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5. Harman International Industries, Inc. Business Report FY ended Jun. 2016

Harman International Industries, Inc. Business Report FY ended Jun. 2016

Factors
1) Net Sales
-Sales for the fiscal year ended June 30, 2016, increased by 12.3% over the previous year to USD 6,911.7 million. Excluding negative currency effects of USD 209.8 million, sales increased by 16.2% over the previous year. The increase in sales was driven by recent acquisitions and growth in its Lifestyle Audio, Connected Services and Connected Car segments, and was partially offset by a decrease in sales in the Professional Solutions segment.

2) Operating Income
-The Company’s operating income for the fiscal year ended June 30, 2016 was USD 580.0 million, an increase of 23.5% over the previous year. The increase in operating income was primarily due to the impact of recent acquisitions, higher leverage of fixed costs, favorable product mix, and lower restructuring expenses. These increases were partially offset by increased selling, general and administrative expenses.

3) Connected Car segment sales
-During the fiscal year ended June 30, 2016, sales for the Connected Car segment increased by 6.5% from the previous year to USD 3,101.8 million. This was due to higher take rates, increased automotive production, and the expansion of recently launched platforms. Gains were partially offset by negative currency effects of USD 178.9 million.

4) Lifestyle Audio segment sales
-The Company’s Lifestyle Audio segment had sales of USD 2,137.8 million for the fiscal year ended June 30, 2016, an increase of 17.9%. The expansion of global distribution channels, recently launched programs, stronger automotive production, higher take rates, and recent acquisitions all contributed to the increase in sales. Negative currency effects of USD 51.2 million partially offset these gains.

5) Connected Services segment sales
-Sales for the Connected Services segment increased by 82.2% in the fiscal year ended June 30, 2016 to USD 694.3 million. The increase in sales was primarily due to the acquisition of Symphony Teleca Corporation, and was partially offset by negative foreign currency effects of USD 25.9 million.

Acquisitions

-The Company announced the successful completion of its acquisition of TowerSec, a global provider of automotive cybersecurity which specializes in onboard network protection for connected vehicles. TowerSec’s ECUSHIELD and TCUSHIELD embedded automotive software security products will be integrated into the Company's 5+1 security architecture to protect critical vehicle systems and functions from hacking and intrusions. Systems protected by the software include the vehicle’s hardware, network, and over-the-air update systems. (From a press release on March 11, 2016)

Business Partnership

-The Company and Dirac Research AB, a Swedish audio technology company specializing in high-performance digital sound optimization, announced a strategic partnership to extend Dirac’s digital audio solutions and tuning technology to the Company’s automotive audio and infotainment system applications. Through this partnership, the Company will also become a worldwide distributor of Dirac’s sound technologies to automotive sound system suppliers and car manufacturers. This collaboration builds on an existing partnership that provides the Bowers & Wilkins premium in-car surround sound system for the Volvo XC90 with Dirac’s advanced sound optimization technology, Dirac Unison. (From a press release on December 3, 2015)

Recent Developments

-The Company announced the European launch of its newest advanced navigation solution, a connected computer platform that combines data intelligence with premium navigation. The Company’s latest navigation solutions will integrate state-of-the-art route guidance instructions with connected safety information via a combination of embedded and cloud-based services. The Company’s advanced navigation solution is fully customizable and can receive any type of sensor data from the car including GPS, gyroscope, accelerometer, LIDAR, and camera information. (From a press release on March 1, 2016)

-The Company has joined the Intelligent Car Coalition, the leading advocacy group for pro-innovation connected car public policy. In joining the coalition, the Company continues collaborating with companies and trade associations in the communications and automotive industries to support understanding of how connected car technologies impact federal legislative and regulatory initiatives. The Company joins members of the Coalition to advocate on public policy issues critical to the advancement of connected cars. These issues include driver attention, data privacy, cybersecurity, autonomous vehicle technology, and innovation policy. (From a press release on February 10, 2016)

-Harman International Japan Co., Ltd., a subsidiary of the Company, will strengthen its car navigation sales to Japanese automakers. The Company has traditionally only supplied car audio equipment to Japanese automakers. However, it has recently started to supply car navigation systems for the first time in Japan for Suzuki Motor Corporation's mini vehicles as a factory-installed option. Leveraging this opportunity, Harman International Japan aims to receive new orders from Suzuki for other models and from other automakers in Japan. The Company's headquarters places Japan as one of its strategic markets for in-vehicle infotainment systems. The company will also invest in operations such as increasing the number of engineers. (From an article in the Nikkan Jidosha Shimbun on July 7, 2015)

Major Contracts

Awards

-The Company announced that it has been honored by Ford with the World Excellence Award in the category of the Lincoln Luxury. The award recognizes the collaboration between the Company and the Lincoln Motor Company that has brought the Company's Revel audio brand to the automotive space for the first time in the new lineup of Lincoln models. (From a press release on May 31, 2016)

