Harman Reports Second Quarter Fiscal 2017 Results

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

This Smart News Release features multimedia. View the full release here: http://www.businesswire.com/news/home/20170126005569/en/

Net sales for the second quarter were $1.95 billion, an increase of 10 percent,11 percent excluding the impact of foreign exchange (Ex-FX), compared to the prior year. Lifestyle Audio net sales increased 19 percent due to higher sales in both consumer and car audio. Connected Services net sales increased 13 percent primarily due to higher demand for automotive services. Connected Car net sales increased four percent due to stronger production and the expansion of recently launched programs. Professional Solutions net sales increased three percent primarily due to stronger sales in Asia.

On a GAAP basis, second quarter operating income increased nine percent to $174 million compared to $159 million in the prior year, and EBITDA increased four percent to $227 million compared to $217 million in the prior year. During the quarter, the Company recognized approximately $23 million of non-recurring incremental U.S. income tax from deemed income on foreign earnings. As a result, earnings per diluted share decreased 11 percent to $1.39 compared to $1.55 in the prior year.

Non-GAAP Operating income increased 22 percent to $228 million compared to $186 million in the prior year, and EBITDA increased 19 percent to $268 million compared to $225 million in the prior year, excluding restructuring, acquisition-related items, costs associated with the pending Samsung transaction and one-time stock compensation costs. Earnings per diluted share increased 20 percent to $2.22 compared to $1.84 in the prior year.

Dinesh C. Paliwal, the Company’s Chairman, President and CEO said, “HARMAN delivered solid second quarter results, including double digit revenue, EBITDA and EPS growth led by strong performance in our Lifestyle Audio division. Additionally, we continue to leverage our success in Connected Car and Connected Services to develop broader end-to-end solutions for immersive and personalized experiences.

“The pending acquisition of HARMAN by Samsung will accelerate connected and autonomous driving innovation and technology deployment faster than if HARMAN were to remain a standalone company. The transaction also delivers immediate and compelling cash value to our shareholders. We remain on track to close the transaction in mid-2017.”

FY 2017 Key Figures – Total Company

Three Months Ended December 31Six Months Ended December 31
Increase

(Decrease)

Increase
(Decrease)

$ millions (except per share data)

3M
FY17

3M
FY16

Including
Currency
Changes

Excluding
Currency
Changes1

6M
FY17

6M
FY16

Including
Currency
Changes

Excluding
Currency
Changes1

Net sales 1,947 1,772 10% 11% 3,707 3,403 9% 9%
Gross profit 608 545 12% 13% 1,149 1,032 11% 12%
Percent of net sales 31.2% 30.8% 31.0% 30.3%
SG&A 434 386 12% 13% 824 742 11% 11%
Operating income 174 159 9% 11% 325 291 12% 13%
Percent of net sales 8.9% 9.0% 8.8% 8.5%
EBITDA 227 217 4% 6% 429 405 6% 7%
Percent of net sales 11.6% 12.3% 11.6% 11.9%
Net Income attributable to HARMAN International Industries, Incorporated 99 113 (12)% (11)% 203 200 1% 2%
Diluted earnings per share 1.39 1.55 (11)% (10)% 2.83 2.76 3% 4%
Restructuring & non-recurring costs 38 7 51 12
Acquisition-related items 16 20 40 41

Non-GAAP - operational1

Gross profit 609 546 11% 12% 1,151 1,035 11% 12%
Percent of net sales 31.3% 30.8% 31.0% 30.4%
SG&A 381 360 6% 6% 735 692 6% 7%
Operating income 228 186 22% 24% 415 344 21% 22%
Percent of net sales 11.7% 10.5% 11.2% 10.1%
EBITDA 268 225 19% 21% 495 422 17% 19%
Percent of net sales 13.8% 12.7% 13.4% 12.4%
Net Income attributable to HARMAN International Industries, Incorporated 159 134 19% 20% 293 241 21% 23%
Diluted earnings per share 2.22 1.84 20% 22% 4.10 3.33 23% 24%
Shares outstanding – diluted (in millions) 72 73 72 73
1 A non-GAAP measure, see reconciliations of non-GAAP measures later in this release.

Summary of Operations – Gross Margin and SG&A

On an operational basis, gross margin for the second quarter of fiscal year 2017 increased 50 basis points to 31.3 percent, primarily due to the impact of higher sales volume leveraging a more efficient fixed production cost base. Operational SG&A expenses as a percent of net sales decreased 70 basis points to 19.6 percent compared to 20.3 percent in the prior year due to favorable product mix.

On a GAAP basis in the second quarter of fiscal year 2017, gross margin increased 40 basis points to 31.2 percent. SG&A expenses as a percent of net sales increased 50 basis points to 22.3 percent compared to 21.8 percent in the prior year, primarily due to higher restructuring expenses.

Withdrawal of Guidance and Suspension of Conference Calls

As announced on November 14, 2016, Samsung Electronics, Co. Ltd. (“Samsung”) and Harman International Industries, Incorporated (“HARMAN”) entered into a definitive agreement under which Samsung will acquire HARMAN for $112 per share in cash. On January 20, 2017, HARMAN filed a definitive proxy statement with the U.S. Securities and Exchange Commission in connection with a special meeting of its stockholders to consider the adoption of the merger agreement. The special meeting is scheduled to be held on February 17, 2017.

