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Harman International Industries Inc. (NYSE:HAR)

F3Q11 Earnings Call

April 28, 2011 11:00 am ET

Executives

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

Herbert K. Parker – Chief Financial Officer

Analysts

Christopher Ceraso – Credit Suisse

Himanshu Patel – JPMorgan

David Leiker – Robert W. Baird & Co., Inc

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Harman Fiscal 2011 Third Quarter Earnings Call. During the presentation all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions)

As a reminder, the conference is being recorded Thursday, April 28th 2011. I would now like to turn the conference over to Dinesh Paliwal, Chairman, President and Chief Executive Officer of Harman International Industries. Please go ahead, sir.

Dinesh C. Paliwal

Good morning, ladies and gentlemen, and thank you for joining the Harman third quarter 2011 Investor and Analyst call. I am joined in Stamford today by our Chief Financial Officer, Herbert Parker and our Vice President of Investor Relations, Robert Lardon.

Before we begin, on behalf of our employees and our Board of Directors, I wanted to again express our deep sadness with the sudden passing of our founder, Dr. Sidney Harman. He will be missed by the Harman International family and by our customers. And his legacy for innovation and quality will live on here at Harman. In his honor, we have established Sidney Harman Vision Scholarship and we will launch a number of limited edition products to commemorate his legacy.

Earlier today in our earnings release, we shared with you the outstanding progress we have made during the quarter. We continued building momentum with six consecutive quarters of year-over-year improvement to both top and bottom line. And we are beginning to reap the rewards of investments we are making in emerging markets. We continue to deliver consistent improvement in sales growth and operating income. Quarterly sales, up 13% and operating income up 93%. Year-to-date operating income is up 105%.

We are growing rapidly in emerging markets and won multiple branded audio orders from Chinese automakers. We extended our Volkswagen Group award to $1.6 billion covering entire world including Asia. With this award our scalable platform, automotive orders, increased to $3.5 billion and our total backlog of awarded business is at solid $13 billion.

We also exceeded our $400 million step change permanent cost savings program and we’ve did that while we still have one more quarter to go in terms of recognizing full benefits. It has also driven a new era of cost consciousness into Harman’s culture and I'm very happy about that.

To meet growing automotive and professional audio demand for our products, we continue to add production capacity where our customers needed, in line with our plan to transform our global footprint. This summer, we will start production at two of our newest and largest facilities in Dandong, China and Queretaro, Mexico. We are well underway to get to our target of 50-50 balance of manufacturing footprint between high cost and best-cost countries by 2012. As we have said before these actions will improve our competitiveness and increase profitability considerably over time. I would also like to address the recent events in Japan.

We were pleased that no Harman employee nor their immediate families were directly affected by the earthquake and tsunami and Harman did not suffer any property damage. However, the widespread slowdown of Japan’s industrial infrastructure has impacted the automotive industry on a global scale. Despite widely reported part shortages across several industries, we managed to keep normal supply to our customers during this quarter even if it meant some additional cost.

We are working diligently with our Japanese part suppliers and continue to monitor the availability and the quality of components from Japan while investigating alternative supplier options in other countries or even reaching out to make parallel arrangement so that we ensure our customers have no disruptions.

Thanks to Harman Supply Management around the world working for round the clock, we believe Harman is well positioned to weather the impact of the supply disruption. Excluding the impact of lower (inaudible) in the up coming quarters as predicted by several sources, at this moment we don’t expect material impact on our business due to Japanese component availability concerns.

With that challenge, largely under control, I believe, we remain focused on executing against our four strategic pillars and are now beginning to see the pay off on our investments particularly in emerging markets. As you may have read we have just announced three automotive audio awards to grow our business in China. We’ve been awarded the Volkswagen Group Asian business that is based on our scalable platform. Our growth in Brazil is outstanding and we have just entered Russia and are setting up our business infrastructure there. So it’s been a pretty controlled yet very decisive move into the emerging markets, first China, then India, then Brazil and now Russia.

For the first time in recent history, we’ve participated in the major auto shows in Detroit and Shanghai and demonstrated our full suite of capabilities for additional – traditional, electric and hybrid vehicles. We are delighted with the high level of interest from our customers for our connected, green edge and safety systems. In particular, Aha Radio connectivity solutions that bring social media sites and a smartphone experience in the car in a safe and secure manner were the talk of media and customers alike.

