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Executives

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

Herbert K. Parker – Chief Financial Officer

Analysts

Christopher Ceraso – Credit Suisse

Adam Brooks – Sidoti & Company

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

Harman International Industries Inc. (HAR) F4Q 2011 Earnings Call August 10, 2011 11:00 AM ET

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Harman Fiscal 2011 Fourth 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, this conference is being recorded Wednesday, August 10, 2011.

I would now like to turn the conference over to Dinesh Paliwal, Chairman, President and CEO of Harman. Please go ahead, sir.

Dinesh C. Paliwal

Good morning, ladies and gentlemen, and thank you for joining the Harman’s fourth quarter and full year 2011 Investor and Analyst call. I’m joined in Stanford today by our Chief Financial Officer, Herbert Parker and our Vice President, Investor Relations, Robert Lardon.

As I’m sure you have seen we issued two releases this morning, our regular earnings release recapping the quarter and the year, and a separate announcement that addresses our new organizational structure. In our earnings release published this morning we shared with you the story of Harman’s continued progress in a second straight year of top and bottom line growth.

Sales increased $400 million or double-digit, operating income more than doubled and cash hit an all time high of $921 million. While we are proud of this progress, financial markets are tumultuous and there is a top of double digit recession. It makes sense at times like this to step back and ask what sets Harman apart from its fears especially in the auto sector.

First, Harman should experience growing EBIT margins due to a fundamental shift in our infotainment business. This scalable architecture we launched less than two years ago have been doing outstanding success in the marketplace and we are launching it right now.

If you go to a Toyota dealer in North America or in Europe and test drive a new Camry or Prius with the [initial] system you will see it.

This business will be ramping up during 2012 and it will account for a significant share of our infotainment revenues in fiscal ‘13 and fiscal ‘14. And I remind some of the people who have dialed in first, when we launched it we said that this business will be at high single digit profitability and our backlog of $4.4 billion is pretty robust at that profitability level and we are very happy about it.

Second, our sales markets are growing must faster than the overall automotive sectors. Harman is seeing increasing adoption rates while its core products especially in the emerging markets. According to strategy analytics, one in every five cars produced worldwide in 2015 or 21 million new vehicles will have an infotainment system that is almost double, 11 million infotainment equipped cars produced in 2010. Premium audio penetration was also increase by 45% over that same period according to iSuppli.

Third, Harman has a very strong balance sheet with cash to take advantage of new business opportunities in the form of new customer wins should our competitors falters all the form of opportunistic acquisitions to strengthen our core businesses. On the formal point we are corresponding to measure the request from proposals both abroad and closer to home.

Here as some of the highlights of this fiscal year’s I would like to share. We continue to gain market share in BRIC countries with a 68% increase in sales with very good profitability, high re-emphasize. We won a record 5 billion of new automotive awards during this year, bringing our order backlog to 14.5 billion both are new record for our company.

The adoption of our revolutionary scalable platform has been outstanding as I said earlier, it now accounts for 37% of our total infotainment order backlog.

We had successful launch of our first scalable platform with Toyota both in Europe and in North America which is known as Entune. We exceeded our 400 million Step Change cost savings target and delivered $434 million in permanent cost savings. And we expanded our global footprint and substantially reduced our manufacturing, R&D and engineering spend as a percent of sales, and this trend will continue.

We’re encouraged by these continued improvements and our business fundamentals are strong.

However, our fourth quarter was challenging and I would like to address two of the main issues, which affected it. While our revenues were strong, Japanese vehicle production was disrupted by Tsunami earthquake. We more than offset the revenue reduction of high margin branded audio business through strong infotainment business elsewhere, but we could not offset the loss of profit associated with this change in product mix. This had a negative impact of $0.13 in EPS in the quarter. Fortunately, the situation is already improving and we expect production backed to normalized levels in the near-term.

Sales for the month of July were encouraging for the branded audio business with Japanese customers and our expectation for further improvement has been validated by public comments from Japanese automakers.

In addition, during the quarter, we began to see an additive effect of an increase in the cost of neodymium, a rarest mineral used in our high performance speakers. These price increases and supply constraints of neodymium will increase our gross cost by $85 million in fiscal 2012. To date, we have been able to identify some $30 million cost mitigation actions.

In coming months, we will be continuing to work with our product design teams worldwide for material substitution and price increases to distributors, channel partners and automakers to further lower this cost impact.

We believe by the end of first quarter fiscal 2012, we will have much better information about our customer negotiations for price increases and product design changes and we will update the market on this issue together with our next earnings release orderly if we have the information. Even with these additional unanticipated costs, we still expect to see an increase in our overall operating profitability’s for the year.

As we have said before, we continue to execute again our four strategic pillars and meaningful progress is being made against each of these.

We are the profit and market leaders in the infotainment space with $11.7 billion order backlog for infotainment alone. And we have added a new dimension with our social media business, Aha Mobile, securing new allot for 900,000 or nearly million cars with well-known automakers, and these cars would be rolling out in next 12 to 18 months with integrated connectivity with social media embedded in that.

