leased 100% JBL, Infinity Martinsville, Indiana 182,664 Owned 100% Harman Motive 20,000 Leased 100% Ringkobing, Denmark 145,119 Owned 100% Lydig 25,920 Leased 80% Ittersbach, Germany 169,465 Owned 80% Becker 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 80% Deutschland Bridgend, UK 126,000 Leased 100% Harman Motive Worth-Schaitt, Germany 89,640 Owned 75% Becker Regensdorf, Switzerland 86,111 Leased 100% Studer El Paso, Texas 80,000 Leased 75% Harman El Paso
The company considers its properties to be suitable and adequate for its present needs. 28 ITEM 3. LEGAL PROCEEDINGS There are various legal claims pending against the Company, but in the opinion of management, liabilities, if any, arising from such claims will not have a material effect upon the consolidated financial condition and results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE REGISTRANT
Age at Name August 1, 1997 Position - --------------------- ------------------- ---------------------------------- Sidney Harman 78 Chairman of the Board of Directors and Chief Executive Officer Bernard A. Girod 55 President, Chief Operating Officer, Secretary and Director of the Company Frank Meredith 40 Vice President - Finance & Administration and Chief Financial Officer Philip J. Hart 52 President - Harman Professional Group Thomas Jacoby 43 President - Harman Consumer Group Gregory P. Stapleton 50 President - OEM Group Jerome H. Feingold 55 Vice President - Quality William S. Palin 54 Vice President - Controller Sandra B. Robinson 38 Vice President - Financial Operations Paul Shave 45 Vice President - Worldwide Sourcing Floyd E. Toole 51 Vice President - Engineering
29 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 served as Chief Financial Officer of the Company from September 1986 to August 1995 and from March 1996 to March 1997. 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. Frank Meredith has been Vice President - Finance and Administration and Chief Financial Officer of the Company since March 1997. Prior to that time, Mr. Meredith served as 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. 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 30 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. William S. Palin has been Vice President - Controller of the Company since March 1994. Prior to joining the Company, Mr. Palin was a partner of MacHardy Palin & Co. from January 1982 to March 1994. From July 1978 to January 1982, Mr. Palin served as an officer of two of the Company's international subsidiaries. Sandra B. Robinson has been Vice President - Financial Operations since November 1992. Prior to that time, Ms. Robinson was Director of Corporate Accounting and has been employed by the Company since December 1984. Paul Shave has been Vice President - Worldwide Sourcing of the Company since June 1997. Prior to joining the Company, Mr. Shave was Vice President - Sourcing and Logistics for Zenith Electronics since January 1996. From 1989 through 1996, Mr. Shave was Director of Materials for Scientific Atlanta. 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. 31 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, 1997 (Shareholder Information on page 48). ITEM 6. SELECTED FINANCIAL DATA Five-Year Summary (in thousands, except per share data, for the fiscal years ended June 30)
1997 1996 1995 1994 1993 ---------- ---------- ---------- ------------ ------------ Net sales $1,474,094 $1,361,595 $1,170,224 $862,147 $664,913 Operating income 101,973 105,378 87,449 66,332 41,255 Income before taxes 77,901 75,024 61,157 42,686 18,570 Net income 54,832 52,042 41,161 25,664 11,246 Net income per share 2.96 3.16 2.58 1.83 .99 Total assets 1,014,254 996,209 886,872 680,691 431,726 Long-term debt 266,393 254,611 266,021 156,577 175,583 Shareholders' equity 466,762 436,477 289,490 232,021 111,149 Dividends per share 0.20 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, 1997 (Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 31 through 34). 32 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, 1997 (Consolidated Financial Statements on pages 30 and 35 through 48). 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 1997 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 15, 1997 ------------------------- 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 15, 1997 - -------------------------- Chief Executive Officer ------------------------- Sidney Harman and Director /s/ Bernard Girod President, Chief Operating September 15, 1997 - -------------------------- Officer, Secretary ------------------------- Bernard A. Girod and Director /s/ Frank Meredith Vice President - Finance & September 15, 1997 - -------------------------- Administration and Chief ------------------------- Frank Meredith Financial Officer (Principal Accounting Officer) /s/ Shirley M. Hufstedler Director September 15, 1997 - -------------------------- ------------------------- Shirley M. Hufstedler /s/ Ann McLaughlin Director September 15, 1997 - -------------------------- ------------------------- Ann McLaughlin /s/ Edward H. Meyer Director September 15, 1997 - -------------------------- ------------------------- Edward H. 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 30 and 36 through 48 of the 1996 Annual Report to Shareholders herein incorporated by reference as Exhibit 13.1): Financial Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Independent Auditor's Report . . . . . . . . . . . . . . . . . 39 . . . . . . . 35 Consolidated Balance Sheets as of June 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Consolidated Statements of Operations for the years ended June 30, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . 37 Consolidated Statements of Cash Flows for the years ended June 30, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . 38 Consolidated Statements of Shareholders' Equity for the years ended June 30, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . 40 Schedules for the years ended June 30, 1997, 1996 and 1995: 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, 1997 ($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, 1995 Allowance for doubtful accounts $10,241 $ 4,263 $ 2,217 (1) $ 4,408 (2) $12,313 Year Ended June 30, 1996 Allowance for doubtful accounts $12,313 $ 3,103 $ (1,405) (3) $ 4,049 (2) $ 9,962 Year Ended June 30, 1997 Allowance for doubtful accounts $ 9,962 $ 1,977 $ (781) (4) $ 2,042 (2) $ 9,116
(1) Additions due to Becker, D.A.V.I.D. and Harman Interactive (NewMediaWare) acquisitions. (2) Deductions for accounts receivable written off net of recoveries. (3) Deductions due to account reclassifications, foreign currency translation, and sale of Studer Singapore. (4) Deductions due to foreign currency translation and disposition of AKG India. 38 INDEPENDENT AUDITOR'S REPORT - -------------------------------------------------- The Board of Directors Harman International Industries, Incorporated Under date of August 20, 1997, we reported on the consolidated balance sheets of Harman International Industries, Incorporated and subsidiaries as of June 30, 1997 and 1996, 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, 1997, as contained in the 1997 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, 1997. 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 20, 1997 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 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. Deferred Compensation Plan, effective June 1, 1997 (Filed on Form S-8 Registration Statement on June 9, 1997 (Reg. No. 333-28793), and hereby incorporated by reference.).....................................IBR 10.53 Multi-Currency, Multi-Option Credit Agreement dated September 30, 1994, among Harman International Industries, Incorporated, the Subsidiary Borrowers and Subsidiary Guarantors, and the Several Lenders named therein with Chemical Securities, Inc., as Arranger, NationsBank of North Carolina, N.A., as Co-Agent and Chemical Bank, as Administrative Agent. (Filed as Exhibit 10.53 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1994 (File No. 001-09764), and hereby incorporated by reference.)..........................IBR 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
46 INDEX TO EXHIBITS (cont.)
Exhibit Page No. Description No. 10.55 Second Amendment dated November 9, 1995, to the Multi-Currency, Multi-Option Credit Agreement dated September 30, 1994. (Filed as Exhibit 10.55 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 (File No. 001-09764), and hereby incorporated by reference.)..........................IBR 10.57 First Amendment to the Lease Agreement by and between Harman International Business Campus Joint Venture and Harman Electronics, Inc. dated October 1995 (Filed as Exhibit 10.57 to the Annual Report on Form 10-K for the fiscal year ended June 30, 1996 (File No. 001-09764), and hereby incorporated by reference.).............................IBR 10.58 First Amendment to the Lease Agreement by and between Harman International Business Campus Joint Venture and JBL, Inc. dated October 1995 (Filed as Exhibit 10.58 to the Annual Report on Form 10-K for the fiscal year ended June 30, 1996 (File No. 001-09764), and hereby incorporated by reference...........................IBR 10.59 Fourth Amendment dated June 6, 1997, to the Multi-Currency, Multi-Option Credit Agreement dated September 30, 1994...............................49 10.60 Employment agreement between the Company and Bernard A. Girod dated September 12, 1997....67
47 INDEX TO EXHIBITS (cont.)
Exhibit Page No. Description No. 13.1 Pages 30 through back cover of Harman International Industries, Incorporated Annual Report to Shareholders for the fiscal year ended June 30, 1997................................................81 21.1 Subsidiaries of the Company....................................103 23.1 Consent of Independent Auditors................................109 27.1 EDGAR Financial Data Schedule................................113 48
EX-10 2 EXHIBIT 10.59 49 THIS PAGE LEFT BLANK INTENTIONALLY 50 FOURTH AMENDMENT FOURTH AMENDMENT, dated as of June 6, 1997 (this "Amendment"), to the MULTI-CURRENCY, MULTI-OPTION CREDIT AGREEMENT, dated as of September 30, 1994 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"; terms defined therein being used herein as therein defined), among HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED (the "Company"), the Subsidiary Borrowers and Subsidiary Guarantors parties thereto, the Lenders parties thereto, NATIONSBANK, N.A. (formerly known as Nationsbank of North Carolina, N.A.), as Co-Agent, CHASE SECURITIES INC. (as successor to Chemical Securities, Inc.), as arranger and THE CHASE MANHATTAN BANK (as successor to Chemical Bank) as administrative agent (the "Administrative Agent"). W I T N E S E T H: WHEREAS, the parties to this Amendment wish to amend the Credit Agreement in the manner hereinafter set forth; and WHEREAS, this Amendment is entered into in accordance with the provisions of subsection 14.1 of the Credit Agreement; NOW, THEREFORE, in consideration of the premises, the parties hereto hereby agree as follows: 1. Definitions. Unless otherwise defined herein, terms defined in the Credit Agreement shall be used as so defined. 2. Amendments to Subsection 1.1. Subsection 1.1 of the Credit Agreement is hereby amended by: (A) deleting the definition of "Guarantor" in its entirety and replacing it with the following: "'Guarantor': the Company in its capacity as the guarantor pursuant to Section 11 of this Agreement."; (B) deleting the definition of "Subordinated Debt" in its entirety and replacing it with the following: "'Subordinated Debt': any unsecured Indebtedness of the Company (other than Indebtedness outstanding on the date hereof and described on Schedule 10.2) no part of the principal of which is required to be paid (whether by way of mandatory sinking fund, mandatory redemption or mandatory prepayment or otherwise) prior to the Termination Date, and the payment of the principal of and interest on which and any other obligations of the Company in respect thereof is subordinated to the prior payment in full of the 51 2 principal of and interest (including post-petition interest) on the Loans and all other Obligations hereunder on terms and conditions that are (i) no less favorable to the Lenders (as reasonably determined by the Majority Lenders) than those contained in the Company's 12% Senior Subordinated Notes Due August 1, 2002, or (ii) otherwise reasonably acceptable to the Majority Lenders."; and (C) deleting the definition of "Termination Date" in its entirety and replacing it with the following: "'Termination Date': September 30, 2002." 3. Amendment to Subsection 6.6. Subsection 6.6(a) is hereby amended by replacing each and every reference to the words "lending office" contained therein, with the words "Funding Office". 4. Amendments to Sections 10 and 11. Sections 10 and 11 are hereby deleted in their entirety and replaced by the following: "SECTION 10. NEGATIVE COVENANTS The Company hereby agrees that, so long as the Commitments remain in effect or any amount is owing to any Lender or the Administrative Agent hereunder or under any other Loan Document, the Company shall not, directly or indirectly: 10.1 Financial Condition Covenants. (a) Consolidated Total Debt to Consolidated Capitalization. Permit the ratio of Consolidated Total Debt to Consolidated Capitalization at any time to be greater than 68%. (b) EBITDA Ratio. Permit the EBITDA Ratio for any period of four consecutive fiscal quarters to be less than 2.25 to 1.0. 10.2 Limitation on Indebtedness of Restricted Subsidiaries. Permit any Restricted Subsidiary (other than any Restricted Subsidiary that is a Domestic Subsidiary Borrower) to create, incur, assume or suffer to exist any Indebtedness, except: (a) Indebtedness under this Agreement; (b) Indebtedness listed on Schedule 10.2 (a portion of which Indebted- ness will be repaid at the time set forth in Part II of such Schedule); (c) Indebtedness of a corporation which becomes a Restricted Subsidiary after the date hereof, provided that (i) such indebtedness existed at 52 3 the time such corporation became a Subsidiary and was not created in anticipation thereof and (ii) immediately after giving effect to the acquisition of such corporation by the Company no Default or Event of Default shall have occurred and be continuing; (d) Indebtedness secured by any Lien permitted by subsection 10.3(g); (e) Indebtedness of the Company's Subsidiary or Subsidiaries in Denmark in an aggregate principal amount not exceeding $2,000,000 (or its equivalent in Danish Kroner) at any time outstanding; (f) additional Indebtedness not exceeding $50,000,000 in aggregate principal amount at any one time outstanding (as to all such Restricted Subsidiaries); (g) additional Indebtedness that is subordinate in right of payment to the terms hereof; and (h) any extension, renewal or replacement (or successive extensions, renewals or replacements), as a whole or in part, of any Indebtedness referred to in the foregoing clauses (b), (c) and (d) (other than such Indebtedness described in Part II of Schedule 10.2); provided that no such extension, renewal or replacement shall result in an increase in such Indebtedness. 