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HARMAN Reports Third Quarter Fiscal 2016 Results
[April 28, 2016]

HARMAN Reports Third Quarter Fiscal 2016 Results


HARMAN International Industries, Incorporated (NYSE:HAR), the premier connected technologies company for automotive, consumer and enterprise markets, today announced results for the third quarter ended March 31, 2016.

This Smart News Release features multimedia. View the full release here: http://www.businesswire.com/news/home/20160428005568/en/

Net sales for the third quarter were $1.6 billion, an increase of 11 percent compared to the prior year or 12 percent excluding the impact of foreign currency translation (ex-FX). Connected Car net sales increased five percent (six percent ex-FX) primarily due to higher take rates. Lifestyle Audio net sales increased 11 percent (12 percent ex-FX) due to the acquisition of Bang & Olufsen Automotive, higher car audio take rates and higher consumer audio sales. Net sales in Professional Solutions decreased four percent (three percent ex-FX) mainly due to lower demand in Brazil and certain European markets, as well as channel rationalization to support a solutions-based go-to-market structure. Connected Services net sales were $166 million compared to $67 million in the prior year, primarily due to the expansion of the Company's services portfolio as a result of the acquisition of Symphony Teleca (STC).

On a GAAP basis, third quarter operating income increased 48 percent to $135 million compared to $92 million in the prior year and EBITDA increased 41 percent to $186 million compared to $132 million in the prior year. Earnings per diluted share increased 23 percent to $1.22 compared to $0.99 in the prior year. The Company recorded $13 million of restructuring, non-recurring charges and acquisition-related items compared to $23 million in the prior year. The decrease was primarily due to lower restructuring costs compared to the prior year.

Excluding restructuring, non-recurring charges and acquisition-related items, third quarter operating income increased 30 percent to $148 million compared to $114 million in the prior year, and EBITDA increased 26 percent to $189 million compared to $150 million in the prior year. Earnings per diluted share were $1.36 compared to $1.22 in the prior year.

"For the 12th consecutive quarter, HARMAN has delivered top and bottom line growth, and in the quarter, we grew EBITDA 26 percent year-over-year. Our Connected Car and Lifestyle Audio divisions, which represent approximately 75 percent of our revenue, continue to deliver strong results. In our Professional Solutions division, we are taking decisive actions to improve performance and better position HARMAN for growth," said Dinesh C. Paliwal, the Company's Chairman, President and CEO.

"HARMAN is capitalizing on the robust demand for seamless, secure connectivity across the full vehicle market. On top of the record $6.2 billion in automotive awards we announced in fiscal 2015, I am very pleased with the additional $3.5 billion of new automotive awards secured year-to-date, including a breakthrough display audio infotainment award."



           
FY 2016 Key Figures - Total Company       Three Months Ended March 31     Nine Months Ended March 31
       

Increase
(Decrease)

       

Increase
(Decrease)

                                             
$ millions (except per share data) 3M FY16 3M FY15

Including
Currency
Changes

   

Excluding
Currency
Changes1

9M FY16 9M FY15

Including
Currency
Changes

   

Excluding
Currency
Changes1

                                                   
Net sales       1,628     1,464     11%     12%     5,031     4,477     12%     18%
Gross profit       493     418     18%     19%     1,525     1,326     15%     20%
Percent of net sales       30.3%     28.6%                 30.3%     29.6%            
SG&A       358     327     9%     11%     1,099     970     13%     18%
Operating income       135     92     48%     48%     426     356     20%     23%
Percent of net sales       8.3%     6.2%                 8.5%     8.0%            
EBITDA       186     132     41%     42%     592     471     26%     30%
Percent of net sales       11.4%     9.0%                 11.8%     10.5%            
Net Income attributable to HARMAN International Industries, Incorporated       89     70     26%     25%     289     270     7%     10%
Diluted earnings per share       1.22     0.99     23%     22%     3.98     3.83     4%     7%
Restructuring & non-recurring costs       12     13                 32     32            
Acquisition-related items       1     10                 34     15            

Non-GAAP - operational1

                                                 
Gross profit       495     422     17%     18%     1,531     1,318     16%     21%
Percent of net sales       30.4%     28.8%                 30.4%     29.4%            
SG&A       347     308     13%     14%     1,038     914     14%     18%
Operating income       148     114     30%     30%     492     404     22%     27%
Percent of net sales       9.1%     7.8%                 9.8%     9.0%            
EBITDA       189     150     26%     27%     611     511     19%     24%
Percent of net sales       11.6%     10.2%                 12.1%     11.4%            
Net Income attributable to HARMAN International Industries, Incorporated       99     87     14%     13%     340     305     12%     16%
Diluted earnings per share       1.36     1.22     11%     10%     4.69     4.33     8%     12%
Shares outstanding - diluted (in millions)       73     71                 73     70            
1 A non-GAAP measure, see reconciliations of non-GAAP measures later in this release.
 

Summary of Operations - Gross Margin and SG&A (Non-GAAP)

Gross margin for the third quarter of fiscal year 2016 increased 160 basis points to 30.4 percent. The improvement was primarily due to the impact of higher sales volume leveraging a more efficient fixed production cost base and productivity initiatives.

In the third quarter of fiscal year 2016, SG&A expense as a percentage of net sales increased 30 basis points to 21.3 percent compared to 21.0 percent in the prior year due to higher selling and marketing expenses.

2016 Guidance Update

HARMAN updated its financial outlook for fiscal 2016. The Company now forecasts fiscal 2016 revenue of approximately $6.825 billion and operational earnings per share of $6.20. The majority of the revenue and EPS reduction is related to weakness in the Professional Solutions division as well as supply constraints as a result of the recent earthquakes in Japan.

       
  August 2015 April 20161
Revenue ~$7.0 billion ~$6.825 billion
EPS2 ~$6.50 ~$6.20

1. Includes the previously announced $0.05 reduction for the impact of the TowerSec acquisition.

2. Non-GAAP, excluding restructuring, non-recurring items, and purchase accounting expenses related to acquisitions.
 

Investor Call Today April 28, 2016

At 11:00 a.m. EDT today, HARMAN's management will host an analyst and investor conference call to discuss the third quarter results. Those who wish to participate via audio in the earnings conference call should dial 1 (888) 224-7971 (U.S.) or +1 (303) 223-2684 (International) ten minutes before the call and reference HARMAN, Access Code: 21809222.

