Retirement Benefits

12 Months Ended

Jun. 30, 2012

Retirement Benefits

Note 16 – Retirement Benefits

Plan Descriptions

Retirement savings plan

We provide the Harman International Industries Incorporated, Retirement Savings Plan (the “Savings Plan”) for certain employees in the United States. Under the Savings Plan, employees may contribute up to 50 percent of their pretax compensation subject to certain limitations. Each business unit will make a safe harbor non-elective contribution in an amount equal to three percent of a participant’s eligible contribution. Each business unit may make a matching contribution of up to three percent (50 percent on the first six percent of an employee’s tax-deferred contribution) and, upon approval of our Board of Directors, a profit sharing contribution. Matching and profit sharing contributions vest at a rate of 25 percent for each year of service with the employer, beginning with the second year of service.

Effective January 1, 2009, we suspended the matching and safe harbor non-elective contributions for these plans. Effective January 1, 2010, the employer matching contribution and the safe harbor non-elective contribution were reinstated. Approval for the profit sharing contribution is requested from our Board of Directors at the end of each fiscal year. Management eliminated the profit sharing contribution as of December 28, 2010. No amount was accrued for the profit sharing contribution for each of the fiscal years ended June 30, 2012, 2011 and 2010. Expenses related to the Savings Plan for the fiscal years ended June 30, 2012, 2011 and 2010, were $8.0 million, $7.3 million and $3.7 million, respectively.

Pension benefits

We provide defined pension benefits to certain eligible employees. The measurement date used for determining pension benefits is the last day of our fiscal year, June 30^th. We have certain business units in Europe that maintain defined benefit pension plans for many of our current and former employees. The coverage provided and the extent to which the retirees’ share in the cost of the program vary by business unit. Generally, plan benefits are based on age, years of service and average compensation during the final years of service. In the United States, we have a SERP that provides retirement, death and termination benefits, as defined in the SERP, to certain key executives designated by our Board of Directors. The majority of our defined benefit plans do not have contractual or statutory provisions which specify minimum funding requirements. We are in compliance with all existing contractual obligations and statutory provisions.

During fiscal year 2013, we expect to contribute amounts to the defined benefit pension plans necessary to cover required disbursements. The benefits that we expect to pay in each fiscal year from 2013 to 2017 are $8.9 million, $8.6 million, $9.0 million, $9.5 million and $11.4 million, respectively. The aggregate benefits we expect to pay in the five fiscal years from 2018 to 2022 are $52.8 million.

Plan Assets

For all but one of our Company’s plans, contributions are made from our current operating funds as required in the year of payout. For one foreign plan, we made annual contributions into a fund managed by a trustee who invests such funds, administers the plan and makes payouts to eligible employees as required.

Our primary objective in investing plan assets for this foreign plan is to achieve returns sufficient to meet future benefit obligations with minimal risk and to time the maturities of such investments to meet annual payout needs. Given this, fund assets are invested in a unitized publically traded fund which invests 100 percent of such investments in government bonds. For purposes of fair value, this investment has been determined to meet the characteristics of a Level 1 investment as quoted prices in an active market exist for these assets. As of June 30, 2012, 100 percent of these assets are invested in this unitized fund.

Summary Plan Results

The following is a reconciliation of the benefit obligations, plan assets and funded status of the plans as well as the amounts recognized in our Consolidated Balance Sheets as of and for the fiscal years ended June 30, 2012 and 2011:

	Year Ended June 30,
	2012			2011
Change in benefit obligation:
Benefit obligation at beginning of year	$	156,285		$	144,331
Benefit obligation of plans not previously reported(1)		3,987			7,330
Service cost		1,635			3,292
Interest cost		8,106			7,702
Actuarial loss/(gain)		31,484			(10,286	)
Effects of settlements and curtailments		(921	)		0
Plan amendments		216			95
Benefits paid		(7,817	)		(7,657	)
Foreign currency translation		(9,726	)		11,478
Benefit obligation at end of year	$	183,249		$	156,285
Change in plan assets:
Fair value of assets at beginning of year	$	5,258		$	0
Fair value of assets for plans not previously reported(1)		0			4,507
Actual return on plan assets		1,571			139
Employer contributions		9,049			7,932
Benefits paid		(7,817	)		(7,657	)
Settlement		(921	)		0
Foreign currency translation		(129	)		337
Fair value of assets at end of year	$	7,011		$	5,258
Reconciliation of funded status:
Funded status	$	(176,238	)	$	(151,027	)
Unrecognized prior service cost		8,301			8,672
Unrecognized net loss		49,561			19,790
Accrued pension cost	$	(118,376	)	$	(122,565	)
Non-current assets	$	704		$	0
Accrued liabilities		(8,843	)		(8,913	)
Other non-current liabilities		(168,099	)		(142,114	)
AOCI		57,862			28,462
Accrued pension cost	$	(118,376	)	$	(122,565	)