10.3 Limitation on Liens. Create, incur, assume or suffer to exist, or permit any Restricted Subsidiary to create, incur, assume or suffer to exist, any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for: (a) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of the Company or its Restricted Subsidiaries, as the case may be, in conformity with GAAP (or, in the case of Foreign Subsidiaries, generally accepted accounting principles in effect from time to time in their respective jurisdictions of incorporation); (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 60 days or which are being contested in good faith by appropriate proceedings; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation and deposits securing liability to insurance carriers under insurance or self-insurance arrangements; 53 4 (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the Company or such Restricted Subsidiary; (f) Liens in existence on the date hereof listed on Schedule 10.2, provided that no such Lien is spread to cover any additional property after the Closing Date and that the amount of Indebtedness secured thereby is not increased; (g) Liens securing Indebtedness of the Company or such Restricted Subsidiaries incurred to finance the acquisition of fixed or capital assets, provided that (i) such Liens shall be created substantially simultaneously with the acquisition of such fixed or capital assets, (ii) such Liens do not at any time encumber any property other than the property financed by such Indebtedness, (iii) the amount of Indebtedness secured thereby is not increased and (iv) the principal amount of Indebtedness secured by any such Lien shall at no time exceed the fair value (as determined in good faith by the board of directors of the Company) of such property at the time it was acquired; (h) Liens on the property or assets of a corporation which becomes a Restricted Subsidiary after the date hereof securing Indebtedness in existence at the time such corporation became a Subsidiary, provided that (i) such Liens existed at the time such corporation became a Subsidiary and were not created in anticipation thereof, (ii) any such Lien is not spread to cover any property or assets of such corporation after the time such corporation becomes a Subsidiary, and (iii) the amount of Indebtedness secured thereby is not increased; (i) Liens on the property or assets of a corporation existing at the time such corporation is merged or consolidated with or into the Company or a Restricted Subsidiary or at the time of a sale of the properties and assets of such corporation as an entirety or substantially as an entirety to the Company or a Restricted Subsidiary, and Liens on property or assets first acquired by the Company or a Restricted Subsidiary after the date of this Agreement, provided that (A) no such Lien shall extend to or cover any property other than the property initially subject thereto and improvements thereto, and (B) the Indebtedness secured by each such Lien is then permitted by this Agreement; 54 5 (j) Liens on inventory acquired by the Company or a Restricted Subsidiary in the ordinary course of business securing the payment to the seller of such inventory of the purchase price thereof, provided, that such Liens encumber only the inventory to which such purchase price relates and such purchase price is payable in accordance with customary trade terms; (k) Liens arising in connection with trade letters of credit issued for the account of the Company or a Restricted Subsidiary securing the reimbursement obligations in respect of such letters of credit, provided, that such Liens encumber only the property being acquired through payments made under such letters of credit or the documents of title and shipping and insurance documents relating to such property; (l) Liens on intellectual property acquired by the Company or a Restricted Subsidiary (such as software) securing the obligation of the Company or such Restricted Subsidiary to make royalty or similar payments to the seller of such intellectual property, provided, that such Liens encumber only the intellectual property to which such payments relate; (m) Liens (not otherwise permitted hereunder) which secure obligations not exceeding (as to the Company and all Restricted Subsidiaries) $25,000,000; (n) Liens on the Studer Assets securing the reimbursement and related obligations of Studer in respect of the Studer Letter of Credit; and (o) any extension, renewal or replacement (or successive extensions, renewals or replacements), as a whole or in part, of any Lien referred to in the foregoing clauses (f) through (n), inclusive; provided that (i) no such extension, renewal or replacement shall result in an increase in the liabilities secured thereby and (ii) such extension, renewal or replacement Lien shall be limited to all or a part of the same property that secured the Lien so extended, renewed or replaced (plus additions, accessions, replacements and improvements to such property). 10.4 Limitation on Fundamental Changes. Enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of, all or substantially all of its property, business or assets, or make any material change in its present method of conducting business, or permit any Restricted Subsidiary to do any of the foregoing, except: (a) any Restricted Subsidiary of the Company may be merged or consolidated with or into the Company (provided that the Company shall be the continuing or surviving corporation) or with or into any one or more wholly owned Restricted Subsidiaries of the Company (provided that the wholly owned 55 6 Restricted Subsidiary or Restricted Subsidiaries shall be the continuing or surviving corporation); (b) any Restricted Subsidiary may sell, lease, transfer or otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Company or any other wholly owned Restricted Subsidiary of the Company; and (c) the Company and its Restricted Subsidiaries may consummate the transactions permitted by subsection 10.5. 10.5 Limitation on Sale of Assets. Convey, sell, lease, assign, transfer or otherwise dispose of, or permit any Restricted Subsidiary to convey, sell, lease, assign, transfer or otherwise dispose of, any of its respective property, business or assets (including, without limitation, receivables and leasehold interests), whether now owned or hereafter acquired, or permit any Restricted Subsidiary to issue or sell any shares of such Restricted Subsidiary's Capital Stock to any Person other than the Company or any wholly owned Restricted Subsidiary, except: (a) the sale or other disposition of obsolete or worn out property in the ordinary course of business; (b) the sale of inventory in the ordinary course of business; c) the sale or discount without recourse of accounts receivable arising in the ordinary course of business in connection with the compromise or collection thereof; (d) the sale or other disposition of any other property in the ordinary course of business, provided that (i) the aggregate book value of all assets so sold or disposed of in any period of twelve consecutive months shall not exceed 15% of Consolidated Total Assets as at the beginning of such twelve- month period and (ii) the aggregate book value of all assets so sold or disposed of between July 1, 1994 and the date of any determination thereof shall not exceed 25% of Consolidated Total Assets as at the end of the fiscal year of the Company most recently ended prior to such date of determination; (e) the Company or any Restricted Subsidiary may sell or otherwise dispose of any Subsidiary other than a Restricted Subsidiary; (f) any Restricted Subsidiary may sell, lease, transfer or otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Company or any other wholly owned Restricted Subsidiary of the Company; 56 7 (g) the sale or discount of accounts receivable (as to the Company and all Restricted Subsidiaries) in an outstanding principal amount not exceeding $50,000,000 at any time; and (h) the issuance or series of issuances of Capital Stock of any Restricted Subsidiary with a value, in the aggregate for all such issuances by all Restricted Subsidiaries, not exceeding 10% of Consolidated Total Assets. 10.6 Limitation on Dividends. Declare or pay any dividend (other than dividends payable solely in common stock of the Company) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of Capital Stock of the Company or any warrants or options to purchase any such Stock, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Company or any Subsidiary, except that, so long as no Event of Default has occurred and is continuing, or would be continuing after giving effect thereto, the Company may pay dividends on its Capital Stock and purchase or repurchase shares of its Capital Stock, provided, that the sum of the total cash amount of all such dividends paid and such shares of its Capital Stock purchased or repurchased between July 1, 1994 and the date of any determination thereof does not exceed (i) $2,500,000 plus (ii) 25% of the proceeds received by the Company after September 30, 1994 from the issuance and sale by the Company of its Capital Stock, plus (iii) 25% of Consolidated Net Income for the period from July 1, 1994 through the end of the fiscal quarter of the Company most recently ended prior to the date of such determination. 10.7 Limitation on Investments, Loans and Advances. Make any advance, loan, extension of credit or capital contribution to, or purchase any stock, bonds, notes, debentures or other securities of or any assets constituting a business unit of, or make any other investment in, any Person, or permit any Restricted Subsidiary to do any of the foregoing, except: (a) extensions of trade credit in the ordinary course of business; (b) investments in Cash Equivalents; (c) Permitted Business Acquisitions; (d) loans and advances to employees of the Company or its Subsidiaries for travel, entertainment and relocation expenses in the ordinary course of business in an aggregate amount for the Company and its Subsidiaries not to exceed $1,000,000 at any one time outstanding; 57 8 (e) investments by the Company in its Restricted Subsidiaries and investments by Restricted Subsidiaries in the Company and in other Restricted Subsidiaries; and (f) investments by the Company or any Restricted Subsidiary in any Subsidiary other than a Restricted Subsidiary so long as after giving effect thereto there is no violation of subsection 10.13. 10.8 Limitation on Optional Payments of Subordinated Debt and Modifications of Subordination Provisions. At any time when the Company is not considered Investment Grade (a) agree to any amendment or other modification to any Subordinated Debt that would shorten the maturity thereof, (b) amend the subordination provisions of any Subordinated Debt or (c) make any optional payment or prepayment on or redemption or purchase of any Subordinated Debt unless, after giving effect to such payment, prepayment, redemption or purchase, the ratio of Consolidated Senior Debt to Consolidated Capitalization is not greater than 35%. 10.9 Limitation on Transactions with Affiliates. Enter into, or permit any Restricted Subsidiary to enter into, any transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate (other than the Company or another Restricted Subsidiary), unless such transaction is (a) otherwise permitted under this Agreement, (b) in the ordinary course of the Company's or such Restricted Subsidiary's business and (c) upon fair and reasonable terms no less favorable to the Company or such Restricted Subsidiary, as the case may be, than it would obtain in a comparable arm's length transaction with a Person which is not an Affiliate. 10.10 Limitation on Sales and Leasebacks. Enter into, or permit any Restricted Subsidiary to enter into, any arrangement with any Person (other than the Company or another Restricted Subsidiary) providing for the leasing by the Company or such Restricted Subsidiary of real or personal property which is to be sold or transferred by the Company or such Restricted Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Company or such Restricted Subsidiary (a 'Sale and Lease- Back Transaction'), except for (i) Sale and Lease- Back Transactions having an aggregate Value not exceeding $25,000,000 (ii) Sale and Lease-Back Transactions in respect of assets acquired by the Company or a Restricted Subsidiary after July 1, 1994, provided, that such Sale and Lease-Back Transaction is consummated within 180 days after the acquisition by the Company or a Restricted Subsidiary of the asset subject thereto or (iii) Sale and Lease-Back Transactions between the Company and any Restricted Subsidiary or between Restricted Subsidiaries. 10.11 Limitation on Changes in Fiscal Year. Permit the fiscal year of the Company to end on a day other than June 30. 58 9 10.12 Limitation on Guarantee Obligations in respect of Indebtedness of Subsidiaries other than Restricted Subsidiaries. Create, incur or permit to exist, or permit any Restricted Subsidiary to create, incur or permit to exist, any material Guarantee Obligation in respect of any Indebtedness of any Subsidiary other than a Restricted Subsidiary. 10.13 Limitation on Subsidiaries other than Restricted Subsidiaries. Permit at any time more than 10% of consolidated assets of the Company and its Subsidiaries to be held by any Person other than the Company and the Restricted Subsidiaries, or permit for any fiscal year more than the greater of (a) $10,000,000 and (b) 15% of Consolidated Net Income, to be attributable to the earnings of any Person other than the Company and the Restricted Subsidiaries. 10.14 Limitation on Guarantee Obligations. Permit the aggregate outstanding amount of Guarantee Obligations of the Company and its Subsidiaries, determined on a consolidated basis (other than Guarantee Obligations permitted pursuant to subsection 10.12), to exceed, at any time, $25,000,000. SECTION 11 GUARANTEES 11.1 Guarantees. (a) In order to induce the Administrative Agent, the Co-Agent and the Lenders to execute and deliver this Agreement and to make the Extensions of Credit hereunder, and in consideration thereof the Company hereby unconditionally and irrevocably guarantees to the Administrative Agent and each Lender and their respective successors and assigns, the prompt and complete payment when due (whether at the stated maturity, by acceleration or otherwise) of the Subsidiary Obligations, and the Company further agrees to pay any and all reasonable expenses which may be paid or incurred by the Administrative Agent or any Lender in collecting any or all of the Subsidiary Obligations and/or enforcing any rights under this Section 11 or under Subsidiary Obligations. (b) No payment or payments made by any Borrower, the Guarantor, any other guarantor or any other Person or received or collected by the Administrative Agent or any Lender from any Borrower, the Guarantor, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Subsidiary Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of the Guarantor hereunder which shall, notwithstanding any such payment or payments other than payments made by the Guarantor in respect of the Subsidiary Obligations or payments received or collected from the Guarantor in respect of the Subsidiary Obligations, remain liable for the Subsidiary Obligations until the Subsidiary Obligations are paid in full and the Commitments are terminated. 