In light of the pending transaction, HARMAN is withdrawing its financial outlook and will not be hosting earnings conference calls.

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 30,000 people across the Americas, Europe, and Asia and reported sales of $7.2 billion during the 12 months ended December 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 release 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 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; (2) the Company’s ability to maintain a competitive technological advantage through innovation and leading product designs; (3) the Company’s ability to maintain profitability if there are delays in its product launches or increased pricing pressure from its customers; (4) fluctuations in currency exchange rates, particularly with respect to the value of the U.S. Dollar and the Euro; (5) the inability of the Company’s suppliers to deliver materials, parts and components including, without limitation, microchips and displays, at the scheduled rate and disruptions arising in connection therewith; (6) 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; (7) the Company’s failure to protect the security of its products and systems against cyber crime; (8) the Company’s failure to maintain the value of its brands and implementing a sufficient brand protection program; and (9) other risks detailed in the Harman International Industries, Incorporated Annual Report on Form 10-K for the fiscal year ended June 30, 2016 and other filings made by the Company with the Securities and Exchange Commission. In addition, the Company may be subject to certain risks during the pendency of the Samsung transaction, and may not be able to complete the proposed transaction on the terms described herein or other acceptable terms or at all because of a number of factors, including without limitation (i) the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement, (ii) the failure to obtain the requisite approval of the Company’s stockholders or the failure to satisfy the other closing conditions, (iii) risks related to disruption of management’s attention from the Company’s ongoing business operations due to the pending transaction and (iv) the effect of the announcement of the pending transaction on the ability of the Company to retain and hire key personnel, maintain relationships with its customers and suppliers, and maintain its operating results and business generally. 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 of the Company’s automotive customers. The Company's 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. The term “take rate” represents the number of units sold by the Company divided by an estimate of the total number of vehicles of a specific vehicle line produced during the same timeframe. The assumptions the Company uses to validate these awards are updated and reported externally on an annual basis.

APPENDIX

Connected Car

FY 2017 Key Figures – Connected CarThree Months Ended December 31Six Months Ended December 31

Increase
(Decrease)

Increase
(Decrease)

$ millions (except per share data)

3M
FY17

3M
FY16

Including
Currency
Changes

Excluding
Currency
Changes1

6M
FY17

6M
FY16

Including
Currency
Changes

Excluding
Currency
Changes1

Net sales 769 737 4% 5% 1,566 1,492 5% 5%
Gross profit 203 183 11% 12% 401 361 11% 12%
Percent of net sales 26.4% 24.8% 25.6% 24.2%
SG&A 126 99 28% 29% 229 189 21% 21%
Operating income 77 84 (9%) (8%) 172 171 0% 1%
Percent of net sales 10.0% 11.4% 11.0% 11.5%
EBITDA 97 103 (6%) (5%) 213 209 2% 3%
Percent of net sales 12.7% 14.0% 13.6% 14.0%
Restructuring & non-recurring costs 20 4 22 4
Acquisition-related items 1 - 2 1

Non-GAAP - operational1

Gross profit 203 184 10% 11% 401 363 10% 11%
Percent of net sales 26.4% 25.0% 25.6% 24.3%
SG&A 105 96 9% 10% 205 187 10% 10%
Operating income 98 88 11% 13% 196 176 11% 12%
Percent of net sales 12.7% 11.9% 12.5% 11.8%
EBITDA 118 105 12% 13% 235 210 12% 13%
Percent of net sales 15.3% 14.3% 15.0% 14.1%
1 A non-GAAP measure, see reconciliations of non-GAAP measures later in this release.

Net sales in the second quarter of fiscal 2017 were $769 million, an increase of four percent (5 percent ex-FX) compared to the prior year. The increase in net sales was due to the expansion of recently launched programs and stronger production.

On an operational basis in the second quarter of fiscal 2017, gross margin increased 140 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 and favorable product mix. SG&A expenses as a percent of net sales increased 70 basis points to 13.7 percent compared to the prior year primarily due to higher research and development expenses to support awarded business.

On a GAAP basis in the second quarter of fiscal 2017, gross margin increased 160 basis points to 26.4 percent compared to the prior year. SG&A expenses as a percent of net sales increased 300 basis points to 16.4 percent compared to the prior year primarily due to higher expenses for restructuring and research and development.

Connected Car Highlights

During the quarter, HARMAN launched embedded infotainment solutions on a variety of vehicle models, including the Audi SQ5, the VW Atlas, and feature upgrades to the Discover Pro infotainment system across Volkswagen’s Golf lineup. HARMAN also launched a next generation, fully integrated embedded infotainment solution including CarPlay and Android Auto for Subaru. HARMAN will supply the entry, mid and high embedded infotainment solutions for Subaru vehicles over the next several years.

