Harman International Industries
Aug 4, 2016

Harman Reports Fourth Quarter and Fiscal 2016 Results

STAMFORD, Conn.--(BUSINESS WIRE)-- Harman International Industries, Incorporated (NYSE:HAR), the premier connected technologies company for automotive, consumer and enterprise markets, today announced results for the fourth quarter and full-year ended June 30, 2016.

This Smart News Release features multimedia. View the full release here: http://www.businesswire.com/news/home/20160804005361/en/

Net sales for the fourth quarter were $1.9 billion, an increase of 12 percent compared to the prior year. Connected Car net sales increased 11 percent due to higher take rates and stronger production. Lifestyle Audio net sales increased 25 percent due to higher consumer audio sales and higher car audio take rates. Connected Services net sales increased seven percent compared to the prior year due to higher demand for engineering services.

On a GAAP basis, fourth quarter operating income increased 36 percent to $154 million compared to $114 million in the prior year and EBITDA increased 26 percent to $212 million compared to $168 million in the prior year. During the quarter, the Company recognized approximately $28 million of non-recurring incremental U.S. income tax from deemed income on foreign earnings (EPS impact of $0.39). As a result, earnings per diluted share were in-line with the prior year at $1.01.

Excluding restructuring, acquisition-related items and non-recurring charges, fourth quarter operating income increased 23 percent to $185 million compared to $150 million in the prior year, and EBITDA increased 20 percent to $225 million compared to $187 million in the prior year. Earnings per diluted share increased 14 percent to $1.57 compared to $1.37 in the prior year.

Net sales for the full-year were $6.9 billion, an increase of 12 percent as Connected Car, Lifestyle Audio and Connected Services reported strong increases in net sales. Excluding the impact of foreign currency translation and acquisitions, net sales increased nine percent compared to the prior year. On a GAAP basis, fiscal year 2016 operating income increased 24 percent to $580 million from $470 million in the prior year, EBITDA increased 26 percent to $804 million compared to $639 million in the prior year, and earnings per diluted share increased three percent to $4.99 compared to $4.84 in the prior year.

Excluding acquisition-related items, restructuring and non-recurring charges, fiscal year 2016 operating income increased 22 percent to $677 million compared to $554 million in the prior year, EBITDA increased 20 percent to $836 million compared to $699 million in the prior year, and earnings per diluted share increased nine percent to $6.24 from $5.71 in the prior year.

"In fiscal 2016, HARMAN delivered record revenue, EBITDA and earnings per share," said Dinesh C. Paliwal, Chairman and CEO. "HARMAN's intelligent, embedded connected car solutions, including unparalleled audio and sound management systems, led to a record-breaking automotive backlog of more than $24 billion. Together with a rapidly growing consumer audio business and improving Professional Solutions business, HARMAN has a strong foundation for long-term growth."

Paliwal continued, "In fiscal 2017, we will continue to leverage our comprehensive technology portfolio, including expanded cloud and analytics capabilities, to meet the growing demand for embedded software and services in the automotive, consumer and enterprise markets. We also presented a longer-term outlook that capitalizes on the opportunities in connected car, mobility and IoT. With an industry-leading automotive backlog and continued focus on disciplined execution, HARMAN is well positioned to deliver superior financial and operational performance for our customers and shareholders."

                                 
FY 2016 Key Figures - Total Company      

Three Months Ended June 30

   

Twelve Months Ended June 30

Increase
(Decrease)

Increase
(Decrease)

                                                   
$ millions (except per share data)

3M
FY16

3M
FY15

Including
Currency
Changes

Excluding
Currency
Changes1

12M
FY16

12M
FY15

Including
Currency
Changes

Excluding
Currency
Changes1

                                                   
Net sales       1,881     1,679     12%     12%     6,912     6,155     12%     16%
Gross profit       568     491     16%     16%     2,093     1,817     15%     19%
Percent of net sales       30.2%     29.3%                 30.3%     29.5%            
SG&A       414     378     10%     9%     1,513     1,348     12%     16%
Operating income       154     114     36%     37%     580     470     24%     27%
Percent of net sales       8.2%     6.8%                 8.4%     7.6%            
EBITDA       212     168     26%     27%     804     639     26%     29%
Percent of net sales       11.3%     10.0%                 11.6%     10.4%            
Net Income attributable to HARMAN International Industries, Incorporated       73     73     0%     0%     362     343     6%     8%
Diluted earnings per share       1.01     1.01     1%     1%     4.99     4.84     3%     5%
Restructuring & non-recurring costs       19     13                 41     49            
Acquisition-related items       11     23                 56     35            