11.2 No Subrogation. Notwithstanding any payment or payments made by the Company hereunder, or any set-off or application of funds of the Company by 59 10 the Administrative Agent or any Lender, the Company shall not be entitled to be subrogated to any of the rights of the Administrative Agent or any Lender against the Subsidiary Borrowers or against any collateral security or guarantee or right of offset held by the Administrative Agent or any Lender for the payment of the Subsidiary Obligations, nor shall the Company seek or be entitled to seek any contribution or reimbursement from the Subsidiary Borrowers in respect of payments made by the Company hereunder, until all amounts owing to the Administrative Agent by the Subsidiary Borrowers on account of the Subsidiary Obligations are paid in full and the Commitments are terminated. If any amount shall be paid to the Company on account of such subrogation rights at any time when all of the Subsidiary Obligations shall not have been paid in full, such amount shall be held by the Company in trust for the Administrative Agent and the Lenders, segregated from other funds of the Company, and shall, forthwith upon receipt by the Company, be turned over to the Administrative Agent in the exact form received by the Company (duly indorsed by the Company to the Administrative Agent, if required), to be applied against the Subsidiary Obligations, whether matured or unmatured, in such order as Administrative Agent may determine. The provisions of this paragraph shall continue to be effective after the termination of this Agreement, the payment in full of the Subsidiary Obligations and the termination of the Commitments. 11.3 Modification of Subsidiary Obligations. The Guarantor hereby consents that, without the necessity of any reservation of rights against it and without notice to or further assent by it, any demand made by the Administrative Agent or any Lender for payment of any of the Subsidiary Obligations may be rescinded by the Administrative Agent or such Lender and any of the Subsidiary Obligations continued, and the Subsidiary Obligations, or the liability of any other party upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Administrative Agent or such Lender and this Agreement (other than the obligations specifically incurred by the Guarantor as a Borrower or account party hereunder or as a Guarantor under this Section 11), any Application, any Letter of Credit, any collateral security document or other guarantee or document in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Administrative Agent or such Lender may deem advisable from time to time, and any collateral security or guarantee or right of offset at any time held by the Administrative Agent or any Lender for the payment of the Subsidiary Obligations may be sold, exchanged, waived, surrendered or released, all without the necessity of any reservations of rights against the Guarantor and without notice to or further assent by the Guarantor (in respect of its guarantee hereunder) which will remain bound hereunder notwithstanding any such renewal, extension, supplement, termination, sale, exchange, waiver, surrender or release. Neither the Administrative Agent nor any Lender shall have any obligation to protect, secure, perfect or insure any collateral security document or property subject thereto at any time held as security for the Subsidiary Obligations. When making any demand hereunder against the Guarantor or a Borrower, the Administrative Agent or any Lender may, but shall be under no 60 11 obligation to, make a similar demand on any other Borrower, and any failure by the Administrative Agent or such Lender to make any such demand or to collect any payments from any other Borrower or any such other guarantor or any release of any other Borrower or other guarantor shall not relieve the Guarantor or the Company of its obligations and liabilities hereunder, and shall not impair or affect the rights and remedies, express or implied, or as a matter of law, of the Administrative Agent or any Lender against the Guarantor or any Borrower. For purposes of this subsection 11.3, the term "demand" shall include the commencement and continuance of any legal proceedings. 11.4 Waiver. The Guarantor hereby waives any and all notice of the creation, renewal, extension or accrual of any of the Subsidiary Obligations and notice of or proof of reliance by the Administrative Agent or any Lender upon the guarantee contained in this Section 11 or acceptance of the guarantee contained in this Section 11, and the Subsidiary Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred in reliance upon the guarantee contained in this Section 11, and all dealings between the Borrowers and the Guarantor and the Lenders shall likewise be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 11. The Guarantor hereby waives diligence, presentment, protest, demand for payment and notice of default or nonpayment and all other notices to or upon the Guarantor with respect to the Subsidiary Obligations. This Section 11 shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to the validity, regularity or enforceability of this Agreement, any Application, any Letter of Credit, any of the Subsidiary Obligations, or any collateral security or guarantee therefor or right of offset with respect thereto at any time or from time to time held by the Administrative Agent or any Lender and without regard to any defense, set-off or counterclaim which may at any time be available to or be asserted by the Guarantor or any Subsidiary Borrower against the Administrative Agent or any Lender, or by any other circumstance whatsoever (with or without notice to or knowledge of the Guarantor or any Subsidiary Borrower) (other than payment in full of the Subsidiary Obligations) which constitutes, or might be construed to constitute, an equitable or legal discharge of any Borrower for the Subsidiary Obligations, or of the Guarantor under the guarantee contained in this Section 11 in bankruptcy or in any other instance, and the obligations and liabilities of the Guarantor and the Borrowers hereunder shall not be conditioned or contingent upon the pursuit by the Administrative Agent or any Lender at any time of any right or remedy against any Borrower, the Guarantor or any other Person which may be or become liable in respect of all or any part of the Subsidiary Obligations or against any collateral security or guarantee therefor or right of offset with respect thereto. The guarantee contained in this Section 11 shall remain in full force and effect and be binding in accordance with and to the extent of their terms upon the Guarantor (and any successors and assigns of either thereof) and shall inure to the benefit of the Administrative Agent and the Lenders and their respective successors and assigns, until (subject to subsection 11.5) all the Subsidiary Obligations and the obligations of the Guarantor under this Section 11 shall have been satisfied by 61 12 payment in full, notwithstanding that from time to time during the term of this Agreement the Borrowers may be free from any Subsidiary Obligations. 11.5 Reinstatement. The guarantee contained in this Section 11 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Subsidiary Obligations is rescinded or must otherwise be restored or returned by the Administrative Agent or any Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Borrower, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, any Borrower or any substantial part of its property, all as though such payments had not been made. 11.6 Payment of Subsidiary Obligations. The Guarantor hereby guarantees that the Subsidiary Obligations guaranteed by it hereunder will be paid to the Person entitled thereto pursuant to the terms of this Agreement at the applicable Payment Office without set-off or counterclaim." 5. Amendment of Subsection 14.1(b)(i). Subsection 14.1(b)(i) is hereby deleted in its entirety and replaced by the following: "(i) Schedule II will be amended to add Subsidiaries of the Company as additional Domestic Subsidiary Borrowers or Foreign Subsidiary Borrowers, as the case may be, upon (A) execution and delivery by the Company, such additional Domestic Subsidiary Borrowers or Foreign Subsidiary Borrowers, as the case may be, and the Administrative Agent and, in the case of any such amendment adding a Subsidiary as a Subsidiary Borrower only, the Majority Lenders, of a Joinder Agreement providing for such to become Domestic Subsidiary Borrowers or Foreign Subsidiary Borrowers, as the case may be, and (B) delivery to the Administrative Agent of (1) corporate resolutions and other corporate documents, (2) legal opinions substantially equivalent to comparable documents delivered on the Closing Date in respect of the Domestic Subsidiary Borrowers or Foreign Subsidiary Borrowers, as the case may be, party to this Agreement on the Closing Date (provided, that (i) each Domestic Subsidiary Borrower shall deliver a legal opinion which legal opinion may be delivered by the Company's General Counsel and (ii) any Foreign Subsidiary Borrower who fails to deliver a legal opinion shall be able to borrow no more than US$10,000,000 under the Credit Agreement) and (3) such other documents with respect thereto as the Administrative Agent shall reasonably request. Each such Subsidiary so added shall automatically become a Restricted Subsidiary." 6. Release of Subsidiaries' Section 11 Subsidiary Obligations. (A) The Lenders hereby release each (i) Domestic Subsidiary Borrower, (ii) Subsidiary Guarantor and (iii) Foreign Subsidiary Borrower from any and all guarantee obligations to the Lenders pursuant to, and solely pursuant to, Section 11 of the Credit Agreement. 62 13 (B) The Lenders hereby acknowledge that the Company as of the Effective Date will be the sole Guarantor of the Subsidiary Obligations. 7. Representations and Warranties. The Company hereby represents and warrants that, after giving effect to the amendments effected hereby, the representations and warranties made by it contained in Section 7 of the Credit Agreement are true and correct on the date hereof provided that references to the Credit Agreement therein shall be deemed to be references to this Amendment and to the Credit Agreement as affected by this Amendment. 8. Conditions to Effectiveness. This Amendment shall become effective upon the receipt by the Administrative Agent (which effectiveness shall be confirmed to the other parties hereto by the Administrative Agent's delivery to such parties of notice of such effectiveness) of: (i) counterparts of this Amendment, duly executed and delivered by the Company and each of the Lenders and (ii) a written legal opinion of Jones, Day, Reavis & Pogue, counsel to the Company and the Domestic Subsidiary Borrowers, addressed to the Administrative Agent and the Lenders, to the effect that (a) this Amendment has been duly authorized, executed and delivered by the Company and (b) this Amendment, and the Credit Agreement as amended hereby, constitute the valid, binding and enforceable obligations of the Company and the Domestic Subsidiaries parties thereto (which opinion may contain exceptions and assumptions similar to those contained in opinions delivered on the Closing Date). 9. Amendment Fee. The Company agrees to pay to the Administrative Agent, for the Account of each Lender, on the Effective Date, a one-time fee of .050% of each Lender's Commitment. 10. Miscellaneous. Except as expressly amended herein, the Credit Agreement shall continue to be, and shall remain, in full force and effect in accordance with its terms. This Amendment may be executed by the parties hereto in any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. The Company agrees to pay or reimburse the Administrative Agent for all its reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of this Amendment including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent. 11. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 63 IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be duly executed and delivered by its proper and duly authorized officer(s) as of the day and year first above written. HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED By: /s/ B. Girod Name: B. Girod Title: President and Chief Operating Officer ACKNOWLEDGED AND AGREED TO: THE CHASE MANHATTAN BANK, as Administrative Agent and Lender By: /s/ James Maron Title: Vice President BANK OF MONTREAL By: Title: THE BANK OF NOVA SCOTIA By: /s/ JR Trimble Title: Senior Relationship Manager BANK OF TOKYO-MITSUBISHI TRUST CO. By: /s/ JA Don Title: VP & Mgr 64 CITIBANK, N.A. By: /s/ Marjorie Futornick Title: Vice President COMMERZBANK AG, LOS ANGELES BRANCH By: /s/ Christian Jagenberg Title: SVP and Manager By: /s/ Werner Schmidbauer Title: Vice President GIROCREDIT BANK By: /s/ R. Stone Title: Vice President By: Title: MIDLAND BANK PLC, NEW YORK BRANCH By: /s/ Rochelle Forster Title: Authorized Signatory NATIONSBANK, N.A. By: /s/ Elizabeth S. Duff Title: Vice President 65 PNC BANK, NATIONAL ASSOCIATION By: /s/ Amy T. Petersen Title: Vice President SOCIETE GENERALE By: /s/ Gordon Saint-Denis Title: Vice President 66 EX-10 3 EXHIBIT 10.60 67 THIS PAGE LEFT BLANK INTENTIONALLY 68 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement"), dated as of November 25, 1996, is made by and between Harman International Industries, Incorporated, a Delaware corporation ("Employer"), and Bernard A. Girod ("Employee"). WHEREAS, Employer desires to secure the continued services of Employee as President and Chief Operating Officer of Employer; NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties, covenants, and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to the terms and conditions set forth below, Employer and Employee hereby agree as follows: Section 1. Definitions Section 1.1. Effective Date. "Effective Date" is November 25, 1996. Section 1.2. Employment. "Employment" means Employee's employment by the Employer, both hereunder and prior to the Effective Date. Section 1.3. Expiration Date. "Expiration Date" means December 31, 1999. Section 1.4. Services. "Services" mean Employee's responsibilities and duties during the Term, as set forth in Section 0 including any extension hereof. Section 1.5. Term. "Term" means the term of this Agreement, commencing on the Effective Date and ending on the earlier to occur of (a) the Expiration Date or (b) the termination of this Agreement pursuant to Section 7. Section 2. Term of Employment. Employer shall employ Employee and Employee shall serve Employer during the Term. Upon the expiration of the Term, this Agreement may be extended upon such terms as shall then be mutually agreed upon by Employer and Employee. Section 3. Position, Duties, Location, Responsibilities Section 3.1. Position, Duties and Location. During the Term, Employee shall serve as President and Chief Operating Officer of Employer, subject to the terms of this Agreement, and shall report to the Board of Directors of Employer and the Chief Executive Officer, and shall assume and perform such reasonable executive and managerial responsibilities and duties as are consistent with his position as a President and Chief Operating Officer of Employer. Section 3.2. Devotion of Efforts to Business. During Employee's Employ- ment, Employee shall devote his best efforts, and full business time and attention to the Services. 