In addition, HARMAN invites you to visit the Investors section of its website at: www.harman.com where visitors can sign-up for email alerts and conveniently download copies of historical earnings releases and supporting slide presentations, among other documents. The fiscal third quarter earnings release and supporting materials were posted on the site at approximately 8:00 a.m. EDT today.

A replay of the call will also be available following its completion at approximately 1:00 p.m. EDT. The replay will be available through Friday, July 29, 2016 at 1:00 p.m. EDT. To listen to the replay, dial 1 (800) 633-8284 (U.S.) or +1 (402) 977-9140 (International), Access Code: 21809222. If you need technical assistance, call the toll-free Global Crossing Customer Care Line at 1 (800) 473-0602 (U.S.) or +1 (303) 446-4604 (International).

General Information

HARMAN (harman.com) designs and engineers connected products and solutions for automakers, consumers, and enterprises worldwide, including connected car systems, audio and visual products, enterprise automation solutions; and connected services. With leading brands including AKG®, Harman Kardon®, Infinity®, JBL®, Lexicon®, Mark Levinson® and Revel®, HARMAN is admired by audiophiles, musicians and the entertainment venues where they perform around the world. More than 25 million automobiles on the road today are equipped with HARMAN audio and connected car systems. The Company's software services power billions of mobile devices and systems that are connected, integrated and secure across all platforms, from work and home to car and mobile. HARMAN has a workforce of approximately 29,000 people across the Americas, Europe, and Asia and reported sales of $6.7 billion during the 12 months ended March 31, 2016. The Company's shares are traded on the New York Stock Exchange under the symbol NYSE:HAR.

A reconciliation of the non-GAAP measures included in this press release to the most comparable GAAP measures is provided in the tables contained at the end of this press release. HARMAN does not intend for this information to be considered in isolation or as a substitute for other measures prepared in accordance with GAAP.

Forward-Looking Information

Except for historical information contained herein, the matters discussed in this earnings presentation are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. One should not place undue reliance on these statements. The Company bases these statements on particular assumptions that it has made in light of its industry experience, as well as its perception of historical trends, current market conditions, current economic data, expected future developments and other factors that the Company believes are appropriate under the circumstances. These statements involve risks, uncertainties and assumptions that could cause actual results to differ materially from those suggested in the forward-looking statements, including but not limited to: (1) the Company's ability to maintain profitability if there are delays in its product launches or increased pricing pressure from its customers; (2) the loss of one or more significant customers, the loss of a significant platform with an automotive customer or the in-sourcing of certain services by the Company's automotive customers; (3) fluctuations in currency exchange rates, particularly with respect to the value of the U.S. Dollar and the Euro; (4) fluctuations in the price and supply of raw materials including, without limitation, petroleum, copper, steel, aluminum, synthetic resins, rare metals and rare-earth minerals, or shortages of materials, parts and components; (5) the inability of the Company's suppliers to deliver products at the scheduled rate and disruptions arising in connection therewith; (6) the Company's ability to maintain a competitive technological advantage through innovation and leading product designs; (7) the Company's ability to integrate successfully its recently completed and future acquisitions; (8) the Company's ability to attract and retain qualified senior management and to prepare and implement an appropriate succession plan for its critical organizational positions; (9) the Company's failure to maintain the value of its brands and implementing a sufficient brand protection program; and (10) other risks detailed in the Harman International Industries, Incorporated Annual Report on Form 10-K for the fiscal year ended June 30, 2015 and other filings made by the Company with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update or revise any forward-looking statement except as required by law.

This earnings release also makes reference to the Company's awarded business or "backlog", which represents the estimated future lifetime net sales for all customers. The Company's future awarded business does not represent firm customer orders. The Company reports its awarded business primarily based on written award letters. To validate these awards, the Company uses various assumptions including global vehicle production forecasts, customer take rates for the Company's products, revisions to product life cycle estimates and the impact of annual price reductions and exchange rates, among other factors. These assumptions are updated and reported externally on an annual basis.

APPENDIX

Connected Car

           
FY 2016 Key Figures - Connected Car       Three Months Ended March 31     Nine Months Ended March 31
       

Increase
(Decrease)

       

Increase
(Decrease)

                                       
$ millions (except per share data) 3M FY16 3M FY15

Including
Currency
Changes

   

Excluding
Currency
Changes1

9M FY16 9M FY15

Including
Currency
Changes

   

Excluding
Currency
Changes1

                                                   
Net sales       767     730     5%     6%     2,259     2,153     5%     11%
Gross profit       202     164     23%     23%     562     503     12%     17%
Percent of net sales       26.3%     22.5%                 24.9%     23.4%            
SG&A       106     91     17%     18%     295     280     5%     13%
Operating income       96     74     30%     29%     267     223     20%     22%
Percent of net sales       12.5%     10.1%                 11.8%     10.4%            
EBITDA       115     91     27%     27%     324     275     18%     21%
Percent of net sales       15.0%     12.4%                 14.4%     12.8%            
Restructuring & non-recurring costs       2     1                 5     5            
Acquisition-related items       1     -                 3     -            

Non-GAAP - operational1

                                                 
Gross profit       203     165     23%     23%     566     507     12%     17%
Percent of net sales       26.4%     22.7%                 25.0%     23.6%            
SG&A       104     91     14%     16%     291     279     4%     12%
Operating income       98     74     32%     31%     275     228     20%     23%
Percent of net sales       12.8%     10.2%                 12.2%     10.6%            
EBITDA       116     90     29%     28%     326     276     18%     21%
Percent of net sales       15.2%     12.3%                 14.4%     12.8%            
1 A non-GAAP measure, see reconciliations of non-GAAP measures later in this release.
 

Net sales in the third quarter of fiscal 2016 were $767 million, an increase of five percent (six percent ex-FX) compared to the prior year. The increase in net sales was due to higher take rates.

On a non-GAAP basis in the third quarter of fiscal 2016, gross margin increased 370 basis points to 26.4 percent compared to the prior year primarily due to the impact of higher sales volume leveraging a more efficient fixed production cost base, lower warranty costs and supplier productivity. SG&A expenses as a percent of sales increased 110 basis points to 13.6 percent compared to the prior year due to higher information technology costs to support future business.