Non-GAAP - operational1

                                                 
Gross profit       573     493     16%     16%     2,103     1,811     16%     20%
Percent of net sales       30.5%     29.4%                 30.4%     29.4%            
SG&A       388     343     13%     13%     1,427     1,257     14%     17%
Operating income       185     150     23%     24%     677     554     22%     26%
Percent of net sales       9.8%     8.9%                 9.8%     9.0%            
EBITDA       225     187     20%     21%     836     699     20%     23%
Percent of net sales       12.0%     11.2%                 12.1%     11.4%            
Net Income attributable to HARMAN International Industries, Incorporated       113     100     13%     13%     453     405     12%     15%
Diluted earnings per share       1.57     1.37     14%     14%     6.24     5.71     9%     13%
Shares outstanding - diluted (in millions)       72     73                 73     71            
1 A non-GAAP measure, see reconciliations of non-GAAP measures later in this release.                        
 

Summary of Operations - Gross Margin and SG&A

On a non-GAAP basis, gross margin for the fourth quarter of fiscal year 2016 increased 110 basis points to 30.5 percent. The improvement was primarily due to the impact of higher sales volume leveraging a more efficient fixed production cost base and productivity initiatives. Non-GAAP SG&A expense as a percentage of net sales increased 30 basis points to 20.7 percent compared to 20.4 percent in the prior year due to higher research and development expenses.

On a GAAP basis in the fourth quarter of fiscal year 2016, gross margin increased 90 basis points to 30.2 percent. SG&A expense as a percentage of net sales decreased 50 basis points to 22.0 percent compared to 22.5 percent in the prior year.

Financial Outlook

HARMAN provided guidance for fiscal 2017 as well as a revenue and EBITDA outlook for fiscal 2018 and 2019. A summary of the operational guidance is below. The tables below should be read in conjunction with management's assumptions, which are included in the Company's Fourth Quarter and Full-Year Fiscal 2016 Highlights slide deck posted on the Investors section of the Company's website at: www.harman.com.

                         

Fiscal Year
2017

     

Total
HARMAN

   

Connected
Car

   

Lifestyle
Audio

   

Professional
Solutions

   

Connected
Services

   

Corporate /
Eliminations

Sales       $7,300M - $7,500M     ~$3,320M     ~$2,410M     ~$1,045M     ~$680M     (~$55M)
Operational

EBITDA

     

$900 - $940M

 

~12.4%

    ~$480M

 

~14.5%

    ~$365M

 

~15.1%

    ~$140M

 

~13.4%

    ~$100M

 

~14.7%

    (~$165M)

 

(~2.2%)

Operational EPS       $6.75 - $7.00                              
 
             
Total HARMAN      

Fiscal 2017
Guidance

   

Fiscal 2018
Outlook

   

Fiscal 2019
Outlook

Sales       $7.3 - $7.5B     ~$7.7B     ~$8.6B
Operational

EBITDA

      ~12.4%    

~12.7%

    ~13.5%
 

Note: Operational measures exclude restructuring, acquisition-related items and non-recurring charges; a reconciliation to the GAAP forecast is included in the appendix.

Investor Call Today August 4, 2016

At 11:00 a.m. EDT today, HARMAN's management will host an analyst and investor conference call to discuss the fourth quarter results. Those who wish to participate via audio in the earnings conference call should dial 1 (800) 671-8331 (U.S.) or +1 (303) 223-4361 (International) ten minutes before the call and reference HARMAN, Access Code: 21814040.

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 fourth 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, November 4, 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: 21814040. 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).

Annual Stockholders Meeting

The Company's 2016 Annual Meeting of Stockholders will be held on Tuesday, December 6, 2016. More information about the Annual Meeting will be included in the Company's definitive proxy statement for the 2016 Annual Meeting of Stockholders.

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 $6.9 billion during the 12 months ended June 30, 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 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. 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 2016 Key Figures - Connected Car       Three Months Ended June 30     Twelve Months Ended June 30

Increase
(Decrease)

Increase
(Decrease)

                                             
$ millions (except per share data)

3M
FY16

3M
FY15

Including
Currency
Changes

   

Excluding
Currency
Changes1

12M
FY16

12M
FY15

Including
Currency
Changes

Excluding
Currency
Changes1

                                                   
Net sales       843     758     11%     10%     3,102     2,911     7%     11%
Gross profit       213     169     26%     25%     776     673     15%     19%
Percent of net sales       25.3%     22.3%                 25.0%     23.1%            
SG&A       121     98     23%     21%     416     379     10%     15%
Operating income       92     71     30%     29%     359     294     22%     24%
Percent of net sales       10.9%     9.4%                 11.6%     10.1%            
EBITDA       115     89     29%     28%     439     364     21%     23%
Percent of net sales       13.6%     11.8%                 14.2%     12.5%            
Restructuring & non-recurring costs       2     -                 6     5            
Acquisition-related items       1     1                 5     1            