69 Employee shall not promote the business, products or services of any other company or engage in any outside business activity during his Employment. Employee shall perform the Services in accordance with such reasonable procedures and policies as Employer may adopt from time to time. Section 3.3. Protection of Employer's Name. Employee shall at all times during the Term promote and protect the good name of Employer as well as that of its officers, directors, employees, agents, products and services and shall not, during and after the Term, defame or disparage Employer's business, products, services, officers, employees or other representatives or otherwise willfully detract from or reflect adversely upon their reputation, nor shall Employee willfully engage in any unfair trade practices with respect to Employer. Section 4. Compensation During the Term Section 4.1. Salary and Bonus. Except as otherwise provided in Section 7 hereof, as compensation for his Services during the Term, Employee shall receive an annual salary of Four Hundred Fifty Thousand Dollars ($450,000) (such amount and any increment thereof made pursuant hereto, the "Salary") during the period beginning on the Effective Date and ending on the Expiration Date. Employee's Salary shall be payable at the same intervals as salaries are paid to other salaried employees of Employer. Employee's Salary shall be reviewed at each July meeting of the Compensation and Option Committee of the Board of Directors during the Term and may be increased (but shall not be decreased) at such time on the basis of merit and performance. Employee shall be entitled to such bonus as the Compensation and Option Committee of the Board of Directors may approve on the basis of merit and performance (the "Bonus"). Section 4.2. Options. Except as otherwise provided in Section 7 hereof by reference to the terms of such agreements, notwithstanding anything to the contrary contained in agreements executed between Employee and Employer (the "Stock Option Agreements") relating to options to purchase the common stock of Employer ("Stock Options"), Stock Options granted prior to or after the Effective Date, shall exist, accrue, vest and be exercisable by their terms during the period ending on the Expiration Date, all determined as if Employee had continued to be a full-time executive officer of Employer until the Expiration Date. Section 4.3. Benefits. Except as otherwise provided in Section 7 hereof, rights and benefits under the Employer's Executive Deferred Compensation Plan, the Retirement Savings Plan (including both matching and profit sharing contributions) and employee health, life and other similar plans, in each case as such plans shall have been or be amended (collectively, the "Benefits"), shall exist, accrue and vest during the period ending on the Expiration Date, all determined as if Employee had continued to be a full-time executive officer of Employer until the Expiration Date. Except as otherwise provided hereby, such participation shall be subject to the normal eligibility requirements of such plans. 2 70 Section 4.4. Retirement Benefits. Except as otherwise provided in Section 7 hereof by reference to the terms of such plan, retirement benefits (the "Retirement Benefits") existing at the Effective Date or accruing during the Term under the Employer's Supplemental Executive Retirement Plan, as amended (the "SERP"), shall continue to exist, accrue and vest during the period ending on the Expiration Date, all determined as if Employee had continued to be a full-time executive officer of Employer until the Expiration Date. Except as otherwise provided hereby, such participation shall be subject to the normal eligibility requirements of the SERP. Section 5. Treatment of Information Section 5.1. Definition of Confidential Information. Employee acknowledges that in the course of his Employment, he may have access to and become informed of proprietary, non-public information relating to Employer and its affiliated companies (each of such companies including Employer, an "Employer-Related Company"), and their business and products. The term "Confidential Information" means all information disclosed to Employee, including: (i) service specifications, schematics, designs, procedures, practices, testing methods, concepts for new or improved services and other service data; (ii) product specifications, schematics, designs, procedures, practices, testing methods, concepts for new or improved products and other product data; (iii) sources of supply, and potential sources of supply, for capital equipment, components, raw materials and products; (iv) all technical information relating to the invention, patenting, technological advancement, formulation, development, design, specifications, testing, manufacture and use of products, services, methods, processes, machinery and equipment; (v) customer and prospective customer information, such as lists of such customers, purchasing and servicing habits and credit information; (vi) cost and pricing information; (vii) selling and marketing information, such as selling methods, strategies, catalogues, order books and instructional and promotional materials; (viii) training and recruiting methods and materials; (ix) business techniques, (x) corporate planning data; and (xi) financial results and business conditions; provided that such information: (a) has not been made generally available to the public; and (b) is useful or of value to Employer's current or anticipated business, research or development activities or those of any customer or supplier of Employer. Confidential Information does not include Employee's general skills and experience as defined by law. 3 71 Section 5.2. Employee's Obligation of Confidentiality. During the Term and for a period of five (5) years thereafter, Employee agrees to maintain in strict confidence and not, directly or indirectly, divulge or use the Confidential Information in any manner, without Employer's prior consent, other than in the performance of Services for Employer; provided, that, Employee shall not be so obligated, if such Confidential Information: (a) is in or hereafter enters the public domain through no fault of Employee; or (b) is required to be disclosed pursuant to a court order or government action and Employee has made reasonable efforts to provide Employer with prior notice of such required disclosure. Section 5.3. Inventions, Copyrights (a) Assignment. Employee hereby assigns and agrees to assign to Employer or its successors, assigns or nominees, all of his rights to any discoveries, inventions and improvements, whether patentable or not, made, conceived or suggested, either solely or jointly with others, by Employee in connection with the Business during the Term. Upon request by Employer with respect to any such discoveries, inventions or improvements, Employee shall execute and deliver to Employer, at Employer's sole expense, but without further or additional consideration, all appropriate documents for use in applying for, obtaining and maintaining such domestic and foreign patents in the name of Employer as Employer may desire and all proper assignments therefor. (b) Statutory Notice. Consistent with the laws of certain states, Employer acknowledges that no provision of this Agreement is intended to require assignment of any of Employee's rights in an invention if no equipment, supplies, facilities, trade secret, or Confidential Information of Employer was used, and the invention was developed entirely on the Employee's own time, unless the invention relates to the to the Employer's actual or demonstrably anticipated research or development, or the invention results from any work performed by the Employee for the Employer. c) Ownership of Materials. Employee acknowledges that to the extent permitted by law, all work papers, reports, computer files, documentation, drawings, photographs, negatives, tapes and masters therefor, prototypes and other materials (hereinafter in this paragraph, collectively, "items"), generated by Employee during the Term, shall be considered as "work made for hire" and that ownership of any and all copyrights in any and all such items shall belong to Employer. Section 5.4. Return of Property. Upon termination of Employee's employment with Employer whether pursuant to the terms hereof or following extension of such employment for an additional period of time, Employee shall return to Employer, in good condition, all property of the Employer- Related Companies, including the originals and all copies of any materials which contain, reflect, summarize, describe, analyze or refer or relate to Proprietary Information. If any property is not so returned, Employer will 4 72 have the right to charge Employee for all reasonable damages, costs, attorneys' fees and other expenses incurred in searching for, taking, removing or recovering such property in a commercially reasonable manner. Section 6. Remedies Section 6.1. Remedies. In the event of any breach by Employee of the provisions of Section 0, the parties hereby recognize and acknowledge that a remedy at law may be inadequate, and an Employer-Related Company may suffer irreparable injury. Accordingly, Employee consents to Employer's instituting a proceeding seeking injunctive and other appropriate equitable relief in order to protect its rights under Section 5. Such relief shall be in addition to any other relief to which the Employer-Related Company may be entitled at law or in equity. Resort to any remedy provided for under this Section 6 or provided for by law shall not prevent the concurrent or subsequent employment of any other appropriate remedy or remedies, or preclude the recovery by the Employer-Related Company of monetary damages. Section 6.2. Jurisdiction; Venue; Process. Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against any of the parties in the courts of the [State of California, County of Los Angeles, or in the United States District Court for the Southern District of California], and each party consents to the jurisdiction of such courts in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on any party anywhere in the world. Section 7. Termination Section 7.1. Termination Upon Death or Disability. To the extent consistent with federal and state law, this Agreement and Employee's Employment shall terminate automatically upon the death or a final determination of disability (as defined below) of Employee and in such event Employer shall have no further obligation to Employee hereunder or otherwise except (a) to pay Employee or his estate the unpaid portion, if any, of the Salary, Bonus and Benefits payable to Employee, in each case, for the period ending on the termination date, (b) provide Employee with the Salary and Benefits to which Employee would have been entitled pursuant to Sections 4.1 and 4.3 during the period from the date of termination until the Expiration Date as if Employee had continued to be a full-time executive officer of Employer until the Expiration Date, (c) pay Employee the Retirement Benefits payable in accordance with the terms of the SERP, and (d) permit Employee or his estate to exercise the Stock Options until the Expiration Date as if Employee had continued to be a full-time executive officer of Employer until the Expiration. For purposes hereof, "disability" shall mean an illness or incapacity (mental or physical or both) of a character, 5 73 nature, degree or effect that has rendered Employee incapable, with reasonable accommodation and in accordance with federal and state laws, of performing the essential functions of his position hereunder for a period of more than 120 consecutive days or 150 days in any 180-day period. The determination of "disability" shall be made by physicians acceptable to Employer, and Employee hereby consents to examination by such physicians and to the disclosure by any physicians of any and all diagnoses, test results, opinions and other information obtained by such physicians during or as a result of the examinations to which Employee hereby consents. Section 7.2. Retirement. (a) This Agreement and Employee's Employment shall terminate automatically if Employee is eligible to and elects to retire in accordance with the Employer's retirement plan (or any successor plan) as then in effect with respect to the Employee. (b) Upon such termination prior to December 31, 1997 and except as otherwise provided under such plan or required by law, Employer shall have no further obligation to Employee hereunder or otherwise except to (i) pay Employee the unpaid portion, if any, of the Salary, Bonus and Benefits payable to Employee, in each case, for the period ending on the date of termination, (ii) pay Employee the Retirement Benefits payable in accordance with the terms of the SERP, and (iii) permit Employee to exercise the Stock Options in accordance with the terms of the Stock Option Agreements. c) Upon such termination after December 31, 1997 and except as otherwise provided under such plan or required by law, Employer shall have no further obligation to Employee hereunder or otherwise except to (i) pay Employee the unpaid portion, if any, of the Salary, Bonus and Benefits payable to Employee, in each case, for the period ending on the date of termination, (ii) provide Employee with the Salary and Benefits to which Employee would have been entitled pursuant to Sections 4.1 and 4.3 during the period from the date of termination until the Expiration Date as if Employee had continued to be a full-time executive officer of Employer until the Expiration Date, (iii) pay to Employee the Retirement Benefits payable in accordance with the terms of the SERP beginning on the date of termination, as if Employee had continued to be a full-time executive officer of Employer until the Expiration Date, and (iv) permit Employee to exercise the Stock Options until the Expiration Date as if Employee had continued to be a full- time executive officer of Employer until the Expiration Date. Section 7.3. Termination by Either Party. Either party may terminate this Agreement at any time and for any reason. (a) Termination by Employee Other than Retirement. (i) If Employee terminates his Employment prior to December 31, 1997, for any reason (not including termination by reason of his retirement in accordance with Section 7.2) by voluntarily resigning all of his positions with the Employer, Employer shall have no further obligation to Employee 6 74 hereunder or otherwise except to (A) pay Employee the unpaid portion, if any, of the Salary, Bonus and Benefits payable to Employee, in each case, for the period ending on the date of termination, (B) pay Employee the Retirement Benefits payable in accordance with the terms of the SERP, and (C) permit Employee to exercise the Stock Options in accordance with the terms of the Stock Option Agreements. (ii) If Employee terminates his Employment after December 31, 1997 for any reason (not including termination by reason of his retirement in accordance with Section 7.2) by voluntarily resigning all of his positions with the Employer, Employer shall have no further obligation to Employee hereunder or otherwise except to (A) pay Employee the unpaid portion, if any, of the Salary, Bonus and Benefits payable to Employee, in each case, for the period ending on the date of termination, (B) provide Employee with the Salary and Benefits to which Employee would have been entitled pursuant to Sections 4.1 and 4.3 during the period from the date of termination until the Expiration Date as if Employee had continued to be a full-time executive officer of Employer until the Expiration Date, (C) pay to Employee the Retirement Benefits payable in accordance with the terms of the SERP beginning on the date of termination, as if Employee had continued to be a full-time executive officer of Employer until the Expiration Date, and (D) permit Employee to exercise the Stock Options until the Expiration Date as if Employee had continued to be a full-time executive