Connected Car Highlights

HARMAN continues to expand and diversify its Connected Car offerings with global automakers. The Company secured embedded infotainment business with a new North American customer to provide a display audio solution across multiple car lines. HARMAN won a global expansion award from a European OEM to support higher take rates, as well a platform refresh for 2017 vehicles. In addition, the Company received a follow-on award to expand the next generation integrated telematics program for Daimler.

HARMAN launched embedded infotainment solutions in a number of new vehicles, including the Audi Q2 crossover, the Seat (VW) Alteca SUV and Maserati (FCA) Levante supercar. In Japan, HARMAN launched an embedded infotainment system featuring Apple CarPlay on the new Suzuki Ignis. The Company also launched model refreshes and line extensions featuring its embedded infotainment solutions in the Porsche Macan, 911, and 718 Boxster, as well as the Mercedes Benz C-class convertible, GLC Coupe and AMG GLC43.

HARMAN continued to reinforce its leadership in technology innovations that advance connectivity, driver safety, and autonomous driving. During the Geneva Motor Show, HARMAN demonstrated its full suite of connected car technologies through the LIVS (Life-enhancing Intelligent Vehicle System) automotive compute platform. The Company also expanded its partnership with NXP to add V2X support, which allows ADAS alerts to be delivered to vehicles from other cars and surrounding infrastructure to warn drivers about potentially hazardous traffic situations.

In March, HARMAN completed the acquisition of TowerSec, a leading global provider of automotive cybersecurity solutions. TowerSec's products, featuring intrusion detection and prevention systems as well as secure telematics offerings, will be integrated into HARMAN's "5+1" cybersecurity framework.

Lifestyle Audio

             
FY 2016 Key Figures - Lifestyle Audio       Three Months Ended March 31       Nine Months Ended March 31
           

Increase
(Decrease)

           

Increase
(Decrease)

                                                 
$ millions (except per share data)

3M
FY16

3M
FY15

Including
Currency
Changes

     

Excluding
Currency
Changes1

9M
FY16

9M
FY15

Including
Currency
Changes

     

Excluding
Currency
Changes1

                                                                 
Net sales       473       424       11%       12%       1,560       1,350       16%       20%
Gross profit       167       133       26%       27%       522       442       18%       22%
Percent of net sales       35.4%       31.3%                       33.5%       32.8%                
SG&A       107       88       21%       22%       331       294       13%       18%
Operating income       61       45       36%       37%       191       148       29%       30%
Percent of net sales       12.8%       10.5%                       12.3%       11.0%                
EBITDA       74       56       33%       34%       232       178       30%       32%
Percent of net sales       15.7%       13.2%                       14.9%       13.2%                
Restructuring & non-recurring costs       1       7                       7       19                
Acquisition-related items       2       1                       12       4                

Non-GAAP - operational1

                                                               
Gross profit       168       135       24%       25%       523       434       21%       25%
Percent of net sales       35.5%       31.8%                       33.5%       32.1%                
SG&A       104       83       26%       27%       314       262       20%       24%
Operating income       64       52       23%       23%       210       172       22%       26%
Percent of net sales       13.5%       12.3%                       13.4%       12.7%                
EBITDA       72       61       18%       19%       235       199       18%       21%
Percent of net sales       15.3%       14.4%                       15.1%       14.7%                
1 A non-GAAP measure, see reconciliations of non-GAAP measures later in this release.
 

Net sales in the third quarter of fiscal 2016 were $473 million, an increase of 11 percent (12 percent ex-FX) compared to the prior year primarily due to the acquisition of Bang & Olufsen Automotive, higher car audio take rates and higher consumer audio sales.

On a non-GAAP basis in the third quarter of fiscal 2016, gross margin improved by 370 basis points to 35.5 percent compared to the prior year, primarily due to improved operating leverage as a result of higher sales volume, the acquisition of Bang & Olufsen Automotive and supplier productivity. SG&A expenses as a percentage of sales increased 250 basis points to 22.0 percent primarily due to higher research and development to support new car audio awards.

Lifestyle Audio Highlights

HARMAN won new business awards with Lincoln, Toyota and Subaru. During the quarter, the Company launched branded car audio solutions in the Maserati Levante (Harman Kardon / Bowers & Wilkins), the Lincoln MKZ (Revel), the new Alfa Romeo Giulia (Harman Kardon) and the Ferrari GTC 4 Lusso (JBL Pro).

HARMAN inaugurated a new global development center in Suzhou, China. The center is now the Company's largest comprehensive research and development center for car audio products worldwide.

The Company entered into a multi-year agreement with Lufthansa to supply award-winning AKG branded active noise cancelling headphones for all business class seats beginning in September 2016. This quarter, HARMAN's Consumer Audio products were again recognized for their design and innovation, winning a record 23 Red Dot awards.

Professional Solutions

             
FY 2016 Key Figures - Professional Solutions       Three Months Ended March 31       Nine Months Ended March 31
           

Increase
(Decrease)

           

Increase
(Decrease)

                                                                 
$ millions (except per share data)

3M
FY16

3M
FY15

Including
Currency
Changes

     

Excluding
Currency
Changes1

9M
FY16

9M
FY15

Including
Currency
Changes

     

Excluding
Currency
Changes1

                                                                 
Net sales       232       242       (4%)       (3%)       728       764       (5%)       (2%)
Gross profit       78       100       (23%)       (22%)       283       315       (10%)       (8%)
Percent of net sales       33.5%       41.5%                       38.9%       41.3%                
SG&A       75       84       (11%)       (10%)       231       240       (4%)       (1%)
Operating income       3       16       (83%)       (83%)       52       75       (30%)       (28%)
Percent of net sales       1.1%       6.6%                       7.2%       9.8%                
EBITDA       12       24       (52%)       (51%)       79       100       (21%)       (19%)
Percent of net sales       5.0%       10.0%                       10.8%       13.1%                
Restructuring & non-recurring costs       4       6                       11       8                

Non-GAAP - operational1

                                                               
Gross profit       78       101       (22%)       (21%)       284       312       (9%)       (6%)
Percent of net sales       33.7%       41.5%                       39.0%       40.8%                
SG&A       71       79       (10%)       (9%)       220       229       (4%)       (1%)
Operating income       7       22       (67%)       (67%)       64       83       (23%)       (21%)
Percent of net sales       3.1%       9.0%                       8.7%       10.9%                
EBITDA       15       30       (48%)       (48%)       88       108       (18%)       (16%)
Percent of net sales       6.6%       12.3%                       12.1%       14.1%                
1 A non-GAAP measure, see reconciliations of non-GAAP measures later in this release.
 

