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Harman International Industries Inc. (NYSE:HAR)

F2Q11 Earnings Call

February 3, 2011 11:00 am ET

Executives

Dinesh C. Paliwal - Chairman, President and Chief Executive Officer

Herbert K. Parker - Executive Vice President and Chief Financial Officer

Robert Lardon - Vice President, Investor Relations

Analysts

Christopher Ceraso - Credit Suisse

David Leiker - Robert W. Baird

Himanshu Patel - JPMorgan

Adam Brooks - Sidoti & Company

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Harman International Industries Fiscal 2011 Second Quarter Earnings Call. During today's presentation all participants will be in listen-only mode. And afterwards, we will conduct a question-and-answer session. (Operator Instructions)

As a reminder this conference is being recorded Thursday, February 3, 2011. And I would now like to turn the conference over to Mr. Dinesh Paliwal, Chairman, President, and CEO.

Please go ahead, Mr. Paliwal.

Dinesh C. Paliwal

Thank you. Good morning, ladies and gentlemen, and thank you for joining Harman's second quarter 2011 investor and analyst call. I am joined here in Stamford, Connecticut by our Chief Financial Officer, Mr. Herbert Parker, and our Vice President, Investor Relations, Robert Lardon.

Earlier today in our earnings release, we shared with you an excellent progress made during the quarter. We are building momentum with five quarters of year-over-year improvement to both top and bottom line. We are now clearly seeing the results of the transformation we have engineered at Harman couple – three years ago. We are delivering consistent improvement in our profitability as evidenced by an 82% increase in second quarter operating income, and a more than 200% increase in operating income for the six months of the fiscal year.

We won a new $1.2 billion order with Volkswagen Group for a scalable premium high infotainment system. And let me emphasize that Volkswagen Group is a new customer for Harman, and we will replace several competitors here. This award also confirms that our scalable infotainment platform can be extended to address the premium high infotainment needs. And as I have said to you before, the scalable platform approach allows reuse of more than 50% of pre-developed modules, and that obviously cuts down the development cycle by half and improves the project profitability significantly.

We have now booked $3 billion in orders for this new scalable next-generation platform, which we introduced just over 15, 16 months ago. These orders increase our backlog to $13 billion, while improving the quality of the backlog in terms of profitability. So, we are transforming our global footprint as well. We continue to balance and optimize our footprint in Western and emerging markets.

We will have two world-class plants coming into production later this year in China, and a brand new plant in Mexico, and we are doubling our manufacturing capacity in Hungary. At the same time, we are rationalizing capacity in high-cost countries, as you would expect. This will bring us close to our target of 50/50 balance of manufacturing footprint between high cost and what I call best cost countries. These actions will obviously improve our profitability by three to four percentage points over time.

And as you also know, footprint optimization goes beyond cost competitiveness. It gives us access to talent, expands our channels, and most importantly, it gives us speed of execution. This strategy gives us a huge competitive advantage, which is hard to copy by our competition.

Let us have a quick look at the numbers, which Herbert Parker will just cover in few minutes in details. A year ago, we exited the portable navigation device business and when adjusted for this, we grew sales year-over-year in the quarter by 7% or 13% in local currency. Our non-GAAP operating income of $73 million represents a 45% improvement over the prior year and translates to earnings of $0.79 per share. Our total liquidity has increased to $1.3 billion, including our newly negotiated $550 million credit facility.

As of December 31, 2010, we have achieved $393 million of our $400 million STEP Change program target. As you know, ladies and gentlemen, these numbers, or these savings are permanent cost savings, and this will improve our profitability as we execute our backlog in the years. I would like to update you on our two recent acquisitions, Selenium in Brazil and Aha Mobile in Silicon Valley right here in the United States.

We have fully integrated these companies into our operation, and we are beating our initial synergy targets. The consumer division grew 10% over last year and improved profitability. Our recently launched products are gaining significant traction. Our topline grew more than four times in emerging markets this quarter over the same period last year.

