Back to GetFilings.com
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, 1998
Commission file number 1-9764
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
(Exact name of Registrant as specified in its charter)
Delaware 11-2534306
(State or other jurisdiction 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, 1998, was $623,278,749.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 18,644,660 shares
of Common Stock, par value $.01 per share, as of August 31, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended June 30, 1998, 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
1998 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. ____
Page 1 of 83
THIS PAGE LEFT BLANK INTENTIONALLY
2
TABLE OF CONTENTS
Page
PART I
Item 1. Business............................... 5
Item 2. Properties............................. 26
Item 3. Legal Proceedings...................... 27
Item 4. Submission of Matters to a Vote of
Security Holders................... 27
Executive Officers of the Registrant.. 27
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder
Matters............................ 30
Item 6. Selected Financial Data................ 30
Item 7. Management's Discussion and
Analysis of Financial Condition and
Results of Operations.............. 31
Item 7A. Quantitative and Qualitative
Disclosures about Market Risk.... 31
Item 8. Consolidated Financial Statements
and Supplementary Data............. 32
Item 9. Disagreements on Accounting and
Financial Disclosure.............. 32
PART III
Item 10. Directors and Executive Officers of
the Registrant................... 32
Item 11. Executive Compensation................. 32
Item 12. Security Ownership of Certain
Beneficial Owners and Management... 32
Item 13. Certain Relationships and Related
Transactions..................... 32
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.
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. The objective
of the Company's development efforts has been to secure engineering,
manufacturing and marketing leadership in its three major markets and to
strengthen the Company's ability to provide total audio system solutions
to its customers.
Harman serves three major audio markets: consumer, professional and
original equipment manufacturer (OEM). In the consumer audio market,
the Company's range of product offerings has grown from the traditional
base of two-channel stereo loudspeakers and electronics to include multi-
channel, surround-sound electronics and loudspeaker systems, powered
loudspeakers, mini-systems and audio systems for computers, and its
customer base has been expanded to include large retailers such as Circuit
City in the U.S. and MediaMarkt in Europe. In the professional audio
market, the Company offers a complete range of audio products for the
sound reinforcement, broadcast and recording, and music instrument
segments. In the OEM audio market, the Company offers branded and
non-branded audio systems for installation as original equipment in
automobiles and computers and the customer base has grown to include
Chrysler, Mercedes, Jeep, BMW, Toyota, Mitsubishi, Ford, Volkswagen,
Volvo, Fiat, Porsche, Saab, Range Rover, Jaguar, Compaq, IBM and Dell.
5
The manufacturing capabilities of the Company include North
American and European operations. Primary manufacturing sites are
located in California, Indiana, Germany, the United Kingdom, Denmark,
Mexico, France and Austria.
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.
The Company's operations are organized into three primary Groups:
the Consumer Group, the Professional Group and the OEM Group. The
Company has completed a number of strategic acquisitions to strengthen
each Group's competitive position in terms of market, product and
technology. During fiscal 1998, the Company acquired Oxford
International, Ltd. ("Oxford"), a manufacturer of automotive OEM
loudspeakers with facilities in the United States and Mexico and Audio
Electronic Systems ("AES"), formerly a division of Nokia, a
manufacturer of automotive OEM loudspeakers with facilities in
Germany, Sweden and Hungary.
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. Harman Kardon audio/video receivers, JBL and
Infinity surround sound loudspeaker systems and multi-channel amplifiers
6
and digital signal processing components from Citation and Proceed are
offered in the home theater market. Integrated mini-systems, including
the JBL ESC550 Simply Cinema System and the Harman Kardon
Festival line capitalize on the Company's strong brand names in this
significant segment of the consumer audio market.
The Company believes the maturation and broadened acceptance of
the digital versatile disc (DVD) and the forthcoming digital television
technology will provide growth opportunities for its consumer brands.