Net sales in the third quarter of fiscal 2016 were $232 million, a decrease of four percent (a decrease of three percent ex-FX) compared to the prior year. The decrease in net sales is primarily due to lower demand in Brazil and certain European markets, as well as channel rationalization to support a solutions-based go-to-market structure.

On a non-GAAP basis in the third quarter of fiscal 2016, gross margin decreased 780 basis points to 33.7 percent, driven by discounts on older inventory and to partially offset foreign currency impacts. In addition, the Company incurred incremental costs associated with migrating manufacturing to Hungary and reduced operating leverage as a result of lower sales. SG&A expense as a percentage of sales decreased 190 basis points to 30.6 percent compared to 32.5 percent in the prior year, driven by tighter expense controls.

Professional Solutions Highlights

HARMAN's entertainment and enterprise solutions were selected by leading system integrators and installers around the world. Notable installations included Norwegian Cruise Line's The Pride of America and Raymond James Stadium in Tampa Bay. The Company's enterprise solutions were installed in meeting rooms across the globe for customers including eBay and Societe Generale. The Company's solutions also powered a wide range of high-profile special events, music festivals and televised award shows, including the Super Bowl 50 Halftime Show and the 58th Annual Grammy Awards.

Connected Services

             
FY 2016 Key Figures - Connected Services       Three Months Ended March 31       Nine Months Ended March 31
           

Increase
(Decrease)

           

Increase
(Decrease)

                                                                 
$ millions (except per share data)

3M
FY16

3M
FY15

Including
Currency
Changes

     

Excluding
Currency
Changes1

9M
FY16

9M
FY15

Including
Currency
Changes

     

Excluding
Currency
Changes1

                                                                 
Net sales       166       67       147%       159%       509       208       144%       177%
Gross profit       48       21       131%       138%       162       63       155%       184%
Percent of net sales       28.7%       30.7%                       31.7%       30.4%                
SG&A       36       14       150%       157%       140       36       283%       314%
Operating income       12       6       87%       96%       22       27       (19%)       (6%)
Percent of net sales       7.1%       9.4%                       4.3%       12.9%                
EBITDA       18       8       135%       146%       57       29       94%       125%
Percent of net sales       11.0%       11.6%                       11.2%       14.1%                
Restructuring & non-recurring costs       3       -                       8       -                
Acquisition-related items       (1)       -                       22       -                

Non-GAAP - operational1

                                                               
Gross profit       48       21       131%       138%       162       63       155%       184%
Percent of net sales       28.7%       30.7%                       31.7%       30.4%                
SG&A       34       14       135%       142%       109       36       199%       224%
Operating income       14       6       121%       131%       52       27       94%       125%
Percent of net sales       8.4%       9.4%                       10.3%       12.9%                
EBITDA       18       8       132%       143%       63       29       115%       148%
Percent of net sales       10.9%       11.6%                       12.4%       14.1%                
1 A non-GAAP measure, see reconciliations of non-GAAP measures later in this release.
 

Net sales in the third quarter of fiscal 2016 were $166 million compared to $67 million in the prior year, driven primarily by the expansion of the Company's services portfolio. On a non-GAAP basis, gross margin was 28.7 percent and SG&A expenses as a percentage of sales were 20.3 percent.

Connected Services Highlights

HARMAN secured business to provide product development services for Blackberry, British Telecom, Intel and Sony, among others. In addition, the Company continued to capitalize on its industry-leading over-the-air (OTA) software update technology, winning a cross-car line award with a global automaker. Over the air updates are the foundation technology for the connected car, allowing automakers to quickly enable new features, fix bugs, upgrade firmware, and offer a rich suite of end-to-end services.

In conjunction with the HARMAN Service Delivery Platform, the Company introduced its Automotive Service Provider Program. The program facilitates the integration of a variety of enterprise and vehicle-centric applications and services from leading providers. HARMAN added 10 new data, workflow and content service providers for its open platform, which enables automakers to provide a wide range of context-based services, including real-time traffic, location based services, shopping, parking, streaming audio and live news.

HARMAN also received a number of industry accolades for its products and services. Respected advisory firm Zinnov recognized the Company for the second time, naming HARMAN a top engineering services provider. HARMAN was placed in the "Leadership Zone" for the Information Services, New Media and Gaming categories. HfS Research also honored HARMAN with a place in its "Winner's Circle", recognizing the Company's excellence in software product engineering services.

Other (Corporate)

             

FY 2016 Key Figures - Other

 

 

Three Months Ended March 31

 

 

Nine Months Ended March 31

 

       

Increase
(Decrease)

       

Increase
(Decrease)

             
$ millions (except per share data)

3M
FY16

3M
FY15

Including
Currency
Changes

   

Excluding
Currency
Changes1

9M
FY16

9M
FY15

Including
Currency
Changes

Excluding
Currency
Changes1

                                                 
SG&A     36     49     (28%)     (28%)     107     119     (10%)     (10%)
Restructuring & non-recurring costs     1     -                 1     -            
Acquisition-related items     -     9                 (2)     12            
Non-GAAP - operational1                                                
SG&A     35     40     (12%)     (12%)     108     107     1%     1%
1 A non-GAAP measure, see reconciliations of non-GAAP measures later in this release.
 

Other (Corporate) SG&A expenses include compensation, benefit and occupancy costs for corporate employees, new technology innovation and expenses associated with the Company's brand identity campaign. On a non-GAAP basis, Corporate SG&A as a percentage of total Company net sales decreased 60 basis points to 2.2 percent.