Earlier this month at the Consumer Electronics Show in Las Vegas, HARMAN unveiled a number of new industry-first solutions centered on addressing autonomous mobility and intelligent personalization. Showcased in the Oasis concept car, HARMAN demonstrated a wide-view full windshield heads-up display using holographic augmented reality technology, as well as demonstrating an augmented reality concierge, predictive collision prevention, and intelligent e-mirrors. The Company also demonstrated its new intelligent cockpit design leveraging HARMAN’s integrated compute platform (LIVS) to deliver a connected and unified personal user experience across the car, home and office. During CES, the Company was presented the 2016 Internet of Things (IoT) Breakthrough Award for the LIVS connected car platform.

Lifestyle Audio

FY 2017 Key Figures – Lifestyle AudioThree Months Ended December 31Six Months Ended December 31

Increase
(Decrease)

Increase
(Decrease)

$ millions (except per share data)

3M
FY17

3M
FY16

Including
Currency
Changes

Excluding
Currency
Changes1

6M
FY17

6M
FY16

Including
Currency
Changes

Excluding
Currency
Changes1

Net sales 765 641 19% 20% 1,333 1,117 19% 19%
Gross profit 260 208 25% 26% 460 362 27% 27%
Percent of net sales 33.9% 32.4% 34.5% 32.4%
SG&A 134 125 7% 8% 256 232 10% 11%
Operating income 126 83 52% 53% 204 130 57% 58%
Percent of net sales 16.4% 12.9% 15.3% 11.7%
EBITDA 140 97 45% 46% 233 158 48% 49%
Percent of net sales 18.4% 15.1% 17.5% 14.1%
Restructuring & non-recurring costs - (1) 3 2
Acquisition-related items 5 8 10 13

Non-GAAP - operational1

Gross profit 260 208 25% 26% 461 363 27% 28%
Percent of net sales 34.0% 32.4% 34.6% 32.4%
SG&A 129 118 9% 10% 244 217 12% 12%
Operating income 131 90 45% 46% 218 145 50% 51%
Percent of net sales 17.2% 14.1% 16.3% 13.0%
EBITDA 141 99 42% 43% 236 163 45% 46%
Percent of net sales 18.4% 15.5% 17.7% 14.6%
1 A non-GAAP measure, see reconciliations of non-GAAP measures later in this release.

Net sales in the second quarter of fiscal 2017 were $765 million, an increase of 19 percent (20 percent ex-FX) compared to the prior year, primarily due to higher consumer audio sales, reflecting increased demand for smart audio products and headphones, as well as higher car audio sales due to higher take rates and automotive production.

On an operational basis in the second quarter of fiscal 2017, gross margin improved 160 basis points to 34.0 percent compared to the prior year, primarily due to margin expansion in car audio as a result of operating leverage and manufacturing excellence. While research and development in car audio increased to support awarded business, total SG&A expenses as a percent of net sales decreased 150 basis points to 16.8 percent due to improved operating leverage on higher sales.

On a GAAP basis in the second quarter of fiscal 2017, gross margin improved 150 basis points to 33.9 percent compared to the prior year. SG&A expenses as a percent of net sales decreased 200 basis points to 17.5 percent compared to the prior year.

Lifestyle Audio Highlights

HARMAN’s consumer audio products won a number of industry accolades. The Company earned nine CES innovation awards for products including the JBL Everest Elite and JBL BassPro Go, as well as three Red Dot design awards.

During the quarter, HARMAN secured new car audio business awards with Audi (Bang & Olufsen), SAIC-GM-Wuling (Infinity) and Volvo (Bowers & Wilkins).The Company launched car audio solutions in the BMW 5 Series (Bowers & Wilkins and Harman Kardon), the Great Wall Haval H7 (Infinity), the Chrysler Pacifica (Sound Management), the Lexus LC (Mark Levinson) and the Subaru Impreza (Harman Kardon).

At CES 2017, HARMAN showcased new car audio technologies. The HARMAN SUMMIT premium audio platform and the seamless, scalable HARMAN Voyager smart audio platform are both designed with a strong focus on intelligent, personalized and connected in-car experiences for consumers.

Professional Solutions

FY 2017 Key Figures – Professional SolutionsThree Months Ended December 31Six Months Ended December 31

Increase
(Decrease)

Increase
(Decrease)

$ millions (except per share data)

3M
FY17

3M
FY16

Including
Currency
Changes

Excluding
Currency
Changes1

6M
FY17

6M
FY16

Including
Currency
Changes

Excluding
Currency
Changes1

Net sales 256 249 3% 3% 496 496 (0%) 0%
Gross profit 96 103 (7%) (7%) 190 206 (8%) (7%)
Percent of net sales 37.4% 41.4% 38.2% 41.4%
SG&A 85 79 8% 8% 168 156 8% 8%
Operating income 10 24 (57%) (57%) 22 50 (56%) (56%)
Percent of net sales 4.0% 9.6% 4.4% 10.0%
EBITDA 18 33 (44%) (44%) 37 67 (45%) (44%)
Percent of net sales 7.1% 13.2% 7.5% 13.5%
Restructuring & non-recurring costs 2 5 10 7
Acquisition-related items 3 - 5 -

Non-GAAP - operational1

Gross profit 96 103 (7%) (7%) 190 206 (8%) (7%)
Percent of net sales 37.4% 41.4% 38.3% 41.5%
SG&A 80 75 7% 8% 153 149 2% 3%
Operating income 16 29 (45%) (45%) 37 56 (35%) (35%)
Percent of net sales 6.2% 11.5% 7.4% 11.4%
EBITDA 23 37 (39%) (38%) 50 73 (31%) (30%)
Percent of net sales 8.8% 14.8% 10.1% 14.6%
1 A non-GAAP measure, see reconciliations of non-GAAP measures later in this release.

