UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q           

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
              [X] Yes                [  ] No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
              [X] Yes                [  ] No

The registrant had 67,354,462 shares of common stock, par value $.01, outstanding at April 29, 2005.

Harman International Industries, Incorporated and Subsidiaries
Form 10-Q
For the Quarterly Period Ended March 31, 2005

TABLE OF CONTENTS

References to the "Company," "Harman," "we," "us," and "our" in this Form 10-Q refer to Harman International Industries, Incorporated and its subsidiaries unless the context requires otherwise.

2

Part I: FINANCIAL INFORMATION

Item 1.   Financial Statements

Harman International Industries, Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
($000s omitted except share amounts)
(Unaudited)

				March 31,				June 30,
				2005				2004
Assets
Current assets
	Cash and cash equivalents		$	282,661				286,708
	Investments			6,651				91,000
	Receivables (less allowance for doubtful accounts of
	$8,499 at March 31, 2005 and $8,657 at June 30, 2004)			430,085				426,211
	Inventories			340,522				291,710
	Other current assets			116,335				108,406
Total current assets				1,176,254				1,204,035
	Property, plant and equipment, net			477,027				434,091
	Goodwill			372,441				251,722
	Other assets			117,439				98,962
Total assets			$	2,143,161				1,988,810
Liabilities and Shareholders' Equity
Current liabilities
	Short-term borrowings		$	2,997				3,898
	Current portion of long-term debt			699				3,411
	Accounts payable			198,370				238,663
	Accrued liabilities			356,584				294,168
	Income taxes payable			105,758				122,214
Total current liabilities				664,408				662,354
	Senior long-term debt			329,527				387,616
	Other non-current liabilities			76,690				63,844
Shareholders’ equity
	Preferred stock, $.01 par value.  Authorized 5,000,000 shares;   none issued and outstanding			---				---
	Common stock, $.01 par value.  Authorized 200,000,000 shares;   issued 80,671,294 at March 31, 2005 and 78,871,604   at June 30, 2004			806				789
	Additional paid-in capital			393,452				355,477
	Accumulated other comprehensive income (loss):
	Unrealized loss on hedging derivatives			(848	)			(7,821	)
	Minimum pension liability adjustment			(7,380	)			(7,379	)
	Cumulative foreign currency translation adjustment			85,993				43,179
	Retained earnings			822,702				662,602
	Less common stock held in treasury (13,317,082 shares at  March 31, 2005 and 12,781,582 at June 30, 2004)			(222,189	)			(171,851	)
Total shareholders’ equity				1,072,536				874,996
Total liabilities and shareholders’ equity			$	2,143,161				1,988,810

See accompanying notes to condensed consolidated financial statements.

3

Harman International Industries, Incorporated and Subsidiaries Condensed Consolidated Statements of Operations (000s omitted except per share amounts) (Unaudited)
		Three months ended							Nine months ended
		March 31,							March 31,
			2005			2004					2005			2004
Net sales		$	742,564			690,432					2,222,857			1,979,337
Cost of sales			492,572			461,481					1,472,976			1,350,201
Gross profit			249,992			228,951					749,881			629,136
Selling, general and administrative expenses			161,235			160,969					499,687			461,982
Operating income			88,757			67,982					250,194			167,154
Other expense:
Interest expense, net			2,314			4,384					8,281			13,820
Miscellaneous, net			318			499					4,532			2,359
Income before income taxes			86,125			63,099					237,381			150,975
Income tax expense, net			22,609			19,434					74,768			46,061
Net income		$	63,516			43,665					162,613			104,914
Basic earnings per share		$	0.94			0.66					2.42			1.60
Diluted earnings per share		$	0.90			0.63					2.30			1.51
Weighted average shares – basic			67,743			65,951					67,095			65,687
Weighted average shares – diluted			70,831			69,707					70,679			69,352

See accompanying notes to condensed consolidated financial statements.

4

Harman International Industries, Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
($000s omitted)
(Unaudited)

		Nine months ended
		March 31,
		2005				2004
Cash flows from operating activities:
Net income		$	162,613			104,914
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization		91,224			81,250
	Loss on disposition of assets		416			778
	Stock option expense		11,163			6,893
Changes in working capital, net of acquisition/disposition effects:
	Decrease (increase) in:
	Receivables		18,357			(26,952	)
	Inventories		(38,841	)		64,005
	Other current assets		(8,286	)		2,635
	Increase (decrease) in:
	Accounts payable		(49,086	)		(11,944	)
	Accrued liabilities		58,674			17,123
	Income taxes payable		(26,939	)		66,429
	Other operating activities		12,888			5,251
Net cash provided by operating activities		$	232,183			310,382
Cash flows from investing activities:
	Payment for purchase of companies, net of cash acquired	$	(144,312	)		(27,545	)
	Capital expenditures		(107,106	)		(95,850	)
	Investments		84,349			(52,100	)
	Proceeds from asset dispositions		893			9,278
	Other items, net		3,091			3,871
Net cash used in investing activities		$	(163,085	)		(162,346	)
Cash flows from financing activities:
	Net decrease in short-term borrowings	$	(1,324	)		(291	)
	Net decrease in long-term debt		(6,695	)		(31,245	)
	Repayment of long-term debt		(49,921	)		---
	Repurchase of common stock		(50,338	)		---
	Dividends paid to shareholders		(2,513	)		(2,463	)
	Exercise of stock options		26,830			9,439
Net cash flow used in financing activities		$	(83,961	)		(24,560	)
Effect of exchange rate changes on cash			10,816			4,126
Net increase (decrease) in cash and cash equivalents		$	(4,047	)		127,602
Cash and cash equivalents at beginning of period			286,708			109,361
Cash and cash equivalents at end of period		$	282,661			236,963
Supplemental disclosure of cash flow information:
	Interest paid	$	9,832			16,530
	Income taxes paid (refunds received)	$	97,437			(1,619	)
Supplemental schedule of non-cash investing activities:
	Fair value of assets acquired	$	155,939			35,678
	Cash paid for the assets		144,312			27,545
	Liabilities assumed	$	11,627			8,133

See accompanying notes to condensed consolidated financial statements.
5

HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Unaudited

Note 1.  Basis of Presentation

Our unaudited, condensed consolidated financial statements at March 31, 2005 and for the three and nine months ended March 31, 2005 and 2004, have been prepared pursuant to rules and regulations of the Securities and Exchange Commission.  These unaudited condensed consolidated financial statements do not include all information and footnote disclosures included in our audited financial statements.  In the opinion of management, the accompanying unaudited, condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments and accruals, necessary to present fairly, in all material respects, the consolidated financial position, results of operations and cash flows for the periods presented.  Operating results for the three and nine months ended March 31, 2005 are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2005 due to seasonal, economic and other factors.

Where necessary, information for prior periods has been reclassified to conform to the consolidated financial statement presentation for the corresponding periods in the current fiscal year.  We have reclassified $6.7 million and $91.0 million of auction rate securities from cash and cash equivalents to investments at March 31, 2005 and June 20, 2004, respectively, to conform with a recent SEC staff accounting clarification.

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2004.

Note 2.  Inventories

Inventories consist of the following:

Inventories are stated at the lower of cost or market.  The cost of inventories is based on the first-in, first-out (FIFO) method.  Cost elements included in inventory are materials, labor, variable overhead and fixed factory overhead.  General and administrative expenses are not included as a component of inventory.  We periodically review and revise, if necessary, the costs included in inventory and expense these costs if we determine there is no longer a future benefit.  The valuation of inventory requires us to make judgments and estimates regarding obsolete, damaged or excess inventory as well as current and future demand for our products.  The estimates of future demand along with analysis of usage data are the basis for our inventory reserves.  We calculate our inventory reserves by analyzing the aging of inventories, the demand for spare parts and by working closely with our sales and marketing staff to determine future demand for our products. 

