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Harman International Industries Inc. (NYSE:HAR)

F2Q10 Earnings Call

February 08, 2010; 04:40 pm ET

Executives

Dinesh Paliwal - Chairman & Chief Executive Officer

Herbert Parker - Chief Financial Officer

Bob Lardon - Vice President of Investor Relations

Analysts

Himanshu Patel - JP Morgan

Chris Ceraso - Credit Suisse

Scot Ciccarelli - RBC Capital Markets

Mitul Shah - Duquesne

Operator

Good afternoon and welcome to the Harman International Industries second quarter fiscal year 2010 earnings conference call. At this point, all of your phone lines are muted or in a listen-only mode. However, later during the conference, there will be opportunities for questions and those instructions will be given at that time. As a reminder, today’s call is being recorded.

Please note that certain statements made by the company during this call are forward-looking statements. These statements include the company’s beliefs and expectations as to future events and trends affecting the company’s business, and are subject to risks and uncertainties. Persons participating on the call today are advised to review the reports filed by Harman International with the Securities and Exchange Commission, regarding this risks and uncertainties.

With that being said, here with our opening remarks is Harman International Industries’ Chairman and Chief Executive Officer, Dinesh Paliwal; please go ahead Mr. Paliwal.

Dinesh Paliwal

Good afternoon, ladies and gentlemen, and thank you for joining the Harman second quarter 2010 investor and analyst call. I’m joined in Stanford, Connecticut today by Herbert Parker, our Chief Financial Officer, and Bob Lardon, Vice President, Investor Relations.

Along with our second quarter results outlined in the press release issued this afternoon, I would like to call your attention to a set of supporting slides that has been posted with our press release on www.businesswire.com and in the Investor Relations portion of our company’s website www.harman.com. I will mention several of these slides during our discussion.

Ladies and gentlemen, Harman’s performance in the second quarter demonstrates that our efforts to increase operational efficiency, accelerate product innovation and optimize our cost structure are delivering results. Combined with some encouraging improvement in key markets, these efforts have translated to growth at the top and bottom line.

Our net sales showed a gain of 24% compared both to last quarter and to the same quarter last year. This general improvement in market demand and significant innovation programs were complemented by our continued efforts to achieve best-in-class cost structure and efficiency.

Our STEP Change program has delivered $285 million in permanent cost savings through December 31, 2009 and it remains ahead of our own target. I’m pleased to say that we have also been successful in driving these cost savings through to the earnings line, demonstrated by an operating profit of $53 million for the quarter.

As you can see by the comparisons on slide four and slide five, we are encouraged both by the double-digit sales increase and by our continued quarter-over-quarter improvement at the earnings line. We continue to take aggressive steps to manage our liquidity and our cash position remains strong.

Our note holders have recently shown an additional vote of confidence by amending a debt covenant that now allows us to revolve our credit facility. By paying down the revolver, we will reduce interest costs while maintaining the flexibility to adjust our cash position as necessary.

To help you better understand the key pillars of our strategy, please turn now to slide six and seven. We have tried to condense our detailed strategy into four strategic pillars. As shown, we will continue to invest in our automotive business to expand our technological leadership and Smart Infotainment Solutions, energy-saving technologies geared to the coming wave of Electric & Hybrid cars, and many similar innovations in the field. We will nurture and grow our leading audio brands across the automotive, professional and consumer segments. We will continue our successful programs to achieve best-in-class capital and cost structures.

Finally, while acknowledging the challenges posted by the fragile global marketplace, we will aggressively position our respective brands to grow our businesses in both traditional and emerging markets. That pretty much captures the strategic initiatives our company is taking.

Before I ask Herbert Parker to offer a closer review of our second quarter performance, I’ll share some other highlights of our business and current strategic initiatives. In our Automotive Division, I’m pleased to say that we once again achieved double-digit sales growth on both a sequential and year-over-year basis.

During the first half of fiscal year 2010, automakers rewarded our track record of program execution and product innovation with more than $2 billion in new business. Including these, we had now secured automotive orders in excess of $10 billion.