We’re also the profit and market leader in the automotive branded audio business with $2.8 billion order backlog, which is growing with existing customers like BMW, Toyota, Fiat, Lexus and gaining new awards from Chinese automakers like BYD, Geely and few others.

We are working effectively to establish strong foothold in BRIC countries and our sales are clear validation of back to 68% growth year-over-year exceeding $400 million in 2011. To fuel our growth plans further we have built two new world-class factories in China and one in Mexico. And these factories would be coming alive in a matter of 30 to 45 days.

We exceeded our $400 million Step Change cost savings target, delivering 434 as permanent cost savings and we continue to lower our cost base and breakeven point for our business.

We have added $154 million cash to our liquidity, bringing our available capital to $1.5 billion and our dividend has gone up to $0.30 from $0.10.

Herbert will cover these accomplishments in more detail shortly, but let me have a quick look at the numbers for the year again. We grew full year sales at a double-digit rate. We more than doubled our operating income and despite Japanese vehicle production disruption, earnings per diluted share for continuing operations were well more than double to $2.08 for the year compared to last year.

Our focused execution has helped us deliver seven consecutive quarters of year-over-year profitable growth. As you may have read, we recently acquired US based MWM Acoustics, a microphone embedded acoustic solution provider, who has also strong operations in China. MWM will add to our customer offering across all our segments.

For our full summary of our decision highlights, I encourage you to look at the earnings release and slide deck we issued earlier today. We are executing our plans and we remain on track to reach our long-term profitability goals I had already shared with you.

Now, I want to talk briefly about the reorganization of our business and the new segments we will be reporting beginning first quarter fiscal 2012. Over the last few years, we have made tremendous progress in revitalizing our operations. Now, in order to take full advantage of these improvements, we are aligning our organization to meet new market trend and consumer demands.

At the heart of our company, in the suite of innovation technology and 3500 patents that back up our strong brands like AKG, Becker, Harman/Kardon, JBL, Mark Levinson, Infinity and Lexicon to name the few. These are powerful and iconic brands globally.

The digital revolution is clearly creating a convergence that has been consumer device in the office, at home and in the car. Consumers no longer view their living room, work place, personal devices and their car as separate domains. But as one seamless content ecosystem they want simplicity, seamless portability and sound integration that fit their busy lifestyle and they want it for their trusted provider with brand equity.

This is fast becoming a fundamental expectation of modern consumers everywhere and is fueling a demand for integrated lifestyle solutions. We will have our proprietary knowledge of the car electronic infrastructure and our powerful brand Harman is one of the few companies that find itself in the sweet spot of this trend.

In order to accelerate the earnings growth opportunities the company has reorganized its automotive and consumer business into two new divisions, the lifestyle division and the infotainment division, in the lifestyle division we have combined consumer audio, branded car audio, after market audio and our luxury home audio business. We will now have a business of more than $1 billion pure audio play. That can take advantage of synergies in research and development, product development, procurement, consumer insights and integrated marketing.

Premium audio penetration will increase by 45% over next five years in the car according to iSuppli and Harman is best placed to gain market share. This realignment will enable more and effective marketing that will reinforce our brands across channels, product category and end users. At the first step to capturing this opportunity in September we will launch a new marketing campaign that will showcase our brands and the lifestyles they represent through celebrity music audios.

At the same time by separating the infotainment business which is over $2 billion in revenue we believe we will be better able to address the profitability of this division while simultaneously increasing it several transparency. I must say our infotainment profitability has improved significantly over the last two years this change will place continued focus on profitability improvements.

According to Strategy Analytics you heard me say the infotainment penetration in the past will undergo a five year compound annual growth rate of 14% we are in a sole position to capitalize on this growth opportunity and as I have said related to you we are confident that this business can overtime achieve high single-digit operating profit margin. We think these new structure alliances well with the growth opportunities we see in the future, creates accountability where we need it, puts additional focus on our brands and will enable us to better manage our profitability. We also think that our analysts and shareholders, it will create a better understanding of our company’s strategy and direction.

And I might add, this change was in the work for last six to nine months; and at least 30, 40 personal inputs I have received from various journalists, various customers, various people in the industry we serve in or outside of the luxury market. And unanimously, they pointed towards what we were thinking of doing and we have done it. And this morning, I have gotten phone calls and several emails congratulating by number of people that this change will overview.

I would now ask our Chief Financial Officer Herbert Parker to provide a closer look at our financial results.

Herbert K. Parker

Thank you Dinesh and good morning to everyone. We post another solid year of operational and financial improvement. And I would like to review a few of our highlights from both the year as well as for the quarter. And as always, most of my financial comments are provided on a non-GAAP basis which basically excludes restructuring cost. The reconciliation of our GAAP to non-GAAP results is included in the press release issued today, but for your convenience we took a $9 million charge to restructuring expense this quarter.

Okay. Let’s first discuss the revenue line for the full year. We increased our annual sales by 12% to $3.8 billion. If you exclude the impact of foreign currency we grew at a rate of 13%. We are very pleased to have seen strong growth both double-digit growth in all of our businesses. Now with respect to the fourth quarter, we grew sales by 21% to just over $1 billion, and again all three divisions grew at a double-digit rate.