 

HARMAN International Industries, Incorporated

Consolidated Statements of Income

                 
(In thousands, except earnings per share data; unaudited)      

Three Months Ended
March 31,

      Nine Months Ended

March 31,

       

2016

     

2015

     

2016

     

2015

Net sales       $1,628,082       $1,464,193       $5,031,127       $4,476,664
Cost of sales       1,135,215       1,046,063       3,505,770       3,150,736
Gross profit       492,867       418,130       1,525,357       1,325,928
Selling, general and administrative expenses       357,514       326,623       1,099,384       969,881
Operating income       135,353       91,507       425,973       356,047
Other expenses:                                
Interest expense, net       8,633       3,001       24,558       7,861
Foreign exchange losses (gains), net       3,570       (3,406)       2,612       (4,366)
Miscellaneous, net       2,912       2,294       11,262       6,932
Income before income taxes       120,238       89,618       387,541       345,620
Income tax expense, net       31,419       19,346       98,019       76,250
Equity in net loss of unconsolidated subsidiaries       -       23       -       23
Net income       88,819       70,249       289,522       269,347
Net (loss) income attributable to non-controlling interest       (5)       (46)       702       (156)
Net income attributable to HARMAN International Industries, Incorporated      

88,824

     

70,295

     

288,820

     

269,503

Earnings per share:                                
Basic       $1.23       $1.00       $4.01       $3.87
Diluted       $1.22       $0.99       $3.98       $3.83
Weighted average shares outstanding:                                
Basic       72,020       69,946       72,046       69,557
Diluted       72,642       70,795       72,524       70,322
                       
 

HARMAN International Industries, Incorporated

Consolidated Balance Sheets

                 
(In thousands; unaudited)       March 31,       June 30,
       

2016

     

2015

ASSETS                
Current Assets                
Cash and cash equivalents       $360,420       $649,513
Receivables, net       1,087,327       1,024,139
Inventories       840,216       693,574
Other current assets       502,943       461,366
Total current assets       2,790,906       2,828,592
Property, plant and equipment, net       576,788       552,421
Intangible assets, net       496,289       669,667
Goodwill       1,426,202       1,287,180
Deferred tax assets, long-term, net       116,212       100,032
Other assets       382,000       428,008
Total assets      

$5,788,397

     

$5,865,900

                 
LIABILITIES AND EQUITY                
Current liabilities                
Current portion of long-term debt       $4,227       $4,550
Short-term debt       812       1,021
Accounts payable       781,962       918,910
Accrued liabilities       673,371       907,024
Accrued warranties       173,479       163,331
Income taxes payable       29,022       76,131
Total current liabilities       1,662,873       2,070,967
Borrowings under revolving credit facility       483,000       283,125
Long-term debt       803,809       797,542
Pension liability       189,259       186,662
Other non-current liabilities       174,865       134,778
Total liabilities       3,313,806       3,473,074
Total HARMAN International Industries, Incorporated shareholders' equity       2,474,573       2,374,613
Noncontrolling interest       18       18,213
Total equity       2,474,591       2,392,826
Total liabilities and equity      

$5,788,397

     

$5,865,900

     
 

HARMAN International Industries, Incorporated

Consolidated Statement of Income

Reconciliation of GAAP to Non-GAAP Results

         
(In thousands except earnings per share data; unaudited)       Three Months Ended March 31, 2016
                         
       

GAAP

     

Adjustments

     

Non-GAAP - Operational

Net sales       $1,628,082       $0       $1,628,082
Cost of sales       1,135,215       (2,213)a       1,133,002
Gross profit       492,867       2,213       495,080
Selling, general and administrative expenses       357,514       (10,666)b       346,848
Operating income       135,353       12,879       148,232
Other expenses:                        
Interest expense, net       8,633       -       8,633
Foreign exchange losses (gains), net       3,570       (1)       3,569
Miscellaneous, net       2,912       (408)       2,504
Income before income taxes       120,238       13,288       133,526
Income tax expense, net       31,419       3,482c       34,901
Net income       88,819       9,806       98,625
Net income attributable to non-controlling interest       (5)       -       (5)
Net income attributable to HARMAN International Industries, Incorporated      

$88,824

     

$9,806

     

$98,630

Earnings per share:                        
Basic       $1.23       $0.14       $1.37
Diluted       $1.22       $0.13       $1.36
Weighted average shares outstanding:                        
Basic       72,020               72,020
Diluted       72,642               72,642
           

a) Restructuring expense in Cost of Sales was $2.2 million for projects to increase manufacturing productivity.

b) Restructuring expense in SG&A was $3.4 million primarily due to projects to increase productivity in engineering, manufacturing and administrative functions; other non-recurring expense included in SG&A was $7.3 million. Acquisition-related expenses were $1.2 million, including $7.9 million of intangible amortization expenses.

c) The tax benefits are calculated by multiplying the actual restructuring / non-recurring charge in each individual country by the discrete tax rate within that specific country.

 

HARMAN has provided a reconciliation of non-GAAP measures in order to provide the users of these consolidated financial statements with a better understanding of its non-recurring charges. These non-GAAP measures are not measurements under accounting principles generally accepted in the United States. These measurements should be considered in addition to, but not as a substitute for, the information contained in HARMAN's consolidated financial statements prepared in accordance with US GAAP.

 
 

HARMAN International Industries, Incorporated

Consolidated Statement of Income

Reconciliation of GAAP to Non-GAAP Results

         
(In thousands except earnings per share data; unaudited)       Nine Months Ended March 31, 2016
                         
       

GAAP

     

Adjustments

     

Non-GAAP - Operational

Net sales       $5,031,127       $0       $5,031,127
Cost of sales       3,505,770       (5,214)a       3,500,556
Gross profit       1,525,357       5,214       1,530,571
Selling, general and administrative expenses       1,099,384       (60,963)b       1,038,421
Operating income       425,973       66,177       492,150
Other expenses:                        
Interest expense, net       24,558       -       24,558
Foreign exchange losses (gains), net       2,612       (1)       2,611
Miscellaneous, net       11,262       (3,545)       7,717
Income before income taxes       387,541       69,723       457,264
Income tax expense, net       98,019       18,668c       116,687
Equity in net loss of unconsolidated subsidiaries       -       -       -
Net income       289,522       51,055       340,577
Net income attributable to non-controlling interest       702       -       702
Net income attributable to HARMAN International Industries, Incorporated      

$288,820

     

$51,055

     

$339,875

Earnings per share:                        
Basic       $4.01       $0.71       $4.72
Diluted       $3.98       $0.70       $4.69
Weighted average shares outstanding:                        
Basic       72,046               72,046
Diluted       72,524               72,524

 

           

a) Restructuring expense in Cost of Sales was $5.2 million for projects to increase manufacturing productivity.

b) Restructuring expense in SG&A was $6.5 million primarily due to projects to increase productivity in engineering, manufacturing and administrative functions; other non-recurring expense included in SG&A was $54.5 million. Acquisition-related expenses were $34.4 million, including $41.2 million of intangible amortization expenses.

c) The tax benefits are calculated by multiplying the actual restructuring / non-recurring charge in each individual country by the discrete tax rate within that specific country.