The Company plans to introduce DVD players bearing the Harman
Kardon, Mark Levinson, Citation and Proceed brands in fiscal 1999. The
Company also expects DVD and digital television to stimulate
loudspeaker sales due to increased customer traffic in audio/video dealers'
stores and the improved audio quality potential of DVD and digital
television compared to the current analog audio/video and digital audio
technologies. 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, and
through high-fidelity audio specialists. The Company believes its brands
have attained market leadership positions in its principal international
markets. Therefore, a number of its wholly-owned international
distribution companies were divested in fiscal 1998 to reduce investment
in working capital and allow the Company to focus its resources on the
critical disciplines of engineering, manufacturing and marketing.
The Consumer Group licenses its brands for use by manufacturers of
personal computers, including a line of JBL-branded audio systems for
Compaq Computer Corporation's Presario line of personal computers.
New licensing and sourcing arrangements with two other major computer
manufacturers will begin in fiscal 1999. These audio systems provide
high-quality sound and thus enhance the appeal and capability of the
personal computer as an entertainment device.
7
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, Orban, AMEK, 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 JBL
loudspeakers, JBL and BSS amplifiers, AKG microphones, Lexicon,
DOD and dbx signal processing equipment, and Soundcraft, AMEK 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.
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.
8
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 per-vehicle content through the provision of complete systems,
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, Ford, Volkswagen, Fiat and Volvo.
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 a
material 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 right to use the JBL
brand name for automotive audio and made the brand name available to
other automakers. The JBL program for the Ford Explorer ended with
model year 1997 and for the Lincoln line ended with model year 1998.
The Company has begun sourcing JBL branded audio systems for a
large part of Toyota's broad range of vehicles, including vehicles
produced by Toyota for sale in Asia. In fiscal year 1998, the OEM Group
added the BMW 5-Series (Becker radio), the Toyota Aristo (JBL audio
system), the Peugeot 406 (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
navigation sytems and digital electronics networking systems.
9
ORGANIZATION
The Company is organized in three core groups - Consumer,
Professional and OEM - with each group incorporating all related
engineering, manufacturing and marketing operations. The Consumer
Group contributed approximately 32% of fiscal 1998 total net sales, the
Professional Group accounted for approximately 30% of net sales, and the
OEM Group generated approximately 38% of net sales.
Financial Information about Geographic Segments
Financial information about geographic segments required to be
included hereunder is incorporated by reference to Note 9 of Notes to
Consolidated Financial Statements contained in the Company's Annual
Report to Shareholders for the fiscal year ended June 30, 1998.
Description of Business
The Company's business is conducted through its wholly owned
subsidiaries which include:
Name Principal products
- ---------------------------------- --------------------------------------
Audio Electronics Systems GmbH Automotive OEM loudspeakers
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 France, S.N.C. Consumer home and automotive
audio products
Harman International Industries, Automotive OEM loudspeakers and
Limited electronics and professional
audio products
10
Name Principal products
- ---------------------------------- --------------------------------------
Harman-Kardon, Incorporated Consumer home and automotive
electronics
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
Oxford International Automotive OEM loudspeakers
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 grown in recent years. In 1997 and
1998, 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.
11
In the consumer audio market, the Company believes that maturation
and broadened acceptance of DVD, the new multi-channel audio
technologies and digital television should provide growth opportunities.
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, guitar amplifiers 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, increasing per-vehicle content through the
provision of complete systems, expanding the number of automobile
models offering its systems and adding new OEM customers. Becker's
radio and navigation system products complement the Company's JBL,
Infinity and Harman Kardon automotive audio programs and enable the
Company to offer fully-integrated audio systems to the automobile
manufacturers. The acquisitions of Oxford and AES have added
manufacturing capacity and vertical integration, as well as enlarging our
relationship with current customers Chrysler, BMW and Mercedes Benz.
AES adds Volkswagen, Fiat and Volvo to our customer base.
12
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 Consumer Group accounted for approximately 32% of the
Company's fiscal 1998 sales, of which 76% was attributable to home
loudspeaker and automotive aftermarket systems, 21% was from home
electronic components and 3% was from audio systems for computer
manufacturers. The Professional Group contributed approximately 30% of
fiscal 1998 sales, of which 45% was attributable to sound reinforcement,
25% was from broadcast and recording and 30% was from musical
instrument support. OEM Group sales to the automakers produced
approximately 38% of fiscal 1998 sales.