6

Note 3.  Warranty Liabilities

We warrant our products to be free from defects in materials and workmanship for periods ranging from 90 days to five years from the date of purchase, depending on the product.  Estimated warranty liabilities are based upon past experience with similar types of products and the historical incidence of known failure rates for specific production periods.  We take these factors into consideration when assessing the adequacy of our warranty provision for periods still open to claim.  Depending on the type of product, warranty may be fulfilled by scrapping in the field, repair by dealer or service center, or by an advance replacement system under which customer products are returned to our own facilities for repair.

Details of the estimated warranty liability are as follows:

		Nine months ended
		March 31,
($000s omitted)		2005		2004
Beginning balance  (June 30)	$	40,745		21,122
Warranty provisions		41,049		30,486
Warranty payments (cash or in-kind)		(33,192)		(16,991)
Ending balance	$	48,602		34,617

Note 4.  Comprehensive Income

The components of comprehensive income are as follows:

		Three months ended					Nine months ended
		March 31,					March 31,
($000s omitted)		2005		2004			2005		2004
Net income	$	63,516		43,665			162,613		104,914
Other comprehensive income (loss):
Foreign currency translation		(30,237)		(6,871)			42,814		40,582
Unrealized gains (losses) on hedging		2,965		4,935			6,973		(203)
Minimum pension liability adjustment		---		2			(1)		(5)
Total other comprehensive income	$	36,244		41,731			212,399		145,288

7

The components of accumulated other comprehensive income (loss) as of March 31, 2005 and June 30, 2004 and the activity for the nine months ended March 31, 2005 are presented below:

						Cumulative
		Unrealized		Minimum		foreign			Accumulated
		loss on		Pension		currency			other
		hedging		Liability		translation			comprehensive
($000s omitted)		Derivatives		adjustment		adjustment			income (loss)
June 30, 2004	$	(7,821)		(7,379)		43,179			27,979
Foreign currency translation       adjustments		---		---		42,814			42,814
Change in fair value of foreign       currency cash flow hedges		6,973		---		---			6,973
Minimum pension liability       adjustment		---		(1)		---			(1)
March 31, 2005	$	(848)		(7,380)		85,993			77,765

Note 5.  Earnings Per Share

The following table presents the calculation of basic and diluted earnings per common share outstanding:

		Three months ended March 31,
(000s omitted  except per share amounts)		2005				2004
		Basic		Diluted		Basic		Diluted
Net income	$	63,516		63,516		43,665		43,665
Weighted average shares outstanding		67,743		67,743		65,951		65,951
Employee stock options		---		3,088		---		3,756
Total weighted average shares outstanding		67,743		70,831		65,951		69,707
Earnings per share	$	0.94		0.90		0.66		0.63

		Nine months ended March 31,
(000s omitted except per share amounts)		2005				2004
		Basic		Diluted		Basic		Diluted
Net income	$	162,613		162,613		104,914		104,914
Weighted average shares outstanding		67,095		67,095		65,687		65,687
Employee stock options		---		3,584		---		3,665
Total weighted average shares outstanding		67,095		70,679		65,687		69,352
Earnings per share	$	2.42		2.30		1.60		1.51

8

Certain options were outstanding and not included in the computation of diluted earnings per share because the assumed exercise of these options would have been antidilutive.  Options to purchase 438,000 shares of common stock with exercise prices ranging from $98.62 to $126.94per share during the quarter ended March 31, 2005, were outstanding and not included in the computation of diluted earnings per share because the exercise of these options would have been antidilutive.  For the quarter ended March 31, 2004, options to purchase 101,124 shares of common stock at prices ranging from $50.03 to $75.22 per share were not included in the computation of diluted earnings per share because the exercise of these options would have been antidilutive.

Options to purchase 331,790 shares of common stock at prices ranging from $75.22 to $126.94 per share during the nine months ended March 31, 2005, and options to purchase 377,305 shares of common stock at prices ranging from $41.40 to $75.22 per share during the nine months ended March 31, 2004, were not included in the computation of diluted earnings per share because the exercise of these options would have been antidilutive.

Note 6.  Stock Options

Effective July 1, 2002, we adopted the fair value method of stock based compensation under Statement of Financial Accounting Standards No. 123 "Accounting for Stock Based Compensation" ("SFAS 123"), for all options granted after June 30, 2002.  Under SFAS 123, we recognize option related expenses over the vesting period of those options.  We expensed $2.9 million during the quarter ended March 31, 2005, for stock options granted after June 30, 2002, compared to $2.6 million for the same period last year.  For stock options granted after June 30, 2002, we expensed $11.2 million for the nine months ended March 31, 2005 and $6.9 million for the nine months ended March 31, 2004.

Note 7.  Business Segment Data

We design, manufacture and market high-quality audio products and electronic systems.  We organize our businesses into reporting segments by the end-user markets served.  Our chief operating decision maker evaluates performance and allocates resources based on net sales, operating income and working capital in each of the reporting segments.  Beginning with this quarter, we will report on the basis of three segments:  Automotive, Consumer and Professional.  In prior reports, the Automotive and Consumer segments were combined and reported as the Consumer Systems Group.  See Note 16 “Other” for additional information for these segments for each of the three fiscal years ended June 30, 2004.

Our Automotive segment designs, manufactures and markets audio, electronic and infotainment systems for vehicle applications primarily to be installed as original equipment by automotive manufacturers.  Our automotive products and systems are marketed worldwide under brand names including JBL, Infinity, Harman/Kardon, Becker, Logic7 and Mark Levinson.  Our premium branded audio, video, navigation and infotainment systems are offered to automobile manufacturers through engineering and supply agreements.

Our Consumer segment designs, manufactures and markets audio, video and electronic systems for home, computer and multimedia applications.  Our Consumer home products and systems are marketed worldwide under brand names including JBL, Infinity, Harman/Kardon, Lexicon, Mark Levinson and Revel.  Our audio and electronic products are offered through audio/video specialty and retail chain stores.  Our branded audio products for computer and multimedia applications are focused on retail customers with products designed to enhance sound for PCs, MP-3 players and iPods.

Our Professional segment designs, manufactures and markets loudspeakers and electronic systems used by audio professionals in concert halls, stadiums, airports and other buildings and for recording, broadcast, cinema and music reproduction applications.  Our Professional products are marketed worldwide under brand names including

9

JBL Professional, AKG, Crown, Soundcraft, Lexicon, DigiTech, dbx and Studer.  We provide high-quality products to the sound reinforcement, music instrument support and broadcast and recording segments of the professional audio market.  We offer complete systems solutions for professional installations and users around the world.

The following table reports net sales and operating income (loss) by reporting segments:

	Three months ended									Nine months ended
	March 31,									March 31,
($000s omitted)			2005				2004				2005				2004
Net sales:
Automotive		$	522,513				487,011				1,554,324				1,358,240
Consumer			100,252				78,245				313,141				268,797
Professional			119,799				125,176				355,392				352,300
Total		$	742,564				690,432				2,222,857				1,979,337
Operating income (loss):
Automotive		$	84,232				80,752				258,574				217,231
Consumer			7,249				(4,336	)			19,869				(14,861	)
Professional			9,782				1,998				26,669				(540	)
Other			(12,506	)			(10,432	)			(54,918	)			(34,676	)
Total		$	88,757				67,982				250,194				167,154

Other operating income (loss) is comprised of corporate expenses, net of reporting segment allocations.