In Europe, our new Blu-ray based home audio system has been a run away success gaining 4 percentage points since its launch and achieving 10% share of the market in home audio systems. Consumer Reports magazine ranked our AKG, GRAMMY Award winning AKG noise canceling headphones as best in class ahead of Bose, Sennheiser and Sony and that’s quite remarkable.

Our professional division had an impressive topline. They grew at 14% also with better profitability than last year. Significant orders included China's largest cinema chain called Wanda international. And here in the United States, we also picked up an interesting project with Conan O'Brien’s studio for his late-night show. And at this Sunday's Super Bowl you will also experience Harman sound during the Black Eyed Peas halftime show. And by the way, entire Dallas Cowboys stadium is also done by Harman.

So, ladies and gentlemen, we continue to transform our business. Our rigorous execution has helped us deliver five consecutive quarters, year-over-year of top and bottom line improvement. We are executing profitably on our large order backlog, while making the right infrastructure and technology investments to support continued growth. As a matter of fact, Aha Mobile in Silicon Valley was a technology play.

In summary, let me again touch on our strategic accomplishments this quarter. We are consistently improving our profitability. The word consistently is very important for us. With an 82% increase in this quarter in operating income and more than 200% increase for the six months of this fiscal year. We have $13 billion awarded business in backlog giving us a great degree of confidence in our revenue stream for the coming years.

We won a strategic new contract at Volkswagen Group, which underlies the momentum of our next generation of scalable infotainment platform and its expansion into the premium high category. This is fundamental point I should emphasize. This will change the way we do business. This would allow us to do R&D most effectively and improving the bottom line, because we can only control what we can. We don't control the market prices, end of the day. And we are well underway to achieve our target of balanced manufacturing and engineering footprint.

So, ladies and gentlemen this is truly a sustainable competitive advantage, I hope you realize, because lot of our competitors, they're shy of not getting the headlines and that leads the infrastructure in where it has been in high-cost country. We've been pretty bold and decisive in that area. Our management team and employees are motivated to innovate and execute better than our competitors, and we continue to transform into a high performance organization.

At this point, I would like to thank you for your attention, and I'll ask my colleague Herbert Parker to provide you a closer look at our quarterly results.

Herbert K. Parker

Thank you, Dinesh. Good morning, everyone. As you have just heard from Dinesh, we have completed another quarter of good progress towards our goals. To help you identify these specific improvements related to these achievements, I would now present a few more details on the financials and hopefully this will give you a better understanding of our developments during the quarter.

As mentioned in our previous calls, and for the benefit of new investors, most of my financial comments are provided on a non-GAAP basis, which excludes non-recurring items such as restructuring cost 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 this morning. For your ease of reference, our restructuring activities during the quarter resulted in $5 million expense.

Okay, let's start with the top line. In the second quarter, our sales increased across all three divisions on a year-over-year comparison when measured in local currency. This increase was primarily a result of continued improvement in global economic conditions, but also due to our successful penetration in the emerging markets.

Our sales for the quarter were $956 million, which is a 3% increase over the same period of last year. In local currency, our sales increased 8%. But as mentioned by Dinesh earlier, when adjusted for the exit of our personal navigation aftermarket business, the nominal growth and local growth were 7% and 13% respectively.

As the automotive business is of particular interest to our investors, I think it is noteworthy to mention that our automotive division grew 6% in nominal currencies and 12% in local currency when adjusted for the exit of this aftermarket business.

Now, moving on to the production cost area, we reported a gross profit margin of 28.3% compared to 27.4% in the same period last year. This margin increase was primarily due to improved productivity and new product launches.

Moving to the controllable cost area, our SG&A expense for the second quarter declined by 1.3 percentage points to 20.7% of sales compared to the prior year. Of our total SG&A expense, engineering costs represented 6.9% of sales compared to 8.6% in the prior year.

Moving on to the bottom line, we continued our profitable trend reporting an operating profit of $73 million compared to an operating profit of $50 million last year. The operating profit margin for the second quarter was 7.6%, which is a significant improvement over the prior year’s performance of 5.4%.