During our last call, I shared with you our infotainment wins with Daimler for Mercedes S-Class and C-Class models, with BMW for its full range of future models, including Mini & Rolls Royce, and very important breakthrough with Toyota for vehicles sold in Europe beginning in calendar 2011.

We are continuing our discussions with many leading additional automakers toward additional opportunities that leverage both our premium and mid-market systems. As shown on slide number eight, these in infotainment awards were augmented during the second quarter by new launches of our premium branded auto systems.

Commonwealth now provide a Mark Levinson’s branded Premium Surround Sound system for the 2010 model Lexus GX 460 and JBL branded Premium Sound System for the 2011 Toyota, Sienna in the U.S. market. Chrysler has awarded us recently the Infinity branded audio systems for next-generation premium SRT vehicles, beginning with model year 2012.

We continued to conduct aggressive marketing programs with these and other OEMs to develop and help inform their customers and maximize penetration rates. As we continue to optimize our operations along core competencies the Harman Automotive Division has decided to close down its Portable Navigation Device or PND business altogether.

In this area, in the area of embedded systems and navigation, which is our core competency, we announced a partnership with Neusoft Corporation that is China’s largest information technology solution provider; to gain access to new advanced technologies and to accelerate our own development. This relationship will enable us to downsize and eventually eliminate two engineering sites in Germany.

Please move now to slide number 10 for a recap of our Professional Division achievements. Harman audio systems were utilized during the quarter by such leading names as top GRAMMY winner Taylor Swift, Alice Cooper, Metallica and the world champion New York Yankees.

Harman Professional equipment was commissioned at new audio installations around the world including some worth taking names; New York’s Lincoln Center, The Parliament of Norway and at China’s National Day Celebration. The City Center Las Vegas complex, one of the largest construction projects in the US opened in December with audio systems by Harman.

During the last week end in January, our professional achievements were highlighted to a global audience at the 2010 GRAMMY Awards as our own premium Headphones and Microphone brand AKG take home a GRAMMY for technical achievement, following similar recognition for our JBL loudspeaker brand in 2005. Let me tell you, how proud I’m to share that Harman has now became the only company ever to win two prestigious GRAMMY Awards.

More than 25 new products were introduced by the professional division during the quarter leveraging the power of Harman’s advanced HiQnet protocol for system integration. Nearly 200 Harman’s professional channels partners met last months to test drive this new technology during the divisions, international business and technology conference and subsequent NAMM division in Los Angels.

Please now move to slide 11 for some highlights from our consumer business. The Harman consumer division successfully launched 15 new products during the quarter including JBL Creature III, Multimedia Speakers and the Harman Kardon GLA-55 Desktop Crystal Speaker System, absolute must for any executive or any audio files to have, each of which was permanently featured at Apple electronics stores worldwide during the holiday shopping season.

The decision was announced in January that it has launched a new JBL Branded docking system for Sony Walkman digital media player in Japan and we are also as we speak featuring selected JBL product in Sony Style stores throughout Canada, that’s another breakthrough for us. Other JBL projects were featured during the holiday season on the very popular Ellen DeGeneres “12 Days of Christmas” television segment reaching an audience of 100 million.

The consumer divisions sound provision initiative with Europe’s largest retailer called Media Saturn Holdings exceeded our own expectation and their own expectation with strong holiday sales for premium virtual surround sound system bundled with flat-screen televisions. Harman store-within-a-store installations also opened in several flagship store in Saturn and holding companies in many cities in Europe.

Please move now to slide number 12; a new addition to our deck, which is the dashboard of our strategic value drivers. I’m very happy to keep making our slide deck for you a best practice in the Investor Relations and with this dashboard, you can quickly get the glance of what the company is driving, what are the true value creation activities in the company for shareholders.

As shown, we continue to execute ahead of schedule on our STEP Change cost savings program with $285 million in permanent savings realized to-date, to the target of $245 million. To help you better understand how these savings support other key operational metrics, we are adding several elements to the dashboards. These include our global footprint index.

