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Message from the Chief Executive Officer and the Chief Operating Officer We have identified the 2001 fiscal year as one of transition – the year in which we completed preparations for a vigorous new decade. Consolidated sales in fiscal 2001 were $1.717 billion, an increase of 2% above the previous year. Excluding currency factors, sales rose 8%. Pre-tax income totaled $81.4 million, a 21% decrease before applying the $36.3 million charge for restructuring and other items. Pretax income after application of the charge for restructuring and other items was $45.1 million. Earnings were $1.72 per share before the charges and $.96 per share after the charges. Several significant factors influenced our performance during the year. After a decade of uninterrupted economic vigor, the United States experienced a substantial slowdown. Gross domestic product declined from a growth rate in excess of 5% in the six months prior to the start of our fiscal year to less than 2% for the year. Industrial production fell 3.6%. Auto production and corporate profits declined. Nonetheless, we believe the fundamentals in the American economy are sound and that the opportunities for significant increases in output and productivity abound in the new technology. Despite the economic difficulties, our North American automotive business grew 5%, reflecting the great success of our Mark Levinson sound systems for Lexus. Our international automotive business grew 11%. We are particularly optimistic about our future as we move into the first year of the infotainment era. We have been preparing ourselves for this period in our history for several years, and we will be producing the first of these highly sophisticated systems in the new year. They typically provide navigation, telephone, telematics, TV, DVD, games, superb audio and internet access in the car. Because of the higher dollar content each system represents, we are afforded significant growth opportunities with each of our clients. Our traditional music reproducing systems represent approximately $250 in billing. The new systems run from approximately $450 to $3,000. In this new year we will deliver systems for top-of-the-line vehicles at Audi, BMW, Mercedes-Benz, Porsche and Renault. They will be followed in subsequent years by systems for other models and for several additional major automakers. On the Consumer side we, as everyone, continue to struggle in a very difficult market. Still, we have created such value in our brand names and such wide respect for our products that we see our business today as healthier than it has been in many years. Domestically, Harman/Kardon and JBL are performing well. We are encouraged by the progress at Consumer International. The model for one-step distribution that we have applied in Europe (a model which mimics the traditional marketing of consumer products in the United States) is working and will ultimately generate the attractive margins we seek. As we write this report, our people report that for the first time in months, all segments of the professional marketplace seem vigorous. It is too early to label it a trend, but it is quite encouraging. The cinema business is an interesting example. After a lengthy and dismal recession, it is beginning to exhibit renewed vigor. Cinema sales are now expected to increase by one third in the new year with particular growth in South America and Asia. In the United States, it appears that the trough has been reached and the climb out of it is underway. Electronic cinema will be important going forward. There is still much to be accomplished in terms of agreement on standards and perhaps, more important, agreement on who is going to bear the cost of the new equipment and the new delivery system. Eventually, however, electronic cinema means the end of the projection booth and with it the removal of the important digital processing electronics located there. That processing will then be done directly at the loudspeakers. The result will be a demand for new powered, surround-sound loudspeakers with digital signal processing, a scenario right up our alley. We continue to move forward with the Multimedia business (formerly called Audio for Computers), because we believe we have a viable business there. Surely it has been adversely affected by the staggering PC business, but we have become increasingly effective in this space and it has been profitable despite the many negative influences. In fiscal 2001 the company repurchased 2.2 million shares of Harman stock. Total-debt-to-capital ratio at the end of the year was 47%, an attractive 3 percentage points below our plan. We continue with a strong balance sheet. As Dr. Harman’s essay and this report suggest, we
enter the new year with confidence. Our people have been working toward
this day for a lengthy time and we view the new fiscal year as one of
historic importance. We have the technology, the financial resources,
the management team and an impressive set of committed clients. We will
devote our fullest efforts to capitalizing on our very special opportunities.
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