Note 8.  Derivatives

We use foreign currency forward contracts to hedge a portion of our forecasted transactions.  These forward contracts are designated as foreign currency cash flow hedges and recorded at fair value in the accompanying consolidated balance sheet with a corresponding entry to other accumulated comprehensive income (loss) until the underlying forecasted foreign currency transaction occurs.  When the transaction occurs, the gain or loss from the derivative designated as a hedge of the transaction is reclassified from accumulated other comprehensive income (loss) to the same income statement line item in which the foreign currency gain or loss on the underlying hedged transaction is recorded.  When it becomes apparent that an underlying forecasted transaction will not occur, the amount recorded in accumulated other comprehensive income (loss) related to the hedge is reclassified to the miscellaneous, net line of the income statement in the then-current period.

Because the amounts and the maturities of the derivatives approximate those of the forecasted exposures, changes in the fair value of the derivatives are highly effective in offsetting changes in the cash flows of the hedged items.  Any ineffective portion of the derivative is recognized in current earnings.    When it has been determined that a hedge has become ineffective, the ineffective portion of the hedge is recorded in current earnings.

At March 31, 2005, we had contracts maturing through June 2006to purchase and sell the equivalent of approximately $60.2 million of various currencies to hedge future foreign currency purchases and sales.  We recognized approximately $2.4 million in net lossesfrom cash flow hedges of forecasted foreign currency transactions in the nine months ended March 31, 2005 compared to $5.1million in net lossesin the same period last year.  At March 31, 2005, the amount that is expected to be reclassified from accumulated other comprehensive income (loss) to earnings within the next fifteen monthsthat is associated with these hedges is a lossof approximately $0.8 million.

10

In December 2004, we terminated an operating lease that was due to expire in March 2006.  As a result of this termination, we settled our cross currency swap contracts that hedged this operating lease.  During the nine months ended March 31, 2005, we reported a $6.1 million loss from the settlement of these swap contracts in other operating expenses.

We entered into swap contracts in August 2001 and October 2001 to effectively convert interest on $150 million principal amount of our 7.32 percent senior notes due July 1, 2007, from a fixed rate to a floating rate. We also entered into swap contracts in March 2002 and April 2002 to effectively convert interest on $200 million of the $300 million principal amount of our 7.125 percent senior notes due February 15, 2007, from a fixed rate to a floating rate.

In December 2003, we purchased and retired $10 million of our 7.32 percent senior notes, reducing both the senior notes and the interest swap contract from $150 million to $140 million.  In September 2004, we purchased and retired $50 million of our 7.125 percent senior notes, reducing the balance from $221 million to $171 million and reducing the associated interest rate swap contract from $200 million to $170 million.

The objective of these interest rate swap contracts is to offset changes in the fair value of our fixed-rate debt caused by interest rate fluctuations.  The interest rate swap contracts are carried at fair value on our consolidated balance sheet and the related hedged portion of fixed-rate debt is carried at the remaining principal due net of the valuation adjustment for the change in fair value of the debt obligation attributable to the hedged risk.  The cumulative valuation adjustment at March 31, 2005, was a positive $6.0 million.

Changes in the fair value of the interest rate swap contracts and the offsetting changes in the carrying value of the hedged fixed-rate debt are recognized in interest expense in our consolidated statement of operations.

As of March 31, 2005, we had contracts maturing through March 2006to purchase and sell the equivalent of $133.5million of various currencies to hedge foreign currency denominated loans to foreign subsidiaries.  These contracts are of a long-term nature.  Adjustments to the carrying value of the foreign currency forward contracts offset the gains and losses on the underlying loans.  At March 31, 2005, the market value of these contracts was a positive   $2.8million.

Note 9.   Commitments and Contingencies

In September 2004, we paid $12.0 million to purchase assets previously held by the lessor under an expiring five-year operating lease.  In December 2004, we paid an additional $16.4 million for certain machinery and equipment held under an operating lease that was scheduled to expire in March 2006.  At March 31, 2005, we had no further obligations under these operating lease agreements.

At March 31, 2005, we were involved in several legal actions.  The outcome of these legal actions cannot be predicted with certainty; however, management, based upon advice from legal counsel, believes such actions are either without merit or will not have a material adverse effect on our financial position or results of operations.  In the quarter ended December 31, 2004, we recorded a $6 million liability for probable unasserted claims.  There was no change in the status of these claims during the quarter ended March 31, 2005.

Our Board of Directors has authorized the repurchase of up to 16.0 million shares of common stock.  Through March 31, 2005, we had acquired and placed in treasury 13,317,082 shares of our common stock at a total cost of $222.2 million.  During the quarter ended March 31, 2005, we repurchased 530,500 shares of common stock at a cost of $49.7 million.  We expect future share repurchases to be funded with cash generated by operations. 

In June 2004, the Board of Directors approved the repurchase of up to $225 million principal amount of our outstanding senior notes beginning in fiscal 2005.  As of March 31, 2005, we have repurchased $50 million principal amount of these notes.  For the nine months ended March 31, 2005, miscellaneous expenses include a $3.0 million charge for redemption premiums, net of gains from associated interest swap contracts that were unwound in connection with the repurchase of our senior notes.

11

Note 10.  Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (“SFAS”) No. 123 (revised 2004), ("Share-Based Payment"), (“FAS 123R”).  SFAS 123R requires compensation expense to be recognized based on the estimated fair value of stock options and similar equity instruments awarded to employees.  We will adopt SFAS 123R on July 1, 2005.  We do not expect the adoption of this standard to have a significant impact on our financial statements.  We have recorded stock compensation on a fair value basis for all awards granted on or after July 1, 2002. See Note 11.

In November 2004, the Financial Accounting Standards Board issued SFAS No. 151 ("Inventory Costs"), an amendment of Accounting Research Bulletin ("ARB") No. 43, Chapter 4.  The statement clarifies accounting for abnormal amounts of idle facility expense, freight, handling costs and spoilage and requires those items to be expensed when incurred.  SFAS 151 is applicable to inventory costs incurred during fiscal years beginning after June 15, 2005.  We do not expect the adoption of SFAS No. 151 will have a significant impact on our financial statements.

Note 11.  Stock-Based Employee Compensation

On July 1, 2002, we adopted the fair-value method of stock based compensation in accordance with SFAS 123, "Accounting for Stock-Based Compensation", for all grants made on or after July 1, 2002.  As such, an expense based on service attribution recognized in accordance with Financial Accounting Standards Board Interpretation ("FIN") No. 28 and the fair value of stock options granted since July 1, 2002 has been reflected in net income.  Options granted in prior periods prior to July 1, 2002 continue to be accounted for under the intrinsic-value-based provisions of Accounting Principles Board ("APB") No. 25 "Accounting for Stock Issued to Employees."

The following table illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of SFAS 123 to all of our outstanding and unvested awards in each period:

($000s omitted except per share amounts)	Three months ended March 31,					Nine months ended March 31,
		2005		2004		2005		2004
Reported net income	$	63,516		43,665		162,613		104,914
Add:  Stock based employee compensation expense included in reported net income, net of tax		2,122		1,890		8,065		4,980
Deduct:  Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax		1,972		2,339		8,835		6,523
Net income, pro forma	$	63,666		43,216		161,843		103,371
Basic earnings per share, as reported	$	0.94		0.66		2.42		1.60
Basic earnings per share, pro forma		0.94		0.66		2.41		1.57
Diluted earnings per shared, as reported	$	0.90		0.63		2.30		1.51
Diluted earnings per share, pro forma		0.90		0.62		2.29		1.49

12

Note 12.  Pensions and Other Postretirement Benefits

We provide defined benefit pension and other postretirement benefits to certain eligible employees.  In Europe, we have business units that maintain defined benefit pension plans for certain current and former employees.  Generally, plan benefits are based on age, years of service and average compensation during the final years of service.  In the United States, other postretirement benefits are comprised of an unfunded Supplemental Executive Retirement Plan (SERP) that provides retirement, pre-retirement and termination benefits, as defined, to certain key executives designated by the Board of Directors.