officer of Employer until the Expiration Date. (b) Termination by Employer for Cause (i) In the event that Employer terminates this Agreement and Employee's Employment for "cause" (as defined below) at any time by delivering notice of termination to Employee, Employer shall have no further obligation to Employee hereunder or otherwise except to (A) pay Employee the unpaid portion, if any, of the Salary, Bonus and Benefits payable to Employee, in each case, for the period ending on the date of termination, (B) pay Employee the Retirement Benefits payable in accordance with the terms of the SERP, and (C) permit Employee to exercise the Stock Options in accordance with the terms of the Stock Option Agreements. (ii) For purposes hereof, "cause" shall mean (A) misappropriation of corporate funds, (B) conviction of a felony, (C) willful misconduct by Employee resulting in material harm to Employer, or (D) the breach by Employee of any of his covenants contained in Sections 3 or 5. c) Termination by Employer Other Than for Cause. In the event that Employer terminates this Agreement and Employee's Employment without "cause," Employer shall have no further obligation to Employee hereunder or otherwise, except to (i) pay Employee the unpaid portion, if any, of the Salary, Bonus and Benefits payable to Employee, in each case, for the period ending on the date of termination, (ii) provide Employee with the Salary and Benefits to which Employee would have been entitled pursuant to Sections 4.1 and 4.3 during the period from the date of termination until the Expiration 7 75 Date as if Employee had continued to be a full-time executive officer of Employer until the Expiration Date, (iii) pay to Employee the Retirement Benefits payable in accordance with the terms of the SERP beginning on the date of termination, as if Employee had continued to be a full-time executive officer of Employer until the Expiration Date, and (iv) permit Employee or his estate to exercise the Stock Options until the Expiration Date as if Employee had continued to be a full-time executive officer of Employer until the Expiration Date. Section 7.4. Continuance of Covenants. Notwithstanding any other provision hereof to the contrary, if this Agreement is terminated for any reason, Sections 3, 0 and 0 shall survive and continue to bind Employee. Section 8. Miscellaneous Section 8.1. Amendment. This Agreement may be amended only by a writing executed by each party hereto. Section 8.2. Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior understandings, agreements or representations by or between the parties, written or oral, to the extent they have related in any way to the subject matter hereof. Section 8.3. Notices. Any notice, request, consent and other communica- tion required or permitted hereunder shall be in writing and shall be deemed to have been duly given (i) when received if personally delivered, (ii) within one day after being sent by recognized overnight delivery service, or (iii) within five days after being sent by registered or certified mail, return receipt requested, postage prepaid, to the parties (and to the persons to whom copies shall be sent) at their respective addresses set forth below. (a) If to any Employer-Related Company: Harman International Industries, Incorporated 1101 Pennsylvania Avenue, N.W. Suite 1010 Washington, D.C. 20004 Attention: Dr. Sidney Harman With a copy to: Jones, Day, Reavis & Pogue 599 Lexington Avenue 32nd Floor New York, New York 10022 Attention: David F. Clossey, Esq. (b) If to Employee: 2923 Ocean Front Walk Venice, California 90291 With a copy to: 8 76 Any party may change the address or the persons to whom notice shall be directed by notifying the other parties as provided in this Section 8.3. Section 8.4 Assignability. This Agreement shall be assignable by Employer to any affiliate of Employer, with the consent of Employee, which consent shall not be unreasonably withheld. Employee may not assign, pledge or encumber any interest in this Agreement or any part thereof (this Agreement being personal to Employee). Section 8.5. Governing Law. This Agreement shall be governed by and construed and interpreted in accordance with the internal, substantive laws of the State of California, without regard to that State's principles governing conflicts of laws. Section 8.6. Waivers. Any waiver by any party or any violation of, breach of or default under any provision hereof by the other party shall not be construed as, or constitute, a continuing waiver of such provision, or waiver of any other violation of, breach of or default under any other provision hereof. Section 8.7. Headings. The headings herein are solely for convenience and shall not be given any effect in the construction or interpretation hereof. Section 8.8. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 8.9. Third Parties. Nothing herein expressed or implied is intended, or shall be construed, to confer upon or give to any person or entity other than the Employer-Related Companies, Employee, and any permitted assignees, any rights or remedies under, or by reason of, this Agreement. Section 8.10. Withholding of Taxes. Employer may withhold from any amounts payable hereunder all federal, state, city or other taxes as shall be required to be withheld pursuant to any law or government regulation or ruling. Section 8.11. Survival of Certain Obligations. Employer's and Employee's obligations which by their terms extend beyond or survive the termination of Employee's Employment shall not be affected or diminished in any way by the termination hereof. Section 8.12. Construction (a) To the extent that the terms of this Agreement are inconsistent with or vary from the terms of (i) any plan of the Company pursuant to which benefits are payable to Employee or (ii) any other agreement between Employee and Employer (including the Stock Option Agreements) or any plan related thereto, then in any such case this Agreement shall supersede, amend and modify the terms of such plan or agreement. 9 77 (b) Each section and subsection hereof constitutes a separate and distinct provision. The parties hereto intend that the provisions hereof be enforced to the fullest extent permissible under the laws and public policies applicable in each jurisdiction in which enforcement is sought. Accordingly, if any provision is adjudicated to be invalid, ineffective or unenforceable, the remaining provisions shall not be affected thereby. The invalid, ineffective or unenforceable provision shall, without further action by the parties, be automatically amended to effect the original purpose and intent of such provision to the fullest extent legally permissible, provided, that such amendment shall apply only with respect to the operation of such provision in the particular jurisdiction with respect to which such adjudication is made. c) In this Agreement, unless otherwise indicated or required by the context: (i) use of the singular form includes the plural and conversely; (ii) "or" is not exclusive; (iii) forms of the verb "include" are not limiting; (iv) "hereof," "herein," "hereunder," and words of similar construction refer to this Agreement as a whole and not to any particular part; and (v) a reference to a section or other part of a document is to such part hereof. (d) The parties hereto have each been represented by their own counsel and have participated jointly in the negotiation and drafting of this Agreement. If any ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision hereof. (e) EMPLOYEE REPRESENTS THAT, PRIOR TO SIGNING THIS AGREEMENT, HE READ IT IN ITS ENTIRETY; THAT HE FULLY UNDERSTANDS AND VOLUNTARILY AGREES TO THE ABOVE TERMS AND CONDITIONS; THAT HE WAS NOT COERCED TO SIGN THIS AGREEMENT; THAT HE WAS NOT UNDER DURESS AT THE TIME HE SIGNED THIS AGREEMENT; THAT HE WILL NOT, BY SIGNING THIS AGREEMENT, VIOLATE THE TERMS OF ANY OTHER AGREEMENT PREVIOUSLY ENTERED INTO BY HIM; AND THAT, PRIOR TO SIGNING THIS AGREEMENT, HE HAD ADEQUATE TIME TO CONSIDER ENTERING INTO THIS AGREEMENT, INCLUDING THE OPPORTUNITY TO DISCUSS ITS TERMS AND CONDITIONS AS WELL AS ITS LEGAL CONSEQUENCES, WITH AN ATTORNEY OF HIS CHOICE. Section 8.13. Execution and Delivery. Any party may execute and deliver this Agreement by signing the signature page and electronically transmitting a facsimile thereof. 10 78 IN WITNESS WHEREOF, Employer has caused this Agreement to be duly executed and delivered by its duly authorized officer, and Employee has duly executed and delivered this Agreement, as of the date first written above. /s/ Bernard A. Girod - --------------------------- Bernard A. Girod HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED By: /s/ Sidney Harman ------------------------------ Name: Dr. Sidney Harman Title: Chairman of the Board of Directors and Chief Executive Officer 11 79 THIS PAGE LEFT BLANK INTENTIONALLY 80 EX-13 4 EXHIBIT 13.1 81 Financial Information Table of Contents Management's Discussion and Analysis of Financial Condition and Results of Operations 31 Statement of Management Responsibility 35 Independent Auditor's Report 35 Consolidated Financial Statements Balance Sheets 36 Statements of Operations 37 Statements of Cash Flows 38 Statements of Shareholders' Equity 39 Notes to Consolidated Financial Statements 40 Shareholder Information 48 Officers and Directors inside back cover Annual Meeting inside back cover Except for historical information contained herein, the matters discussed herein contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those suggested in the forward-looking statements, including without limitation, the effect of economic conditions, product demand, currency exchange rates, competitive products and other risks detailed herein and in the Company's other filings with the Securities and Exchange Commission. 30 82 Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Net sales for fiscal 1997 increased by 8 percent to $1.474 billion from $1.362 billion in fiscal 1996 and in fiscal 1996 increased by 16 percent from fiscal 1995 sales of $1.170 billion. Exclusive of currency effects, fiscal 1997 sales increased 12 percent over the prior year. The sales increases for both fiscal 1997 and fiscal 1996 result from the growth of the Consumer Group, the Professional Group and the OEM Group. The Consumer Group had good sales growth in a difficult market environment. JBL, Infinity and Harman Kardon reported record sales for the year driven by gains in Europe and North America. Sales for the year include shipments of JBL branded loudspeakers for Compaq's Presario line of personal computers. The Professional Group reported modestly higher sales for the year. Vigorous cinema installation activity contributed to a 20 percent sales increase for JBL Professional, our largest professional audio company. Harman Music Group and Lexicon also reported record sales. Studer and AKG sales were off from prior year levels, primarily due to currency effects. The OEM Group produced good results. Shipments of high fidelity systems to the automakers increased over the prior year, reflecting the addition of new models, including the Toyota Camry, two new Mitsubishi platforms and European production models of the Jeep Grand Cherokee and the Chrysler Minivan. Becker reported good sales to its major automotive customers: Mercedes, BMW and Porsche. Sales to BMW and Porsche increased 80 percent and 65 percent, respectively, over the prior year. OEM Group sales in the fourth quarter of fiscal 1997 were negatively affected by the strike at Chrysler's Mound Road engine plant. The Company discontinued Ford's exclusive use of the JBL brand name and made it available to Toyota and others from whom commitments have been received beginning in model year 1998. The JBL program for the Ford Explorer concluded with model year 1997 and the Lincoln/JBL program is scheduled to conclude with model year 1998. 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 1997 was 28.5 percent, compared to 30.0 percent in fiscal 1996 and 31.1 percent in fiscal 1995. The decrease in fiscal 1997 primarily resulted from an increase in Consumer Group sales as a percent of total sales and pricing pressures on the Consumer Group in a difficult market environment. The decrease in fiscal 1996 was due to aggressive pricing in consumer markets to build market share combined with the inclusion of Becker for a full year. Selling, general and administrative expenses as a percentage of sales were 21.6 percent in fiscal 1997, compared with 22.2 percent in fiscal 1996 and 23.6 percent in fiscal 1995. The decrease in fiscal 1997 selling, general and administrative expenses as a percentage of sales primarily resulted from a reduction in general and administrative costs at Becker due to reorganization programs and lower corporate general and administrative expenses. The decrease in fiscal 1996 selling, general and administrative expenses as a percentage of sales was due to reorganization programs at Studer and Becker. 31 83 Management's Discussion and Analysis of Financial Condition and Results of Operations continued Operating income as a percentage of net sales was 6.9 percent for fiscal 1997, compared with 7.7 percent for fiscal 1996 and 7.5 percent for fiscal 1995. The fiscal 1997 decrease resulted from the lower gross profit margin percentage discussed above. The increase for fiscal 1996 was driven by lower selling, general and administrative expenses, partially offset by the decrease in gross profit percentage. Interest expense in fiscal 1997 was $23.6 million, compared with $27.5 million in fiscal 1996 and $25.3 million in fiscal 1995. Interest expense decreased in fiscal 1997 due to lower average borrowings and lower average interest rates. Fiscal 1997 average borrowings were $317.9 million, compared with $348.3 million in fiscal 1996 and $276.6 million in fiscal 1995. Fiscal 1997 average borrowings decreased due to the May 1996 secondary stock offering, partially offset by increased working capital requirements, capital expenditures and the January 1997 retirement of 220,000 shares of common stock. The weighted average interest rate in fiscal 1997 was 7.4 percent, compared with 7.9 percent in fiscal 1996 and 9.1 percent in fiscal 1995. The decrease in average interest rates in fiscal 1997 results from lower interest rates in Europe and a decrease in the percentage of borrowings under the revolving credit facility drawn in U.S. dollars, which generally carry higher interest rates than borrowings in European currencies and Japanese yen. Also, the interest rate on the revolving credit facility was reduced in fiscal 1997 from LIBOR plus 0.30 percent to LIBOR plus 0.25 percent due to the Company's achievement of certain financial performance criteria. In fiscal 1997 the Company reported income before income taxes, minority interest and extraordinary item of $77.9 million, compared with $75.0 million in fiscal 1996 and $61.2 million in fiscal 1995. In fiscal 1997 the Company reported income tax expense of $23.0 million, reflecting an effective tax rate of 29.5 percent. This compares with an income tax expense of $23.8 million and an effective tax rate of 31.7 percent in fiscal 1996. Fiscal 1995 tax expense was $19.6 million with an effective tax rate of 32.1 percent. The effective tax rates for fiscal years 1997, 1996, and 1995 were below the U.S. statutory rate due to the restructuring of certain foreign subsidiaries to realize the benefit of current tax losses and the utilization of tax loss carryforwards at certain foreign subsidiaries. The Company reported no extraordinary charges in fiscal 1997 and 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. Net income for fiscal 1997 was $54.8 million, compared with $52.0 million for fiscal 1996 and $41.2 million for fiscal 1995. 