Our net income for the second quarter was $56 million or $0.79 per share compared to a net income of $26 million or $0.36 per share last year. These results show clear evidence that our STEP Change and global footprint initiatives are producing the desired results.

Our effective quarterly tax rate on a GAAP basis for continuing operations was 11.1%, primarily a result of the reinstatement of the Federal R&D tax credit with retroactive effect. As of December 31, 2010, our total liquidity, which we defined as cash, plus short-term investments, plus available revolving credit facility was $1.3 billion, which represents a $400 million increase from the quarter.

This very positive development was driven by our new five-year $550 million credit facility and a generation of $113 million of operating cash flow during the quarter. This level of cash gives us ample flexibility for our strategic initiatives.

In closing, we are pleased to report a fifth consecutive quarter of year-over-year improvement and this shows that we are well on track to meet our long-term goals.

And at this point, I would like to thank you for your attention. And operator, we’re now ready to take questions.

Question-and-Answer Session

Absolutely. Thank you. (Operator Instructions) And our first question comes from the line of Chris Ceraso with Credit Suisse. Please go ahead.

Christopher Ceraso - Credit Suisse

All right, thanks, good morning.

Dinesh C. Paliwal

Hi, Chris, good morning.

Christopher Ceraso - Credit Suisse

So, I noticed that you had a very nice improvement in margin in the automotive business from your fiscal first to second quarter, very similar to what happened last year? If I look at what happened in fiscal’10, then you saw some decline in margin in the third and fourth quarters. My question is was there any seasonality involved in that and if so, is that something that you expect to see again this year, where a seasonality would cause margins to maybe slide a little bit relative to the strong number you just posted for the fiscal second quarter?

Dinesh C. Paliwal

This is a great question, and I’m glad you mentioned seasonality. We clearly have seasonality every year in automotive business. And typically, we see second and fourth quarter are the better quarters for us and we just had one very good quarter. So, I expect the similar seasonality to continue as it has in the past years.

Christopher Ceraso - Credit Suisse

Okay, that's helpful. And then we've heard from some other suppliers, as well as some OEMs that have talked about increasing levels of R&D and engineering to support new program launches in ’11 and ’12, and Harman certainly has a robust pipeline of new business coming up. So, do you expect an increase in these types of expenses relative to, say the run rate that you just experienced in the first half of fiscal ’11?

Dinesh C. Paliwal

Chris, I would say, we have said quite strongly that we believe in very high level of R&D and that number we said long term we should be at 8% of our sales level and we are just about 7.9% so far, and we are right there, we used to be 13% or so in bad years when we did not have good handle on R&D processes and inefficiencies were built-in. I think we have ironed those out and we have consolidated strong R&D centers in Germany, U.K., U.S., opened one in Palo Alto by the way recently with some 40 R&D folks there and one in India and one in China. So we're very comfortable with the setup plus, on top of that we have been very creative in forming collaboration with the silicon providers, the software providers, sound providers, so we minimize spending our money in applications, which can be done very well by our partners. So we're very focused on infotainment, focused on our professional consumer. So 8% number is a very good guidance for you. We can do hell of a lot for that.

Christopher Ceraso - Credit Suisse

Okay. So even as you get into fiscal '12 and some of this new business really starts to heat up, you can maintain that level?

Dinesh C. Paliwal

Absolutely, we're very comfortable with that.

Christopher Ceraso - Credit Suisse

Okay. Thank you, Dinesh.

Dinesh C. Paliwal

Can I also add quick one here, just to support that argument, you know, biggest R&D used to be going in automotive business because the model in the past has been every single job was a custom job. We like custom job, if we will make money, but the history and the future doesn't support that, so that scalable platform approach is unique. There, 50, 60% of the R&D modules have been pre-developed, so that really saves us R&D, and that helps us. So now we have on that platform 3 billion business, and I recall when we launched this, lot of people on the street said, would you have challenge making money with Medsystem? We said no. You may have lower CM, but you will have higher GM, gross margin, and we have. And we are very happy of what we planned. It is working out very well and our backlog is getting quality backlog now.