Our pension and other postretirement benefit plans are more fully disclosed in Notes 1 and 12 to our Consolidated Financial Statements included in Item 8 of our Annual Report on Form 10-K for the year ended June 30, 2004.

The following table presents the components of net periodic benefit costs for the three months ended March 31, 2005 and 2004:

	Pension Benefits					Other Postretirement Benefits
($000s omitted)		2005		2004		2005		2004
Components of net periodic benefit cost:
Service cost	$	298		222		370		320
Interest cost		534		396		583		406
Expected return on plan assets		(20)		(14)		---		---
Amortization of prior service cost		---		---		169		191
Amortization of net (gain) loss		---		(4)		445		177
Net periodic benefit cost	$	812		600		1,567		1,094

The following table presents the components of net periodic benefit costs for the nine months ended March 31, 2005 and 2004:

	Pension Benefits					Other Postretirement Benefits
($000s omitted)		2005		2004		2005		2004
Components of net periodic benefit cost:
Service cost	$	871		753		1,110		957
Interest cost		1,560		1,354		1,749		1,215
Expected return on plan assets		(61)		(50)		---		---
Amortization of prior service cost		---		---		507		573
Amortization of net (gain) loss		---		(14)		1,335		531
Net periodic benefit cost	$	2,370		2,043		4,701		3,276

During the quarter ended March 31, 2005, we made an insignificant contribution to the defined benefit pension plans and expect full year contributions to be immaterial.

Note 13.   Acquisitions

On November 30, 2004, we acquired QNX Software Systems Ltd ("QNX"), which is located in Ottawa, Canada.  QNX is a provider of real time operating system software, development tools, and services for embedded design systems.  Our infotainment systems utilize the QNX operating system and the acquisition will allow the optimization of our software by fully integrating the operating system, the basic framework and the applications. 

13

The purchase price, net of cash acquired was $139 million.  Of this amount, $111 million was paid in cash and $28 million was paid to an escrow account to be released to the sellers upon the expiration of certain indemnification obligations and the fulfillment of certain employee service obligations.  Compensation expense is being recorded for approximately one-half the escrow amount over the employee service period.

At March 31, 2005, the purchase price allocation had not been finalized.  A revised preliminary allocation was made and $110 million was allocated to goodwill and $5 million was allocated to amortizable intangibles.  We expect the allocation to be completed by June 30, 2005.

The acquisition of QNX is expected to reduce our earnings per share by approximately $0.04 per quarter for the next two to three years.  The acquisition of QNX is not material to our consolidated financial statements. 

Note 14.  Significant Customers

For the nine months ended March 31, 2005, sales to DaimlerChrysler, BMW and Audi/Volkswagen accounted for 27 percent, 11 percent and 8 percent respectively, of our total consolidated sales.  Accounts receivable due from DaimlerChrysler, BMW and Audi/Volkswagen accounted for 21 percent, 8 percent, and 10 percent respectively, of total consolidated accounts receivable at March 31, 2005.  In the same period last year, sales to DaimlerChrysler, BMW and Audi/Volkswagen accounted for 29 percent, 13 percent and 3 percent respectively, of total consolidated sales.  Accounts receivable due from DaimlerChrysler, BMW and Audi/Volkswagen accounted for 24 percent, 9 percent and 4 percent, respectively, of total consolidated accounts receivable at March 31, 2004.

We anticipate that DaimlerChrysler, BMW and Audi/Volkswagen will continue to account for a significant portion of our sales and receivables for the foreseeable future.  These automotive customers are not obligated to any long-term purchase of our products.

The loss of DaimlerChrysler, BMW or Audi/Volkswagen as a customer would have a material adverse effect on our consolidated sales, earnings and financial position.

Note 15.  Income Taxes

During the quarter ended March 31, 2005 we changed our method of accounting for reporting changes in interim periods to liabilities resulting from changes in judgments or settlements related to uncertain tax positions.  We had previously accounted for such changes in judgments and settlements as adjustments to the estimated annual effective rate.  We are changing our method to account for such changes in judgments and settlements as a discrete item in the interim period of the change.  This discrete method recognizes the effect of any change in reserve only in the quarter of the change.  The newly adopted accounting method is preferable in the circumstances because it better reflects our consolidated financial position and operations at the time of the change in uncertain tax positions.  As a result of the change in method, income tax expense decreased $2.4 million for the quarter ended March 31, 2005.  If we had used the discrete method during the quarter ended March 31, 2004, income tax expense would have increased and net income would have decreased by $2.4 million.

14

Note 16.  Other

Our principal business is the development, manufacture and marketing of high-quality, high fidelity audio products and electronic systems.  Beginning with the quarter ended March 31, 2005, we will report on the basis of the three segments: Automotive, Consumer and Professional.  In prior reports, the Automotive and Consumer segments were combined and reported as Consumer Systems.  For the three years ended June 30, 2004, the segment information below has been adjusted to reflect the changes to our reporting segments.  The following table reports net sales, operating income (loss), assets, capital expenditures and depreciation and amortization by the new reporting segments:

Segmentation

		Years Ended June 30,
($000s omitted)		2004		2003		2002
Net sales:
Automotive	$	1,873,047		1,382,676		968,261
Consumer		356,611		399,845		433,185
Professional		481,716		445,998		424,742
Total	$	2,711,374		2,228,519		1,826,188
Operating income (loss):
Automotive	$	312,145		212,596		143,643
Consumer		(13,029)		(21,799)		(33,198)
Professional		8,581		15,398		16,802
Other		(53,232)		(39,301)		(24,026)
Total	$	254,465		166,894		103,221
Assets:
Automotive	$	1,287,431		967,250		763,326
Consumer		356,374		249,150		260,297
Professional		232,026		292,086		295,534
Other		112,979		195,172		161,123
Total	$	1,988,810		1,703,658		1,480,280
Capital expenditures:
Automotive	$	107,448		89,339		72,427
Consumer		7,895		9,278		15,800
Professional		19,838		15,597		13,636
Other		312		1,123		2,664
Total	$	135,493		115,337		104,527
Depreciation and amortization:
Automotive	$	69,650		47,498		42,773
Consumer		18,215		24,150		18,584
Professional		15,706		14,246		14,552
Other		2,461		2,651		2,175
Total	$	106,032		88,545		78,084

15

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

General

The following discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the related notes included in Item 1 of this Quarterly Report on Form 10-Q, together with Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended June 30, 2004 ("2004 Form 10-K").  This discussion contains forward-looking statements that are based on our current expectations and industry experience, as well as our perception of historical trends, current market conditions, current economic data, currency exchange rates, expected future developments and other factors that we believe are reasonable under the circumstances.  These statements involve risks and uncertainties that could cause actual results to differ materially from those suggested in the forward-looking statements.

The following discussion provides an overview of our results of operations for the three and nine months ended March 31, 2005 and 2004.  Significant period-to-period variances in the consolidated statements of operations are discussed under the caption "Results of Operations."  Our cash flows and financial condition are discussed under the caption "Financial Condition."  We also provide a business outlook and information regarding our risk factors at the end of this discussion.

Overview

We design, manufacture and market high-quality, high fidelity audio products and electronic systems for the automotive, consumer and professional markets.  We have developed, both internally and through a series of strategic acquisitions, a broad range of product offerings sold under renowned brand names in our principal markets. 