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, 1997, the Company had outstanding indebtedness under the revolving credit facility of $151.1 million, outstanding letters of credit of $2.9 million and unused 32 84 credit thereunder of $121.0 million. The indebtedness at June 30, 1997, consists of committed rate loans, which bear interest at LIBOR plus 0.25 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. In June 1997, the maturity date was extended by two years to September 30, 2002, and certain financial covenants were amended or deleted. At June 30, 1997, certain international subsidiaries of the Company maintained unsecured short-term lines of credit of $16.6 million and had outstanding indebtedness thereunder of approximately $7.6 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. Capital expenditures were $68.4 million in fiscal 1997, compared with $80.6 million in fiscal 1996 and $54.7 million in fiscal 1995. Expenditures in fiscal 1997 and fiscal 1996 were primarily for new product tooling and machinery and equipment required to increase manufacturing capacity and efficiency. The Company anticipates capital expenditures of approximately $85.0 million during the next fiscal year. Firm commitments of approximately $11.0 million existed as of June 30, 1997, for capital expenditures during fiscal 1998. The Company anticipates that a portion of these capital expenditures will be financed through lease financing arrangements. Net working capital at June 30, 1997 was $428.1 million, compared with $377.3 million at June 30, 1996. The increase in working capital primarily results from higher inventory and receivable levels associated with increased sales volumes and lower accounts payable and accrued liabilities. Excess of cost over fair value of assets acquired decreased to $109.6 million at June 30, 1997, from $129.9 million at June 30, 1996. The decrease reflects the annual amortization, translation effects on certain foreign currency denominated balances, realization of unrecorded deferred tax assets at Becker and the write-off of balances associated with businesses disposed of during fiscal 1997. Shareholders' equity was $466.8 million at June 30, 1997, compared with $436.5 million at June 30, 1996, and $289.5 million at June 30, 1995. The increase in fiscal 1997 primarily results from fiscal 1997 earnings partially offset by the retirement of 220,000 shares of Common Stock and negative adjustments from foreign currency translation. 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 $11.3 million in fiscal 1997 due to the strengthening of the U.S. dollar against most other major currencies during the year. A negative adjustment of $11.1 million was recorded in fiscal 1996 and a positive adjustment of $5.8 million was recorded in fiscal 1995. On July 1, 1997, the Company issued $150.0 million of 7.32% Senior Notes, due July 1, 2007. The proceeds were used to call the remaining $63.75 million 12.0% Senior Subordinated Notes on August 1, 1997, at a premium of 6% ($3.825 million) and to repay certain other debt, including borrowings under the revolving credit facility. 33 85 Management's Discussion and Analysis of Financial Condition and Results of Operations continued The Company's cash generated by operations, as well as the unused credit under the revolving credit facility and the 7.32% Senior Notes discussed above, should provide sufficient available funds to meet the Company's working capital, capital expenditure, dividend and debt service requirements for the foreseeable future. Effects of Inflation and Currency Exchange Rates The Company maintains significant assets and operations in Germany, the United Kingdom, Denmark, Austria, Switzerland, France 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 to 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. Recent Accounting Pronouncements New accounting pronouncements SFAS No. 128, "Earnings Per Share," SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," are discussed in footnote 1 to the consolidated financial statements, "Summary of Significant Accounting Policies." 34 86 Statement of Management Responsibility The consolidated financial statements and accompanying information were prepared by, and are the responsibility of, the management of Harman International Industries, Incorporated. The statements were prepared in conformity with generally accepted accounting principles and, as such, include amounts that are based on management's best estimates and judgements. The Company's internal control systems are designed to provide reliable financial information for the preparation of financial statements, to safeguard assets against loss or unauthorized use and to ensure that transactions are executed consistent with Company policies and procedures. Management believes that existing internal accounting control systems are achieving their objectives and that they provide reasonable assurance concerning the accuracy of financial statements. Oversight of management's financial reporting and internal accounting control responsibilities is exercised by the Board of Directors through the audit committee which consists solely of outside directors. The committee meets periodically with financial management and the independent auditors to ensure that each is meeting its responsibilities and to discuss matters concerning auditing, accounting control and financial reporting. The independent auditors have free access to meet with the audit committee without management's presence. /s/ Bernard A. Girod /s/ Frank Meredith Bernard A. Girod Frank Meredith President and Chief Vice President - Finance & Operating Officer Administration and Chief Financial Officer - --------------------------------------------------------------------- Independent Auditor's Report The Board of Directors and Shareholders of Harman International Industries, Incorporated: We have audited the accompanying consolidated balance sheets of Harman International Industries, Incorporated and subsidiaries as of June 30, 1997 and 1996 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, 1997. 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, 1997 and 1996 and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 1997 in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP Los Angeles, California August 20, 1997 35 87 Consolidated Balance Sheets Harman International Industries, Incorporated and Subsidiaries
June 30, 1997 and 1996 ($000s omitted except share amounts) Assets 1997 1996 ------------ ------------ Current assets Cash and cash equivalents Current assets Cash and cash equivalents $ 4,230 303 Receivables (less allowance for doubtful accounts of $9,116 in 1997 and $9,962 in 1996) 306,230 298,110 Inventories (note 2) 320,102 308,051 Other current assets 48,737 45,506 ----------- ----------- Total current assets 679,299 651,970 ----------- ----------- Property, plant and equipment, net (notes 3, 5 and 6) 207,947 200,958 Excess of cost over fair value of assets acquired (less accumulated amortization of $16,085 in 1997 and $12,930 in 1996) 109,606 129,940 Other assets 17,402 13,341 ----------- ----------- Total assets $1,014,254 996,209 ----------- ----------- Liabilities and Shareholders' Equity Current liabilities Short-term borrowings (notes 4 and 5) $ 15,808 26,367 Current portion of long-term debt (note 5) 23,949 6,423 Accounts payable 104,121 109,565 Accrued liabilities 93,554 115,168 Income taxes payable 13,816 17,136 ----------- ----------- Total current liabilities 251,248 274,659 ----------- ----------- Borrowings under revolving credit facility (note 5) 142,873 107,986 Senior long-term debt (note 5) 14,770 37,125 Subordinated long-term debt (note 5) 108,750 109,500 Other non-current liabilities 29,057 29,603 Minority interest 794 859 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 18,456,583 shares in 1997 and 18,618,064 shares in 1996 185 186 Additional paid-in capital 284,490 293,993 Equity adjustment from foreign currency translation (16,240) (4,906) Retained earnings 198,327 147,204 ----------- ----------- Total shareholders' equity 466,762 436,477 ----------- ----------- Commitments and contingencies (notes 6, 11 and 12) Total liabilities and shareholders' equity $1,014,254 996,209 ----------- -----------
See accompanying notes to consolidated financial statements. 36 88 Consolidated Statements of Operations Harman International Industries, Incorporated and Subsidiaries
Years ended June 30, 1997, 1996, 1995 ($000s omitted except share and per share amounts) 1997 1996 1995 -------------- ------------- ------------- Net sales $ 1,474,094 1,361,595 1,170,224 Cost of sales 1,053,614 953,470 806,143 -------------- ------------- ------------- Gross profit 420,480 408,125 364,081 Selling, general and administrative expenses 318,507 302,747 276,632 -------------- ------------- ------------- Operating income 101,973 105,378 87,449 Other expenses Interest expense 23,640 27,510 25,284 Miscellaneous, net 432 2,844 1,008 -------------- ------------- ------------- Income before income taxes, minority interest and extraordinary item 77,901 75,024 61,157 Income tax expense (note 8) Federal 14,391 14,401 12,012 Foreign and state 8,571 9,349 7,630 -------------- ------------- ------------- Total income tax expense 22,962 23,750 19,642 Minority interest 107 (768) 80 -------------- ------------- ------------- Income before extraordinary item 54,832 52,042 41,435 Extraordinary item, net of income tax effect of $182 in 1995 --- --- (274) -------------- ------------- ------------- Net income $ 54,832 52,042 41,161 -------------- ------------- ------------- Income per common share before extraordinary item $ 2.96 3.16 2.60 Extraordinary item, net of tax --- --- (0.02) -------------- ------------- ------------- Net income per common share $ 2.96 3.16 2.58 -------------- ------------- ------------- Weighted average number of common shares outstanding 18,552,299 16,473,673 15,980,154 -------------- ------------- -------------
See accompanying notes to consolidated financial statements. 37 89 Consolidated Statements of Cash Flows Harman International Industries, Incorporated and Subsidiaries
Years ended June 30, 1997, 1996, 1995 ($000s omitted) 1997 1996 1995 --------------- ------------- ------------- Cash flows from operating activities: Net income $ 54,832 52,042 41,161 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 47,172 46,594 40,772 Amortization of intangible assets 5,921 5,418 4,972 Amortization of deferred income --- (1,078) (1,294) Deferred income taxes 10,449 7,394 642 Change in working capital, net of acquisition/disposition effects: Decrease (increase) in: Receivables (8,898) (31,044) (38,053) Inventories (14,746) (67,646) 23,837 Other current assets (3,231) (2,466) (5,150) Increase (decrease) in: Accounts payable (4,460) 17,960 (18,340) Accrued liabilities and income taxes payable (24,255) (47,564) (11,010) --------------- ------------- ------------- Net cash provided by (used in) operating activities $ 62,784 (20,390) 37,537 --------------- ------------- ------------- Cash flows from investing activities: Payment for purchase of companies, net of cash acquired $ --- (18,650) (9,457) Proceeds from asset dispositions 3,666 16,670 1,257 Capital expenditures for property, plant and equipment (68,378) (80,554) (54,654) Other items, net 11,041 8,689 (1,011) --------------- ------------- ------------- Net cash used in investing activities $ (53,671) (73,845) (63,865) --------------- ------------- ------------- Cash flows from financing activities: Net repayments of lines of credit $ (10,559) (936) (80,598) Proceeds from issuance of long-term debt 35,982 5,083 114,991 Repayments of long-term debt (6,062) (19,236) (11,482) Proceeds from issuance of common stock --- 109,069 --- Dividends paid to shareholders (3,709) (3,210) (2,571) Effect of stock option program 1,496 3,579 1,751 Stock retirement (11,000) --- --- Net change, foreign currency translation (11,334) (11,063) 5,765 --------------- ------------- ------------- Net cash flow provided by (used in) financing activities $ (5,186) 83,286 27,856 --------------- ------------- ------------- Net increase (decrease) in cash and cash equivalents 3,927 (10,949) 1,528 Cash and cash equivalents at beginning of year 303 11,252 9,724 --------------- ------------- ------------- Cash and cash equivalents at end of year $ 4,230 303 11,252 --------------- ------------- ------------- Supplemental schedule of non-cash investing activities: Fair value of assets acquired $ --- 14,650 153,071 Cash paid for the capital stock --- 11,757 10,610 --------------- ------------- ------------- Liabilities assumed $ --- 2,893 142,461 --------------- ------------- -------------
See accompanying notes to consolidated financial statements. 38 90 Consolidated Statements of Shareholders' Equity Harman International Industries, Incorporated and Subsidiaries
Years ended June 30, 1997, 1996 and 1995 ($000s omitted) Equity Common Additional adjustment from Net Stock $.0 paid-in foreign currency Retained shareholders' par value capital translation earnings equity ------------- -------------- ------------------ ----------- -------------- Balance, June 30, 1994 $ 151 143,144 392 88,334 232,021 Exercise of stock option 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 ------------- -------------- ------------------ ----------- -------------- Exercise of stock options 1 973 --- --- 974 Tax benefit attributable to stock option plan --- 522 --- --- 522 Foreign currency equity adjustment --- --- (11,334) --- (11,334) Common stock retirement (2) (10,998) --- --- (11,000) Dividends ($.20 per share) --- --- --- (3,709) (3,709) Net income --- --- --- 54,832 54,832 ------------- -------------- ------------------ ----------- -------------- Balance, June 30, 1997 $ 185 284,490 (16,240) 198,327 466,762 ------------- -------------- ------------------ ----------- --------------