CONSUMER PRODUCTS. The Company designs, manufactures and
markets loudspeakers principally under the JBL and Infinity brand names
for the consumer market. JBL and Infinity offer diverse product lines
which give customers a wide range of speaker choices: floorstanding,
bookshelf, built-in, wireless, outdoor, and wall or ceiling mountable
loudspeakers, in styles and finishes ranging from high gloss piano lacquer
to genuine wood veneers. JBL also offers easily installed and operated
home theater loudspeaker systems and complete home theater mini-
systems. 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 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. The Company's Harman
Kardon electronics line includes 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.
13
Madrigal designs and manufactures 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.
The Citation and AudioAccess product lines are also part of the
Madrigal Group. Citation designs and manufactures high-end surround
sound processors, amplifiers and loudspeakers for home theater
applications. 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.
The Company's JBL brand has been licensed for use in audio systems
for Compaq's Presario line of personal computers. New licensing and
sourcing arrangements with two other major computer manufacturers will
begin in fiscal 1999. 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, AMEK, Studer and UREI. Professional
installations of Harman products include stadiums, opera houses, concert
halls, recording studios, broadcast studios, theaters, houses of worship,
cinemas and touring performing artists.
Sound systems incorporating components manufactured by JBL,
Lexicon, AKG, 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
14
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 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, AMEK, AKG, BSS, dbx,
Orban, Studer, Audio Logic, and UREI, and are often sold in conjunction
with the Company's professional loudspeakers.
The AMEK and Soundcraft lines of high-quality sound mixing
consoles extend from automated multi-track consoles for master recording
studios to compact professional mixers for personal recording and home
studios. Soundcraft and AMEK 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.
Lexicon is a leader in the design, manufacture and marketing of high-
quality digital audio signal processing equipment for professional use in
15
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.
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,
Harman Kardon systems sold to BMW, Jaguar, Saab and Land Rover
(Range Rover) and JBL systems sold to Toyota. 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.
16
The Company discontinued Ford's exclusive automotive OEM right to
use of the JBL brand name and made it available to Toyota, Peugeot and
others from whom new commitments were received beginning in model
year 1998. The JBL program for the Ford Explorer concluded with model
year 1997 and the JBL program for the Lincoln line is scheduled to
conclude with model year 1998.
The Company now supplies JBL branded sound systems to Toyota for
its cars and light trucks. JBL branded sound systems are also offered in
the Peugeot 406 and the Korean Hyundai Grandeur.
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 loudspeaker manufacturing capabilities 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 utility of engineering, design and development investment.
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.
17
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. Cabinet production
was begun in the United Kingdom during fiscal 1997 at the Company's
new factory in Cornwall 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, Germany, Sweden and Hungary, 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 and personal
computer 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
18
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.
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
and personal computer manufacturers. Automotive OEM customers
include Chrysler, Mercedes Benz, Toyota, BMW, Ford, Mitsubishi,
Volkswagen, Volvo, Jaguar, Porsche, Range Rover and Saab in the
automotive segment. Personal computer OEM customers include
Compaq, IBM and Dell.
Suppliers
Products designed by Harman Kardon in the United States are
manufactured by several suppliers. Harman Kardon's largest supplier,
based in Korea, experienced difficulties during fiscal 1998 associated with
the crisis in Asia. Production delays negatively affected Harman
Kardon's results. Harman Kardon has terminated its relationship with this
supplier and other sources have been secured to manufacture Harman
Kardon products. The loss of any of Harman Kardon's primary suppliers
would not have a material impact on the earnings of the Company.
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 not have
a material impact on the earnings of the Company.