Christopher Ceraso - Credit Suisse

I have just one quick follow-up for Herbert on the taxes. I know it’s difficult to forecast, but what's your expectation for the second half of the year and for next year on taxes?

Herbert K. Parker

Well Chris, we have our internal forecast, but we've never given that number. I will just speak to long-term 28%, but I will give you some clarity on why it was such a low rate, in addition to the R&D credit, retroactive that we mentioned. We also had increased profits in lower tax jurisdictions around the world. So that was a big help to us. But I won't give you any guidance for the full-year.

Dinesh C. Paliwal

I mean you guys can do your own modeling. We have first half done, what is the remaining second half left. So you can do the math.

Christopher Ceraso - Credit Suisse

Okay. Thanks.

Dinesh C. Paliwal

Yeah.

Operator

And our next question comes from the line of David Leiker with Robert W. Baird. Please go ahead.

David Leiker - Robert W. Baird

Hi, good morning, everyone.

Dinesh C. Paliwal

Good morning, David. From Sunny Chicago, I suppose, or Lake Michigan or somewhere?

David Leiker - Robert W. Baird

I'm looking at Lake Michigan that's covered with ice right now.

Dinesh C. Paliwal

My God, I feel for you.

David Leiker - Robert W. Baird

The Toyota program that you've been talking about for a bit, Toyota showed at the auto show, or at the CES. Can you give us some perspective of what other automakers have, what the reception has been from automakers after they've seen what Toyota is putting in their vehicles? Is there anything you can talk about in that regard?

Dinesh C. Paliwal

Certainly. Chris, we had – are you still there?

David Leiker - Robert W. Baird

That's my phone.

Dinesh C. Paliwal

I mean, David. Yeah, good. David, we had outstanding reception. We obviously will be the first one – first launch would be with Toyota, because we've been working with them. But we have also started working with the Fiat and Chrysler. That should be our next one. And we had started taking this demo unit, which is no more demo, it's a working unit for Toyota, to Europe, and to Korea, and to Japanese customers. And there's a tremendous enthusiasm in terms of seeing that capability being part of our backlog. So, we anticipate that some of the existing orders would also expand to bring in this capability, so we are very encouraged, and we also hope to bring this capability in our aftermarket business, which should be fueled with this additional feature functionality.

David Leiker - Robert W. Baird

And what's your sense as you hear from potential customers of what Toyota, what you're doing for Toyota versus what those customers that aren't Harman customers today are planning on doing within their vehicles, is there any discussions you've had in that regard?

Dinesh C. Paliwal

To be honest with you, right now we're busy dealing with our own customers, because, you know, German customers definitely don't want to be second to anyone, so we're taking this capability, and hopefully we will first fix their programs with this full connectivity and downloadable apps and becoming, you know these things are becoming more and more critical for them. So, we will also reach out, we have a resource issue because our Palo Alto-based R&D, these are the few folks, together with our CTO, they are engaged, not everybody is working on just this. So, right now we're talking to our German OEM’s, we are talking to Fiat, Chrysler, obviously, Toyota, and also Hyundai.

David Leiker - Robert W. Baird

And that Toyota program, that launches later this calendar year, is that right?

Dinesh C. Paliwal

That is correct, David. Toyota Europe and Toyota North America both would be launched later this year, and we expect those programs to be ramped up in 2012.

David Leiker - Robert W. Baird

Okay, great. Do you, on page 13, slide 13 in your handout here for fiscal year ’11 where you have those boxes and new programs, can you give us any insight into those four boxes for 2011, how many are Toyota?

Dinesh C. Paliwal

That's a good try, David. You see, if I could, I would have already put those, but my hands were cuffed behind my back by legal. No, no, it's not legal. It's our customers. We try and our customers say, you cannot put our programs in the public domain because we like to first of all competitively control, plus they may sort of expedite some programs, some programs they may expand, which means few months up and down, so we’re not allowed to actually talk. But we’re well underway in ’11, you know so, and more will be added to ’13 and ’14 hopefully, as we go into the next few quarters.