It’s clear that what we observe at Consumer Electronic Show in Las Vegas earlier this year and the Detroit Auto Show is validating our view of convergent technologies between consumer and automotive audio for which we have been positioning the company. The mobility of digital content between your living room and your car requires the invention of new technologies. That can increase or improve the user rate experience and deliver the highest quality sound.

Just as consumers are demanding 3-D television there is a clear need to deliver 3-D sound experience in the car and in the living room. We are actively leveraging and developing new solutions for the convergence of technologies both in the car and between the car and the home. Only Harman has the brands and technology leadership to fully leverage this opportunity with our customers and consumers.

Ladies and gentlemen, we continue to transform the company culture and have delivered a sixth consecutive quarter of year-over-year top and bottom line growth. Let me again touch on some of the key accomplishments in this quarter.

Q3 sales up 13%, operating income up 93%, year-to-date operating income 105%. Last 12 months, EBITDA was $320 million or 8.9% in Q3 2011 from just $14 million or 0.5% in Q1 2010. So we’ve come a long way and we are not done yet.

We have delivered on our cost savings program with $416 million in permanent savings, exceeding our target and one quarter early. Our next generation scalable platform backlog stands at $3.5 billion out of total backlog of 13 and you must be reminded that this scalable platform was launched September 2009, so not too long ago and we changed the industry the way we operate now.

And our innovation pipeline is driving double-digit growth with over 40 new products in professional and consumer divisions and connected car technologies launched at Detroit and Geneva Auto Show. Our BRIC country infrastructure investments are now capturing high growth in emerging markets as evidenced by the VW Auto and new Chinese automotive orders and outstanding growth in Brazil.

We are doubling our manufacturing capacity in Hungary, China and Mexico during this year and we’ll bring up five mega manufacturing plants by summer of 2011.

Our innovation pipeline remains rich and ahead of our competition with more than 3,500 patents. New idea generation and collaboration is at an all-time high. We're focused on executing against a very robust growth agenda supported by a growing and energized workforce.

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

Herbert K. Parker

Thank you, Dinesh. Good morning everyone. (Inaudible) have the opportunity to read through our earnings release. So let me review some of the key highlights and provide some additional details related to our team at this quarter. As always most of my comments are provided on a non-GAAP basis, which basically excludes restructuring, costs. The reconciliation of our GAAP to non-GAAP results is included in the press release, but for your convenience we took a $9.5 million charge to restructuring expense this quarter.

Okay. Let me begin with the top line of our financials. In the third quarter, our sales increased across all three divisions on a year-over-year basis. This increase was primarily a result of our continued improvement in global economic conditions but also due to our strong focus on growing our business in the emerging markets.

Our sales in the third quarter were $940 million, which translates to a 13%, increase both in nominal and local currencies. And as you know, we are heavily focused on improving our account space via our global footprint initiative. And in spite of continuous price pressure, we're still able to improve our gross profit margin by 34 basis points to 26.4%. In the controllable cost area, our SG&A expense declined by 0.8 percentage points to 21.4% of sales compared to the prior year.

The engineering cost included in our SG&A expense amounted to 8.4% of sales compared to 9.6%. From a bottom-line standpoint, we continued our profitability trend to reporting an operating profit of $63 million compared to an operating profit of $33 million last year. The operating profit for the third quarter was 6.7% as compared to 3.9% for last year. Our net income for the third quarter was $43 million or $0.60 per share compared to net income of $19 million or $0.27 per share last year.

Now I'd like to just take this moment to highlight again that the success of our STEP Change program was a very big factory in having us produce these remarkable results. And it is now part of the Harman DNA. The total [landmark] comments on the financials; our effective quality tax rate on a GAAP basis was 22% and our total liquidity which we define as cash, plus short-term investments, plus available revolving credit facility, was $1.3 billion.

Now to echo Dinesh, we're pleased to report our sixth consecutive quarter of year-over-year improvement, and I would like to thank you again for your attention.

Operator, we’re now ready to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from the line Chris Ceraso from Credit Suisse. Please proceed.

Christopher Ceraso – Credit Suisse

Thank you. Good morning.

Dinesh C. Paliwal

Good morning, Chris.

Herbert K. Parker

Good morning.

Christopher Ceraso – Credit Suisse

I thought you might have mentioned the intellectual property sale in your walk-through of the income statement. Can you expand on that a little bit and explain what it is and if there is opportunities for more of these kind of gains going forward?