See accompanying notes to consolidated financial statements. 39 91 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 1997 consolidated financial statement presentation. Cash Equivalents. Cash equivalents of $0.2 million and $0.4 million with maturities less than three months were included in cash and cash equivalents at June 30, 1997 and 1996, respectively. 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. Long-Lived Assets. The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of," on July 1, 1996, with no material effect on the consolidated financial statements. 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 as required. 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 from 3 to 40 years, using the straight-line method. The Company evaluates the recoverability of the intangible assets through comparisons of projected cash flows from the related assets. Software Development Costs. The Company defers certain software costs for products which demonstrate technological feasibility and whose deferred cost is considered recoverable by management. The deferred costs are amortized over the products' estimated economic lives, usually three years. Amounts recorded under this policy are not material. Research and Development. Research and development costs are expensed as incurred. The Company's expenditures for research and development were $66,451,000, $59,171,00 and $40,257,000 for the fiscal years ending June 30, 1997, 1996 and 1995, respectively. 40 92 Stock Option Plan. Pursuant to SFAS No. 123, "Accounting for Stock- Based Compensation," the Company elected in the fourth quarter of fiscal 1997 to continue to apply the provisions of APB Opinion No. 25 for stock-based compensation accounting and reporting. The Company provides disclosure of pro forma net income and pro forma earnings per share for grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. Use of Estimates. Estimates and assumptions have been made relating to the reporting of assets and liabilities to prepare the consolidated financial statements in conformity with generally accepted accounting principles. Actual results may differ from those estimates. Recent Accounting Pronouncements. In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share." SFAS No. 128 specifies new standards designed to improve the earnings per share (EPS) information provided in financial statements by simplifying the existing computational guidelines, revising the disclosure requirements and increasing the comparability of EPS data on an international basis. Some of the changes made to simplify the EPS computations include: (a) eliminating the presentation of primary EPS and replacing it with basic EPS, for which common stock equivalents are not considered, (b) eliminating the modified treasury stock method and the three percent materiality provision and (c) revising the contingent share provision and the supplemental EPS data requirements. SFAS No. 128 also makes a number of changes to existing disclosure statements issued for periods ending after December 15, 1997, including interim periods. The Company has not determined the impact of the implementation of SFAS No. 128. In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. SFAS No. 130 is effective for financial statements issued for periods beginning after December 15, 1997. The Company has not determined the impact of SFAS No. 130 on its consolidated financial statements. In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the reporting of operating segment information in annual financial statements and in interim financial reports issued to shareholders. SFAS No. 131 is effective for financial statements issued for periods beginning after December 15, 1997. The Company has not determined the impact of SFAS No. 131 on its consolidated financial statements. 2. Inventories Inventories consist of the following: June 30 ($000s omitted) 1997 1996 ------------ ----------- Raw materials and supplies $ 98,786 82,638 Work in process 26,753 25,029 Finished goods and inventory purchased for resale 194,563 200,384 ------------ ----------- Total $ 320,102 308,051 ------------ ----------- 3. Property, Plant and Equipment Property, plant and equipment are composed of the following: June 30 ($000s omitted) 1997 1996 ------------ ----------- Land $ 2,361 3,282 Buildings and improvements 79,505 79,025 Machinery and equipment 310,278 279,125 Furniture and fixtures 33,722 32,716 ------------ ----------- 425,866 394,148 Less accumulated depreciation and amortization (217,919) (193,190) ------------ ----------- Property, plant and equipment, net $ 207,947 200,958 ------------ ----------- 41 93 Notes to Consolidated Financial Statements continued Harman International Industries, Incorporated and Subsidiaries 4. Short-Term Borrowings At June 30, 1997, the Company had unsecured short-term lines of credit for certain international subsidiaries aggregating $16.6 million with outstanding borrowings of approximately $7.6 million. Interest rates based on various indices ranged from 3.75 percent to 8.0 percent. 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 and interest rates ranging from 4.0 percent to 19.8 percent. The Company utilizes the swing line feature of the revolving credit facility to meet its short-term borrowing requirements. At June 30, 1997, the Company had $8.2 million drawn on its swing lines at base rates in the local countries where the funds were drawn, ranging from 3.0 percent in Switzerland to 7.0 percent in the United Kingdom. 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. In June 1997 the maturity was extended two years to September 30, 2002 and certain financial covenants were amended or deleted. At June, 30, 1997, the Company had borrowings of $151.1 million on the revolving credit facility (including swing line, competitive advance and revolving credit borrowings) and outstanding letters of credit of $2.9 million. The unused credit under the revolving credit facility at June 30, 1997, was $121.0 million. Interest rates, based on the London Interbank Offered Rate of the lending bank plus 0.25 percent, ranged from 0.8 percent in Japan to 6.9 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. The Company was in compliance with such covenants at June 30, 1997 and 1996. 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 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 agreement. The Company was in compliance with the terms of its long-term debt agreements at June 30, 1997 and 1996. Under the most restrictive provisions, limited amounts of dividends may be paid as of June 30, 1997. Interest paid for both short- and long-term borrowings was $24,579,00, $26,675,000, and $23,148,000 during the fiscal years ended June 30, 1997, 1996 and 1995, respectively. 42 94 Long-term debt is composed of the following:
June 30 ($000s omitted) 1997 1996 -------------- -------------- 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% 63,750 64,500 Borrowings under revolving credit facility, due September 30, 2002, with rates ranging from 0.8% to 6.9% at June 30, 1997 142,873 107,986 Obligations under capital leases (note 6) 12,251 9,739 Other unsubordinated loans due in installments through 2012, some of which vary with the prime rate, bearing interest at an average effective rate of 7.8% at June 30, 1997 8,968 16,309 -------------- -------------- Total 290,342 261,034 Less current installments (23,949) (6,423) -------------- -------------- Long-term debt $ 266,393 254,611 -------------- --------------
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. Long-term debt, including obligations under capital leases, maturing in each of the next five fiscal years (000's omitted) is as follows: - ------------------------------------------------- 1998 $ 23,949 1999 50,603 2000 3,781 2001 1,670 2002 891 Thereafter 209,448 - -------------------------------------------------- 6. Leases The following analysis represents property under capital leases: June 30 ($000s omitted) 1997 1996 -------------- -------------- Capital lease assets $ 22,116 14,848 Less accumulated amortization (8,247) (5,021) -------------- -------------- Net $ 13,869 9,827 -------------- -------------- At June 30, 1997, the Company is liable for the following minimum lease commitments under terms of noncancelable lease agreements:
Capital Operating ($000s omitted) Leases Leases -------------- -------------- 1998 $ 4,788 $ 28,639 1999 3,987 27,014 2000 2,777 25,960 2001 1,062 23,615 2002 561 20,270 Thereafter 1,534 95,826 -------------- -------------- Total minimum lease payments 14,709 $ 221,324 -------------- -------------- less interest (2,458) -------------- Present value of minimum lease payments $ 12,251 --------------
Operating lease expense, net of deferred income amortization ($1,078,000 and $1,294,000 for the years ended June 30, 1996 and 1995, respectively) and subrental income under operating leases having noncancelable terms of greater than one year for the years ended June 30, 1997, 1996 and 1995 was $30,154,000, $25,871,000, and $21,849,000, 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 43 95 Notes to Consolidated Financial Statements continued Harman International Industries, Incorporated and Subsidiaries to such non-officer directors each year in which the Company achieves a specified level of return on consolidated equity. The 1992 Plan supplements the Company's 1987 Plan (the 1987 Plan) and adds an automatic grant feature for non-officer directors. The 1987 Plan has been terminated; however, options previously granted pursuant to this Plan remain outstanding and will be exercisable in accordance with the terms of the Plan. Automatic awards to non-officer directors are only made under the 1992 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, 1997. 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. For purposes of the following disclosures required by SFAS No. 123, "Accounting for Stock-Based Compensation," the fair value of each option granted has been estimated on the date of grant using the Black- Scholes option-pricing model, with the following assumptions for grants in fiscal 1997 and fiscal 1996: annual dividends consistent with the Company's current dividend policy, which resulted in payments of $0.20 per share in fiscal 1997 and fiscal 1996; expected volatility of 33 percent; risk free interest rate of 5.9 percent in fiscal 1997 and 6.1 percent in fiscal 1996; and expected life of 2.3 years from the vesting date. The weighted average fair value of options granted was $16.43 in fiscal 1997 and $15.02 in fiscal 1996. Pro forma compensation cost for fiscal 1997 and fiscal 1996 awards under the stock option program, recognized in accordance with SFAS No. 123, would reduce the Company's net income from $54.8 million ($2.96 per share) to $52.9 million ($2.85 per share) in fiscal 1997, and from $52.0 million ($3.16 per share) to $51.5 million ($3.12 per share) in fiscal 1996. Pro forma net income reflects only options granted in fiscal 1997 and fiscal 1996. Because the pro forma compensation cost for the stock option program is recognized over the five year vesting period, the foregoing pro forma reductions in the Company's net income are not representative of anticipated amounts in future years. The following table summarizes the Company's stock option activity:
Weighted Average Shares Exercise Price -------------- ----------------- Balance at June 30, 1994 910,750 $ 19.52 Granted 464,250 33.71 Canceled (30,260) 17.35 Exercised (93,970) 12.71 -------------- Balance at June 30, 1995 1,250,770 25.35 -------------- Stock dividend 62,550 --- Granted 95,500 48.32 Canceled (78,859) 29.64 Exercised (185,878) 15.06 -------------- Balance at June 30, 1996 1,144,083 27.26 -------------- Granted 410,100 43.64 Canceled (39,151) 31.62 Exercised (66,596) 20.14 -------------- Balance at June 30, 1997 1,448,436 32.11 --------------
44 96 The following tables summarize information about stock options outstanding at June 30, 1997:
Options Outstanding Weighted Weighted Range of average average exercise Number of remaining life exercise prices options in years price - ----------------- ------------- ---------------- -------------- $ 6.31-7.38 98,385 3.86 $ 7.24 $ 10.12-15.00 28,245 4.07 12.67 $ 16.07-23.93 285,058 6.16 21.80 $ 24.40-34.40 551,878 7.20 31.89 $ 36.75-52.50 484,870 9.21 44.58 - ----------------- ------------- $ 6.31-52.50 1,448,436 7.38 32.11 - ----------------- -------------
Options Exercisable Weighted Range of average exercise Number of exercise prices options price - ----------------- ------------- ---------------- $ 6.31-7.38 98,385 $ 7.24 $ 10.12-15.00 22,470 12.75 $ 16.07-23.93 223,009 22.39 $ 24.40-34.40 389,424 30.92 $ 36.75-52.50 111,230 47.14 - ----------------- ------------- $ 6.31-52.50 844,518 27.56 - ----------------- -------------
At June 30, 1997, a total of 1,158,705 shares of Common Stock were reserved for issuance under the 1992 Plan. 8. Income Taxes Income tax expense (benefit) consists of the following:
Years ended June 30 1997 1996 1995 ------------- ----------- ---------- ($000s omitted) Current: Federal $ 11,513 14,281 8,566 State 609 585 923 Foreign 7,345 8,796 6,501 ------------- ----------- ---------- 19,467 23,662 15,990 ------------- ----------- ---------- Deferred: Federal 2,878 120 3,446 State 617 (32) 206 ------------- ----------- ---------- 3,495 88 3,652 ------------- ----------- ---------- Total $ 22,962 23,750 19,642 ------------- ----------- ----------
The tax provisions and analysis of effective income tax rates are comprised of the following items:
Years ended June 30 1997 1996 1995 -------------- ----------- ---------- ($000s omitted) Provision for Federal income taxes before credits at statutory rate $ 27,265 26,258 21,405 State income taxes 1,226 553 1,126 Difference between Federal statutory rate and foreign effective rate (409) (4,947) (999) Permanent differences between financial and tax accounting income (475) 141 354 Tax exempt foreign sales corporation earnings (1,427) (1,089) (883) Change in valuation allowance (2,809) --- 4,204 Losses without (with) income tax benefit 1,582 1,164 (4,944) Federal income tax credits (950) (858) (514) Other (1,041) 2,528 (107) -------------- ----------- ---------- Total $ 22,962 23,750 19,642 -------------- ----------- ----------
Deferred taxes are recorded based upon differences between the financial statement and tax basis of assets and liabilities and available tax loss carry-forwards. The following deferred taxes are recorded:
Assets/(liabilities) June 30 ($000s omitted) 1997 1996 --------------- ------------ Inventory costing differences $ 5,547 6,284 Valuations and other allowances 12,824 15,503 --------------- ------------ Total gross deferred tax asset $ 18,371 21,787 Less valuation allowance (6,609) (9,418) --------------- ------------ Deferred tax asset $ 11,762 12,369 Total gross deferred tax liability from fixed asset depreciation (11,093) (7,624) --------------- ------------ Net deferred tax asset $ 669 4,745 --------------- ------------
45 97 Notes to Consolidated Financial Statements continued Harman International Industries, Incorporated and Subsidiaries Management believes the results of future operations will generate sufficient taxable income to realize the net deferred tax asset. The Company acquired tax loss carryforwards from foreign subsidiaries Becker and AKG of approximately 100 million German marks and 250 million Austrian schillings. Current law in both countries allows indefinite carryforwards, although the AKG carryforwards cannot be utilized until fiscal year 1999. Certain other foreign entities also have tax loss carryforwards that could reduce future tax liabilities. An asset has not been booked to reflect the potential benefit of these carryforwards. Goodwill reduction resulting from tax loss carryforward utilization was 8.1 million German marks for Becker in fiscal 1997 and 4.7 million German marks for Becker and 1.2 million Swiss francs for Studer in fiscal 1996. In fiscal 1995, 0.7 million Swiss francs of goodwill reduction was recorded for Studer. Cash paid for Federal, state and foreign income taxes was $15,597,000, $15,637,000, and $12,422,000, during fiscal years ended June 30, 1997, 1996 and 1995, respectively. 9. Business Segment Data The Company's predominant business is the design, manufacture and distribution of high fidelity audio products. In the domestic and international segments, one customer accounted for approximately 9.9%, 10.4% and 9.5% of consolidated net sales for the years ended June 30, 1997, 1996 and 1995. The following table shows net sales, operating income and identifiable assets by geographic segments for the years ended June 30, 1997, 1996 and 1995. The net sales shown below for the United States include export sales of $299.6 million, $259.1 million and $209.5 million for the fiscal years ended June 30, 1997, 1996 and 1995, respectively.