David Leiker - Robert W. Baird

I had to try at different angle there. And then one last question. You’ve got a couple quarters here, one that – we’ve talked Harald and Bob and Dinesh on the choppiness of the numbers. Do you think we’ve settled into a point that things are more stable and should be more predictable, obviously, the revenue line is not, but on the spending side, do you think that’s more stable numbers you are going forward than what it has been?

Dinesh C. Paliwal

Yeah, it’s all relative. I mean automotive business is by nature little choppy, but based on what David we read around the world and the economy, the automotive industry, we expect it to go in only one direction at least in the next three to four years. So, we should have a reasonable optimism. We have reasonable optimism that we would have less choppiness. That said, the cyclical nature of quarter-over-quarter still exists, because that has a lot to do with how dealers stock up and when they buy. So, as I said earlier, our second and fourth quarters are strong quarters, but all in all, I think we should have less choppiness here.

David Leiker - Robert W. Baird

Okay. Wonderful. Thank you very much.

Dinesh C. Paliwal

You are welcome.

Operator

(Operator Instructions) And our next question is from the line of Himanshu Patel with JPMorgan. Please go ahead.

Himanshu Patel - JPMorgan

Hi, good morning, guys.

Dinesh C. Paliwal

Good morning, Himanshu.

Herbert K. Parker

Good morning.

Himanshu Patel - JPMorgan

I had a couple of questions on Volkswagen. I know there was a lot of back and forth on the negotiations presumably centered around pricing, but Dinesh, could you touch on, just was there any back and forth about the idea of whether the system would be a scalable system or a customized system or was that issue pretty much – was there buy-in on Volkswagen on that issue pretty early in the discussions?

Dinesh C. Paliwal

I think so, fairly early, because by then it was not a secret. We had been talking to them, and we won Toyota business and then of course, Fiat business. So that was not an issue.

Technologically, they were very pleased. In fact, they liked the idea of modular aspects that they could even add things further along. So that was an issue. The issues obviously were, as you said, commercial, contractual, all those futuristic, and also, we were discussing the various parts, as, Himanshu since we announced this order, we obviously have learned a bit more in terms of what else is out there with that group, it’s the largest group right now. So you know, we only want the premium high in VW, so that means we will now do not only Touareg, we will do Touran, we’ll do Golf, we’ll do Passat. Still, we hope that we will be able to go after their mid-system. We also have an opportunity for Asian business through them, and that these are all under some stages of negotiation. So mid-system is out there, Asian business is out there. And also our new award of VW, that was sort of overlap with our existing Audi 3G high business.

So overlap of 13 to 15, and when we do the math, typically these contracts on a legal paper this is six years, but they're really four years. First year, they're just launching 5,000 cars, and the last year the tail almost goes down to 5 to 10,000. Four years, if you see that from the lifecycle point of view, the math I have seen from our people here, net-net, combined within Audi and VW Group now, our business will grow.

Himanshu Patel - JPMorgan

And then I guess you know that kind of brings up the natural question of BMW and Mercedes, I know you recently secured a multiyear contract with them late last year, so presumably there's not an opportunity for another big bid there near-term, but what's been kind of the initial reaction from those OEMs about potentially using a scalable system down the road?

Dinesh C. Paliwal

It's a bit too early, because right now as you know, the MBT with the BMW and NTG5 with Daimler, those are not even shipped. Those are not even launched yet SOP, so right now they're extremely busy, and we are extremely busy, and these launches will happen in this calendar year. BMW will happen this year and Mercedes the next year perhaps. So I think at some point in time later this year, we will start the discussion for the next generation. And I am pretty confident that our division management and our CTO would put this offering in front, because this offering is also changing quite a bit. We will be adding lot more modularity, lot more functionality. So this would be as robust or as powerful as they could write specs for the custom job. So, I don't know right now what they will decide, but we feel that with our technology changes, and we are going to conduct, I should add, technology day for BMW and Audi, to show them full fledged capability of what we have to date, and what else is in the pipeline to add as modular capability, and after that, we feel they would be surely influenced to take a position.