Net sales for the second quarter of fiscal 2017 were $256 million, an increase of three percent on a nominal and ex-FX basis compared to the prior year, primarily due to stronger sales in Asia. On an operational basis in the second quarter of fiscal 2017, gross margin decreased 400 basis points to 37.4 percent compared to the prior year as a result of geographic and product mix. SG&A expenses as a percent of net sales increased 130 basis points to 31.2 percent compared to the prior year, primarily as a result of higher research and development costs to support new product introductions.

On a GAAP basis in the second quarter of fiscal 2017, gross margin decreased 400 basis points to 37.4 percent. SG&A expenses as a percent of net sales increased 160 basis points to 33.4 percent compared to prior year.

Professional Solutions Highlights

HARMAN secured new and follow-on orders for its entertainment and enterprise solutions from the U.S. Strategic Command, Warner Brothers Park in the UAE and Nike. Notable installations included the University of Nebraska, the Norwegian Cruise Line Ships, and Samsung Hall in Switzerland. HARMAN’s solutions also powered a wide range of high-profile special events, music festivals, concerts and events including the U.S. Presidential Inauguration.

HARMAN and Cinemark entered a strategic partnership appointing HARMAN as the exclusive audio equipment provider for Cinemark theaters for the next three years. Cinemark is a leader in the motion picture exhibition industry with 522 theaters and 5,865 screens in the U.S. and Latin America.

The division also launched 11 new products during the quarter, several of which were recognized with innovation awards from industry experts.

Connected Services

FY 2017 Key Figures – Connected ServicesThree Months Ended December 31Six Months Ended December 31

Increase
(Decrease)

Increase
(Decrease)

$ millions (except per share data)

3M
FY17

3M
FY16

Including
Currency
Changes

Excluding
Currency
Changes1

6M
FY17

6M
FY16

Including
Currency
Changes

Excluding
Currency
Changes1

Net sales 173 154 13% 16% 340 313 8% 11%
Gross profit 54 53 2% 6% 106 107 (1%) 1%
Percent of net sales 31.0% 34.2% 31.1% 34.0%
SG&A 34 48 (28%) (28%) 84 96 (12%) (11%)
Operating income 20 5 304% 433% 21 10 102% 141%
Percent of net sales 11.3% 3.2% 6.2% 3.3%
EBITDA 27 19 40% 49% 36 39 (6%) (2%)
Percent of net sales 15.7% 12.6% 10.7% 12.3%
Restructuring & non-recurring costs 1 1 2 1
Acquisition-related items 6 14 23 28

Non-GAAP - operational1

Gross profit 54 53 3% 7% 106 107 (1%) 2%
Percent of net sales 31.3% 34.2% 31.2% 34.0%
SG&A 28 34 (18%) (16%) 60 68 (12%) (10%)
Operating income 26 19 41% 50% 46 39 18% 24%
Percent of net sales 15.2% 12.2% 13.5% 12.4%
EBITDA 28 22 30% 38% 50 45 12% 16%
Percent of net sales 16.4% 14.2% 14.7% 14.3%
1 A non-GAAP measure, see reconciliations of non-GAAP measures later in this release.

Net sales in the second quarter of fiscal 2017 were $173 million, an increase of 13 percent (16 percent ex-FX) compared to the prior year due to higher demand for automotive services.

On an operational basis, gross margin declined 290 basis points to 31.3 percent primarily due to higher revenue recognition on high-margin engineering change orders in the prior year. SG&A expenses as a percent of net sales decreased 600 basis points to 16.0 percent due to productivity improvements as a result of footprint migration initiatives.

On a GAAP basis, gross margin decreased 320 basis points to 31.0 percent. SG&A expenses as a percent of net sales decreased from 31.1 percent in the prior year to 19.7 percent primarily driven by productivity improvements and lower amortization of acquired intangible assets.

Connected Services Highlights

HARMAN secured awards to provide software services for customers including AT&T, Hitachi, Intel, Microsoft, Sprint and Verizon, among others. The Company also won a number of awards for its cloud-based Over-The-Air (OTA) software update technology from customers including a U.S. Automaker, Porsche and Renault.

For the second straight year, HfS Research, a leading authority and global network for IT and business services, recognized HARMAN with a place in its “Winner’s Circle”, recognizing the Company’s excellence in design and cloud-driven product modernization services.