We organize our business into reportable business segments by the end-user markets.  Our Automotive segment designs, manufactures and markets audio and electronic systems for vehicle applications.  Our Consumer segment designs, manufactures and markets audio, video and electronic systems for the home, computer and multimedia applications.  Our Professional segment designs, manufactures and markets loudspeakers and electronic systems used by audio professionals in concert halls, stadiums, airports and other public spaces and for recording, broadcast, cinema and music reproduction applications.

Our results of operations depend on the sales of audio products and electronic systems in the automotive, consumer and professional markets.  We experience seasonal fluctuations in sales and earnings.  Historically, the first fiscal quarter is the weakest due to automotive model changeovers and the summer holidays in Europe.  Our sales and earnings may also vary due to customer acceptance of our products, product offerings by our competitors and general economic conditions.

Our products are sold worldwide, with the largest markets being the United States and Germany.  Our primary manufacturing facilities in the United States are in California, Indiana, Kentucky and Utah.  Our primary manufacturing facilities outside the United States are in Germany, Austria, the United Kingdom, Hungary, Mexico, France and Sweden.  Our businesses operate using the local currencies in which operations are located.  Therefore, we are subject to currency fluctuations that are partially mitigated by the fact that we source raw materials and supplies locally where possible. 

During the nine months ended March 31, 2005, we repurchased $50 million of our senior notes and repurchased 535,500 shares of our common stock for $50.3 million, generated cash from operations of $232 million, and completed the acquisition of QNX Software Systems Ltd. for $139 million, net of cash acquired.

16

Critical Accounting Policies

Our critical accounting policies are described under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2004 Form 10-K.  These policies include inventory valuation, allowance for doubtful accounts, warranty liabilities, pre-production and development costs, and goodwill.  Also see Note 1 "Summary of Significant Accounting Policies" to our Consolidated Financial Statements included in our 2004 Form10-K.

Results of Operations

Sales

Our net sales for the quarter ended March 31, 2005 increased $52.1 million, or 8 percent compared to the same period last year.  The increase in net sales was primarily due to higher sales of our automotive audio and infotainment systems by our Automotive segment and increased sales of multimedia and specialty branded products by our Consumer segment offset by lower Professional sales due to the exit of the telecom business at AKG.  The effects of foreign currency translation contributed approximately $23 million to the increase in net sales for the third quarter ended March 31, 2005 compared to the same period last year.  For the nine months ended March 31, 2005, net sales increased $243.5 million, or 12 percent compared to the same period last year.  The increase in net sales was primarily due to higher sales of our automotive audio and infotainment systems by our Automotive segment.  The effects of foreign currency translation contributed approximately $106 million to the increase in net sales for the nine months ended March 31, 2005.

Presented below is a summary of net sales by reporting segment:

($000s omitted)	Three months ended March 31,									Nine months ended March 31,
		2005		%		2004		%			2005		%		2004		%
Net sales:
Automotive	$	522,513		70%		487,011		71%		$	1,554,324		70%		1,358,240		69%
Consumer		100,252		14%		78,245		11%			313,141		14%		268,797		13%
Professional		119,799		16%		125,176		18%			355,392		16%		352,300		18%
Total	$	742,564		100%		690,432		100%		$	2,222,857		100%		1,979,337		100%

Automotive net sales for the quarter ended March 31, 2005 increased $35.5 million, or 7 percent compared to the same period last year.  The effects of foreign currency translation contributed approximately $19 million to the increase in net sales for the quarter compared to the prior year period.  Sales of infotainment systems to European automakers contributed significantly to the increase in sales over the prior period.  The primary contributors came from increased sales of infotainment systems to Audi in support of the new A6 platform and increased sales of communication management systems to Porsche.  In addition, we had higher sales of Mark Levinson branded systems to Lexus, JBL branded audio systems to Toyota and Harman/Kardon branded audio systems to Land Rover.  The increase in net sales was offset by lower sales to BMW.

Automotive net sales for the nine months ended March 31, 2005 increased $196.1 million, or 14 percent compared to the same period last year.  The effects of foreign currency translation contributed approximately $88 million to the increase in net sales for the nine months ended March 31, 2005 compared to the prior year period.  Increased sales of automotive infotainment systems and increased sales of branded automotive audio systems by the Automotive segment both contributed to the increase in sales over the prior year.  The primary contributors were strong sales of our navigation systems to Mercedes-Benz and higher sales of infotainment systems to Audi.  Higher sales were slightly offset by the lower sales to BMW and lower sales of Infinity branded systems to Chrysler in North America.  Sales to BMW were lower versus the prior year because our prior year sales were positively impacted by the inability of a competitor to ship product for the BMW 5-Series, resulting in higher than expected sales volume in the prior period.

17

Consumer net sales for the quarter ended March 31, 2005 increased $22.0 million, or 28 percent compared to the same period last year.  The effects of foreign currency translation contributed approximately $2 million to the increase in net sales for the quarter compared to the prior year period.  Net sales increased primarily due to increased sales of our multimedia home products, including the JBL OnStage and OnTour products, which are accessories for the Apple iPod.  Sales of Harman/Kardon electronic systems also contributed to higher sales.

Consumer net sales for the nine months ended March 31, 2005 increased $44.3 million, or 17 percent compared to the same period last year.  The effects of foreign currency translation contributed approximately $10 million to the increase in net sales.  International consumer sales contributed significantly to the increase in sales compared to the prior year.  Strong multimedia, loudspeaker and Harman/Kardon sales in Europe were primary contributors to the higher international sales.  In North America, higher sales of multimedia, branded specialty and audio and electronic systems to retailers contributed to the increase in sales for the nine months ended March 31, 2005 when compared to the prior year period.

Professional net sales for the quarter ended March 31, 2005 decreased $5.4 million, or 4 percent compared to the same period last year.  Professional sales were lower due primarily to our decision to exit the telecom microphone capsule business in fiscal 2004.  Foreign currency translation had a positive effect on sales of approximately $1 million.  Excluding telecom sales, Professional sales were up over the prior period.  JBL Professional loudspeakers, musical instrument and installed sound products led the sales growth.  Digitech and dbx also contributed to the sales increase for the quarter.

Professional net sales for the nine months ended March 31, 2005 increased $3.1 million, or 1 percent compared to the same period last year.  The effects of foreign currency translation contributed approximately $8 million to net sales for the nine months ended March 31, 2005 compared to the prior year.  In addition, higher sales of professional loudspeakers, amplifiers, effects devices and mixing consoles offset lower sales at AKG due to our decision to exit the the telecom business.

Gross Profit

Gross profit increased $21.0 million for the quarter and $120.7 million for the nine months ended March 31, 2005 compared to the same periods last year.  Restructuring charges related to our Consumer and Professional segments negatively affected margins in the prior year periods.  Gross profit margin increases were partially offset by an increase in warranty expense of $3.7 million for the three months and $10.6 million for the nine months ended March 31, 2005 compared to the prior year periods.  The increase was due primarily to increased sales and a change in our contractual warranty obligations on certain products from one to two years that began in January 2004.

Presented below is a summary of gross profit by reporting segment:

($000s omitted)		Three months ended March 31,								Nine months ended March 31,
		2005		Percent of Net Sales		2004		Percent of Net Sales			2005		Percent of Net Sales		2004		Percent of Net Sales
Gross Profit:
Automotive	$	176,628		33.8%		170,840		35.1%		$	535,967		34.5%		475,112		35.0%
Consumer		31,515		31.4%		18,429		23.6%			93,221		29.8%		56,766		21.1%
Professional		41,849		34.9%		39,682		31.7%			120,693		34.0%		97,258		27.6%
Total	$	249,992		33.7%		228,951		33.2%		$	749,881		33.7%		629,136		31.8%

18

Automotive gross profit increased $5.8 million for the quarter and $60.9 million for the nine months compared to the same periods last year.  The decline in gross profit percentage for the three and nine months compared to prior year periods was primarily due to a price reduction on sales to Toyota, assembly line changes for preparation of new products, changes in product mix, including the expiration of a high margin system for the Jeep Grand Cherokee in the current period, and an increase in warranty costs.  Lower gross profit margins were slightly offset with lower material costs.