Dinesh C. Paliwal

Sure. Chris, first of all just to clarify, it is being called out in our earnings release on three different sections in income statement area, but let me just comment on it. As you know we have more than 3,500 patents. We had in the past never actually thought that we could monetize some of that and that could be a very interesting for us as we continue to develop. So we're starting to look at that, in this particular quarter we had a great opportunity to license some of the patents while we still own the IP and register a gain of $60 million. I'm very happy about that.

Christopher Ceraso – Credit Suisse

So does that create an income stream that's ongoing Dinesh for the license income?

Dinesh C. Paliwal

Well, I wish I could say yes, but I can't because that is something we have to work and see. This is an area where we have to pay more attention and I hope we can create something of that nature as some of the other large companies do. So at this point it is not something I would say it’s recurring.

Christopher Ceraso – Credit Suisse

I guess in that light then I was little surprised that it wasn't excluded on your walk from GAAP to non-GAAP. Can you just explain why it wasn't pulled out in the non-GAAP number?

Herbert K. Parker

Well hello Chris, this is Herbert. First I’ll be consistent about that. If you go back to the Navis call that we reported last year when we had the blast there we didn't report that either. So we’re working with our auditors as you know in a calendar it is always more to be consistent. So that is the reason we didn’t point it out. But as Dinesh mentioned, it is on the page 8, 10 and 11, so we did call it out in that case.

Christopher Ceraso – Credit Suisse

Right, yes I understand. Thank you. Just a couple of other items, to clarify your comments on Japan, I think Dinesh in your prepared remarks you mentioned that there wouldn’t be much of an impact in the second quarter excluding some cost. Can you just repeat that I missed exactly what you said and then clarify on what those cost might be and maybe how much they are?

Dinesh C. Paliwal

Sure. Chris as we said, no material impact was expected and it’s true. We incurred in last quarters like couple million dollars in logistics cost and making sure that we have a tax force of our source and supply management team sitting in Japan and task force sitting in North America and in Germany. A lot have traveled back and forth and working through a lot of logistics hoops and that had a little extra cost but I'm very happy we incurred that because we did not bring any disruption to our customers. And let me also add, I was in Germany just a week ago and we were complimented by two of our largest German customers saying, you’re one of those very, very few suppliers who have done such a good job.

So I'm very happy we incurred the cost and make sure that they can run their production without any disruption. What do I expect, well this problem in Japan is not going to linger forever. I had a feeling within a quarter or two perhaps we will start to see normal life. So do I expect a little less extra expense in managing extra logistic cost, yes, but that would be in a single-digit area in the next quarter or so.

Christopher Ceraso – Credit Suisse

Similar to what you absorbed in Q3?

Dinesh C. Paliwal

Q3 was very small because this natural disaster occurred at end of March or beginning of March, so we had only one month to deal with next in third quarter, we're still looking single-digit perhaps anywhere in the area of anywhere from $3 million to $6 million.

Christopher Ceraso – Credit Suisse

Okay. And then just lastly maybe on the flip side of this as a potential opportunity since you've been able to keep the flow of parts running do you think there is any opportunity for Harman to maybe pick up some business or market share while your Japanese competitors are having troubles maybe in the infotainment or the audio business?

Dinesh C. Paliwal

Chris, this is so true what you just said. We have already been approached by a number of customers in Europe also here in North America and we are evaluating because I think our first responsibility is to fulfill our commitments and our commitments are extending beyond our production release orders we had three or four months ago because sales is up that’s why we reported 13% sales increase in this quarter. So we want to make sure that we cover ourselves in, on top of that as we have a comfort feeling, we'll take, we’ll take because we’re been approached on both fronts, Europe and America. So we'll report as it happens, but right now we are evaluating.

Christopher Ceraso – Credit Suisse

Okay. Thank you very much.

Dinesh C. Paliwal

Very good. Thanks Chris.

Operator

Our next question is from the line of Himanshu Patel from JPMorgan. Please proceed.

Himanshu Patel – JPMorgan

Hi. Good morning guys.

Dinesh C. Paliwal

Good morning, Himanshu.

Himanshu Patel – JPMorgan

A couple of questions, in the press release I think you sort of suggested that there were some potential assets offsetting headwinds to the IP monetization income, and I think you highlighted things like auto show presentation for Japan supply disruption and R&D issues. Can you just give a little bit more color on what these potentially other items were and how non-recurring they are in nature, and is there any way to quantify how big these items are?