Geographic Segmentation Years ended June 30 1997 1996 1995 ---------------- ------------- ------------- ($000s omitted) Net sales: U.S. $ 1,044,306 908,111 784,989 International 635,228 635,452 502,809 Intercompany/ Interregion (205,440) (181,968) (117,574) ---------------- ------------- ------------- Total $ 1,474,094 1,361,595 1,170,224 ---------------- ------------- ------------- Operating income: U.S. $ 75,314 78,710 81,901 International 25,873 40,695 20,871 Unallocated operating expenses 786 (14,027) (15,323) ---------------- ------------- ------------- Total $ 101,973 105,378 87,449 ---------------- ------------- ------------- Identifiable assets: U.S. $ 548,417 519,422 427,777 International 452,080 463,466 438,435 Corporate 13,757 13,321 20,660 ---------------- ------------- ------------- Total $ 1,014,254 996,209 886,872 ---------------- ------------- -------------
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, 1997, 1996 and 1995 totaled $2,516,000, $4,338,000, and $4,152,000, respectively. 46 98 The Company also has a Supplemental Executive Retirement Plan (SERP) that provides normal retirement, preretirement and termination benefits, as defined, to certain key executives designated by the Board of Directors. Expenses related to the SERP for the years ended June 30, 1997, 1996 and 1995 were $683,000, $214,000, and $875,000, 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. At June 30, 1997, the Company had contracts maturing through December 1997 to purchase and sell the equivalent of approximately $34.6 million of various currencies. The fair value of foreign currency contracts used for hedging purposes is estimated by obtaining quotes from brokers. The cost of foreign currency contracts approximated fair value at June 30, 1997. Long-Term Debt. Fair values of long-term debt are based on market prices where available. When quoted market prices are not available, fair values are estimated using discounted cash flow analysis, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. The carrying value and fair value of long-term debt, excluding obligations under capital leases and unsubordinated loans are $235.0 million and $239.1 million, respectively, at June 30, 1997. 12. 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 will not have a material adverse effect on the Company's financial position or results of operations. 13. 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. 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. 14. Subsequent Event On July 1, 1997, the Company issued $150.0 million of 7.32% Senior Notes, due July 1, 2007. The proceeds were used to call the remaining $63.75 million 12.0% Senior Subordinated Notes on August 1, 1997, at a premium of 6% ($3.825 million) and to repay certain other debt, including borrowings under the revolving credit facility. 47 99 Notes to Consolidated Financial Statements continued Harman International Industries, Incorporated and Subsidiaries 15. Quarterly Summary of Operations (Unaudited) The following is a summary of operations by quarter for fiscal 1997 and 1996:
Three months ended: ($000s omitted except per share amounts) Fiscal 1997 SEPT 30 DEC 31 MAR 31 JUN 30 ------------- ------------ ------------ ------------ Net sales $ 338,003 401,319 358,140 376,632 Gross profit $ 94,794 117,594 103,542 104,550 Net income $ 7,569 19,556 10,324 17,383 Net income per common share $ .41 1.05 .56 .94 Fiscal 1996 Net sales $ 300,474 348,669 339,339 373,113 Gross profit $ 89,486 107,915 103,430 107,294 Net income $ 5,904 15,462 13,887 16,789 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. Shareholder Information Harman International Industries, Incorporated and Subsidiaries
Fiscal 1997 Fiscal 1996 Fiscal 1995 -------------- ------------ ------------- Market Price High Low High Low High Low First quarter ended September 30 $50.625 40.25 $49.75 35.596 $33.334 24.048 Second quarter ended December 31 55.875 48.00 48.875 39.75 36.191 30.477 Third quarter ended March 31 56.125 33.25 41.25 32.00 40.001 34.048 Fourth quarter ended June 30 43.25 33.25 56.50 37.375 39.048 32.382
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, 1997, the Company's Common Stock was held by approximately 205 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, 1997, 1996, and 1995. The Company paid dividends during fiscal 1997 and fiscal 1996 of $.20 per share, with a dividend of $.05 paid in each of the four quarters. Dividends of $.17 per share were paid in fiscal 1995. In August 1995, a special 5 percent stock dividend was paid. 48 100 Corporate Officers Sidney Harman Chairman & Chief Executive Officer Bernard A. Girod President & Chief Operating Officer Frank Meredith Vice President - Finance & Administration & Chief Financial Officer Jerome H. Feingold Vice President - Quality William S. Palin Vice President - Controller Sandra B. Robinson Vice President - Financial Operations Paul Shave Vice President - Worldwide Sourcing Floyd E. Toole Vice President - Engineering Group Presidents Philip Hart Professional Group Thomas Jacoby Consumer Group Gregory Stapleton OEM Group Independent Auditor KPMG Peat Marwick LLP 725 South Figueroa Street Los Angeles, CA 90017 (213) 972-4000 Directors Bernard A. Girod Sidney Harman Shirley Mount Hufstedler Ann McLaughlin Edward H. Meyer Gregory Stapleton* Stanley A. Weiss* *effective November 10, 1997 Annual Meeting The annual meeting of shareholders will be held on November 10, 1997, 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 17, 1997, at which time proxies for the meeting were requested. Registrar and Transfer Agent ChaseMellon Shareholder Services 400 South Hope Street, 4th Floor Los Angeles, CA 90071 (213) 553-9720 Securities Traded New York Stock Exchange Symbol: HAR Corporate Headquarters 1101 Pennsylvania Avenue, NW Suite 1010 Washington, D.C. 20004 (202) 393-1101 Except for historical information contained in this Annual Report, the matters discussed herein contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those suggested in the forward-looking statements, including without limitation, the effect of economic conditions, product demand, currency exchange rates, competitive products and other risks detailed herein and in the Company's other filings with the Securities and Exchange Commission. 49 101 (Logo Here) Harman International Industries, Incorporated 1101 Pennsylvania Avenue NW, Suite 1010, Washington, DC 20004 (202) 393-1101 102 EX-21 5 EXHIBIT 21.1 103 THIS PAGE LEFT BLANK INTENTIONALLY 104 HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED LIST OF SUBSIDIARIES
Subsidiary Jurisdiction ------------- -------------- AKG Akustische GmbH Republic of Austria Allen & Heath Limited United Kingdom Audax Industries, SNC France 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 Harman Audio Outlet, Inc. Delaware Harman Belgium NV Kingdom of Belgium Harman Consumer Europe A/S Denmark Harman Consumer France SNC France Harman Consumer Manufacturing - El Paso, Inc. Delaware Harman Consumer Netherlands BV Netherlands
105 HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED LIST OF SUBSIDIARIES
Subsidiary Jurisdiction ------------- -------------- Harman Deutschland GmbH Germany Harman Enterprises, Inc. Delaware Harman Holding Europe A/S Denmark Harman International Foreign Sales Corporation Guam Harman International Industries Limited United Kingdom Harman International Japan Co., Limited Japan Harman Investment Company, Inc. Delaware Harman-Kardon, Incorporated Delaware Harman Marketing Europe A/S Denmark Harman-Motive, Inc. Delaware Harman Motive Limited United Kingdom Harman Music Group Incorporated Utah Harman Pro France SNC France Harman Pro GmbH Germany Harman Pro North America, Inc. Delaware Harman UK Limited United Kingdom
106 HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED LIST OF SUBSIDIARIES
Subsidiary Jurisdiction ------------- -------------- 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 Revel Corp. Delaware Soundcraft Electronics, Limited United Kingdom Spirit by Soundcraft, Inc. Delaware Studer Canada Limited Canada Studer Digitec S.A. France Studer Japan Ltd. Japan Studer Professional Audio AG Switzerland Studer U.K. Limited United Kingdom Turbosound Ltd. United Kingdom
107 THIS PAGE LEFT BLANK INTENTIONALLY 108 EX-23 6 EXHIBIT 23.1 109 THIS PAGE LEFT BLANK INTENTIONALLY 110 CONSENT OF INDEPENDENT AUDITOR ------------------------------ The Board of Directors Harman International Industries, Incorporated: We consent to incorporation by reference in the Registration Statement Nos. 33-20559, 33-28973, 33-36388, 33-60234, 33-60236, 33-59605, 333-02917, 333-28793 and 333-32673 on Form S-8 and 333-21021 on Form S-3 of Harman International Industries, Incorporated of our report dated August 20, 1997, relating to the consolidated balance sheets of Harman International Industries, Incorporated and subsidiaries as of June 30, 1997 and 1996, 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, 1997, which report appears in the June 30, 1997 annual report on Form 10-K of Harman International Industries, Incorporated. /s/ KPMG Peat Marwick LLP Los Angeles, California September 15, 1997 111 THIS PAGE LEFT BLANK INTENTIONALLY 112 EX-27 7 ART 5 FDS FOR 10-K
5 1000 YEAR JUN-30-1997 JUN-30-1997 4079 151 315346 9116 320102 679299 425866 217919 1014254 251248 266393 185 0 0 466577 1014254 1474094 1474094 845869 1053614 0 1977 23640 77901 22962 54832 0 0 0 54832 2.96 2.96
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