⁽¹⁾  Certain foreign defined benefit plans were not disclosed in prior years based on the immateriality of amounts involved in these plans. The above disclosures for fiscal years 2012 and 2011 include amounts recorded for these plans as adjustments to the balances in the current year.

Amounts recognized in AOCI for the fiscal years ended June 30, 2012 and 2011 are presented below:

	Year Ended June 30,
	2012			2011
Amounts recorded in AOCI:
Prior service cost	$	8,301		$	8,672
Net actuarial loss		49,561			19,790
Total recognized in AOCI, before taxes		57,862			28,462
Income tax benefit		(19,415	)		(10,159	)
Total recognized in AOCI, net of income taxes	$	38,447		$	18,303

The estimated amount that will be amortized from AOCI into net periodic benefit cost in fiscal year 2013 is as follows:

Amounts expected to be recognized in net periodic benefit cost
Recognized net actuarial loss	$	3,872
Amortization of prior service cost		1,169
Total	$	5,041

A comparison of plans’ assets with plans’ projected benefit and accumulated benefit obligations as of June 30, 2012 and 2011 is presented below:

	Obligations Exceed Plan Assets Year Ended June 30,				Plan Assets Exceed Obligations Year Ended June 30,				Total All Plans Year Ended June 30,
	2012		2011		2012		2011		2012		2011
Plans where:
Projected benefit obligation	$	176,942	$	156,285	$	6,307	$	0	$	183,249	$	156,285
Accumulated benefit obligation		165,283		145,626		6,307		0		171,590		145,626
Fair value of plan assets		0		5,258		7,011		0		7,011		5,258

The components of net periodic benefit costs for the fiscal years ended June 30, 2012, 2011 and 2010 are presented below:

	Year Ended June 30,
	2012			2011			2010
Components of net periodic benefit cost:
Service cost	$	1,635		$	3,292		$	2,165
Interest cost		8,106			7,702			7,585
Expected return on plan assets		(238	)		(221	)		0
Amortization of prior service cost		1,418			1,502			1,407
Amortization of net loss		1,793			1,899			1,122
Effect of settlements and curtailments		83			0			1,452
Net periodic benefit cost	$	12,797		$	14,174		$	13,731

Plan Assumptions

The assumptions used to determine our benefit obligations and net periodic pension and other postretirement benefit costs are presented below:

	Year Ended June 30,
	2012		2011			2010
Assumptions:
Weighted average rates used to determine benefit obligations at June 30:
Range of discount rates for pension plans		0.6% – 5.0%		4.7% – 5.9	%		4.5% – 5.0%
Range of rates of compensation increase for pension plans		0.0% – 4.0%		2.5% – 4.0	%		2.5% – 4.0%
Weighted average rates used to determine net periodic benefit cost at June 30:
Range of discount rates for pension plans		4.7% – 5.9%		4.1% – 5.6	%		4.5% – 6.17%
Range of rates of compensation increase for pension plans		0.0% – 4.0%		2.5% – 4.0	%		2.5% – 4.0%

As of June 30, 2010 a globally consistent method of setting the discount rate was adopted, where yield curves are developed from yields on actual Aa-rated corporate bonds across the full maturity spectrum, referring to ratings provided by Moody’s, Standard & Poor’s, Fitch, and Dominion Bond Rating Service, supplemented with additional yield information where needed. We discount the expected future benefit payments of each plan using the appropriate yield curve based on the currency of payment of benefits, to develop a single-point discount rate matching each plan’s payout structure. Prior to June 30, 2010, a similar approach was followed, using yields for German federal bonds and Euro denominated bonds provided by Deutsche Bundesbank, and spot yields on corporate bonds published in the Citigroup Pension Liability Index.