19
Trademarks and Patents
The Company markets its products under numerous trademarks and
logos, including: JBL, Infinity, Harman Kardon, Citation, Concord,
Audax, Becker, AMEK, Soundcraft, Spirit, DOD, Audio Logic,
DigiTech, Lexicon, AKG, Studer, Numisys, BSS, Orban, Precision
Devices, dbx, Allen & Heath, AudioAccess, Mark Levinson, Proceed,
Revel, VMAx, EON, Harman, Control, Compositions, Optimod, C-
Audio, Auto Azimuth and Dynamic Midi. These trademarks and logos
are registered or otherwise protected in substantially all major
industrialized countries.
The Company's registrations cover use of its trademarks and logos in
connection with various applicable products, such as loudspeakers,
speaker systems, speaker system components and other electrical and
electronic devices. As of June 30, 1998, the Company held
approximately 302 United States and foreign patents covering various
products, product designs and circuits, and had approximately 166 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 1998 accounted for 14.3% 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.
20
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 $15.9 million at June 30, 1998.
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
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.
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, JBL professional
loudspeakers are compatible with and marketed with BSS professional
amplifiers and loudspeaker management systems. However, JBL and
21
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
addition of our new high-end loudspeaker brand, Revel, extends our
loudspeaker market position and complements our Mark Levinson and
Proceed high-end electronics lines. 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,
Celestion, Paradigm, Acoustic Research, Cambridge SoundWorks and
Polk Audio. Principal competitors in the consumer automotive
aftermarket area include Alpine, Kenwood, Bose, Nakamichi, Clarion,
Rockford-Fosgate and Blaupunkt. Principal competitors in the high-end
loudspeaker market include Wilson Audio, Snell, Thiel, and Bowers &
Wilkins.
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 for Harman Kardon
include: Sony, Denon, Onkyo, Nakamichi, Pioneer, Kenwood and
Yamaha. The Company competes in the high-end consumer electronics
market with the Mark Levinson, Citation and Proceed brands. Principal
competitors include: Krell, McIntosh, Audio Research, Meridian, Linn
and Accuphase.
22
In the personal computer audio market, the Company's JBL brand
name is licensed for audio systems packaged with Compaq's Presario line
of personal computers. Licensing and sourcing arrangements with Dell
and IBM will begin in fiscal 1999 utilizing the Infinity and Harman
Kardon brands. 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, AKG, Soundcraft, AMEK and BSS.
Principal competitors in sound reinforcement include Electro Voice, Inc.,
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, AMEK, Lexicon and Orban brands. Principal recording and
broadcast competitors include: Sony, Neve, Sennheiser, Denon, SSL,
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, Tannoy and Bose.
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, Panasonic and Mannesman 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 Toyota,
BMW, Jaguar, Rover, Saab and Peugeot. The Company also supplies
non-branded loudspeaker systems to Chrysler, Mercedes Benz,
Volkswagen, Volvo and Fiat. The Company is a primary supplier of
radio head units to Mercedes-Benz, BMW and Porsche. The Company
23
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
remediation process has proceeded in accordance with the plan, and the
Company believes that the future cost to complete remediation will not
exceed $100,000.
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.
24
Research, Development and Engineering
The Company's expenditures for research, development and
engineering were $65,926,000, $66,451,000, and $59,171,000 for the
fiscal years ending June 30, 1998, 1997 and 1996, respectively.
Number of Employees
As of June 30, 1998, the Company had 10,010 full-time employees,
including 4,188 domestic employees and 5,822 international employees,
compared to 8,384 employees at June 30, 1997.
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 38 and 26,
respectively, in the Company's Annual Report to Shareholders for the
fiscal year ended June 30, 1998.
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.
25
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% Consumer, Pro-
fessional, OEM
Ontario, California 212,600 Leased 100% Consumer,
Professional
Martinsville, Indiana 182,664 Owned 100% OEM
20,000 Leased 100%
Straubing, Germany 195,000 Owned 95% OEM
Ringkobing, Denmark 145,119 Owned 100% Consumer
25,920 Leased 80%
Ittersbach, Germany 169,465 Owned 80% OEM
Potters Bar, UK 160,000 Leased 100% Professional
Juarez, Mexico 139,000 Leased 89% OEM
Vienna, Austria 128,593 Leased 100% Professional
Bridgend, UK 126,000 Leased 100% OEM
Sandy, Utah 122,000 Leased 100% Professional
Worth-Schaitt, Germany 89,640 Owned 75% OEM
Regensdorf, Switzerland 86,111 Leased 100% Professional
The company considers its properties to be suitable and adequate for
its present needs.
