Transcript Global Company Presentation - Harman International Industries

Baird Conference
November 2007
Disclaimer on Forward Looking Statements
Certain statements made by the Company in this presentation are forwardlooking statements. These statements include comments as to the
Company’s beliefs and expectations as to future events and trends affecting
the Company’s business. These forward-looking statements are based upon
management’s current expectations concerning future events and trends and
are necessarily subject to uncertainties, many of which are outside the
control of the Company. The factors stated under the heading “ForwardLooking Statements” in Management’s Discussion and Analysis of Results of
Operations and Financial Condition, which appears in the Company’s Annual
Report on Form 10-K for the year ended June 30, 2007, and the Company’s
most recent 10-Q filings with the SEC, as well as other factors, could cause
actual results to differ materially from such statements.
1
Harman Today
SUMMARY BUSINESS OVERVIEW
 Leader in the development,
manufacture and marketing of highquality, high fidelity audio products and
electronic systems
FY 2007 REVENUE BY DIVISION
Consumer
14%
Professional
16%
 11,000+ employees
 Manufacturing facilities in North
America, Europe and Asia
 Operations at 44 locations
Automobile
70%
Total = $3,551 million
FY 2007 EBITDA BY DIVISION
 Products distributed worldwide
 Unmatched brand name recognition
Consumer
4%
Professional
17%
 Three business segments
 Automotive
 Consumer
 Professional
Total = $514 million
Automobile
79%
2
Company Overview
Automotive Division
 World leader in Branded
Automotive Audio
Systems
 Leader in high-end
Infotainment Systems
enabled by innovative
technological
advancements
Professional Division
 Designs, manufactures
and markets loudspeakers
and electronic systems
used by audio
professionals in concert
halls, stadiums, airports,
houses of worship and
theme attractions
Consumer Division
 Leading designer and
producer of audio,
video and electronic
systems for home,
mobile and
multimedia
applications
Brands
3
Recent Company Events
 Dinesh Paliwal joins Harman as Vice Chairman, President &
CEO
 Dinesh comes to Harman from ABB where he was President of Global
Markets and Technology as well as President and CEO of ABB North
America. The ABB Group is a global technology and engineering
company with $24 billion in annual revenues and operations in 100+
countries.
 Termination of the Merger Agreement
 Harman, KKR and GSCP agreed to terminate merger agreement without
litigation or a termination fee
 Company avoids a protracted and costly legal battle
 Senior management fully focused on running the business
 KKR and GSCP invested $400 million in 1.25% convertible senior notes
and have agreed not to hedge or sell position for one year
4
Recent Company Events
 Accelerated Share Repurchase Agreement
 Company used the proceeds from the convertible notes to repurchase
more than 4.7 million shares (approximately 7% of outstanding shares)
which were retired immediately
 EPS accretion in F’08 estimated to be approximately 4%
 Expansion of the Board of Directors
 Brian Carroll, member of KKR, joins the Harman International Board.
Mr. Carroll is also a member of the board of directors of Rockwood
Specialties Group, Inc. and Sealy Corporation.
 Dr. Harald Einsmann, brings significant experience from both his board
service and senior management roles in a variety of multinational
companies.
5
Financial Overview
Revenue and Gross Profit
REVENUE
($ in millions)
4,000
3,551
3,000
2,711
3,031
FY2004
FY2005
3,248
2,229
2,000
1,000
0
FY2003
FY2006
FY2007
GROSS PROFIT
($ in millions)
1,500
60.0%
1,153
1,200
1,211
40.0%
889
900
651
32.8%
600
50.0%
1,032
35.5%
34.0%
34.1%
29.2%
30.0%
20.0%
300
10.0%
0
0.0%
FY 2003
FY 2004
FY 2005
Gross Profit
FY 2006
% of Sales
FY 2007
7
Historical SG&A
RESEARCH AND DEVELOPMENT EXPENSES, net
($ in millions)
600
25.0%
20.0%
357
400
200
15.0%
302
143
6.4%
217
223
8.0%
7.3%
FY 2004
FY 2005
10.0%
9.3%
10.1%
FY 2006
FY 2007
5.0%
0
0.0%
FY 2003
R&D
% of Sales
OTHER SELLING, GENERAL & ADMINISTRATION EXCLUDING R&D
600
400
25.0%
341
417
458
453
468
20.0%
15.0%
15.3%
15.4%
15.1%
14.0%
200
13.2%
10.0%
5.0%
0
0.0%
FY 2003
FY 2004
FY 2005
Other SG&A ex R&D
FY 2006
FY 2007
% of Sales
8
EBITDA
EBITDA
($ in millions)
600
527
514
FY2006
FY2007
470
361
400
256
200
0
FY2003
FY2004
FY2005
9
Automotive Division
Automotive Division - Q1 F’08 Highlights
 Strong Sales Growth 14% Q1 F’08 v. Q1 F’07
 Sales increases to luxury automakers, mid-segment and
personal navigation devices (“PND”)
 Gross Margin Decreases 9 points
 New program ramp slower than anticipated
 Higher material costs
 Product mix consisted of more mid-range infotainment systems
and PND’s
 R&D costs higher $4.3 million Q1 F’08 v. Q1 F’07
 To deliver on record number of new programs
 Operating Profit decline primarily due to gross margin decrease
11
Major New Product Launches
FISCAL YEAR 2008 LAUNCHES
FISCAL YEAR 2009 LAUNCHES
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Chrysler
Hyundai BH program
BMW
Ssangyong Chairman
Audi 3G
Porsche
PSA RNEG
BMW L6
PSA NG4
Hyundai VI
Porsche PCM3.1
Mercedes E-class Mid-level
Mercedes S-class facelift
12
Consumer Division
Consumer Division - Q1 F’08
 Strong Sales Growth 28% Q1 F’08 v. Q1 F’07
 Solid sales increases Internationally and in the US to Best
Buy
 Gross Margin declined nearly 2 points
 Competition in multimedia space
 Operating Loss of 2.6% in Q1 F’08 improved 2.2 points
versus Q1 F’07
14
Product Road Map
AVR
Wireless
iPhone Docking
iPhone dock +
HD Radio +
speakerphone
GPS 800/
MS 8
15
Professional Division
Professional Division – Q1 F’08
Strong Sales Growth 11% Q1 F’08 v. Q1 F’07
Strong sales at JBL Pro, Soundcraft/Studer
and Harman Music Group
Gross Margin increased slightly to 38.5%
Operating Expenses fell as a % of Sales to
24.4%
Operating profit margin increased by 100 basis
points to 14.0%
17
HiQnet Overview
HiQnet System Architect
 HiQnet allows Harman Pro to offer a
complete system from microphone to
speaker
 Control and monitoring of devices on
the network
 Automatically learns device capabilities
 Primarily large install and touring
 67 HiQnet enabled products,
representing 22% of Q1 FY08
revenues
18
F’08 Initiatives
 Significant restructuring program announced -- $25
million to $30 million to be completed in the second
half of F’08
 Optimize cost structure – global procurement strategies
“shopping smart”, consolidating manufacturing and
engineering footprint
 Improve and simplify internal processes – consolidate
and coordinate activities, e.g. engineering efforts,
shared services centers
 Build global team -- monthly business reviews, new key
metrics, add key resources (HR, Strategy)
19
Questions and Answers