Our R&D and engineering as a percent of sales is our aggressive strategy to increase Harman’s business in China. To further highlight our strategy, we will host an Investor and Analyst Day in New York City on April 29 this year, following our third quarters result. You will have the opportunity to meet several key members of our team and we will provide mid term targets for fiscal year 2013 during Investor and Analyst Day. Our Chief Financial Officer, Herbert Parker will share additional information on this event in a few minutes.

In summary ladies and gentlemen, I believe that we have built a solid foundation for sustainable improvement. Before I turn it over to Herbert Parker, let me recap our position very quickly. We remain profitable for the first full fiscal year and improving market conditions, our driving sequential and year-over-year top line growth. Our competitive position has never been stronger.

Our Automotive Division enjoyed awarded business in excess of $10 billion. Across all our divisions, new integrated marketing activities are unlocking the real power of Harman’s family event and we will continue to invest strategically in this area. Our investment in innovation is driving customer wins, creating differentiation and gaining market share.

We have ample cash and liquidity to execute on our STEP Change program to innovate and to see new opportunities for growth. We have achieved $285 million permanent cost savings that is money in the bank and we are ahead schedule towards our goal of $400 million permanent savings for the company. Our strategies to expand how much footprint and market share in the emerging markets are well underway and we will continue to deepen our roots in these important reasons.

Thank you for your attention and I will now ask Herbert to provide a closer look at our quarterly results.

Herbert Parker

Thank you, Dinesh. Good afternoon everyone. As you have already heard from Dinesh, we turn in a good quarter and our cost saving productivity players continue to be reflected in our financial results and to help you identify the specific improvements related to these cost saving productivity plans. I would now present a few more details on the financials so that this will hopefully give you a better understanding about development during this quarter.

As mentioned in our previous calls and for the benefit of our new investors, most of our financial comments are provided on a non-GAAP basis, which excludes restructuring costs and goodwill write-offs and as usual, you will find a reconciliation of our GAAP to non-GAAP results in our press release, which was issued earlier today, but for your ease of reference, these non-GAAP costs totaled $13 million for the quarter.

Okay, let’s start with the top line. In the second quarter our sales increased across all divisions on a year-over-year comparison and this was basically a result of improved global economic conditions that’s combined with market gains.

Now moving on to quantify these improvements, we are pleased to report that our sales for the second quarter were $937 million, which is a 24% increase over the same period of last year. If we exclude foreign currency translation our sales increased 15%.

On a sequential basis our sales increased the same as it did on a year-over-year basis which was 24% as I just mentioned. This significant improvement was led by the automotive division which had a 23% increase. I would like to make it on, that this is a third consecutive quarter we have had sequential improvement on top line.

Now moving on to the production cost area, we reported a gross profit margin of 27.9% compared to 23.7% in the same period last year. This margin increase was primarily due to a higher factory utilization associated with the increased sales and improved productivity as a result of our STEP Change permanent savings cost initiative.

Our SG&A expense for the second quarter was $209 million compared to $195 billion last year of which R&D costs were $82 million and $84 million respectively. Excluding the effect of foreign currency translation SG&A expense was basically the same.

Now moving on down to the bottom line, we continued to improve our profitability and we’ve reported an operating profit of $53 million, compared to an operating loss of $16 million last year. Our net income for the second quarter was $28 million; our earnings was $0.40 per share, compared to a net loss of $13 million or $0.21 per share in the same period last year. Our effective tax rate for the second quarter was 34%, which includes the effects of restructuring expenses and goodwill charges.

Moving on to our cash, our December cash in short term investment balance was $630 million, compared to $535 million at the end of September as reported in our prior quarter. The increase was primarily due to positive income from operations during the quarter as well as a decrease in working capital.

Now, I think that is important for me to inform you of a subsequent event through our efficient second quarter results. In mid-January, our cash and short term investment balance was reduced by $223 million, as we paid down the existing balance of our revolving credit facility.

As you may recall, we earlier issued a press release to announce that our note holders have agreed to amend the debt covenant that allows us to revolve our credit facility. This amendment allows us to pay down the revolver, thus minimizing interest cost while still maintain in excess to the liquidity to support our growth initiatives if needed.