Consumer gross profit increased $13.1 million for the quarter and $36.5 million for the nine months compared to the same periods last year.  For the three and nine months, the gross profit margin improvement is primarily due to higher margins on the successful JBL OnStage and OnTour multimedia products.  Gross margins were negatively impacted at Specialty Group in the prior year due to restructuring costs.  Gross margin increases are slightly offset by increases in warranty and freight charges.

Professional gross profit increased $2.2 million for the quarter and $23.4 million for the nine months compared to the same periods last year.  Margins were impacted favorably in the current periods due to prior period expenses reported at AKG to exit the telecom business and expenses recorded in the prior year to consolidate our European mixing console operations and inventory write downs associated with this consolidation.  Gross profit improvements are also due to increased sales of higher margin products and the bundling of several brands in package systems for audio professionals. 

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $0.3 million for the quarter and $37.7 million for the nine months compared to same periods last year.  For the nine-month period, selling, general and administrative expenses increased due to higher research and development and higher compensation costs.  Research and development costs were $156.8 million for the nine months ended March 31, 2005 compared to $153.2 million in the same period last year.  Research and development increased due to increased spending associated with the development of new consumer products and the acquisition of QNX.  Selling expenses increased to support higher sales. Compensation costs increased to support additional headcount and the expensing of stock options.

Presented below is a summary of selling, general and administrative expenses by reporting segment:

($000s omitted)		Three months ended March 31,								Nine months ended March 31,
		2005		Percent of Net Sales		2004		Percent of Net Sales			2005		Percent of Net Sales		2004		Percent of Net Sales
SG&A Expenses:
Automotive	$	92,396		17.7%		90,365		18.6%		$	277,393		17.8%		258,123		19.0%
Consumer		24,266		24.2%		22,765		29.1%			73,352		23.4%		71,627		26.6%
Professional		32,067		26.8%		38,934		31.1%			94,024		26.5%		101,898		28.9%
Other		12,506		---		8,905		---			54,918		---		30,334		---
Total	$	161,235		21.7%		160,969		23.3%		$	499,687		22.5%		461,982		23.3%

19

Automotive selling, general and administrative expenses for the quarter ended March 31, 2005 increased $2.0 million compared to the same period last year.  These expenses primarily increased due to higher selling expenses to support higher sales offset with lower research and development costs.  Automotive selling, general and administrative expenses for the nine months ended March 31, 2005 increased $19.3 million compared to the same period last year.  These expenses increased due to higher selling and compensation expenses to support higher sales and due to the acquisition of QNX.

Consumer selling, general and administrative expenses for the quarter ended March 31, 2005 increased slightly by $1.5 million compared to the same period last year.  Higher research and development expenses contributed to the increase in the current period.  The increase is primarily attributed to the development of Advanced Technology Engineering Group, which is responsible for developing new consumer products.  Consumer selling, general and administrative expenses for the nine months ended March 31, 2005 increased $1.7 million compared to the same period last year primarily due to an increase in research and development expenses due to the development of the Advanced Technology Engineering Group to support new product development.

Professional selling, general and administrative expenses decreased $6.9 million for the quarter and $7.9 million for the nine month period ending March 31, 2005 compared to the same periods last year. For the three and nine months ended March 31, 2005, these expenses decreased primarily due to prior period expenses reported at AKG to exit the telecom business and expenses recorded in the prior year periods to consolidate our European mixing console operations. 

Other general and administrative expenses for the three and nine months ended March 31, 2005 increased $3.6 million and $24.6 million, respectively, compared to the same periods last year.  For the nine-month period, these expenses increased due to a $6 million loss on a swap contract related to the termination of an operating lease, a $6 million reserve for unasserted claims and higher stock option expense of $11 million.  Additional compensation expense associated with increased corporate headcount also contributed to higher corporate general and administrative expenses.

Operating Income

Operating income for the quarter ended March 31, 2005 was $88.8 million, or 12.0 percent of sales compared to $68.0 million, or 9.8 percent of sales in the same period last year.  The increase in operating margin for the quarter was primarily the result of improvements in Consumer and Professional segments due to restructuring actions taken in the prior year.  Operating income for the nine months ended March 31, 2005 was $250.2 million, or 11.3 percent of sales compared to $167.2 million, or 8.4 percent of sales in the same period last year.  Higher margins resulted from costs included in the prior year associated with our decision to exit the telecom business at AKG, the consolidation of our European mixing console operations and the reorganization of the Consumer Specialty Group.

Interest Expense

Interest expense was $2.3 million for the quarter ended March 31, 2005 compared to $4.4 million in the same quarter last year.  For the nine months ended March 31, 2005, interest expense was $8.3 million compared to $13.8 million in the same period last year.  Interest expense decreased primarily due to the decrease in weighted average borrowings, partially offset by higher weighted average interest rates.  Weighted average borrowings outstanding were $327.7 million for the quarter ended March 31, 2005 and $357.9 million for the nine months ended March 31, 2005, compared to $451.6 million and $460.6 million, respectively, for the same periods in the prior year.  In September 2004, we repurchased and retired $50 million of our 7.125 percent senior notes.  The weighted average borrowings exclude the average fair value of the interest rate swaps of $9.0 million and $13.7 million for the quarter and nine months ended March 31, 2005, respectively, and average swap values of $24.0 million and $25.1 million for the three and nine months ended March 31, 2004, respectively.

20

The weighted average interest rate on borrowings was 5.1 percent for the quarter ended March 31, 2005 and 5.0 percent for the nine months ended March 31, 2005.  The weighted average interest rates for the comparable periods in the prior year was 3.9 percent and 4.0 percent, respectively.  The weighted average interest rates increased since, after giving effect to existing interest rate swap contracts, a majority of our outstanding debt is based on floating rates and interest rates increased over the prior year periods.

Miscellaneous Expenses

Miscellaneous, net expenses were $0.3 million for the quarter ended March 31, 2005 and $4.5 million for the nine months ended March 31, 2005 compared to $0.5 million and $2.4 million, respectively, in the same periods last year.  For the nine months ended March 31, 2005, miscellaneous expenses includes $1.0 million for charitable contributions and $3.0 million for redemption premiums, net of gain on the termination of interest swap contracts in connection with the repurchase of $50 million of our outstanding senior notes.  Miscellaneous expenses also include bank charges and fees.

Income Taxes

Income tax expense for the quarter ended March 31, 2005, was $22.6 million, compared to $19.4 million for the same period last year.  For the nine months ended March 31, 2005, we reported income tax expense of $74.8 million compared with income tax expense of $46.1 million for the same period last year.

The effective tax rate for the quarter ended March 31, 2005 was 26.3 percent, compared to 30.8 percent in the prior year period.  The effective tax rate for the nine months ended March 31, 2005 was 31.5 percent compared to 30.5 percent in the same period last year.  For the three months ended March 31, 2005, the effective tax rate is lower in the current period due to a reduction in tax reserves for uncertain positions.  We currently expect the tax rate for the full fiscal year 2005 to be approximately 30.0 percent, subject to Joint Committee approval of the tax refund negotiated in connection with our audit settlement with the IRS Appeals division.