Himanshu Patel - JPMorgan

And then you touched on my next question, the Volkswagen mid-system presumably is kind of a large prize. Can you just give us a little bit of color on that, are the request for quotes being asked right now? Where are we in the chronology of that bidding, has it even started in earnest, or is it too early for that?

Dinesh C. Paliwal

Yeah, it's happening. I think the bid will be out in I guess couple three months, I would say, within the next three months, and then the discussions will start. But I mean that heavy discussion. The discussion, preliminary discussions have already started. And you say it's a big award well, it would not be as big as we won. It would be, obviously, but [that] make into various packages. So, mid would be separate, Asia business is separate, premium high is already separate, which is awarded to us. Yeah.

Himanshu Patel - JPMorgan

Okay. And then just coming back to Chris’ question earlier on automotive margins this quarter, you’re right, I mean they did see a nice sequential up tick, which is seasonal. But just the absolute level of 9% is just quite robust. I'm just curious, can you talk about just, were there any puts and takes that you would characterize as non-recurring this quarter, I mean, you know we've heard some other suppliers talk about kind of the reoccurrence of electronic component shortage costs, would that have hurt margins and likewise, were there any kind of one-time items that could have helped margins this quarter in the auto business that you would see as non recurring?

Dinesh C. Paliwal

Sure. There are couple of three parts to it, let me start with component sourcing issue, which in the first quarter, we expressed our challenges and we also took some cost, additional cost, which hurt our margins about 1.5% points, if you remember. Now this quarter we did not have any cost issues, we were able to handle, but Himanshu the fact is, as still, as demand is swelling, the challenges remain, but we did not have any cost issue. However, if we did not have such tightness in the supply chain, we would have been able to negotiate better pricing, as we always do. We expect 5% to 6% discounts every year on the supply base, and that has been not so easy. So that hopefully in coming quarters will improve. I mean, we've been meeting with silicon vendors in fact, one big company CEO was with us this week in Stamford just to assure us that how much capacity they have put in, in various places, and it should not be an issue, so we hope so, as far as the one-time, anything happen, I will ask my colleague Herbert to weigh in on it.

Herbert K. Parker

Hello, Himanshu. Just kind of commenting on what Dinesh talked about the pressure you [already] know the pricing for suppliers with the predicts we had on the one-timer positive, there is a lot of puts and takes, but it's fair to say that we had our 100 basis points to 150 basis points of our effective possibly one-timers in R&D area for this quarter. And these are some of the actions that we're looking at to sustain long-term. But on the quarterly basis, it was significant of say, 100 basis points to 150 basis points.

Dinesh C. Paliwal

Your question was also how sustainable, long-term, what is our view. Our view is actually pretty positive, that with STEP Change almost completed, engineering footprint well underway and lot achieved already, manufacturing well underway, and now these factories would be humming soon. And our R&D processes are much better than they were before. So all of those, if you put together, I can only see that it should fall to the bottom line. So, in the long term, directionally, we are going in that, and even on the slide, what is the slide number? It's slide number 4?

Herbert K. Parker

13.

Dinesh C. Paliwal

13. Where we talk about the bars of the SOP, the R&D line also shows that we will optimize around 8%. So, add to that 3% to 4% coming for manufacturing footprint balancing in the coming years. So add it all together, it comes back to very early on, almost two-and-a-half years ago we gave you on February 5th, 2008, that we will have these numbers. They're all coming together now. So long term, yes. And long term, I can even add to it. Our guidance we gave in April, 7% to 10%, 10% was the high side, we feel more comfortable now hitting that, or even there might be some up side to beating that.

Himanshu Patel - JPMorgan

Just one clarification, Herbert. You said there were – there was a kind of a discrete one-time R&D related benefit that happened to land all in this quarter, and that aided automotive division margins by 100 to 150 basis points?

Herbert K. Parker

Yes, that's correct, Himanshu.