26
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, 1998 Position
- ---------------------- -------------- ----------------------------------------
Sidney Harman 79 Chairman of the Board of Directors
and Chief Executive Officer
Bernard A. Girod 56 President, Chief Operating Officer,
Secretary and Director of the
Company
Gregory P. Stapleton 51 President - OEM Group and Director
of the Company
Frank Meredith 41 Vice President - Finance &
Administration and Chief
Financial Officer
Philip J. Hart 53 President - Harman Professional Group
Thomas Jacoby 44 Chief Marketing Officer
William S. Palin 55 Vice President - Controller
Sandra B. Robinson 39 Vice President - Financial Operations
Edwin S. Summers 51 Vice President and General Counsel
Floyd E. Toole 52 Vice President - Engineering
27
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.
Gregory P. Stapleton has been President of the OEM Group since
October 1987 and a Director of the Company since November 1997.
Prior to his association with the Company, Mr. Stapleton was Senior Vice
President of General Electric Venture Capital Corporation from January
1986 to September 1987, and was General Manager, Industrial Products
Section, Factory Automation Products Division, of General Electric
Corporation from October 1982 through December 1985.
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 from 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 from Harman's 1988 acquisition.
28
Thomas Jacoby was appointed Chief Marketing Officer in June 1998.
Prior to that time, Mr. Jacoby served as President of the Harman
Consumer Group from February 1993. Prior to that time, Mr. Jacoby
served as President of JBL Consumer from August 1990. From July
1988 to August 1990, Mr. Jacoby served as Executive Vice President of
Harman Kardon.
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.
Edwin S. Summers has been Vice President and General Counsel of
the Company since July 1998. Prior to that time, Mr. Summers was Vice
President, General Counsel and Secretary of First Alliance Corporation
from 1996. From 1991 to 1995, Mr. Summers was Senior Vice President,
General Counsel and Secretary of Transamerica Finance Group.
Floyd E. Toole, Ph.D., joined the Company as Vice President -
Acoustics 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.
29
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, 1998 (Shareholder Information on page 40).
ITEM 6. SELECTED FINANCIAL DATA
Five-Year Summary
(in thousands, except per share data,
for the fiscal years ended June 30)
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
Net sales $1,513,255 $1,474,094 $1,361,595 $1,170,224 $ 862,147
Operating income 100,325 101,973 105,378 87,449 66,332
Income before taxes 75,707 77,901 75,024 61,157 42,686
Income before
extraordinaty items 53,826 54,832 52,042 41,435 26,412
Net income 50,243 54,832 52,042 41,161 25,664
Basic EPS before
extraordinary items 2.90 2.96 3.16 2.60 1.88
Basic EPS 2.71 2.96 3.16 2.58 1.83
Diluted EPS 2.67 2.90 3.09 2.53 1.79
Total assets 1,130,684 1,014,254 996,209 886,872 680,691
Long-term debt 259,609 266,393 254,611 266,021 156,577
Shareholders' equity 511,899 466,762 436,477 289,490 232,021
Dividends per share 0.20 0.20 0.20 0.17 --
30
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, 1998 (Management's Discussion and Analysis of
Financial Condition and Results of Operations on pages 23 through 26).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Securities and Exchange Commission requires that registrants
include information about potential effects of changes in interest rates and
currency exchange rates in their financial statements. The qualititative
information required by Part II, Item 7A is incorporated by reference to
pages 26 and 39 of the Company's Annual Report to Shareholders for the
fiscal year ended June 30, 1998 (Effects of Inflation and Currency
Exchange Rates and Footnote 12, Fair Value of Financial Instruments,
respectively).