Other (Corporate)

FY 2017 Key Figures – OtherThree Months Ended December 31Six Months Ended December 31

Increase
(Decrease)

Increase
(Decrease)

$ millions (except per share data)

3M
FY17

3M
FY16

Including
Currency
Changes

Excluding
Currency
Changes1

6M
FY17

6M
FY16

Including
Currency
Changes

Excluding
Currency
Changes1

SG&A 58 37 56% 56% 93 71 31% 31%
Restructuring & non-recurring costs 15 (1) 14 (1)
Acquisition-related items 0 (2) 0 (1)

Non-GAAP - operational1

SG&A 43 40 7% 7% 79 73 8% 8%
1 A non-GAAP measure, see reconciliations of non-GAAP measures later in this release.

Other (Corporate) SG&A expenses includes compensation, benefit and occupancy costs for corporate employees, new technology innovation and expenses associated with the Company’s brand identity campaign. On an operational basis, Corporate SG&A expenses as a percent of total net sales remained consistent with the prior year. On a GAAP basis, Corporate SG&A expenses as a percent of total net sales increased 90 basis points compared to the prior year due to costs associated with the pending Samsung transaction and one-time stock compensation costs.

HARMAN International Industries, Incorporated

Consolidated Statements of Income

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

Three Months Ended
December 31,

Six Months Ended
December 31,

2016

2015

2016

2015

Net sales $1,947,474 $1,772,157 $3,706,996 $3,403,045
Cost of sales 1,339,513 1,227,065 2,557,764 2,370,555
Gross profit 607,961 545,092 1,149,232 1,032,490
Selling, general and administrative expenses 433,947 385,939 824,407 741,870
Operating income 174,014 159,153 324,825 290,620
Other expenses:
Interest expense, net 9,214 7,666 18,538 15,925
Foreign exchange losses (gains), net 2,365 887 1,398 (958)
Miscellaneous, net 1,916 4,363 4,811 8,350
Income before income taxes 160,519 146,237 300,078 267,303
Income tax expense, net 60,865 33,050 98,288 66,600
Equity in loss (income) of unconsolidated subsidiaries 205 - (776) -
Net income 99,449 113,187 202,566 200,703
Net income attributable to non-controlling interest - 289 - 707
Net income attributable to HARMAN International Industries, Incorporated

99,449

112,898

202,566

199,996

Earnings per share:
Basic $1.40 $1.57 $2.86 $2.78
Diluted $1.39 $1.55 $2.83 $2.76
Weighted average shares outstanding:
Basic 70,986 72,079 70,938 72,060
Diluted 71,712 72,830 71,510 72,549

HARMAN International Industries, Incorporated

Consolidated Balance Sheets

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

2016

2016

ASSETS
Current Assets
Cash and cash equivalents $683,351 $602,300
Receivables, net 1,195,761 1,122,920
Inventories 787,559 706,084
Other current assets 584,653 487,151
Total current assets 3,251,324 2,918,455
Property, plant and equipment, net 579,039 593,290
Intangible assets, net 435,930 476,284
Goodwill 1,500,499 1,510,279
Deferred tax assets, long-term, net 131,681 140,181
Other assets 433,150 409,380
Total assets

$6,331,623

$6,047,869

LIABILITIES AND EQUITY
Current liabilities
Current portion of long-term debt $55,543 $86,641
Short-term debt 2,832 -
Accounts payable 1,001,822 867,279
Accrued liabilities 724,759 670,746
Accrued warranties 185,656 178,367
Income taxes payable 40,762 28,773
Total current liabilities 2,011,374 1,831,806
Borrowings under revolving credit facility 513,000 523,000
Long-term debt 766,601 787,333
Pension liability 210,471 216,016
Other non-current liabilities 253,718 237,241
Total liabilities 3,755,164 3,595,396
Total equity 2,576,459 2,452,473
Total liabilities and equity

$6,331,623

$6,047,869

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
December 31, 2016

GAAP

Adjustments

Non-GAAP -
Operational

Net sales $1,947,474 $0 $1,947,474
Cost of sales 1,339,513 (742)a 1,338,771
Gross profit 607,961 742 608,703
Selling, general and administrative expenses 433,947 (53,073)b 380,874
Operating income 174,014 53,815 227,829
Other expenses:
Interest expense, net 9,214 0 9,214
Foreign exchange losses (gains), net 2,365 0 2,365
Miscellaneous, net 1,916 4 1,920
Income before income taxes 160,519 53,811 214,330
Income tax expense, net 60,865 (5,987)c 54,878
Equity in loss (income) of unconsolidated subsidiaries 205 - 205
Net income 99,449 59,798 159,247
Net income attributable to HARMAN International Industries, Incorporated

$99,449

$59,798

$159,247

Earnings per share:
Basic $1.40 $0.84 $2.24
Diluted $1.39 $0.83 $2.22
Weighted average shares outstanding:
Basic 70,986 70,986
Diluted 71,712 71,712

a) Restructuring expense in Cost of Sales was $0.7 million for projects to increase manufacturing productivity.
b) Restructuring expense in SG&A was $20.4 million primarily due to projects to increase productivity in engineering, manufacturing and administrative functions; acquisition-related expenses were $15.7 million, including $11.7 million of intangible amortization expenses; other non-recurring expenses included in SG&A were $17.0 million, which primarily relate to the planned acquisition of HARMAN by Samsung and one-time stock compensation costs.
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. Also included is a discrete tax charge of $22.7 million from deemed income on foreign earnings attributable to fiscal years 2014, 2015 and 2016.