 

HARMAN has provided a reconciliation of non-GAAP measures in order to provide the users of these consolidated financial statements with a better understanding of its non-recurring charges. These non-GAAP measures are not measurements under accounting principles generally accepted in the United States. These measurements should be considered in addition to, but not as a substitute for, the information contained in HARMAN's consolidated financial statements prepared in accordance with US GAAP.

 
 

HARMAN International Industries, Incorporated

Consolidated Statement of Income

Reconciliation of GAAP to Non-GAAP Results

         
(In thousands except earnings per share data; unaudited)       Three Months Ended March 31, 2015
                         
       

GAAP

     

Adjustments

     

Non-GAAP - Operational

Net sales       $1,464,193       $0       $1,464,193
Cost of sales       1,046,063       (3,599)a       1,042,464
Gross profit       418,130       3,599       421,729
Selling, general and administrative expenses       326,623       (18,999)b       307,624
Operating income       91,507       22,598       114,105
Other expenses:                        
Interest expense, net       3,001       -       3,001
Foreign exchange losses (gains), net       (3,406)       -       (3,406)
Miscellaneous, net       2,294       -       2,294
Income before income taxes       89,618       22,598       112,216
Income tax expense, net       19,346       6,170c       25,516
Equity in loss of unconsolidated subsidiary       23       -       23
Net income       70,249       16,428       86,677
Net income attributable to non-controlling interest       (46)       -       (46)
Net income attributable to HARMAN International Industries, Incorporated      

$70,295

     

$16,428

     

$86,723

Earnings per share:                        
Basic       $1.00       $0.23       $1.24
Diluted       $0.99       $0.23       $1.22
Weighted average shares outstanding:                        
Basic       69,946               69,946
Diluted       70,795               70,795
           

a) Restructuring expense in Cost of Sales was $3.6 million for projects to increase manufacturing productivity.

b) Restructuring expense in SG&A was $11.2 million primarily due to projects to increase productivity in engineering, manufacturing and administrative functions; other non-recurring expense included in SG&A was $7.8 million including M&A deal related expenses.

c) The tax benefits are calculated by multiplying the actual restructuring / non-recurring charge in each individual

country by the discrete tax rate within that specific country.

 

HARMAN has provided a reconciliation of non-GAAP measures in order to provide the users of these consolidated financial statements with a better understanding of its non-recurring charges. These non-GAAP measures are not measurements under accounting principles generally accepted in the United States. These measurements should be considered in addition to, but not as a substitute for, the information contained in HARMAN's consolidated financial statements prepared in accordance with US GAAP.

 
 

HARMAN International Industries, Incorporated

Consolidated Statement of Income

Reconciliation of GAAP to Non-GAAP Results

         
(In thousands except earnings per share data; unaudited)       Nine Months Ended March 31, 2015
                         
       

GAAP

     

Adjustments

     

Non-GAAP - Operational

Net sales       $4,476,664       $0       $4,476,664
Cost of sales       3,150,736       8,014       3,158,750
Gross profit       1,325,928       (8,014)a       1,317,914
Selling, general and administrative expenses       969,881       (55,966)b       913,915
Operating income       356,047       47,952       403,999
Other expenses:                        
Interest expense, net       7,861       -       7,861
Foreign exchange losses (gains), net       (4,366)       -       (4,366)
Miscellaneous, net       6,932       -       6,932
Income before income taxes       345,620       47,952       393,572
Income tax expense, net       76,250       12,799c       89,049
Equity in net loss of unconsolidated subsidiaries       23       -       23
Net income       269,347       35,153       304,500
Net income attributable to non-controlling interest       (156)       -       (156)
Net income attributable to HARMAN International Industries, Incorporated      

$269,503

     

$35,153

     

$304,656

Earnings per share:                        
Basic       $3.87       $0.51       $4.38
Diluted       $3.83       $0.50       $4.33
Weighted average shares outstanding:                        
Basic       69,557               69,557
Diluted       70,322               70,322
           

a) Restructuring expense in Cost of Sales was $7.9 million for projects to increase manufacturing productivity, offset by a $15.9M accrual reversal for a US Customs / NAFTA related exposure.

b) Restructuring expense in SG&A was $38.9 million primarily due to projects to increase productivity in engineering and administrative functions. Other non-recurring expense includes in SG&A was $17.1M including acquisition-related expenses.

c) The tax benefits are calculated by multiplying the actual restructuring / non-recurring charge in each individual country by the statutory tax rate within that specific country.

 

HARMAN has provided a reconciliation of non-GAAP measures in order to provide the users of these consolidated financial statements with a better understanding of its non-recurring charges. These non-GAAP measures are not measurements under accounting principles generally accepted in the United States. These measurements should be considered in addition to, but not as a substitute for, the information contained in HARMAN's consolidated financial statements prepared in accordance with US GAAP.

 

HARMAN International Industries, Incorporated

Selected Financial Data

Reconciliation of GAAP to Non-GAAP Results

Foreign Currency Translation Impact

 

               
(In thousands; unaudited)       Three Months Ended March 31,      

Increase /
(Decrease)

                 
       

2016

     

2015

       
Net sales - nominal currency       $1,628,082       $1,464,193       11%
Effects of foreign currency translation (1)              

(15,917)

       
Net sales - local currency       $1,628,082       $1,448,276       12%
                         
Gross profit - nominal currency       $492,867       $418,130       18%
Effects of foreign currency translation (1)              

(3,254)

       
Gross profit - local currency       $492,867       $414,876       19%
                         
SG&A - nominal currency       $357,514       $326,623       9%
Effects of foreign currency translation (1)              

(3,127)

       
SG&A - local currency       $357,514       $323,496       11%
                         
Operating income - nominal currency       $135,353       $91,507       48%
Effects of foreign currency translation (1)              

(127)

       
Operating income - local currency       $135,353       $91,380       48%
                         
Net income attributable to HARMAN International Industries, Incorporated - nominal currency       $88,824       $70,295       26%
Effects of foreign currency translation (1)              

825

       
Net income attributable to HARMAN International Industries, Incorporated - local currency       $88,824       $71,120       25%
                         
(1) Impact of restating prior year results at current year foreign exchange rates.
 