Non-GAAP - operational1

                                                 
Gross profit       215     171     26%     25%     780     678     15%     19%
Percent of net sales       25.5%     22.5%                 25.2%     23.3%            
SG&A       119     98     21%     19%     410     377     9%     14%
Operating income       96     72     33%     32%     370     300     23%     25%
Percent of net sales       11.4%     9.5%                 11.9%     10.3%            
EBITDA       116     88     32%     31%     442     364     22%     24%
Percent of net sales       13.8%     11.6%                 14.3%     12.5%            
1 A non-GAAP measure, see reconciliations of non-GAAP measures later in this release.                        
 

Net sales in the fourth quarter of fiscal 2016 were $843 million, an increase of 11 percent (10 percent ex-FX) compared to the prior year. The increase in net sales was due to higher take rates and stronger production.

On a non-GAAP basis in the fourth quarter of fiscal 2016, gross margin increased 300 basis points to 25.5 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 manufacturing productivity. SG&A expense as a percent of sales increased 110 basis points to 14.1 percent compared to the prior year due to higher research and development costs to support awarded business.

On a GAAP basis in the fourth quarter of fiscal 2016, gross margin increased 300 basis points to 25.3 percent compared to the prior year. SG&A expense as a percent of sales increased 140 basis points to 14.4 percent compared to the prior year.

Connected Car Highlights

During the quarter, HARMAN secured new and follow-on awards to provide connected car solutions for customers, including Harley-Davidson, Porsche, Toyota and a North American automaker.

Advancing its telematics strategy, the Company secured an award from a premium German automaker for an industry-first solution that will act as the main gateway for the car, providing a unique connectivity platform. The solution integrates and powers expanded telematics features and enables system diagnostics, remote control capabilities and system updates/deployment. The automaker will also employ HARMAN's over-the-air (OTA) update technology, ensuring that critical software fixes, feature additions and upgrades can be easily and securely transmitted and added to the vehicle - not only for HARMAN equipment but also for other on-board electronic control units (ECUs).

HARMAN launched embedded infotainment solutions in the BMW X3 and X4, the Genesis EQ900/G90 luxury sedan by Hyundai, the Kia K3 and K5 in China, and the TATA Tiago.

HARMAN continues to receive accolades for its industry leadership. In June, HARMAN was named Supplier of the Year at the Automotive Interior Expo in Stuttgart, Germany. Also, in Consumer Report's most recent guide to Infotainment systems, the highest rated system is supplied by HARMAN.

Lifestyle Audio

                                 
FY 2016 Key Figures - Lifestyle Audio       Three Months Ended June 30     Twelve Months Ended June 30

Increase
(Decrease)

Increase
(Decrease)

                                                   
$ millions (except per share data)

3M
FY16

3M
FY15

Including
Currency
Changes

Excluding
Currency
Changes1

12M
FY16

12M
FY15

Including
Currency
Changes

Excluding
Currency
Changes1

                                                   
Net sales       578     463     25%     25%     2,138     1,813     18%     21%
Gross profit       201     146     38%     38%     723     588     23%     26%
Percent of net sales       34.8%     31.5%                 33.8%     32.5%            
SG&A       125     98     28%     27%     456     392     16%     20%
Operating income       75     48     58%     61%     267     196     36%     37%
Percent of net sales       13.1%     10.3%                 12.5%     10.8%            
EBITDA       92     59     57%     58%     324     237     37%     38%
Percent of net sales       15.9%     12.7%                 15.2%     13.1%            
Restructuring & non-recurring costs       5     3                 12     26            
Acquisition-related items       5     2                 17     2            

Non-GAAP - operational1

                                                 
Gross profit       202     145     40%     40%     726     579     25%     29%
Percent of net sales       35.1%     31.3%                 34.0%     31.9%            
SG&A       117     92     26%     26%     431     355     21%     25%
Operating income       86     52     64%     66%     295     224     32%     35%
Percent of net sales       14.8%     11.3%                 13.8%     12.4%            
EBITDA       94     61     53%     55%     329     260     26%     30%
Percent of net sales       16.3%     13.3%                 15.4%     14.4%            
1 A non-GAAP measure, see reconciliations of non-GAAP measures later in this release.                        
 