Himanshu Patel - JPMorgan

Okay. And then just to finish the loop on that. Next year, I mean, it sounds like from your comment, it benefited this quarter, but you'd sort of expect to keep that on an annualized basis. So if we were to go to next year, should we think about that benefit going away, or you would still have it, you may not be concentrated in one quarter?

Herbert K. Parker

I refer you to slide number 7, where annual basis we're still driving for 8% as our target.

Himanshu Patel - JPMorgan

Okay.

Herbert K. Parker

You know, we are quite better than that in this particular quarter.

Himanshu Patel - JPMorgan

All right. Thank you.

Operator

Our next question is from the line of Adam Brooks with Sidoti & Co. Please go ahead.

Adam Brooks - Sidoti & Company

Yes, good morning. Just quickly wanted to touch on the consumers, good morning, just wanted to talk quickly on the consumer segment. I guess the last two years we've seen a pretty substantial drop-off in profitability the back half of the year. Is there any reason to think that does not happen again?

Dinesh C. Paliwal

Consumer has the biggest cyclicity then any other business. Consumer always has the second quarter is the best quarter. They typically make most of the money in second quarter and they spend in the rest of the quarters. But we certainly like to change that and with the better processes and a very strong development center in Shenzhen, and one in California, I think we have more new products in pipeline, that should help us, but still it's a Christmas holiday, you can't avoid that. That's where we have the biggest sell-through. And we saw this quarter was a very good development in consumer, as you saw, nearly 8% in operating margin from 4.5% same period last year. So, cyclicity is name of the game in consumer business.

Adam Brooks - Sidoti & Company

And real quickly, I mean in slide 10, you talked about the growth in Brazil on the intact, you may provide some color I know you've ramped up marketing spend there maybe on how some of the programs have benefited you so for or what you see over the next few years.

Dinesh C. Paliwal

I think that’s a great question, because, you know our home markets of U.S. and Europe would always be very strong and big for us, but they will have anemic growth. We're lucky if we get 2% to 5% growth in consumer sector. So, we have to constantly rely on emerging marks of Brazil, India, Russia, China, and other places. And as I said, in consumer and pro, we had nearly 300% or more growth just in this quarter, over same period last year. That's remarkable. Why did it happen? Well, because we have done lot of things. We have expanded our channels in Brazil, in India and in China. We are being represented in China by the largest distribution arm who also represent Apple and few other blue-chip companies. And we have signed up some e-commerce sites also representing our products. So that's helping. And also in China, we have opened our flagship store that is to really demonstrate what high-end consumer audio file experience you can have, and that has also helped us. And in Brazil, as you know we acquired a company called Selenium, and that gave us instant channel access to a large continent of Latin America, but particularly Brazil. So all in all, these countries are growing. If the GDP of China and India, around 9% to 10%, our goal is to go three to four times to GDP, but in this quarter we did 20 times perhaps, or whatever. So in sustainable fashion, you should expect 30%, 40% growth in professional and consumer business in BIC countries, Brazil, India, and China, and I feel very comfortable achieving those.

Adam Brooks - Sidoti & Company

Thank you.

Dinesh C. Paliwal

Sure. You're welcome.

Operator

And Mister Paliwal there are no more questions on the telephone lines at the moment. I will now turn the call back to you, please continue with your presentation or closing remarks.

Dinesh C. Paliwal

I think Shantel we should give couple of more minutes to our friends. If anybody – most people are reading the materials at the same time formulating their question. So let's just give ourselves another minute or two.

Operator

Absolute. And we actually have a follow-up question from Himanshu Patel. Please go ahead sir.

Dinesh C. Paliwal

Pretty well.

Himanshu Patel - JPMorgan

Hi. This is kind of an off question, I'm not sure if you guys have a view on this, but you guys may have noticed the nits in the U.S., mandated U.S. rear camera. Rear cameras in the U.S. cars by 2012. I know it's kind of an adjacent feature offered inside of navigation and infotainment systems, but I'm curious are you seeing any OEMs considering accelerating the installation plans for infotainment systems in the mid-market, because of the legislation? Meaning if they were previously thinking about adding an infotainment system into a vehicle in 2015 or something, is anyone considering maybe pulling those plans forward, because of the legislation?

