Samsung Takeover Allows Harman International to Think Bigger, CFO Says

By Nina Trentmann Features Dow Jones Newswires

Being part of Samsung Electronics Co. Ltd. allows Harman International to think bigger, the company's finance chief Sandy Rowland said Tuesday during The Wall Street Journal's CFO Network Annual Meeting in Washington, D.C.

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"Things that were impossible are now possible," Ms. Rowland said. "We can tap into Samsung's balance sheet and no longer have to go to the public markets," she added.

The $8.5 billion-takeover of the Stamford, CT., auto-parts supplier was announced last November and closed in March.

A revolving credit facility Harman had has been replaced by a loan by Samsung, Ms. Rowland said. Around $600 million of outstanding Harman debt remains to be serviced, she said.

Under Samsung's roof, Harman no longer has to deal with investors directly, as all Harman shares were transferred into Samsung shares. "We don't have quarterly earnings calls anymore, we don't have shares anymore," Ms. Rowland said. The firm no longer files 10 K- and 10 Q-forms and its results are part of Samsung's public filings, Ms. Rowland said.

The finance chief spent the past months moving Harman's accounts from U.S. Generally Accepted Accounting Principles (U.S. GAAP) to International Financial Reporting Standards (IFRS) which are also used by the firm's parent Samsung. "There were some changes, but for the most part our accounts remained very similar," Ms. Rowland said. "The most important thing was to get the auditors comfortable with the reporting changes, " she added.

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Ms. Rowland has now two so-called ambassadors in her finance team that function as a "bridge" to South Korea where Samsung is headquartered. "They can interpret what exactly Samsung wants, " Ms. Rowland said. She said she has started learning Korean -- a step not mandated by the new owners of Harman -- but admitted it was "early days". "I am trying to get to know the top ten words in Korean," Ms. Rowland said.

Harman continues to operate as a stand-alone unit of Samsung and has a board consisting of both Harman- and Samsung representatives, Ms. Rowland said. "Samsung has 300,000 employees. We have 30,000 -- we don't want to get overwhelmed," Ms. Rowland said. The board meets four times a year and alternates between New York City and Seoul.

The two firms are currently looking for business synergies, less so cost synergies, Ms. Rowland said. "We are currently not looking at cost synergies," she said. "For Samsung, entering the automotive sector is a brand new market." The goal going forward is to identify "the biggest revenue opportunities" while "not disrupting the business."

Harman and Samsung have around 60 people working on back office integration.

The company is optimistic about potential changes to the U.S. tax code. "There is a window now to get it through," Ms. Rowland said. A more favorable tax system with a lower corporate tax rate could make Harman look at new U.S. investments, Ms. Rowland said, without providing more details. The fact that the so-called border-adjusted tax appears to be no longer a priority for the Trump administration was "positive for us", Ms. Rowland said.

Harman operates sites outside the U.S., in countries like Mexico. A border-adjusted tax would have resulted in tax duties on imports while exempting exports.

While Harman has increased its engineering headcount to around 1,000 in the U.S., it hasn't been growing its manufacturing headcount in recent years, Ms. Rowland said. She didn't provide a figure on how many employees the firm currently has in manufacturing.

Finance chiefs including herself are currently watching the announcements coming out of the White House on "a daily base", Ms. Rowland said.

The corruption scandal that Samsung is embroiled in South Korea as well as the recall of the flagship Galaxy Note 7 last fall didn't have a direct impact on Harman, Ms. Rowland said.

Write to Nina Trentmann at Nina.Trentmann@wsj.com

(END) Dow Jones Newswires

June 13, 2017 14:39 ET (18:39 GMT)