Net sales in the fourth quarter of fiscal 2016 were $578 million, an increase of 25 percent on a nominal and ex-FX basis compared to the prior year, primarily due to higher take rates and the acquisition of Bang & Olufsen Automotive in car audio, and continued strong demand for smart audio solutions in consumer.

On a non-GAAP basis in the fourth quarter of fiscal 2016, gross margin improved by 380 basis points to 35.1 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 manufacturing productivity. SG&A expense as a percentage of sales increased 20 basis points to 20.2 percent primarily due to additional research and development to support new car audio awards.

On a GAAP basis in the fourth quarter of fiscal 2016, gross margin improved by 330 basis points to 34.8 percent compared to the prior year. SG&A expense as a percentage of sales increased 50 basis points compared to the prior year.

Lifestyle Audio Highlights

HARMAN won new business awards with Audi (Bang & Olufsen), Hyundai/Kia (Infinity), Lexus (Mark Levinson), SGM Wuling in China (Infinity), Subaru (Harman Kardon) and Toyota (JBL). In addition, the Company secured its first award for its premium Summit audio platform with an electric vehicle company. The scalable Summit platform provides the foundation to integrate HARMAN's sound processing and sound management technologies, such as Quantum Logic Surround Sound™, Individual Sound ZonesTM, and Clari-FiTM, along with new features like Connected Jukebox and Virtual Venues, to create an unprecedented in-car audio experience. In addition, the Company secured new business awards for its Individual Sound Zones and HALOsonic™ suite of sound management solutions with several global car manufacturers.

During the quarter, the Company launched car audio solutions in the Audi Q5 (Bang & Olufsen), Dodge Viper SRT (Harman Kardon) and Maserati Quattroporte and Ghibli (Bowers & Wilkins). As further proof of HARMAN's leadership in the industry, the Company won a Ford World Excellence Award for its Revel audio system available in Lincoln vehicles.

The Company introduced several new portable speakers, including the JBL Charge 3 and the Harman Kardon Go+Play. For the year, the Company won a total of 56 design and innovation awards across its consumer audio portfolio, including 23 Red Dot, 13 CES Innovation awards, 10 IFF, six Red Star and four EISA awards.

Professional Solutions

                                 
FY 2016 Key Figures - Professional Solutions       Three Months Ended June 30     Twelve Months Ended June 30

Increase
(Decrease)

Increase
(Decrease)

                                                   
$ millions (except per share data)

3M
FY16

3M
FY15

Including
Currency
Changes

Excluding
Currency
Changes1

12M
FY16

12M
FY15

Including
Currency
Changes

Excluding
Currency
Changes1

                                                   
Net sales       286     285     1%     1%     1,014     1,049     (3%)     (1%)
Gross profit       103     113     (8%)     (8%)     386     428     (10%)     (8%)
Percent of net sales       36.0%     39.6%                 38.1%     40.8%            
SG&A       86     86     (0%)     0%     317     326     (3%)     (1%)
Operating income       17     27     (35%)     (35%)     70     102     (32%)     (30%)
Percent of net sales       6.1%     9.4%                 6.9%     9.7%            
EBITDA       26     36     (29%)     (28%)     105     136     (23%)     (21%)
Percent of net sales       9.1%     12.8%                 10.3%     13.0%            
Restructuring & non-recurring costs       9     11                 20     19            
Acquisition-related items       2     -                 2     -            

Non-GAAP - operational1

                                                 
Gross profit       105     114     (8%)     (8%)     389     426     (9%)     (7%)
Percent of net sales       36.7%     40.1%                 38.4%     40.7%            
SG&A       77     77     0%     1%     297     306     (3%)     (1%)
Operating income       28     38     (25%)     (25%)     92     121     (24%)     (22%)
Percent of net sales       9.8%     13.2%                 9.0%     11.5%            
EBITDA       34     46     (25%)     (24%)     122     153     (20%)     (18%)
Percent of net sales       12.0%     16.0%                 12.1%     14.6%            
1 A non-GAAP measure, see reconciliations of non-GAAP measures later in this release.                        
 

Net sales in the fourth quarter of fiscal 2016 were $286 million, an increase of one percent compared to the prior year on a nominal and ex-FX basis.

On a non-GAAP basis in the fourth quarter of fiscal 2016, gross margin decreased 340 basis points to 36.7 percent, driven by product mix and new factory start-up costs in Hungary. SG&A expense as a percentage of sales was in-line with the prior year.