HARMAN has provided a reconciliation of the non-GAAP measures in the table above to provide the users of these consolidated financial statements with a better understanding of the Company's performance. Because changes in currency exchange rates affect its reported financial results, the Company shows the rates of change both including and excluding the effect of these changes in exchange rates. The Company encourages readers of its financial statements to evaluate its financial performance excluding the impact of foreign currency translation. These non-GAAP measures are not measurements under accounting principles generally accepted in the United States. This measurement should be considered in addition to, but not as a substitute for, the information contained in HARMAN's consolidated financial statements prepared in accordance with US GAAP.

 
 

HARMAN International Industries, Incorporated

Selected Financial Data

Reconciliation of Non-GAAP Results

Foreign Currency Translation Impact

                 
EXCLUDING restructuring and non-recurring charges

(In thousands; unaudited)

      Three Months Ended March 31,      

Increase /
(Decrease)

                 
       

2016

     

2015

       
Net sales - nominal currency       $1,628,082       $1,464,193       11%
Effects of foreign currency translation (1)              

(15,917)

       
Net sales - local currency       $1,628,082       $1,448,276       12%
                         
Gross profit - nominal currency       $495,080       $421,729       17%
Effects of foreign currency translation (1)              

(3,219)

       
Gross profit - local currency       $495,080       $418,510       18%
                         
SG&A - nominal currency       $346,848       $307,624       13%
Effects of foreign currency translation (1)              

(3,114)

       
SG&A - local currency       $346,848       $304,510       14%
                         
Operating income - nominal currency       $148,232       $114,105       30%
Effects of foreign currency translation (1)              

(105)

       
Operating income - local currency       $148,232       $114,000       30%
                         
Net income attributable to HARMAN International Industries, Incorporated - nominal currency       $98,630       $86,723       14%
Effects of foreign currency translation (1)              

846

       
Net income attributable to HARMAN International Industries, Incorporated - local currency       $98,630       $87,569       13%
                         
(1) Impact of restating prior year results at current year foreign exchange rates.
 

HARMAN has provided a reconciliation of the non-GAAP measures in the table above to provide the users of the consolidated financial statements with a better understanding of the Company's performance. Because changes in currency exchange rates affect its reported financial results, the Company shows the rates of change both including and excluding the effect of these changes in exchange rates. The Company encourages readers of its financial statements to evaluate its financial performance excluding the impact of foreign currency translation. These non-GAAP measures are not measurements under accounting principles generally accepted in the United States. This measurement should be considered in addition to, but not as a substitute for, the information contained in HARMAN's consolidated financial statements prepared in accordance with US GAAP.

 
 

HARMAN International Industries, Incorporated

Selected Financial Data

Reconciliation of GAAP to Non-GAAP Results

Foreign Currency Translation Impact

                 
(In thousands; unaudited)       Nine Months Ended March 31,      

Increase /
(Decrease)

                   
       

2016

     

2015

       
Net sales - nominal currency       $5,031,127       $4,476,664       12%
Effects of foreign currency translation (1)              

(214,786)

       
Net sales - local currency       $5,031,127       $4,261,878       18%
                         
Gross profit - nominal currency       $1,525,357       $1,325,928       15%
Effects of foreign currency translation (1)              

(51,602)

       
Gross profit - local currency       $1,525,357       $1,274,326       20%
                         
SG&A - nominal currency       $1,099,384       $969,881       13%
Effects of foreign currency translation (1)              

(40,629)

       
SG&A - local currency       $1,099,384       $929,252       18%
                         
Operating income - nominal currency       $425,973       $356,047       20%
Effects of foreign currency translation (1)              

(10,973)

       
Operating income - local currency       $425,973       $345,074       23%
                         
Net income attributable to HARMAN International Industries, Incorporated - nominal currency       $288,820       $269,503       7%
Effects of foreign currency translation (1)              

(6,853)

       
Net income attributable to HARMAN International Industries, Incorporated - local currency       $288,820       $262,650       10%
                         
(1) Impact of restating prior year results at current year foreign exchange rates.
 

HARMAN has provided a reconciliation of the non-GAAP measures in the table above to provide the users of the consolidated financial statements with a better understanding of the Company's performance. Because changes in currency exchange rates affect its reported financial results, the Company shows the rates of change both including and excluding the effect of these changes in exchange rates. The Company encourages readers of its financial statements to evaluate its financial performance excluding the impact of foreign currency translation. These non-GAAP measures are not measurements under accounting principles generally accepted in the United States. This measurement should be considered in addition to, but not as a substitute for, the information contained in HARMAN's consolidated financial statements prepared in accordance with US GAAP.

 
             

HARMAN International Industries, Incorporated

Selected Financial Data

Reconciliation of GAAP to Non-GAAP Results

Foreign Currency Translation Impact

                 
EXCLUDING restructuring and non-recurring charges

(In thousands; unaudited)

Nine Months Ended March 31,

Increase /
(Decrease)

                   
       

2016

     

2015

       
Net sales - nominal currency       $5,031,127       $4,476,664       12%
Effects of foreign currency translation (1)              

(214,786)

       
Net sales - local currency       $5,031,127       $4,261,878       18%
                         
Gross profit - nominal currency       $1,530,571       $1,317,914       16%
Effects of foreign currency translation (1)              

(52,150)

       
Gross profit - local currency       $1,530,571       $1,265,764       21%
                         
SG&A - nominal currency       $1,038,421       $(913,915)       14%
Effects of foreign currency translation (1)              

36,824

       
SG&A - local currency       $1,038,421       $(877,091)       18%
                         
Operating income - nominal currency       $492,150       $403,999       22%
Effects of foreign currency translation (1)              

(15,326)

       
Operating income - local currency       $492,150       $388,673       27%
                         
Net income attributable to HARMAN International Industries, Incorporated - nominal currency       $339,875       $304,656       12%
Effects of foreign currency translation (1)              

(11,206)

       
Net income attributable to HARMAN International Industries, Incorporated - local currency       $339,875       $293,450       16%
                         
(1) Impact of restating prior year results at current year foreign exchange rates.
 