Dinesh C. Paliwal

Yes sure, Himanshu. As we indicated in press release and I’ll just walk you through, and we also have a pay that we have put in the queue actually that happened here. There are four items actually Himanshu, and I believe these are not recurring. They are kind of one-offs. The very first one is, the biggest one is we incurred about $6.3 million in research, development and engineering cost in this quarter and also we had quite a large number of engineering change orders in two of our German projects, which is a good news. So that means that’s a positive thing. Projects get improved profitability.

Additionally, we had some duplicate R&D cost in Germany and China as we train our people and transfer the engineering work packages to best-cost countries. (inaudible) $6.3 million and that should not be a concern at all because we controlled it, we knew it. I hope you know how diligently I hate the higher R&D or engineering cost and we have brought it down significantly down. Our long-term target of 8% is pretty solid and we will deliver on that. So this was a good reason. While we are transferring work packages as well as number of change orders, those are positive.

Number two, to ensure our German customers production lines are protected from any supply-related disruption, we encourage $2.7 million cost in parallel supply arrangements as insurance in this quarter. That’s definitely not going to happen just like R&DPs in other quarters. We did that. That was in insurance and I’m happy with it.

Third piece, I already mentioned earlier, you all know full valve of the Japan power supply has been a big challenge for all companies. We handled rather well by putting together a special task force in Japan and Europe and in America and we monitored daily. And while we are very pleased that the customer outcome and satisfaction is very high, this exercise however had a small cost of a couple of million dollar in this quarter. And that is something might happen in the next quarter as well.

Then the fourth item, Himanshu, is we incurred $1.1 million in new market development related trade shows, one in Detroit, one in Shanghai and you can relate to it, because we don’t do much business in D3. We don’t do much business in China. We had to demonstrate. Europe knows our strength very well. So this was one-off. So if you add it all together it comes out around $12 million. You take it out from $16 million. Yes, we got $4 million tailwind. So even if you adjust core back, $0.60 EPS becomes $0.55. We are still extremely happy with that. For last year it was $0.27 and even with adjustment $0.55. But that’s a net math. I hope Himanshu you have that details.

Himanshu Patel – JPMorgan

Yes, that helps a lot. Okay. Two separate questions. I noticed the Volkswagen, a premium high Asia contract. Can you give a little bit more color on that Dinesh? First of all, I presume a lot of that is Audi volumes in China. And number two, is that a exclusive contract you have or are you still dual sourced with another competitor, and if so, can you directionally give us a percentage of the volumes that you have versus the competitor?

Dinesh C. Paliwal

Yes, Himanshu. Let me just deal with that right away. First of all the expansion of VWR of 1.2 to 1.6 was to cover Asia and majority of the Asia is China I would say. Then next piece of your question, actually it is for premium-high. That’s a good clarification I should give. Mid system, as I described for VW Group including Audi is still out there, which we will definitely compete for. Third piece of your question was, are we still working with some partner, supplier, is it a single source or dual source? Well, it’s still a dual source. However their former partner Eischen, they are providing name only. We do everything else. We do all the system architecture, system design, multimedia, so that’s all. So we have the full system responsibility. We get then that piece from Eischen and who knows what the future likes because we’re getting a lot of the quest and feedback to review the whole thing and we believe we are ready for that next time around.

Himanshu Patel – JPMorgan

For Eischen is sort of a directed sourced tier 2 supplier. You sound fully into a system that you are kind of fully responsible for?

Dinesh C. Paliwal

That is correct Himanshu, and that has been traditionally the way, but that doesn’t mean traditions cannot be broken.

Himanshu Patel – JPMorgan

Okay. And then I want to understand, there is a slightly more vague language about your press release that you guys put out around the Shanghai office around Daimler, BYD JV. What is that and what is that exactly in compass and what type of contracts could that potentially lead to?

Dinesh C. Paliwal

Right. I will explain it to you. That was actually a pretty big deal in Shanghai, Charles [Mayer] who is the Daimler CEO in China and Wang Chuanfu the CEO of BYD, they did a press conference together. So what it is, they've formed a separate company that’s called BYD Motor Daimler Joint Venture. The long name, it’s a long name, but it’s a separate legal company and this is to develop jointly electric vehicle for domestic as well as international market. So it’s a pretty big deal because Daimler is putting all their technical know how and knowledge and so as BYD. And we were awarded the branded audio system for that vehicle.

Himanshu Patel – JPMorgan

Understood. Okay. And then last question I had was, there is I think a lot of go we had spoken, and there was some potential initial interest in Harman potentially developing a kind of an entry level infotainment system, something below kind of the mid-market product that you had so far. Just given some of the legislation in the United States regarding backup camera and all of that, what’s kind of the interest level from OEMs for you to do something like that. Do you have more firm or concrete plans to pursue down that path. Could you just kind of update us on your thinking on that product segment?