On a GAAP basis in the fourth quarter of fiscal 2016, gross margin decreased 360 basis points to 36.0 percent. SG&A expense as percent of sales was in-line with the prior year.

Professional Solutions Highlights

HARMAN's entertainment and enterprise solutions were selected by leading system integrators and installers around the world. Notable installations included Heinz Field in Pittsburgh, the Hyatt Regency Hotel in Mexico, and the Burj Al Arab Hotel in Dubai. HARMAN's solutions also powered a wide range of high-profile special events, music festivals, summer concert tours and televised award shows, including the 51st Country Music Awards.

The division launched 24 major new products during the quarter, some of which were recognized with innovation awards from industry experts.

Connected Services

                                 
FY 2016 Key Figures - Connected Services       Three Months Ended June 30     Twelve Months Ended June 30

Increase
(Decrease)

Increase
(Decrease)

                                                   
$ millions (except per share data)

3M
FY16

3M
FY15

Including
Currency
Changes

Excluding
Currency
Changes1

12M
FY16

12M
FY15

Including
Currency
Changes

Excluding
Currency
Changes1

                                                   
Net sales       185     173     7%     8%     694     381     82%     96%
Gross profit       52     63     (18%)     (16%)     214     127     69%     79%
Percent of net sales       28.2%     36.7%                 30.8%     33.3%            
SG&A       39     50     (22%)     (22%)     178     86     107%     115%
Operating income       13     14     (1%)     4%     35     40     (13%)     (3%)
Percent of net sales       7.3%     7.9%                 5.1%     10.6%            
EBITDA       22     27     (21%)     (19%)     79     57     39%     51%
Percent of net sales       11.8%     15.9%                 11.4%     14.9%            
Restructuring & non-recurring costs       1     -                 3     -            
Acquisition-related items       4     15                 32     15            

Non-GAAP - operational1

                                                 
Gross profit       52     63     (18%)     (16%)     214     127     69%     79%
Percent of net sales       28.2%     36.7%                 30.8%     33.3%            
SG&A       34     35     (3%)     (2%)     143     71     101%     110%
Operating income       19     29     (36%)     (34%)     71     56     27%     38%
Percent of net sales       10.0%     16.7%                 10.2%     14.6%            
EBITDA       22     30     (29%)     (27%)     85     60     42%     54%
Percent of net sales       11.7%     17.6%                 12.2%     15.7%            
1 A non-GAAP measure, see reconciliations of non-GAAP measures later in this release.                        
 

Net sales in the fourth quarter of fiscal 2016 were $185 million, an increase of seven percent (eight percent ex-FX) due to higher demand for engineering services.

The timing of booked revenue is tied to specific customer acceptance milestones in longer-term engineering projects, while expenses are recognized as incurred. This can result in margin volatility. As a result, for the fourth quarter, on non-GAAP basis, gross margin declined 850 basis points to 28.2 percent. Beginning in fiscal 2017, HARMAN will use percentage of completion accounting for significant new contracts, which is expected to reduce some of the volatility. SG&A expense as a percentage of sales decreased 180 basis points to 18.2 percent due to better leverage on higher sales.

On a GAAP basis, gross margin decreased 850 basis points to 28.2 percent. SG&A expense as a percentage of sales declined 780 basis points to 21.0 percent, primarily due to transaction costs related to the acquisition of Symphony Teleca incurred in the prior year.

Connected Services Highlights

HARMAN secured business to provide software services for BMW, Microsoft, PSA Group and Reliance Jio. The Company also won awards for its cloud-based OTA software update technology from leading OEMs such as FCA, Porsche and Subaru.

During the quarter, HARMAN partnered with NXP Semiconductors to jointly offer new software gateway solutions to the automotive market. NXP's secured gateway processors, embedded with the new HARMAN update technology, will enable every ECU, regardless of memory, processor or network resource, to benefit from secure OTA updates.

HARMAN was also recognized with a number of industry accolades for its products and services, including the EGR Data Analytics Partner of the Year for Europe and the IoT Business Impact Award by IoT Evolution Expo.

Other (Corporate)

                                 
FY 2016 Key Figures - Other       Three Months Ended June 30     Twelve Months Ended June 30

Increase
(Decrease)

Increase
(Decrease)

                                                   
$ millions (except per share data)

3M
FY16

3M
FY15

Including
Currency
Changes

Excluding
Currency
Changes1

12M
FY16

12M
FY15

Including
Currency
Changes

Excluding
Currency
Changes1

                                                   
SG&A       44     46     (3%)     (3%)     151     164     (8%)     (8%)
Restructuring & non-recurring costs       2     -                 -     -            
Acquisition-related items       (1)     5                 -     16            

Non-GAAP - operational1

                                                 
SG&A       43     41     7%     7%     152     148     2%     3%
1 A non-GAAP measure, see reconciliations of non-GAAP measures later in this release.                        
 

