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Harman Praises Acquisition, Reports Record Q3 Results

4/26/2007 03:55:00 PM Eastern

Washington — Harman International said it “thinks well” of the deal it announced earlier today to sell the company to Goldman Sachs and Kohlberg Kravis Roberts & Co. (KKR) for just shy of $8 billion.

Harman CEO Sidney Harman, who will remain company chairman and who owns 5 percent of the company’s outstanding shares, admitted to analysts that part of the reason for the sale was that he is approaching the age of 89.

He said KKR and Goldman Sachs are “superbly funded, and I think very well of the personnel in this organization; I think very well of their business acuteness; I think very well of the network that becomes available to us … and I think very well of the fact that Henry Kravis, in particular, will become a member of this board.”

The remarks at a conference call to announce the company’s third quarter earnings came in response to a question from a Citicorp analyst which called the deal “a little light,” and asked if there were other reasons why the company decided to sell to this buyer.


  

Sidney Harman

Harman added, “Beyond that … I’m a vigorous guy for a man three months removed from his 89th birthday … I consider it an obligation to find … a safe supportive harbor for the company and it employees, and customers and suppliers.”

Harman said the company has chosen a new CEO and is in the process of negotiating terms of employment. It will identify the person as soon as negotiations are complete, he said.

The company will pay $120 cash for each Harman share, but shareholders will have the right to elect to retain a portion of their Harman stock up to a maximum of 8.3 million shares in total.

The company also has the right to consider other offers during a 50-day period but would pay the KKR Goldman group a $75 million break up fee, in the event it chose an alternative bid.

Harman also announced record third-quarter results for the period ending March 31. Sales for the quarter rose 10 percent to $882.8 million compared with $801.5 million for the period a year ago.

Net income for the quarter increased 11 percent to $71.0 million.

All key sectors increased sales by 10 percent including automotive sales, now at $624.9 million, and consumer sales and professional sales at $118 million and $139.9 million, respectively.

Automotive operating income was 14.7 percent of sales.

Harman said margins were lower this quarter in consumer sales due to increased competition in multimedia.

For the nine months, ended March 31, net sales were $2.64 billion or an increase of 11 percent. Net income was up 10 percent for the nine months to $209.0 million

Total R& D expenses for the quarter were $90 million, or 10.2 percent of sales, compared with $72 million for the same quarter a year ago.The additional R & D expenses were the result of unexpected orders from BMW and for research into driver assist OEM equipment which is expected to be a strong market for the company going forward.