HARMAN has provided a reconciliation of the non-GAAP measures in the table above to provide the users of the consolidated financial statements with a better understanding of the Company's performance. Because changes in currency exchange rates affect its reported financial results, the Company shows the rates of change both including and excluding the effect of these changes in exchange rates. The Company encourages readers of its financial statements to evaluate its financial performance excluding the impact of foreign currency translation. These non-GAAP measures are not measurements under accounting principles generally accepted in the United States. This measurement should be considered in addition to, but not as a substitute for, the information contained in HARMAN's consolidated financial statements prepared in accordance with US GAAP.

 
 

Harman International Industries, Incorporated

Reconciliation of GAAP to Non-GAAP Results

                 
(In thousands, except earnings per share data; unaudited)       Three Months Ended March 31, 2016       Three Months Ended March 31, 2015
                                                 
       

GAAP

     

Adjustments

     

Non-GAAP - Operational

     

GAAP

     

Adjustments

     

Non-GAAP - Operational

HARMAN                                                
Operating income       $135,353       $12,879       $148,232       $91,507       $22,598       $114,105
Depreciation & Amortization       51,005       (10,144)       40,861       40,262       (4,552)       35,710
EBITDA       186,358       2,735       189,093       131,769       18,046       149,815
CONNECTED CAR                                                
Operating income       95,617       2,689       98,306       73,661       563       74,224
Depreciation & Amortization       19,760       (1,880)       17,880       17,043       (1,166)       15,877
EBITDA       115,377       809       116,186       90,704       (603)       90,101
LIFESTYLE AUDIO                                                
Operating income       60,574       3,333       63,907       44,626       7,506       52,132
Depreciation & Amortization       13,853       (5,287)       8,566       11,410       (2,324)       9,086
EBITDA       74,427       (1,954)       72,473       56,036       5,182       61,218
PROFESSIONAL SOLUTIONS                                                
Operating income       2,667       4,415       7,082       16,043       5,659       21,702
Depreciation & Amortization       8,935       (631)       8,304       8,129       (99)       8,030
EBITDA       11,602       3,784       15,386       24,172       5,560       29,732
CONNECTED SERVICES                                                
Operating income       11,799       2,147       13,946       6,303       -       6,303
Depreciation & Amortization       6,484       (2,348)       4,136       1,482       -       1,482
EBITDA       18,283       (201)       18,082       7,785       -       7,785
                       

HARMAN has provided a reconciliation of non-GAAP measures in order to provide the users of these consolidated financial statements with a better understanding of its non-recurring charges. These non-GAAP measures are not measurements under accounting principles generally accepted in the United States. These measurements should be considered in addition to, but not as a substitute for, the information contained in HARMAN's consolidated financial statements prepared in accordance with US GAAP.

 
 

Harman International Industries, Incorporated

Reconciliation of GAAP to Non-GAAP Results

                 
(In thousands, except earnings per share data; unaudited)       Nine Months Ended March 31, 2016       Nine Months Ended March 31, 2015
                                                 
       

GAAP

     

Adjustments

     

Non-GAAP - Operational

     

GAAP

     

Adjustments

     

Non-GAAP - Operational

HARMAN                                                
Operating income       $425,973       $66,177       $492,150       $356,047       $47,952       $403,999
Depreciation & Amortization       165,841       (47,289)       118,552       114,808       (7,337)       107,471
EBITDA       591,814       18,888       610,702       470,855       40,615       511,470
CONNECTED CAR                                                
Operating income       267,102       7,468       274,570       223,007       5,247       228,254
Depreciation & Amortization       57,179       (5,523)       51,656       51,565       (3,828)       47,737
EBITDA       324,281       1,945       326,226       274,572       1,419       275,991
LIFESTYLE AUDIO                                                
Operating income       191,283       18,379       209,662       148,475       23,299       171,774
Depreciation & Amortization       40,673       (15,416)       25,257       29,512       (2,379)       27,133
EBITDA       231,956       2,963       234,919       177,987       20,920       198,907
PROFESSIONAL SOLUTIONS                                                
Operating income       52,304       11,231       63,535       75,128       7,910       83,038
Depreciation & Amortization       26,294       (1,890)       24,404       24,650       (165)       24,485
EBITDA       78,598       9,341       87,939       99,778       7,745       107,523
CONNECTED SERVICES                                                
Operating income       21,857       30,476       52,333       26,912       -       26,912
Depreciation & Amortization       35,239       (24,461)       10,778       2,484       -       2,484
EBITDA       57,096       6,015       63,111       29,396       -       29,396
                       

HARMAN has provided a reconciliation of non-GAAP measures in order to provide the users of these consolidated financial statements with a better understanding of its non-recurring charges. These non-GAAP measures are not measurements under accounting principles generally accepted in the United States. These measurements should be considered in addition to, but not as a substitute for, the information contained in HARMAN's consolidated financial statements prepared in accordance with US GAAP.

 
       

Harman International Industries, Incorporated

Intercompany Revenue Reconciliation, 3 Months Ended March 31, 2016

                                                 

Three Months Ended
March 31, 2016

Connected
Car

     

Lifestyle
Audio

     

Professional
Solutions

     

Connected
Services

      Eliminations       HARMAN
(In thousands; unaudited)                                                
Net Trade Sales $766,757 $472,234 $231,551 $157,540 $0 $1,628,082
Intercompany Sales - 547 465 8,475 (9,487) -
Net Sales       766,757       472,781       232,016       166,015       (9,487)       1,628,082
 
                                     

Harman International Industries, Incorporated

Intercompany Revenue Reconciliation, 9 Months Ended March 31, 2016

                                                 

Nine Months Ended
March 31, 2016

Connected
Car

Lifestyle
Audio

Professional
Solutions

Connected
Services

Eliminations HARMAN
(In thousands; unaudited)                                                
Net Trade Sales $2,259,209 $1,558,408 $726,159 $487,312 $39 $5,031,127
Intercompany Sales - 1,802 1,834 22,129 (25,765) -
Net Sales       2,259,209       1,560,210       727,993       509,441       (25,765)       5,031,127
 
       

HARMAN International Industries, Incorporated

Total Liquidity Reconciliation

         
Total Company Liquidity

March 31,
2016

$ millions        
Cash & cash equivalents       $360
Short-term investments       0
Available credit under Revolving Credit Facility       713
Total Liquidity       $1,073
 


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