Other (Corporate) SG&A expense includes 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 net sales declined 10 basis points compared to the prior year. On a GAAP basis, Corporate SG&A as a percentage of total net sales declined 30 basis points compared to the prior year.

                 

HARMAN International Industries, Incorporated

Consolidated Statements of Income

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

June 30,

    Twelve Months Ended June 30,
       

2016

   

2015

   

2016

   

2015

Net sales       $1,880,549     $1,678,633     $6,911,676     $6,155,297
Cost of sales       1,312,815     1,187,457     4,818,585     4,338,193
Gross profit       567,734     491,176     2,093,091     1,817,104
Selling, general and administrative expenses       413,680     377,629     1,513,064     1,347,510
Operating income       154,054     113,547     580,027     469,594
Other expenses:                          
Interest expense, net       8,924     6,068     33,482     13,929
Foreign exchange (gains) losses, net       (1,927)     3,643     685     (723)
Miscellaneous, net       4,090     3,175     15,352     10,107
Income before income taxes       142,967     100,661     530,508     446,281
Income tax expense, net       70,039     27,019     168,057     103,269
Equity in net loss of unconsolidated subsidiaries       -     -     -     23
Net income       72,928     73,642     362,451     342,989
Net income attributable to non-controlling interest       15     465     717     309

Net income attributable to HARMAN International Industries,
Incorporated

     

72,913

   

73,177

   

361,734

   

342,680

Earnings per share:                          
Basic       $1.02     $1.02     $5.03     $4.89
Diluted       $1.01     $1.01     $4.99     $4.84
Weighted average shares outstanding:                          
Basic       71,321     71,923     71,866     70,147
Diluted       71,958     72,694     72,532     70,870
 
         

HARMAN International Industries, Incorporated

Consolidated Balance Sheets

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

2016

   

2015

ASSETS              
Current Assets              
Cash and cash equivalents       $602,300     $649,513
Receivables, net       1,122,920     1,024,139
Inventories       706,084     693,574
Other current assets       487,151     461,366
Total current assets       2,918,455     2,828,592
Property, plant and equipment, net       593,290     552,421
Intangible assets, net       476,284     669,667
Goodwill       1,510,279     1,287,180
Deferred tax assets, net       140,181     100,032
Other assets       415,553     428,008
Total assets      

$6,054,042

   

$5,865,900

               
LIABILITIES AND EQUITY              
Current liabilities              
Current portion of long-term debt       $86,641     $4,550
Short-term debt       -     1,021
Accounts payable       867,279     918,910
Accrued liabilities       670,746     907,024
Accrued warranties       178,367     163,331
Income taxes payable       28,773     76,131
Total current liabilities       1,831,806     2,070,967
Borrowings under revolving credit facility       523,000     283,125
Long-term debt       793,506     797,542
Pension liability       216,095     186,662
Other non-current liabilities       237,162     134,778
Total liabilities       3,601,569     3,473,074

Total HARMAN International Industries, Incorporated shareholders'
equity

      2,452,473     2,374,613
Noncontrolling interest       -     18,213
Total equity       2,452,473     2,392,826
Total liabilities and equity      

$6,054,042

   

$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
June 30, 2016

 

                   
       

GAAP

   

Adjustments

   

Non-GAAP -
Operational

Net sales       $1,880,549     -     $1,880,549
Cost of sales       1,312,815     (5,153)a     1,307,662
Gross profit       567,734     5,153     572,887
Selling, general and administrative expenses       413,680     (25,296)b     388,384
Operating income       154,054     30,449     184,503
Other expenses:                    
Interest expense, net       8,924     -     8,924
Foreign exchange (gains) losses, net       (1,927)     -     (1,927)
Miscellaneous, net       4,090     -     4,090
Income before income taxes       142,967     30,449     173,416
Income tax expense, net       70,039     (9,458)c     60,581
Net income       72,928     39,907     112,835
Net income attributable to non-controlling interest       15     -     15

Net income attributable to HARMAN International
Industries, Incorporated

     

$72,913

   

$39,907

   