Dinesh C. Paliwal

Sure. First of all it actually goes back to I might have said it in a really different words. We move from premium-high, we expanded into premium-mid, and part of our strategy well before this U.S. legislation calls for camera-based car in 2014,0 we actually started development work for premium-entry. And that is actually very well underway because we recognize that even our European and American, Japanese automakers, when they start to sell more cars, the very fast growing market is mid and entry. So, we have already made demonstration of our entry-system with a number of customers and there is tremendous interest. Commercially we have not launched it, but this is just a matter of timing. So to answer your question, yes there is a lot of interest from our side and of course from automotive side, and we’re very mind full of that regulation in 2014 camera-based technology solutions are not new to us, we’re launching those. In fact we have number of camera companies working with us, and we’re integrating that in our entry mid and high, all three. So I think it would be very price competitive for entry, mid and high, at the same time we’ll have a full rich suite all in one place.

Himanshu Patel – JPMorgan

And just one clarification on that Dinesh, you obviously started developing this product before the legislation, I’m curious could the legislation trigger any OEMs coming to you and potentially wanting to consider installing infotainment system in an entry-level vehicle that they were not willing to consider before.

Dinesh C. Paliwal

Yes, I always hesitate to answer the customers but here I’m almost tempted and now I’ll just say it. Yes, Daimler came to us, that’s a good news. And of course after that number of customers have expressed their interest, and we’re talking to.

Himanshu Patel – JPMorgan

Great. Thank you.

Dinesh C. Paliwal

Sure. Very welcome.

Operator

(Operator Instructions). Our next question is from the line of David Leiker of Robert W. Baird. Please proceed

David Leiker – Robert W. Baird & Co., Inc

Good morning everyone.

Dinesh C. Paliwal

Good morning, David. Long time, no see.

David Leiker – Robert W. Baird & Co., Inc

Yes, I know it’s a (inaudible) right.

Dinesh C. Paliwal

Have you stayed in Shanghai a little longer than perhaps I did, but anyway yes.

David Leiker – Robert W. Baird & Co., Inc

Yes, and so it’s coming back from it, but as we look at the restructuring cost of $9.5 million, what were those targeted out, what exceptions were those?

Herbert K. Parker

Good morning David

David Leiker – Robert W. Baird & Co., Inc

Good morning.

Herbert K. Parker

These are normally restructuring that were taken in the German operations. We’re still in the process, as we say a step change as a program is over but we continued to look at other opportunities that we have. We’re also looking at the shared services car in the German, the European operation in general. So, it’s owned to our restructuring and you should expect those continuing, normally you won’t $9 million on an average but we continue to have restructuring I would say over the next year or so.

David Leiker – Robert W. Baird & Co., Inc

Do you think overtime it average is that, what kind of a number $7, $8 million or a quarter or something?

Herbert K. Parker

No, no, no. It would be less than that. I would say in the $5 million range or less.

David Leiker – Robert W. Baird & Co., Inc

Okay. And are these primarily headcount reductions?

Herbert K. Parker

But most of it is headcount reduction, every ones while we do have a write-off that goes in along with the headcount reductions.

David Leiker – Robert W. Baird & Co., Inc

Okay. I was clarifying a couple of comments and questions earlier on the sale of the IP, that’s a one time sale, there is no residual royalty that comes along with it that you’re going to receive on it?

Dinesh C. Paliwal

Couple of million dollar to come, but majority is taken up. What is left is the services, so we will get paid for. But as I said earlier David, this is first time in this company we’re just starting to take a look at that not just the product we should be selling, we should be selling licensing our IP where we have ton of IP. So we will continue to look at in future that how can they start to monetize by doing some of the things we’re doing now.

David Leiker – Robert W. Baird & Co., Inc

Can you talk more specifically about exactly what the IP is that you’re licensing?

Dinesh C. Paliwal

Yes. This is in the area of infotainment because we are a clear leader in that space and one of the largest partner of ours, who actually would be launching first time a new silicon. They we were very keen on seeing what we were doing and customers obviously told them that silicon that interface we had developed that should be jointly worked with the silicon manufacturer and that manufacturer would have developed on his own anyhow, next six to nine months. So it was a great opportunity for us to share our design architecture with them while maintaining the IP licenses and patterns and monetize that. We will still keep first mover advantage for the next two to three years because this would be applied by us in new SOPs while others don’t even have orders for that sort of a technology. So it works out very well.