Dinesh C. Paliwal

Himanshu, I don't have specific names of the OEMs to share with you. However, my information from my previous visits where I had all three German automakers I visited in December, and of course at CES we talked to Hyundai and Toyota and Chrysler and Fiat, there is clearly an interest. Now this legislation will expedite. You may know that that we are in the space. We have a program called ADAS, Advanced Driver Assistance Program and rear view camera is part of that program and we are actually, we have centered this program in Shanghai, used to be in Europe, to expedite and also explore low-cost high efficiency rear view cameras and single cameras to get the topology of the space around the car. So this is well underway. And I thought 2014 was the year were 100% rear view cameras will be implemented. You mentioned 2012.

Himanshu Patel - JPMorgan

Sorry, it is 2014.

Dinesh C. Paliwal

So just to had a color, we have had some interesting discussions with Daimler on that, and, of course, we're talking to other people here in the U.S. too, but I do expect this business should take off and this is where we're also investing money and looking at also potential acquisitions to sort of leap-frog our capability in both hardware and software.

Himanshu Patel - JPMorgan

And then just one house keeping question, could we get P&D revenues for the year-ago quarters for the second half of 2010, fiscal 2010?

Dinesh C. Paliwal

Yeah, we will just look for it, Himanshu, and give it to you. One second.

Herbert K. Parker

Okay, we had revenues of $56 million last year for the first half. And for the second half, only $12 million.

Himanshu Patel - JPMorgan

Presumably most of that in third quarter?

Herbert K. Parker

Well, the third quarter was $5 million, and the fourth quarter was $7 million.

Himanshu Patel - JPMorgan

So pretty (inaudible).

Dinesh C. Paliwal

That’s as good model question, Himanshu. So Shantel, let’s see if there are any other questions.

Operator

No, we have no more questions on the telephone lines at the moment. (Operator Instructions)

Dinesh C. Paliwal

All right. Let me wrap it up then. So, ladies and gentlemen, you heard the call and I’m very delighted actually with the discussion we had with our stakeholders. And I'm extremely proud of the continued improvement our team has made and delivered this quarter, which is quite remarkable in both top line and bottom line. And we are highly focused on the fundamentals of execution that has been the cornerstone of our turnaround and our transformation, where we are today.

We are absolutely laser focused on innovation and R&D. And I would assure you the cost management is part of our culture. And capital efficiency, which you all care for, we care as well. We are deploying the capital as efficiently as possible. If we invest money in our organic growth, we typically get double digit stock sometimes with two and three, 20% to 30% return on capital.

If we buy any company in future, we will also be benchmarking what are the best ways and we still keep all the options open including share buyback and dividends and that’s of course board decision. But capital efficiency we talk very seriously. Then talk a little bit about our customers and our employees. Both are very energized by this progress and I’m truly excited by my recent interaction with many customers, stakeholders on several continents, including technology and distribution partners, major OEMs, government officials, and some of the world’s top research scientists as to get independent voice. And this marks a new era of collaboration as far as I see our team here, which unsurpassed in Harman’s history. And that's very good for the future of the company. We look forward to expanding our customer base through our cutting edge innovation and emerging markets not only keeping where we are and we certainly look forward to decent growth in coming quarters and coming years.

And at this time, we appreciate your confidence as we continue the work to make Harman a best in class performer in all areas, in market share, in reputation, in profitability, and growth. And most importantly, in superior shareholder value creation as we have started doing that for last six to nine months [very happy].

So with that, again a sincere thanks for your attention and your engagement, and have a pleasant day. And I look forward to interacting with you with many of you soon. Shantel at this point perhaps we can discontinue the call.

Operator

Absolutely. Thank you. Ladies and gentlemen, that does conclude the conference call for today. We thank you forking for your participation and ask that you please disconnect your lines. Have a great day, everyone.

Dinesh C. Paliwal

Thank you.

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