Now in closing, we believe files return into a positive earnings per share, underscores our commitment to continuous improvement and a culture of accountability. Also, we now believe that market visibility has been improved to a level that can give us some confidence, make us some reasonable assumptions. Therefore as Dinesh mentioned earlier, we will host an Investor Analyst Day on April 29, and at that time we will issue our mid term targets for our fiscal year 2013.

At this point, I’d like to thank you for your attention and we will now take your questions. Operator, please open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Himanshu Patel - JP Morgan.

Himanshu Patel - JP Morgan

A couple of questions; is it possible to give us a little bit of color on the two engineering sites in Germany that you’ve referred to. What would be the potential timing on when those would close? How many people are at those sites currently? And number three, are those savings captured within the existing $400 million STEP Change program?

Dinesh Paliwal

First the timing, I think we are talking about 12 to 18 months before we bring full closure. So this will be facing out as we start to build more and more IP and development of embedded systems, and other technology and navigation.

In terms of savings, you could include that in the STEP Change; I mean we are ahead of our STEP Change. So we’d probably continue to remain ahead of the STEP Change, but right now we are not separating any other initiatives outside of STEP Change Himanshu. In terms of number of people, I believe the total number would be just north of 200 among these two sites in total.

Himanshu Patel - JP Morgan

Then on the STEP Change program itself, you’ve done sort of three quarters of the $400 million already and I think even in one of your slides, it sort of shows that there’s no incremental savings next year and you have to wait until the year after to get to the $400 million. It just seems like either the cost savings are fairly lumpy and maybe you do hit a bit of a plateau near term on the rate of incremental cost savings, or is it fair to say that 400 number needs to be revised up at some stage?

Dinesh Paliwal

First of all let me clarify, when we say $285 million savings in the bank, actual to-date that is as of December 31, 2009 that is only for the first half year, although our full year target was $283 million. So in few words, we already exceeded our annual target, but we did not stop, so savings continued to come in the second half.

So what I’m saying, we’ll obviously exceed fiscal year 2010 savings target we already have. So count on it that we’ll be inching towards $400 million target. Where do we end up? I don’t know yet. So it’s not lumpy. It is pretty sustainable. As you can see quarter-over-quarter, we are exceeding pretty proportionally same amount.

Other part of your question, should we revise the target $400 million? From the mathematical point of view, one can make a case, but from the philosophy and organizational culture point of view, one should never revise because we’ve made a target, we’ve hold people accountable, people get paid on these deliveries, real money once it’s recognized and CFOs sign off on them.

So we will close this program as of June 30, 2010, which is only five months from now and at that point we would have on a run rate basis, all savings realized, but full savings of 400 in the bottom line, that only happens in fiscal ‘11. Now that does mean we will stop multiple initiatives that are underway or we have recognized few more areas of few additional areas for savings. So at this point it’s safe to save we will exceed $400 million target by how much we will share in the next coming quarter Himanshu.

Himanshu Patel - JP Morgan

On the Toyota contract that you’ve won at Europe, have you had discussions with Toyota about the potentially expanding that relationship maybe into North America at some stage?

Dinesh Paliwal

You would expect, yes, and I’m not really at the liberty to say all, but we are in a good position and we are continuing to have that discussion in that direction and I hope to be able to have hopefully some concrete news by the time we speak to you next time or before.

Operator

Your next question comes from Chris Ceraso - Credit Suisse.

Chris Ceraso - Credit Suisse

A couple of things, I note as you put in a new slide showing your expected or targeted ramp up of business in China, that shows some pretty significant growth in revenue? Can you talk a little bit about that; how much of that are a branded audio versus infotainment and how much of that is business that you’ve already contracted and one versus just targets for growth in the region?

Dinesh Paliwal

Chris it is an interesting one and I knew that this question will come up, because I get this also all the time. At this point for the simplicity sake we have broken down these targets by division in the same proportion as our current revenue is. That is 70% to come from automotive, 20% to come from professional and 10% from consumer.

I have a feeling these numbers will change because all three divisions are going to grow very rapidly, and in terms of branded audio versus infotainment, both will grow rapidly because if you look at any automotive statistics, Chinese infotainment in-dash system and Chinese appetite for branded audio system is the highest or one of the highest in world right now. So, when we start to fairly low number because traditionally we never forecast in China, India, Brazil, we are starting to do that; that’s why this is part of our strategy.