The Company's exposure to interest rate changes is primarily related
to its variable rate debt. To asses exposure to interest rate changes, the
Company has performed a sensitivity analysis assuming a hypothetical
100 basis point increase in interest rates across all maturities. This
analysis indicates that such market movements would reduce fiscal 1999
net income, based on June 1998 positions, by approximately $0.8 million.
The Company's net unhedged exposure in assets and liabilities
denominated in other than their relevant functional currency as of June 30,
1998 was not material.
Actual gains and losses in the future may differ materially from the
hypothetical gains and losses discussed above based on changes in the
timing and amount of interest rate and foreign currency exchange rate
movements and the Company's actual exposure and hedges.
31
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, 1998 (Consolidated Financial Statements on pages 22
and 28 through 40).
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
1998 Annual Meeting of Stockholders.
32
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
Form 8-K, dated June 16, 1998, filed on June 30,
1998, containing the following items:
Item 5. Announcement of fourth quarter fiscal
1998 outlook and fiscal 1999 outlook and
announcement of stock repurchase program.
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 14, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, 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 14, 1998
- ---------------------------- Chief Executive Officer ------------------
Sidney Harman and Director
/s/ Bernard A. Girod President, Chief Operating September 14, 1998
- ---------------------------- Officer, Secretary ------------------
Bernard A. Girod and Director
/s/ Gregory P. Stapleton President - OEM Group September 14, 1998
- ---------------------------- and Director ------------------
Gregory P. Stapleton
/s/ Frank Meredith Vice President - Finance & September 14, 1998
- ---------------------------- Administration and Chief ------------------
Frank Meredith Financial Officer (Principal
Accounting Officer)
/s/ Shirley M. Hufstedler Director September 14, 1998
- ---------------------------- ------------------
Shirley M. Hufstedler
/s/ Ann McLaughlin Director September 14, 1998
- ---------------------------- ------------------
Ann McLaughlin
/s/ Edward H. Meyer Director September 14, 1998
- ---------------------------- ------------------
Edward H. Meyer
/s/ Stanley A. Weiss Director September 14, 1998
- ---------------------------- ------------------
Stanley A. Weiss
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 22 and
28 through 40 of the 1998 Annual Report
to Shareholders herein incorporated
by reference as Exhibit 13.1):
Financial Table of Contents . . . . . . . . . . . . . . . .. . . . . . . . . . . 22
Independent Auditor's Report . . . . . . . . . . . . .39 . . . . . . . . . . . . 27
Consolidated Balance Sheets as of
June 30, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Consolidated Statements of
Operations for the years ended
June 30, 1998, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . 29
Consolidated Statements of Cash
Flows for the years ended
June 30, 1998, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . 30
Consolidated Statements of Shareholders'
Equity for the years ended June 30,
1998, 1997and 1996 . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 31
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . 32
Schedules for the years ended June 30,
1998, 1997 and 1996:
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, 1998
($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, 1996
Allowance for
doubtful
accounts $12,313 $ 3,103 $ (1,405) (1) $ 4,049 (2) $ 9,962
Year Ended June 30, 1997
Allowance for
doubtful
accounts $ 9,962 $ 1,977 $ (781) (3) $ 2,042 (2) $ 9,116
Year Ended June 30, 1998
Allowance for
doubtful
accounts $ 9,116 $ 4,904 $ 152 (4) $ 4,100 (2) $ 10,072
(1) Deductions due to account reclassifications, foreign currency translation,
and dispositions.
(2) Deductions for accounts receivable written off net of recoveries.
(3) Deductions due to foreign currency translation and dispositions.
(4) Additions due to acquisitions. Deductions due to dispositions.