During the quarter ended March 31, 2005 we changed our method of accounting for reporting changes in interim periods to liabilities resulting from changes in judgments or settlements related to uncertain tax positions.    We had previously accounted for such changes in judgments and settlements as adjustments to the estimated annual effective rate.    We are changing our method to account for such changes in judgments and settlements as a discrete item in the interim period of the change.  This discrete method recognizes the effect of any change in reserve only in the quarter of the change.  The newly adopted accounting method is preferable in the circumstances because it better reflects our consolidated financial position and operations at the time of the change in uncertain tax positions.  As a result of the change in method, income tax expense decreased $2.4 million for the quarter ended March 31, 2005.  If we had used the discrete method during the quarter ended March 31, 2004, income tax expense would have increased and net income would have decreased by $2.4 million. 

Financial Condition

Liquidity and Capital Resources

We primarily finance our working capital requirements through cash generated by operations and trade credit.  We also have the ability to borrow as needed.  Cash and cash equivalents and investments were $289.3 million at March 31, 2005 compared to $377.7 million at June 30, 2004.  During the nine months ended March 31, 2005 we had substantial cash payments including $139 million for the acquisition of QNX, net of cash acquired, approximately $90 million for taxes paid in Germany, $50 million for the purchase of our outstanding senior notes, $50.3 million for the repurchase of 535,500 shares of common stock and $28 million for fixed assets purchased from the lessor under operating leases.

We anticipate additional tax payments of approximately $18 million over the next three months.  We have reinitiated our share repurchase program.  In addition, our Board of Directors has authorized the repurchase of up to an additional $225 million of our senior notes.  We have repurchased $50 million of these notes through March 31, 2005.

21

We will continue to have cash requirements to support seasonal working capital needs, capital expenditures, interest and principal payments, dividends and share repurchases.  We intend to use cash on hand, cash generated by operations and borrowings under our existing revolving credit facility to meet these needs.  We believe that cash from these sources will be adequate to meet our cash requirements over the next 12 months.

Operating Activities

For the nine months ended March 31, 2005, cash flows from operations were $232.2 million compared to $310.4 million in the same period last year.  The decrease was primarily due to a decrease in accounts payable and taxes payable related to a significant tax payment in Germany.  Higher inventory balances were partially offset by lower accounts receivable. 

Net working capital, excluding cash, cash equivalents, investments and short-term debt, at March 31, 2005 was $226.2 million, compared with $171.3 million at June 30, 2004.  The increase of $54.9 million from June 30, 2004 to March 31, 2005 was primarily due to an increase of inventory to support new infotainment platforms being introduced in the fourth quarter of fiscal 2005.

Investing Activities

Capital expenditures for the nine months ended March 31, 2005 were $107.1million compared to $95.9 million for the same period last year.  The increase is primarily due to higher expenditures for customer tooling and other manufacturing equipment at our businesses supplying automotive customers.  During the first half of the fiscal year, we paid $28.4 million for fixed assets purchased from operating leases. 

Financing Activities

Our long-term debt at March 31, 2005, consisted primarily of $171 million principal amount of 7.125 percent senior notes due February 15, 2007, and $140 million principal amount of 7.32 percent senior notes due July 1, 2007.  In fiscal 2004, we purchased and retired $79 million of our 7.125 percent senior notes, reducing the outstanding principal amount from $300 million to $221 million.  In fiscal 2004, we purchased and retired $10 million of our 7.32 percent senior notes, reducing the outstanding principal amount from $150 million to $140 million.  During fiscal 2005, we purchased and retired $50 million of our 7.125 percent senior notes, reducing the outstanding principal amount from $221 million to $171 million.

We are a party to a $150 million multi-currency revolving credit facility with a group of eight banks.  This facility expires on August 14, 2005.  We anticipate replacing this facility prior to its expiration.  At March 31, 2005 we had no borrowings and outstanding letters of credit of $20million under this facility.  Unused availability under the revolving credit facility was $130million at March 31, 2005.    The interest rates under the revolving credit facility float with base rates.  We also had mortgages, capital leases and other long-term debt of $12.4 million at March 31, 2005.

Our long-term debt agreements contain covenants that, among other things, limit our ability to incur additional indebtedness, restrict subsidiary dividends and distributions, limit our ability to encumber certain assets and restrict our ability to issue capital stock of our subsidiaries.  The most restrictive provisions limit the amount of dividend payments and share repurchases we can make.  At March 31, 2005, we were in compliance with the terms of our long-term debt agreements.

22

Equity

Total shareholders’ equity at March 31, 2005 was $1.073 billion compared with $875.0 million at June 30, 2004.  The increase is primarily due to net income of $162.6 million and positive foreign currency translation of $42.8 million.  We repurchased 535,500 shares of common stock in the nine months ended March 31, 2005.  Since the share repurchase program began in 1998, the Board of Directors has authorized the repurchase up to 16 million shares.  From the inception of the share repurchase program through March 31, 2005, we have acquired and placed in treasury 13,317,082 shares of our common stock at a total cost of $222.2 million.  Future share repurchases are expected to be funded with cash generated by operations.

Business Outlook

We achieved record net sales and earnings for the three and nine months ended March 31, 2005.  For the full fiscal year ending June 30, 2005, we currently believe our net sales will be approximately $3.0 billion and earnings per share will be approximately $3.20 per share.  The earnings per share of $3.20 would represent a 41 percent increase over our $2.27 earnings per share in fiscal 2004.  Assuming no significant changes in economic circumstances or currency exchange rates, we presently expect earnings per share of approximately $3.75 in fiscal 2006, which would represent a 17 percent increase over expected earnings of $3.20 in fiscal 2005.

In November 2004, we acquired QNX.  See Note 13 "Acquisitions" to our consolidated financial statements included in Item 1 of this report for further details regarding this acquisition.  Our acquisition of QNX is expected to reduce our earnings per share by approximately $0.04 per quarter for the next two to three years.  Thereafter, we believe that cost reductions will be made possible by fully integrating QNX operating systems with the basic framework and applications of our infotainment systems.

We believe our future revenue and earnings growth will be primarily due to continuing market acceptance of our infotainment systems for automotive customers and improvements in sales and operations in our Consumer and Professional segments.  We believe that as our competitors begin to increase sales of their infotainment systems in the automotive markets, we are uniquely positioned to continue to increase revenue and earnings as automotive customers install these systems in a greater number of automobile platforms.

23

Forward Looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act and 21E of the Exchange Act.  You should not place undue reliance on these statements.  Forward-looking statements include information concerning possible or assumed future results of operations, capital expenditures, the outcome of pending legal proceedings and claims, including environmental matters, goals and objectives for future operations, including descriptions of our business strategies and purchase commitments from customers.  These statements are typically identified by words such as “believe”, “anticipate”, “expect”, “plan”, “intend”, “estimate”, and similar expressions.  We base these statements on assumptions that we have made in light of our industry experience, as well as our perception of historical trends, current market and economic conditions, current and future currency exchange rates, expected future developments and other factors that we believe are appropriate under the circumstances.  As you read and consider the information in this report, you should understand that these statements are not guarantees of performance or results.  In light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking statements contained in this report will in fact transpire.

Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial condition or results of operations and the trading price of our common stock may decline due to any of these risks.