So we are a small number right now. We will easily double and triple in next couple of years organically, but we also have clear desires and we are well underway to acquire either further distribution channel access or for the footprint for some technology access, we’ll acquire small companies, $20 million, $30 million, $50 million; $80 million worth, but the good thing is between the CFO and myself, we both have first hand experience living there and working there for a number of years and we understand how business is done.

So we feel very comfortable to achieve by 2015 this $1 billion target of revenue in China, and as time goes by, we’ll start to share with you in the same dashboard for Brazil and India, but China is the elephant in the room, and I think it’s sufficient we give you that.

Chris Ceraso - Credit Suisse

Next question on the SG&A, I think this is probably where the results were most notably better and different than what we had expected. Can you talk a little bit in more detail about specifically where the cost savings came from either by region, or how many people, or anything that can just give us a little bit more detail on the significant improvement in SG&A?

Herbert Parker

Actually, most of our improvements have come from the gross margin point of view. So I’m going, where you’re finding the SG&A improvement. So we had a significant improvement in gross margin if you had checked the numbers that we just reported.

Chris Ceraso - Credit Suisse

I think sequentially, at least that seem to be an area where things improved quite a bit as a percentage of sales. I think if our numbers are right in the last quarter it was much higher as a percentage of sales than you posted here in Q2?

Herbert Parker

Yes, we would expect to be much better as a percent of sales just on the fact that we do not have one-to-one SG&A cause of sales increase. Now, I’ve talked in the past about one big leverage we have within the Automotive Division.

When sales increased it doesn’t cost us anymore money, because these are relative to revenues, which are orders that we sold and won business a couple of years ago. So we get our direct bottom line benefit, especially in automotive when you have a sequential sales increasing and you notice we have to bigger the increase in Automotive Division.

Dinesh Paliwal

I think just to add to that, Herbert actually answered it. If you look at the SG&A including Engineering and R&D, we have been working very hard as far as this tough change to bring much needed efficiency in our R&D and Engineering, and also as sales has gone up, our cost structure is such that we don’t have to spend the same way as in the past we would have with the sales SG&A also rising.

So this is a sustainable improvement. As sales go up, don’t expect SG&A to go up the same way. Our R&D engineering on the dashboard has come down. In fiscal ‘09 we had 11.5% of the sales and as of December 31, percent of engineering in R&D our sales is 9.6%. So we’ve been working on all fronts to bring about sustainable, permanent, efficiency gain. So it’s all around improvement in gross margin and also SG&A across all fronts with efficiency gains.

Chris Ceraso - Credit Suisse

I think it was really just the revenue that was much better?

Herbert Parker

Correct.

Chris Ceraso - Credit Suisse

Just a couple of other quick ones, that the consumer business was quite strong, how much of that do you think is seasonal with the Christmas Holiday and some new product versus maybe a portion of STEP Change program that was in that division?

Dinesh Paliwal

Our STEP Change has had all three divisions, but in consumers case the strongest quarter is always the second quarter. So they enjoyed that, and that to coming from a very poor quarter, we could even see much more improvement. Now when you have a very competitive environment, then everybody is trying to gain the self space or go after that same wallet of every consumer, where obviously our new product introduction helped.

We had a number of winners in terms of what we launched in the marketplace. We did very well in Europe. Unfortunately U.S. continues to lag and it is the largest market or has been very large market. So that continues to sort of create some concerns for us, but Europe did very well for us and international, that is big countries like Brazil, China and India.

They are stepping up aggressively and a lot more to come as we slowly get our self on the ground and operate locally from those countries. So consumer had a strong quarter, because cyclically they always have the second quarter strong, innovation helped STEP Change helped.

Chris Ceraso - Credit Suisse

Just lastly a housekeeping kind of a question, I think Herbert mentioned that FX benefit on the top line. Can you breakout how much of the benefit FX was in operating profit?

Herbert Parker

It’s a small number because we do a lot of hedging. So we get the biggest benefit on our revenue on the top line, but as you know we also would have the same amount of our cost increase in our costs. So we’ve not seen any significant improvement on the bottom line of foreign exchange. It’s only helping to revenue, but not the bottom line.