$112,820

Earnings per share:                    
Basic       $1.02     $0.56     $1.58
Diluted       $1.01     $0.55     $1.57
Weighted average shares outstanding:                    
Basic       71,321           71,321
Diluted       71,958           71,958
 
a)   Restructuring expense in Cost of Sales was $5.2 million for projects to increase manufacturing productivity.
b) Restructuring expense in SG&A was $8.2 million primarily due to projects to increase productivity in engineering, manufacturing and administrative functions; acquisition-related expenses were $11.9 million, including $13.5 million of intangible amortization expenses; other non-recurring expense included in SG&A was $5.2 million, which primarily relates to incremental costs incurred related to productivity improvement initiatives.
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 $18.3 million for deemed income on foreign earnings related to fiscal years 2015 and 2014. Included in both GAAP and Operational income tax expense, net is $9.6 million for fiscal year 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)

Twelve Months Ended
June 30, 2016

                     
       

GAAP

   

Adjustments

   

Non-GAAP -
Operational

Net sales       $6,911,676     -     $6,911,676
Cost of sales       4,818,585     (10,367)a     4,808,218
Gross profit       2,093,091     10,367     2,103,458
Selling, general and administrative expenses       1,513,064     (86,259)b     1,426,805
Operating income       580,027     96,626     676,653
Other expenses:                    
Interest expense, net       33,482     -     33,482
Foreign exchange losses (gains), net       685     -     685
Miscellaneous, net       15,352     (3,545)     11,807
Income before income taxes       530,508     100,171     630,679
Income tax expense, net       168,057     9,210c     177,267
Net income       362,451     90,961     453,412
Net income attributable to non-controlling interest       717     -     717

Net income attributable to HARMAN International
Industries, Incorporated

     

$361,734

   

$90,961

   

$452,695

Earnings per share:                    
Basic       $5.03     $1.27     $6.30
Diluted       $4.99     $1.25     $6.24
Weighted average shares outstanding:                    
Basic       71,866           71,866
Diluted       72,532           72,532
 
a)   Restructuring expense in Cost of Sales was $10.4 million for projects to increase manufacturing productivity.
b) Restructuring expense in SG&A was $14.5 million primarily due to projects to increase productivity in engineering, manufacturing and administrative functions; acquisition-related expenses were $55.9 million, including $54.6 million of intangible amortization expenses; other non-recurring expense included in SG&A was $15.8 million, which primarily relates to incremental costs incurred related to productivity improvement initiatives.
c) The tax (expense) 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 $18.3 million for deemed income on foreign earnings related to fiscal years 2015 and 2014. Included in both GAAP and Operational income tax expense, net is $9.6 million for fiscal year 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
June 30, 2015

                     
       

GAAP

   

Adjustments

   

Non-GAAP -
Operational

Net sales       $1,678,633     $0     $1,678,633
Cost of sales       1,187,457     (1,589)a     1,185,868
Gross profit       491,176     1,589     492,765
Selling, general and administrative expenses       377,629     (34,715)b     342,914
Operating income       113,547     36,304     149,851
Other expenses:                    
Interest expense, net       6,068     -     6,068
Foreign exchange losses (gains), net       3,643     -     3,643
Miscellaneous, net       3,175     (1,224)     1,951
Income before income taxes       100,661     37,528     138,189
Income tax expense, net       27,019     10,812c     37,831
Net income       73,642     26,716     100,358
Net income attributable to non-controlling interest       465     -     465

Net income attributable to HARMAN International
Industries, Incorporated

     

$73,177

   

$26,716

   

$99,893

Earnings per share:                    
Basic       $1.02     $0.37     $1.39
Diluted       $1.01     $0.37     $1.37
Weighted average shares outstanding:                    
Basic       71,923           71,923
Diluted       72,694           72,694
 
a)   Restructuring expense in Cost of Sales was $1.6 million for projects to increase manufacturing productivity.
b) Restructuring expense in SG&A was $3.7 million primarily due to projects to increase productivity in engineering, manufacturing and administrative functions; other non-recurring expense included in SG&A was $7.9 million. Acquisition-related expenses were $23.1 million, including $14.3 million of intangible amortization expenses.
c) The tax (expense) 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 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)

Twelve Months Ended
June 30, 2015

                     
       

GAAP

   

Adjustments

   

Non-GAAP -
Operational

Net sales       $6,155,297     $0     $6,155,297
Cost of sales       4,338,193     6,426a     4,344,619
Gross profit       1,817,104     (6,426)     1,810,678
Selling, general and administrative expenses       1,347,510     (90,682)b     1,256,828
Operating income       469,594     84,256     553,850
Other expenses:                    
Interest expense, net       13,929     -     13,929
Foreign exchange losses (gains), net       (723)     -     (723)
Miscellaneous, net       10,107     (1,224)     8,883
Income before income taxes       446,281     85,480     531,761
Income tax expense, net       103,269     23,611c     126,880
Equity in net loss of unconsolidated subsidiaries       23     -     23
Net income       342,989     61,869     404,858
Net income attributable to non-controlling interest       309     -     309