Risk Factors

Factors that may cause fluctuations in our operating results include, but are not limited to, the following:

	·		automobile industry sales and production rates and the willingness of automobile purchasers to pay for the option of a premium branded audio system and/or a multi-functional infotainment system;
	·		changes in consumer confidence and spending;
	·		fluctuations in currency exchange rates and other risks inherent in international trade and business transactions;
	·		the ability to satisfy contract performance criteria, including technical specifications and due dates;
	·		the loss of one or more significant customers, including our automotive manufacturer customers;
	·		competition in the automotive, consumer or professional markets in which we operate;
	·		model-year changeovers in the automotive industry;
	·		changes in general economic conditions and specific market conditions;
	·		our ability to enforce or defend our ownership and use of intellectual property;
	·		our ability to effectively integrate QNX with our other operations and to generate the anticipated cost savings from this acquisition;
	·		strikes, work stoppages and labor negotiations at one or more of our facilities or at a facility of one of our significant customers or work stoppages at a common carrier or a dock/shipping port;
	·		the outcome of pending or future litigation and administrative claims, including patent and environmental matters; and
	·		world political stability.

24

We are also subject to various risks including dependence on key customers.  For the nine months ended March 31, 2005, sales to DaimlerChrysler, BMW and Audi/Volkswagen accounted for 27 percent, 11 percent and 8 percent respectively, of our total consolidated sales.  Accounts receivable due from DaimlerChrysler, BMW and Audi/Volkswagen accounted for 21 percent, 8 percent, and 10 percent respectively, of total consolidated accounts receivable at March 31, 2005.  In the same period last year, sales to DaimlerChrysler, BMW and Audi/Volkswagen accounted for 29 percent, 13 percent and 3 percent respectively, of total consolidated sales.  Accounts receivable due from DaimlerChrysler, BMW and Audi/Volkswagen accounted for 24 percent, 9 percent and 4 percent, respectively, of total consolidated accounts receivable at March 31, 2004.

We anticipate that DaimlerChrysler, BMW and Audi/Volkswagen will continue to account for a significant portion of our sales and receivables for the foreseeable future.  These customers are not obligated to any long-term purchase of our products.  The loss of sales to DaimlerChrysler, BMW or Audi/ Volkswagen would have a material adverse effect on our consolidated sales, earnings and financial position.

For additional information regarding other factors that may affect our actual financial condition and results of operations, see the information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors" in our 2004 Form 10-K.

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

The Securities and Exchange Commission requires that we include information about potential effects of market risks, including changes in interest rates and currency exchange rates, on our financial statements.  Since June 30, 2004, there have been no material changes in the quantitative or qualitative aspects of our market risk profile.

Interest Rate Sensitivity/Risk

We use interest rate swap agreements to effectively convert the interest rates on a majority of our borrowings from fixed rates to variable rates.  Including the effect of the swap agreements, a nominal amount of our borrowings were on a fixed rate basis as of March 31, 2005; the balance is subject to changes in U.S. short-term interest rates. 

In conjunction with our debt repurchase program, we unwound $10 million of the swap contract covering our 7.32 percent senior notes in fiscal 2004 and $30 million of the swap contract covering 7.125 percent senior notes in fiscal 2005.  Currently, all but $1.6 million of our outstanding senior notes are covered by floating-rate swap agreements.

To assess exposure to interest rate changes, we prepared a sensitivity analysis assuming a hypothetical 100 basis point change in interest rates across all maturities.  Our analysis indicates that such changes in interest rates would not have a material impact on fiscal 2005 net income, based on our outstanding debt and investment balances at March 31, 2005.  Based on March 31, 2004 positions, the effect on fiscal 2004 net income of such an increase or decrease in interest rates was also not material.

We are subject to counterparty risk under the interest rate swap contracts described above.  We may be exposed to losses in the event of non-performance by counterparties.  We do not, however, anticipate any such nonperformance.

Foreign Currency Risk

Our business is subject to market risks arising from changes in foreign currency exchange rates, principally the change in the value of the Euro versus the U.S. dollar.  We maintain significant operations in Germany, the United Kingdom, France, Austria, Hungary, Mexico, China and Sweden.  As a result, we have exposure to foreign currency gains and losses.  A portion of our foreign currency exposure is hedged by incurring liabilities, including loans, denominated in the local currency where subsidiaries are located.  Our subsidiaries purchase

25

products and raw materials in various currencies.  As a result, we may be exposed to cost changes relative to local currencies in the markets that we sell our products.  To mitigate such risks, we enter into foreign exchange contracts and other hedging activities.  Also, foreign currency positions are partially offsetting and are netted against one another to reduce exposure.

The effect of changes in currency exchange rates, principally the change in the value of the Euro compared to the U.S. dollar, has an impact on our reported results when the financial statements of foreign subsidiaries are translated into U.S. dollars.  Since June 30, 2004 (the end of our prior fiscal year), the Euro has increased approximately 6 percent when compared to the U.S. dollar.  Over half of our sales are now denominated in Euros.  For the quarter ended March 31, 2005, currency fluctuations contributed approximately $23 million to the increase in sales and $4 million to the increase in pre-tax earnings. For the nine months ended March 31, 2005, currency fluctuations contributed approximately $106 million to the increase in sales and approximately $17 million to the increase in pre-tax earnings. 

To assess exposure to changes in currency exchange rates, we prepared an analysis assuming a hypothetical 10 percent change in currency exchange rates across all currencies used by our subsidiaries.  This analysis indicated that a 10 percent increase or decrease in exchange rates would have increased or decreased income before income taxes by approximately $24 million for the nine months ended March 31, 2005.

Competitive conditions in our markets may limit our ability to increase prices in the event of adverse changes in currency exchange rates.  For example, certain products made in the U.S. are sold outside of the U.S.  Sales of these products are affected by the value of the U.S. dollar relative to other currencies.  Any long-term strengthening of the U.S. dollar could depress the demand for these U.S. manufactured products and reduce sales.  However, due to the multiple currencies involved in our business and the netting effect of various simultaneous transactions, our foreign currency positions are partially offsetting.

See Note 8 "Derivatives" to our consolidated financial statements included in this report and Item 7A of Part II in our 2004 Form 10-K for additional information regarding our exposure to foreign currency risk.

Item 4.   Controls and Procedures

Evaluation of Disclosure Controls and Procedures - Under the supervision and with the participation of our management, including our Executive Chairman, Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934) as of the end of the period covered by this Quarterly Report on Form 10‑Q.  Based on that evaluation, our Executive Chairman, Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effectiveto provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms.  We note that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions.

Change in Internal Control Over Financial Reporting- There has not been any change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) as promulgated by the Securities and Exchange Commission under the Securities Act of 1934) during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

26

Part II:   OTHER INFORMATION

Item 2.               Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth our repurchases of common stock for each fiscal month in the third quarter of fiscal 2005:

Issuer Purchases of Equity Securities

	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2005 through January 31, 2005	---		---		---		3,213,418
February 1, 2005 through February 28, 2005	---		---		---		3,213,418
March 1, 2005 through March 31, 2005	530,500		$93.66		530,500		2,682,918
	530,500		$93.66		530,500		2,682,918	(2)

(1)

The repurchase of 530,500 shares was made pursuant to the Board authorized share repurchase program.

(2)

Our share repurchase program was first publicly announced on June 16, 1998.  On June 11, 2003, we publicly announced that our Board of Directors had approved the repurchase of up to one million additional shares of common stock, increasing the authorization to repurchase up to 8 million shares in the aggregate.  In November 2003, we declared a two-for-one stock split thereby increasing the authorization to repurchase shares to 16 million in the aggregate.

27

Item 6.			Exhibits
			Exhibits required by Item 601 of Regulation S-K
			18.1		KPMG – Preferability Letter
			31.1		Certification of Sidney Harman pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
			31.2		Certification of Bernard A. Girod pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
			31.3		Certification of Frank Meredith pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
			32.1		Certification of Sidney Harman, Bernard A. Girod and Frank Meredith, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

28

SIGNATURES

    Pursuant to the requirements of the Securities Exchange Act of 1934, Harman International Industries, Incorporated has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

29