David Leiker – Robert W. Baird & Co., Inc

And then on the R&D that’s related to change orders. Are these changes were requested to make the system more robust or were they performance related type items?

Dinesh C. Paliwal

Neither actually. Generally what happens, David, in these large projects, when you’re coming closer to getting your system acceptance test, engineering and manufacturing and marketing keeps coming up with number of new features they would like to see in their launch and those are primarily, I would say, the change orders. And then if you really want me to sort of focus where exactly they are, they are mainly in the navigation, very high-end, 3D feature technology that will just make their unique personality for one of the customer and other customer have their own way. These are online navigation services, those kinds of the things.

David Leiker – Robert W. Baird & Co., Inc

And the time line for which these changeovers are at this, are these things that launch in the next three to six months or is it further out?

Dinesh C. Paliwal

Both of these bits we’re working on. These are not happening until ’12, the first one is beginning of second calendar quarter 2012 and the other large customer SOP is in third calendar quarter 2012.

David Leiker – Robert W. Baird & Co., Inc

So, as you work on these other programs that’s likely over that timeline that you’re going to see change orders in those as well, right?

Dinesh C. Paliwal

Not necessarily because what happens typically, David, almost a year in advance, I would say nine months before the launch SOP, the feature implementation is frozen. Now we are just doing the debugging together with the customer doing the test drive and what have you. I have been invited by Daimler to go to test drive with them in California. I did the test drive BMW. So that process seldom will be the case where they will come and ask us feature implementation because they don’t want to challenge the integrity of the system by introducing new features.

So I would say, if we were to have this opportunity to add more change orders, might be another three to six months max, which is a good thing because we add the scope and we got – change orders are generally very profitably as you can imagine.

David Leiker – Robert W. Baird & Co., Inc

I guess, so I was going on the other programs that you’re earlier in that development stage as you move closer to where that gets frozen, you’ll likely to see changeover orders on those as well?

Dinesh C. Paliwal

Yes. I hope so, but again David, I want you to know, this was not the culture in our company. The company I come from, we used to add lot of change orders during the life of project, which is something our team Sachin and Michael, since they’ve taken over, they are pushing quite a lot and they’re getting paid for it. So, yes, you are right. We should expect change orders to come in coming quarters. But as time goes by, you will start to get paid for it. So it sort of evens out, you should not expect change orders creating cost for us every quarter. And change orders but also they done from our operations in India and China are significantly lower cost runs in this quarter. This quarter we ended up doing with parallel duplicate cost fitting in Germany.

David Leiker – Robert W. Baird & Co., Inc

And then just one last item, in the last quarter, I believe it was in the December quarter, you ended up having some R&D that was capitalized in the quarter. Is there anything like that that showed up in this quarter?

Dinesh C. Paliwal

None. Not in this quarter anything. Those are very rare events where we are able to do that. We ask customers upfront if they can pay us rather than we capitalize over time. In this quarter my recollection is, looking at my colleagues here, flat. This quarter there is nothing here.

David Leiker – Robert W. Baird & Co., Inc

It’s flat with the prior or is zero?

Dinesh C. Paliwal

No, it’s zero. Flat is not, I said wrong word.

David Leiker – Robert W. Baird & Co., Inc

Okay. Thank you. That’s all I need, thank you.

Operator

(Operator Instructions) There are no further questions from the phone line.

Dinesh C. Paliwal

Very well, James, we are going to hang around for some more time because we will give opportunity for people as they are still digesting.

Well, in that case James, if you’re not seeing any questions in the queue, you are not, right?

Operator

No, no questions.

Dinesh C. Paliwal

All right. I guess all the heavy hitters have already done their part. Okay. In that case, ladies and gentlemen, if there are no further questions let me conclude by thanking you for your time here in this morning. We are very proud of our results, and on the way we are improving this business well on the way. We are tracking our markets and customers well and we will have a strong presence close to our customer facilities. You heard me say, profitable growth is our DNA and we are looking at the markets where we have not played bigger role like North America and Asia. That’s where we’re now focusing our eyes while maintaining our leadership in Europe and other places.

We continue to make strides in emerging markets across all divisions. We are driving hard for profitable growth and we will continue to take share from our competitors.

And the slide that we have put together, there are lot of information in that, which is part of the press release, so I’ll encourage you to please take sometime to read it. And with that said I wish you a very productive rest of your day and thank you very much for your interest in Harman.

Operator

Ladies and gentlemen that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you.

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