Operator

Your next question comes from Scot Ciccarelli - RBC Capital Markets.

Scot Ciccarelli - RBC Capital Markets

Maybe I missed and I apologize for this, but on the P&L there’s a lines that says, loss of deconsolidation of DIE, is that the P&D or is that something else?

Herbert Parker

That is a joint venture we have with Harman Navis Company. We’ve made this just in Korea. We made a strategic decision to allow them to buyback their share so that the company that we own 50/50 is no longer consolidated with us now. So that was the $13 million here if you will, that we had to take due to the auditors and have evaluation of what the value was at the book at that time versus what it is now?

Scot Ciccarelli - RBC Capital Markets

I know as you left that in your non-GAAP figures, and I was just wondering if there was a thought process to exit, obviously it excluded some other stuff in the non-GAAP figures?

Herbert Parker

Yes, with the external auditors we had to discuss with them, and they made the decision based on meeting with their national office in SEC that it should be included in our numbers. So we followed the amount in conservative side.

Scot Ciccarelli - RBC Capital Markets

Alright, but that’s not a recurring charge from our viewpoint?

Herbert Parker

No it is not a recurring charge.

Scot Ciccarelli - RBC Capital Markets

I guess the other question I had is, obviously you’ve seen quite a bit of improvement on the automotive profitability. I think a couple of quarters ago you were in the double-digit negative type operating margins. Now you’re almost 6% positive operating margins. I guess, what I’m trying to figure out is what kind of ramp should we expect from here?

Obviously, you’ve taken a lot of cost, you’ve gotten a volume gain as Dinesh was referring to you in terms of the SG&A leverage, but was there anything else that happened in this quarter? Whether it was some inventory fill or temporary margin boost from product mix, or should we continue to see a nice ramp from kind of where we are?

Herbert Parker

Well first of all Scot, we are still far away from double-digit profitability in our business and we have said that before, so for that to happen we need lot of help, and a lot of actions, which we are on our way. Second, we intend to give you lot more clarity and details on how our technology landscape is leading the world.

How are Division President’s feel, so we will put our Division President in front of all of you and our major investors on April 29, in New York City, so you can hear directly from them the strategy they are manufacturing, their foot print, how they’re rationalizing many, many things, the operational drivers, and how we are pushing the value drivers and also you will have a chance to listen to a very lengthy and detailed presentation from our Chief Technology Officer, Richard, who is playing a key role in terms of taking a lead over competition.

So until then, we have as we just said to do development in our top line, partially as a pent-up demand, partly as the stimulus, which certainly helped as Europe’s stimulus was continuing to the end of December. So we will have to see when the stimulus disappears in Europe, what sort of impact it would have on the top line of our customers, which will directly sort of influence our top line, but at this point what we could do.

We have done extremely well, that is rationalizing our cost, bringing much needed efficiency in the company and we continue to streamline that to become truly a best-in-class in our space.

Lastly I would say, Herbert and I have said, we are structuring this company for flat sales. So which means, we are rationalizing our cost structure as there’s no improvement in sales, any improvement in sales that comes is going to help us in the bottom line. So what should you expect, that’s hard to say at this point, plus we’re not giving any guidance.

Operator

Your next question comes from Chris Ceraso - Credit Suisse.

Chris Ceraso - Credit Suisse

Just one quick follow-up on that $13 million deconsolidation, is that included in the operating results for any of the divisions or was that in the other category?

Herbert Parker

Yes, it’s included in automotive.

Chris Ceraso - Credit Suisse

That’s all in automotive?

Herbert Parker

Yes, that’s correct.

Operator

Your next question comes from Mitul Shah - Duquesne.

Mitul Shah - Duquesne

Can you talk a little bit about what you’re seeing in Europe in terms of, I guess mix of cars sold. You just mentioned scrappage benefiting, but my understanding is the scrappage really doesn’t benefit Harman all that much and then your product, your auto revenues much more tied to some of the larger more value cars, so if you could talk a little bit about mix and separate it from what you’re seeing in terms of units? Thank you.