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 restructuring, acquisition-related, and 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)

Six Months Ended
December 31, 2016

GAAP

Adjustments

Non-GAAP -
Operational

Net sales $3,706,996 $0 $3,706,996
Cost of sales 2,557,764 (1,430)a 2,556,334
Gross profit 1,149,232 1,430 1,150,662
Selling, general and administrative expenses 824,407 (89,071)b 735,336
Operating income 324,825 90,501 415,326
Other expenses:
Interest expense, net 18,538 - 18,538
Foreign exchange losses (gains), net 1,398 - 1,398
Miscellaneous, net 4,811 (966) 3,845
Income before income taxes 300,078 91,467 391,545
Income tax expense, net 98,288 1,194c 99,482
Equity in loss (income) of unconsolidated subsidiaries (776) - (776)
Net income 202,566 90,273 292,839
Net income attributable to HARMAN International Industries, Incorporated

$202,566

$90,273

$292,839

Earnings per share:
Basic $2.86 $1.27 $4.13
Diluted $2.83 $1.26 $4.10
Weighted average shares outstanding:
Basic 70,938 70,938
Diluted 71,510 71,510

a) Restructuring expense in Cost of Sales was $1.4 million for projects to increase manufacturing productivity.
b) Restructuring expense in SG&A $32.3 million due engineering, manufacturing and administrative functions; acquisition-related expenses were $39.4 million, including $23.5 million of intangible amortization expenses; other non-recurring expense included in SG&A was $17.4 million primarily related to the planned acquisition of HARMAN by Samsung and one-time stock compensation costs.
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. Also included is a discrete tax charge of $22.7 million from deemed income on foreign earnings attributable to fiscal years 2014, 2015 and 2016.

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 restructuring, acquisition-related, and 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
December 31, 2015

GAAP

Adjustments

Non-GAAP -
Operational

Net sales $1,772,157 $0 $1,772,157
Cost of sales 1,227,065 (1,322)a 1,225,743
Gross profit 545,092 1,322 546,414
Selling, general and administrative expenses 385,939 (25,522)b 360,417
Operating income 159,153 26,844 185,997
Other expenses:
Interest expense, net 7,666 - 7,666
Foreign exchange losses (gains), net 887 - 887
Miscellaneous, net 4,363 (1,914) 2,449
Income before income taxes 146,237 28,758 174,995
Income tax expense, net 33,050 7,426c 40,476
Net income 113,187 21,332 134,519
Net income attributable to non-controlling interest 289 0 289
Net income attributable to HARMAN International Industries, Incorporated

$112,898

$21,332

$134,230

Earnings per share:
Basic $1.57 $0.30 $1.86
Diluted $1.55 $0.30 $1.84
Weighted average shares outstanding:
Basic 72,079 72,079
Diluted 72,830 72,830

a) Restructuring expense in Cost of Sales was $1.3 million for projects to increase manufacturing productivity.
b) Restructuring expense in SG&A was $3.6 million primarily due to projects to increase productivity in engineering, manufacturing and administrative functions; other non-recurring expense included in SG&A was $4.5 million. Acquisition-related expenses were $17.4 million, including $17.0 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

Selected Financial Data

Reconciliation of GAAP to Non-GAAP Results

(In thousands except earnings per share data; unaudited)

Six Months Ended
December 31, 2015

GAAP

Adjustments

Non-GAAP -
Operational

Net sales $3,403,045 $0 $3,403,045
Cost of sales 2,370,555 (3,001)a 2,367,554
Gross profit 1,032,490 3,001 1,035,491
Selling, general and administrative expenses 741,870 (50,296)b 691,574
Operating income 290,620 53,297 343,917
Other expenses:
Interest expense, net 15,925 - 15,925
Foreign exchange losses (gains), net (958) - (958)
Miscellaneous, net 8,350 (3,137) 5,213
Income before income taxes 267,303 56,434 323,737
Income tax expense, net 66,600 15,186c 81,786
Net income 200,703 41,248 241,951
Net income attributable to non-controlling interest 707 - 707
Net income attributable to HARMAN International Industries, Incorporated

$199,996

$41,248

$241,244

Earnings per share:
Basic $2.78 $0.57 $3.35
Diluted $2.76 $0.57 $3.33
Weighted average shares outstanding:
Basic 72,060 72,060
Diluted 72,549 72,549

a) Restructuring expense in Cost of Sales was $3.0 million for projects to increase manufacturing productivity.
b) Restructuring expense in SG&A was $3.1 million primarily due to projects to increase productivity in engineering, manufacturing and administrative functions; other non-recurring expense included in SG&A was $6.4 million. Acquisition-related expenses were $40.8 million, including $33.2 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 International Industries, Incorporated

Selected Financial Data

Reconciliation of Non-GAAP Results

Foreign Currency Translation Impact

(In thousands; unaudited)