Net income attributable to HARMAN International
Industries, Incorporated

     

$342,680

   

$61,869

   

$404,549

Earnings per share:                    
Basic       $4.89     $0.88     $5.77
Diluted       $4.84     $0.87     $5.71
Weighted average shares outstanding:                    
Basic       70,147           70,147
Diluted       70,870           70,870
 
a)   Restructuring expense in Cost of Sales was $9.4 million for projects to increase manufacturing productivity, offset by a $17.3 million accrual reversal for a US Customs / NAFTA related exposure.
b) Restructuring expense in SG&A was $42.6 million primarily due to projects to increase productivity in engineering and administrative functions. Other non-recurring expense includes in SG&A was $13.4 million. Acquisition-related expenses were $34.7 million, including $15.2 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 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 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

Selected Financial Data

Reconciliation of GAAP to Non-GAAP Results

Foreign Currency Translation Impact

                     

(In thousands; unaudited)

Three Months Ended
June 30,

Increase /
(Decrease)

                   
       

2016

   

2015

     
Net sales - nominal currency       $1,880,549     $1,678,633     12%
Effects of foreign currency translation (1)            

5,018

     
Net sales - local currency       $1,880,549     $1,683,651     12%
                     
Gross profit - nominal currency       $567,734     $491,176     16%
Effects of foreign currency translation (1)            

(139)

     
Gross profit - local currency       $567,734     $491,037     16%
                     
SG&A - nominal currency       $413,680     $377,629     10%
Effects of foreign currency translation (1)            

(801)

     
SG&A - local currency       $413,680     $378,430     9%
                     
Operating income - nominal currency       $154,054     $113,547     36%
Effects of foreign currency translation (1)            

(940)

     
Operating income - local currency       $154,054     $112,607     37%
                     

Net income attributable to HARMAN International Industries,
Incorporated
- nominal currency

      $72,913     $73,177     0%
Effects of foreign currency translation (1)            

(488)

     

Net income attributable to HARMAN International Industries,
Incorporated
- local currency

      $72,913     $72,689     0%
                     
(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
June 30,

Increase /
(Decrease)

                   
       

2016

   

2015

     

Net sales - nominal currency

      $1,880,549     $1,678,633     12%
Effects of foreign currency translation (1)            

5,018

     
Net sales - local currency       $1,880,549     $1,683,651     12%
                     
Gross profit - nominal currency       $572,887     $492,765     16%
Effects of foreign currency translation (1)            

(93)

     
Gross profit - local currency       $572,887     $492,672     16%
                     
SG&A - nominal currency       $388,384     $342,914     13%
Effects of foreign currency translation (1)            

(694)

     
SG&A - local currency       $388,384     $343,608     13%
                     
Operating income - nominal currency       $184,503     $149,851     23%
Effects of foreign currency translation (1)            

(787)

     
Operating income - local currency       $184,503     $149,064     24%
                     

Net income attributable to HARMAN International Industries,
Incorporated
- nominal currency

      $112,820     $99,893     13%
Effects of foreign currency translation (1)            

(335)

     

Net income attributable to HARMAN International Industries,
Incorporated
- local currency

      $112,820     $99,558     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)

Twelve Months Ended
June 30,

Increase /
(Decrease)

                   
       

2016

   

2015

     
Net sales - nominal currency       $6,911,676     $6,155,297     12%
Effects of foreign currency translation (1)            

(209,768)

     
Net sales - local currency       $6,911,676     $5,945,529     16%
                     
Gross profit - nominal currency       $2,093,091     $1,817,104     15%
Effects of foreign currency translation (1)            

(51,741)

     
Gross profit - local currency       $2,093,091     $1,765,363     19%
                     
SG&A - nominal currency       $1,513,064     $1,347,510     12%
Effects of foreign currency translation (1)            

(39,828)

     
SG&A - local currency       $1,513,064     $1,307,682     16%
                     
Operating income - nominal currency       $580,027     $469,594     24%
Effects of foreign currency translation (1)            

(11,912)

     
Operating income - local currency       $580,027     $457,682     27%
                     

Net income attributable to HARMAN International Industries,
Incorporated
- nominal currency

      $361,734     $342,680     6%
Effects of foreign currency translation (1)            

(7,341)

     

Net income attributable to HARMAN International Industries,
Incorporated