Dinesh Paliwal

Mitul, directionally you are correct. However, it’s not as black and white as one would think. In Europe we benefited and also in United States, when companies are selling small, mid size compact cars, we have French automaker, we do a navigation and audio.

We have Japanese automakers. Toyota, they’re selling a lot of mid and subcompact cars in Europe and America, and they benefited for the stimulus. “So did we?” Yes, we do a majority of our infotainment business as of the high end luxury, but we also do some mid subcompact, where they opt for high end system or mid size system.

Mitul Shah - Duquesne

Can you talk a little bit of what you are seeing on the higher end cars in Europe right now?

Dinesh Paliwal

Higher end cars will continue to grow, but grow from where. I mean, we’re not talking from 2008 peak. We are talking after 2009 when we hit fairly low numbers so there is still room for growth and high end costs are growing. See our order intake may come from Germany, but those cost may end up in China and that’s exactly how we’re seeing for Mercedes S-Class.

The world’s largest market for S-Class is China today, believe it or not. So we get the order placed in Germany and the cars and our systems end up in China. The same thing Audi has announced, that second largest market in the world is China for them.

Porsche said in two years time China maybe the second largest market, so we are still seeing clear growth and demand for high end cars and that’s why we are showing our top line growth, but that’s not necessarily coming from matured markets like U.S. or Germany and such its coming from emerging markets like China. That’s also underscores why we are so aggressively pursuing and pushing our on the ground massive operation to be in China with full fledge capability from research to manufacturing to engineering and service and quality, and you name it and we’re there.

Operator

Sir, there are no additional questions at this time, please continue.

Dinesh Paliwal

Yes, please continue.

Operator

There are no additional questions at this time.

Dinesh Paliwal

Yes Gloria, we will give a chance, because lots of people I’m seeing, separate notes coming to us have received the slide deck, the printed, and they are still reviewing it, so we’ll give them a chance if someone wants to ask a question.

Although I’m also getting SMS back from a lot of investors and analyst, congratulating us for the best-in-class deck we have put together and a great press release. It is giving a lot of answers as they are going through it. So we still give them a chance if there are questions. We’ll give a couple of more minutes to readers if they have any questions.

Operator

(Operator Instructions)

Dinesh Paliwal

Very well Gloria. If there are no other questions inline here, then we would like to respect the time of all our participants. I’d like to bring a close here by saying a couple of words. So let me again say to you ladies and gentlemen, the past few quarters have been full of challenges, but I am so proud and I believe that Harman has faced these with unprecedented energy and passion. That’s the word passion that’s what separating us from the rest of the pack.

Our management team has clearly shown its expertise in taking both the necessary defensive steps while keeping on the offence for the future. Amidst dramatic cost reductions and increased productive, we have maintained our innovation focus that is fundamental to us and we have showcased it to our customer that our pipeline is stronger than ever.

These customers continue to reward us with new businesses and we have prepared to deliver it more profitably, that’s the key word, because our cost structure is much better than ever before. We’re smart and developing and innovating things, which means we’ll deliver these projects more profitably. Our order in-take is strong, our balance sheet is healthy, and our team is committed to leveraging the assets towards continued profitable growth.

We are growing aggressively in emerging markets which would expect us to be stronger, and with that I’m pleased and I hope all our investors, our owners are pleased with the development the company has just shared with you. The $0.40 per share earnings and 15% increase in our top line. I’m obviously pleased but not satisfied because we need to be driving it and with that, I thank you all for your attention and have a pleasant evening.

Operator

Thank you, sir. Ladies and gentlemen, your host is making today’s conference available by digitized replay for four weeks. The digitized replay is available starting at 6:40 pm Eastern Daylight Time today. Simply dial 800-475-6701 in the U.S. or International participants dial 320-365-3844 and at the voice prompt, enter the conference confirmation number 140451.

That does conclude our conference for today. Thank you very much for your participation, as well as for using AT&T Executive Teleconference Service. You may now disconnect.

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Source: Harman International Industries Inc. F2Q10 (Qtr End 31/12/09) Earnings Call Transcript
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