Three Months Ended
December 31,

Increase /
(Decrease)

2016

2015

Net sales - nominal currency $1,947,474 $1,772,157 10%
Effects of foreign currency translation (1)

(12,346)

Net sales - local currency $1,947,474 $1,759,811 11%
Gross profit - nominal currency $607,961 $545,092 12%
Effects of foreign currency translation (1)

(4,844)

Gross profit - local currency $607,961 $540,248 13%
SG&A - nominal currency $433,947 $385,939 12%
Effects of foreign currency translation (1)

(2,156)

SG&A - local currency $433,947 $383,783 13%
Operating income - nominal currency $174,014 $159,153 9%
Effects of foreign currency translation (1)

(2,688)

Operating income - local currency $174,014 $156,465 11%
Net income attributable to HARMAN International Industries, Incorporated - nominal currency $99,449 $112,898 (12%)
Effects of foreign currency translation (1)

(946)

Net income attributable to HARMAN International Industries, Incorporated - local currency $99,449 $111,952 (11%)
(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 Non-GAAP Results

Foreign Currency Translation Impact

EXCLUDING restructuring and non-recurring charges
(In thousands; unaudited)

Three Months Ended
December 31,

Increase /
(Decrease)

2016

2015

Net sales - nominal currency $1,947,474 $1,772,157 10%
Effects of foreign currency translation (1)

(12,346)

Net sales - local currency $1,947,474 $1,759,811 11%
Gross profit - nominal currency $608,703 $546,414 11%
Effects of foreign currency translation (1)

(4,860)

Gross profit - local currency $608,703 $541,554 12%
SG&A - nominal currency $380,874 $360,417 6%
Effects of foreign currency translation (1)

(1,918)

SG&A - local currency $380,874 $358,499 6%
Operating income - nominal currency $227,829 $185,997 22%
Effects of foreign currency translation (1)

(2,947)

Operating income - local currency $227,829 $183,050 24%
Net income attributable to HARMAN International Industries, Incorporated - nominal currency $159,247 $134,230 19%
Effects of foreign currency translation (1)

(1,200)

Net income attributable to HARMAN International Industries, Incorporated - local currency $159,247 $133,030 20%
(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)

Six Months Ended
December 31,

Increase /
(Decrease)

2016

2015

Net sales - nominal currency $3,706,996 $3,403,045 9%
Effects of foreign currency translation (1)

(13,051)

Net sales - local currency $3,706,996 $3,389,994 9%
Gross profit - nominal currency $1,149,232 $1,032,490 11%
Effects of foreign currency translation (1)

(6,127)

Gross profit - local currency $1,149,232 $1,026,363 12%
SG&A - nominal currency $824,407 $741,870 11%
Effects of foreign currency translation (1)

(2,215)

SG&A - local currency $824,407 $739,655 11%
Operating income - nominal currency $324,825 $290,620 12%
Effects of foreign currency translation (1)

(3,912)

Operating income - local currency $324,825 $286,708 13%
Net income attributable to HARMAN International Industries, Incorporated - nominal currency $202,566 $199,996 1%
Effects of foreign currency translation (1)

(2,173)

Net income attributable to HARMAN International Industries, Incorporated - local currency $202,566 $197,823 2%
(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)

Six Months Ended
December 31,

Increase /
(Decrease)

2016

2015

Net sales - nominal currency $3,706,996 $3,403,045 9%
Effects of foreign currency translation (1)

(13,051)

Net sales - local currency $3,706,996 $3,389,994 9%
Gross profit - nominal currency $1,150,662 $1,035,491 11%
Effects of foreign currency translation (1)

(6,139)

Gross profit - local currency $1,150,662 $1,029,352 12%
SG&A - nominal currency $735,336 $691,574 6%
Effects of foreign currency translation (1)

(1,960)

SG&A - local currency $735,336 $689,614 7%
Operating income - nominal currency $415,326 $343,917 21%
Effects of foreign currency translation (1)

(4,178)

Operating income - local currency $415,326 $339,739 22%
Net income attributable to HARMAN International Industries, Incorporated - nominal currency $292,839 $241,244 21%
Effects of foreign currency translation (1)

(2,429)

Net income attributable to HARMAN International Industries, Incorporated - local currency $292,839 $238,815 23%
(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

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

Three Months Ended
December 31, 2016

Three Months Ended
December 31, 2015

GAAP

Adjustments

Non-GAAP -
Operational

GAAP

Adjustments

Non-GAAP -
Operational

HARMAN
Operating income 174,014 53,815 227,829 159,153 26,844 185,997
Depreciation & Amortization 52,592 (12,312) 40,280 57,997 (18,904) 39,093
EBITDA 226,606 41,503 268,109 217,150 7,940 225,090
CONNECTED CAR
Operating income 76,958 20,997 97,955 84,266 3,733 87,999
Depreciation & Amortization 20,515 (856) 19,659 19,016 (1,807) 17,209
EBITDA 97,473 20,141 117,614 103,282 1,926 105,208
LIFESTYLE AUDIO
Operating income 125,798 5,460 131,258 83,018 7,481 90,499
Depreciation & Amortization 14,614 (4,839) 9,775 13,595 (5,003) 8,592
EBITDA 140,412 621 141,033 96,613 2,478 99,091
PROFESSIONAL SOLUTIONS
Operating income 10,228 5,509 15,737 23,952 4,632 28,584
Depreciation & Amortization 8,000 (1,162) 6,838 8,854 (620) 8,234
EBITDA 18,228 4,347 22,575 32,806 4,012 36,818
CONNECTED SERVICES
Operating income 19,629 6,726 26,355 4,865 13,880 18,745
Depreciation & Amortization 7,495 (5,456) 2,039 14,515 (11,475) 3,040
EBITDA 27,124 1,270 28,394 19,380 2,405 21,785