R&D Facilities

-The Company announced that it has commenced operations of the Harman Suzhou Global Product Development Center (PDC). The new facility, located in the Suzhou Industrial Park, Jiangsu Province, China, is the Company's third global car audio product development center following locations in the U.S. and Germany. Covering 12,000 square meters, the Suzhou PDC can accommodate 350 scientists, engineers and supporting teams, and features advanced R&D facilities. The center will work closely with automakers in China, such as BAIC Motors, BYD, Changan, Chery, Geely, Great Wall, SAIC GM. (From a press release on March 23, 2016)

-The Company announced the official opening of its new North American Automotive Headquarters. Located in Novi, Michigan, the 188,000-square-foot building has 1,000 employees and focuses on the engineering and development of advanced technology solutions for the connected car, automotive audio, and cloud services. (From a press release on January 25, 2016)

R&D Activities

-The Company announced it made an open source software contribution to the Open AVB project to help drive the adoption of Ethernet AVB/TSN (Audio Video Bridging/Time Sensitive Networking) in automotive, consumer, professional audio/video and industrial markets. The contributed technology includes major enhancements to the AVTP (Audio Video Transport Protocol) data pipeline and aims to modernize and prepare the connected car with flexible, scalable and secure in-vehicle networking technology while addressing an increased need for highly reliable communication in the vehicle. (From a press release on November 3, 2015)

Technological Alliance

-The Company announced a connected car collaboration with Microsoft Corp. This project will introduce new mobile productivity services, and utilize existing products, services and technologies, including cloud platforms, telematics and driver productivity, to offer improved convenience, safety and reliability for drivers and greater operating efficiency for auto manufacturers. Most importantly, the collaboration will integrate key elements of Microsoft Office 365 productivity suite capabilities into Company infotainment systems. (From a press release on January 5, 2016)

-The Company announced a joint collaboration with Renesas Electronics Corporation to deliver an in-vehicle network solution and premium entertainment experience that helps automakers take the driving experience to higher levels of safety and convenience. Renesas' premium and mid-range R-Car series of automotive infotainment Systems-on-Chip (SoC) devices featuring the Company's Ethernet AVB in-vehicle network solution are now available. (From a press release on September 15, 2015)

Product Development

Reverse Pedestrian Detection system
-The Company announced that it has developed a new safety system called Reverse Pedestrian Detection to help eliminate blind spots. The new system combines data from a range of existing Company technologies fitted to the car, including a rear camera and sensor, to detect pedestrians behind the vehicle. In one of its most critical uses, it can successfully detect smaller children, who are most vulnerable to being hit. The Reverse Pedestrian Detection technology uses advanced computer vision methods and a fish eye camera to detect pedestrians behind the vehicle and fuses it with data from the ultrasonic sensors for close pedestrian verification. To improve accuracy, the application also uses the steering wheel angle and vehicle speed for calculating probable collision trajectories. (From a press release on April 14, 2016)

Driver eye and pupil tracking system
-The Company has unveiled its new eye and pupil tracking system that measures high cognitive load and mental multitasking in the driver’s seat, and signals the car’s other safety systems to adapt to the driver’s state. The technology eliminates the need for complex sensors built into seats and steering wheels, or biometric sensors that require physical contact with the driver. This camera continually captures the driver’s pupil dilation. A proprietary software algorithm analyzes the pupil reflex using advanced filtering and signal processing. The filter isolates and identifies responses triggered by high cognitive load. The calculated outputs are used to intuitively adjust user interfaces, like placing mobile devices in do-not-disturb mode or adjusting ADAS system intervention thresholds to minimize physical and mental distraction to the driver. (From a press release on January 5, 2016)

Audio innovations shown at CES 2016
-At CES 2016, the Company is demonstrating two new car audio innovations, the Summit Car Audio platform and the seamless, scalable Infinity Voyager Drive lifestyle audio system. The Summit Car Audio platform combines modular hardware and acoustic performance with a set of scalable features. The Infinity Voyager Drive system is a portable Bluetooth speaker system that allows consumers to bring their customized music experience both into and out of the vehicle. (From a press release on January 5, 2016)

Cloud-based service delivery platform
-The Company announced its cloud-based service delivery platform for the connected car. The platform allows automakers and service providers to introduce and easily deploy new enterprise cloud services to connected vehicles. The Service Delivery Platform enables the launch of a variety of services including new software features after vehicle sale, vehicle data to predict part failures, forecasting for preventative maintenance, and analysis of warranty claims. (From a press release on January 5, 2016)

Patents

-As of June 30, 2016, the Company has over 3,670 patents and 2,490 pending patent applications.