38
INDEPENDENT AUDITOR'S REPORT ON SCHEDULE
- -----------------------------------------------------------------------
The Board of Directors
Harman International Industries, Incorporated
Under date of August 12, 1998, we reported on the consolidated balance
sheets of Harman International Industries, Incorporated and subsidiaries
as of June 30, 1998 and 1997, 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, 1998, as contained in the 1998
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, 1998. 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 12, 1998
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
10.1 Lease dated as of June 18, 1987 between Harman
International Industries Business Campus Joint
Venture and JBL Inc., as amended. (Filed as Exhibit
10.1 to the Annual Report on Form 10-K for the
fiscal year ended June 30, 1987 (File No. 0-15147)
and hereby incorporated by reference.)...............................IBR
10.2 Guaranty dated as of June 18, 1987 by Harman
International Industries, Inc. of Lease dated as of
June 18, 1987 between Harman International
Industries Business Campus Joint Venture and JBL
Inc., as amended. (Filed as Exhibit 10.2 to the
Annual Report on Form 10-K for the fiscal year
ended June 30, 1987 (File No. 0-15147) and hereby
incorporated by reference.)..........................................IBR
10.18 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
42
INDEX TO EXHIBITS (cont.)
Exhibit Page
No. Description No.
10.19 Form of Incentive Stock Option Agreement under
the 1987 Executive Incentive Plan. (Filed as Exhibit
10.19 to the Annual Report on Form 10-K for the
fiscal year ended June 30, 1988 (File No. 0-15147),
and hereby incorporated by reference.)...............................IBR
10.20 Form of Non-Qualified Stock Option Agreement
under the 1987 Executive Incentive Plan. (Filed as
Exhibit 10.20 to the Annual Report on Form 10-K
for the fiscal year ended June 30, 1988 (File No.
0-15147), and hereby incorporated by reference.).....................IBR
10.21 Form of Non-Qualified Stock Option Agreement
with non-officer directors. (Filed as Exhibit 10.21
to the Annual Report on Form 10-K for the fiscal
year ended June 30, 1988 (File No. 0-15147), and
hereby incorporated by reference.)...................................IBR
10.23 Lease Agreement dated April 28, 1988, 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
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
43
INDEX TO EXHIBITS (cont.)
Exhibit Page
No. Description No.
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
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,
1996 as approved by shareholders at the November
1996 Annual Meeting of Shareholders (File No.
001-09764) and hereby incorporated by reference.).....................IBR
44
INDEX TO EXHIBITS (cont.)
Exhibit Page
No. Description No.
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
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
45
INDEX TO EXHIBITS (cont.)
Exhibit Page
No. Description No.
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
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
46
INDEX TO EXHIBITS (cont.)
Exhibit Page
No. Description No.
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 (Filed as Exhibit 10.59
to the Annual Report on Form 10-K for the fiscal
year ended June 30, 1997 (File No. 001-09764),
and hereby incorporated by reference.)................................IBR
10.60 Employment agreement between the Company
and Bernard A. Girod dated September 12, 1997
(Filed as Exhibit 10.60 to the Annual Report on
Form 10-K for the fiscal year ended June 30, 1998
(File No. 001-09764), and hereby incorporated by
reference.)...........................................................IBR
47
INDEX TO EXHIBITS (cont.)
Exhibit Page
No. Description No.
10.61 Credit agreement dated December 12, 1997, among
Harman International Industries, Incorporated,
Becker Holding GmbH, The Several Lenders From
Time to Time Party Thereto and Commerzbank
Aktiengesellschaft (Filed as Exhibit 10.61 to the
Quarterly Report on Form 10-Q for the quarter ended
December 31, 1997 (File No. 001-09764), and
hereby incorporated by reference.)....................................IBR
10.62 Chief Executive Officer Plan effective July 1, 1997
(Filed as Exhibit A to the Definitive Statement of
Proxy for the Annual Meeting of Shareholders on
November 10, 1997, as approved by a majority vote
of shareholders (File No. 001-09764), and hereby
incorporated by reference.)...........................................IBR
13.1 Pages 22 through back cover of Harman
International Industries, Incorporated Annual
Report to Shareholders for the fiscal year ended
June 30, 1998..........................................................49
21.1 Subsidiaries of the Company............................................71
23.1 Consent of Independent Auditors........................................77
27.1 EDGAR Financial Data Schedule..........................................81
27.96 EDGAR Financial Data Schedule (F96) ...................................82
27.95 EDGAR Financial Data Schedule (F95) ...................................83
48