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

Selected Financial Data

Reconciliation of GAAP to Non-GAAP Results

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

Six Months Ended
December 31, 2016

Six Months Ended
December 31, 2015

GAAP

Adjustments

Non-GAAP -
Operational

GAAP

Adjustments

Non-GAAP -
Operational

HARMAN
Operating income 324,825 90,501 415,326 290,620 53,297 343,917
Depreciation & Amortization 103,780 (24,199) 79,581 114,837 (37,145) 77,692
EBITDA 428,605 66,302 494,907 405,457 16,152 421,609
CONNECTED CAR
Operating income 171,876 23,700 195,576 171,485 4,779 176,264
Depreciation & Amortization 40,961 (1,734) 39,227 37,419 (3,643) 33,776
EBITDA 212,837 21,966 234,803 208,904 1,136 210,040
LIFESTYLE AUDIO
Operating income 204,480 13,192 217,672 130,271 15,023 145,294
Depreciation & Amortization 28,568 (9,816) 18,752 27,430 (10,131) 17,299
EBITDA 233,048 3,376 236,424 157,701 4,892 162,593
PROFESSIONAL SOLUTIONS
Operating income 21,910 14,803 36,713 49,637 6,816 56,453
Depreciation & Amortization 15,256 (1,746) 13,510 17,359 (1,258) 16,101
EBITDA 37,166 13,057 50,223 66,996 5,558 72,554
CONNECTED SERVICES
Operating income 21,192 24,745 45,937 10,496 28,353 38,849
Depreciation & Amortization 15,049 (10,904) 4,145 28,146 (22,113) 6,033
EBITDA 36,241 13,841 50,082 38,642 6,240 44,882

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 December 31, 2016

Three Months Ended
December 31, 2016

Connected
Car

Lifestyle
Audio

Professional
Solutions

Connected
Services

Other &

Eliminations

HARMAN

(In thousands;
unaudited)

Net Trade Sales $769,293 $764,260 $254,630 $159,291 - $1,947,474
Intercompany Sales 6 762 1,020 14,017 (15,805) -
Net Sales 769,299 765,022 255,650 173,308 (15,805) 1,947,474

Harman International Industries, Incorporated

Intercompany Revenue Reconciliation, 3 Months Ended December 31, 2015

Three Months Ended
December 31, 2015

Connected
Car

Lifestyle
Audio

Professional
Solutions

Connected
Services

Other &
Eliminations

HARMAN

(In thousands;
unaudited)

Net Trade Sales $736,969 $640,573 $248,275 $146,340 - $1,772,157
Intercompany Sales - 736 596 7,200 (8,532)
Net Sales 736,969 641,309 248,871 153,540 (8,532) 1,772,157

Harman International Industries, Incorporated

Intercompany Revenue Reconciliation, 6 Months Ended December 31, 2016

Six Months Ended
December 31, 2016

Connected
Car

Lifestyle
Audio

Professional
Solutions

Connected
Services

Other &
Eliminations

HARMAN

(In thousands;
unaudited)

Net Trade Sales $1,566,394 $1,331,952 $494,370 $314,280 - $3,706,996
Intercompany Sales 22 1,452 1,503 25,699 (28,676) -
Net Sales 1,566,416 1,333,404 495,873 339,979 (28,676) 3,706,996

Harman International Industries, Incorporated

Intercompany Revenue Reconciliation, 6 Months Ended December 31, 2015

Six Months Ended
December 31, 2015

Connected
Car

Lifestyle
Audio

Professional
Solutions

Connected
Services

Other &
Eliminations

HARMAN

(In thousands;
unaudited)

Net Trade Sales $1,492,452 $1,116,110 $494,608 $299,836 $39 $3,403,045
Intercompany Sales - 1,270 1,369 13,617 (16,256)
Net Sales 1,492,452 1,117,380 495,977 313,453 (16,217) 3,403,045

HARMAN International Industries, Incorporated

Total Liquidity Reconciliation

Total Company Liquidity

December 31,
2016

$ millions
Cash & cash equivalents $683
Available credit under Revolving Credit Facility 683
Total Liquidity$1,366

Contacts:

Harman International
Darrin Shewchuk, +1 203-328-3834
Senior Director, Corporate Communications
darrin.shewchuk@harman.com
or
Yijing Brentano, +1 203-328-3500
Vice President, Investor Relations
yijing.brentano@harman.com

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