Excluding the effect of foreign currency, our growth was 12% for the company. Now given the substantial increase in revenues and cost efficiency gain from our STEP Change program the gross margin for the fourth quarter of 23.9% versus last year’s 26.3% require some explanation. First of all, I would like to point out that our gross margins were up in the quarter for both our consumer and professional businesses.

So now let me explain the impact of our Automotive Division in a little bit more details and as what Dinesh has said earlier. Specific to this quarter there were four discrete issues affecting our gross margins. First, we were significantly impacted by the reduction in (Inaudible) reduction from our major Japanese customers due to the Tsunami disaster which impacted our higher margin audio system sales. Now we believe that this is a temporary situation from a customer production standpoint and we have already seen a wrapping back off in the month of July as Dinesh mentioned and we expect this to be back to full capacity in the near term.

Also the reduced sales of our higher margin business changed the revenue mix and it had an impact of $50 million to the operating line of our automotive division as we have mentioned earlier. Second, we incurred $3.7 million of expense of our software fix. Third, the increasing cost of neodymium magnets affected our component costs by $1.5 million.

And lastly, we were not able to achieve as much plan savings from our suppliers as we have in the past because of the shortage of electronic components and raw materials. This was approximately $8 million.

Now in spite of these significant headwinds, on a full year basis in automotive division we were still able to improve our operating profit by 260 basis points to 6.9%. This was made possible because of our global footprint and rebalancing of our relentless cost focus. Now to help you in modeling of our infotainment business at our October 26 Analyst Day in Nashville, we will provide you with additional commentary regarding the timing and pace of our new infotainment awards. This will include the revenue development of our high margin scalable platform awards and the roll out of our lower margin legacy awards.

Now returning quickly to our overall business; we had good improvement in controllable cost for the year. Our full year SG&A expense declined 230 basis points to 20.7%. In the fourth quarter, our SG&A expense was 20.6% of sales declining 220 basis points.

From a bottom line standpoint, we did very well for the full year, and excluding non-recurring items we reported $211 million or 5.6% operating income that’s nearly $100 million greater than last year.

Our focus is on the fourth quarter and in spite of the reduced gross margin still we reported $35 million of operating profit versus $30 million in the same quarter of last year.

Now moving on to the net income for the year; we reported $149 million or $2.08 per share compared to net income of $60 million or 85% share in fiscal year of 2010. In the fourth quarter, net income was $24 million or $0.34 per share compared to net income of $21 million or $0.30 per share in the same quarter of last year.

I should also like to note that our effective quarterly tax rate on a GAAP basis was a benefit of 1.6%. This resulted in an effective tax rate for the year of 15.2%.

Now in terms of our credit profile; we are very focused on positioning the company to return to investment grades of credit status, and I’d like to note that our total liquidity now stands at $1.5 billion as of this fiscal year end.

Now given the strong cash position, I would like to update you on our capital allocation considerations. We followed the same type of discipline process for deploying our capital as we do with the allocation of our operational resources that are required to drive improvements in our P&L. Each alternative, would it be in organic growth investment, acquisitions or share buyback, is carefully evaluated against each other.

Having said that, it is our belief and experience that long-term sustainable shareholder value is best created through investing in organic growth opportunities such as building our footprint in BRIC countries, combined with accretive acquisitions requisitions such as Selenium in Brazil and MWM Acoustics as Dinesh mentioned earlier and Aha Mobile in United States. In addition, we are committed to provide in a sustainable dividend stream to our shareholders. And finally our Board of Directors continue to evaluate share buyback opportunities along with other alternatives of cash deployment.

I’d like to say that overall we’ve dramatically improved our financial position. Our operating margins should continue to improve, our balance sheet is very strong and we have access to the capital that we need to achieve our growth plans, and we've got a great deal of cost discipline into the company that is now part of our culture. We are proud to be able to say that we have reported seven consecutive quarters of year-over-year improvement at the top and bottom line. And as you know in these turbulent times Cash is King and related to cash we are very pleased with our liquidity and the financial flexibility that we have worked hard to achieve. And as always, we like to thank you for your time and we look forward to your questions.

Operator, we are now ready to take the questions.

Dinesh C. Paliwal

Nancy, we're ready to take questions. So please open the lines for those who are queuing in.

Question-And-Answer Session.

Operator

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

Christopher Ceraso – Credit Suisse

Thanks, good morning. Can you hear me, okay?

Dinesh C. Paliwal

Hi, Chris. We can hear you all right.

Christopher Ceraso – Credit Suisse

Okay, great. Thank you very much. So you mentioned, Herbert that we are going to get some more info on this at the analyst meeting in October, but maybe just at a very high level we can get a sneak peek on round numbers, how much new business in the infotainment segment is going to come on this stream in fiscal '12, how much goes away and then may be a split within that how much is infotainment and how much is audio?

Herbert K. Parker

Okay. Let me, I’ll just give you a sneak peek. I don't want to give it all the way. Chris, we're looking at roughly $100 million of the scalable business coming on in fiscal year '12, and so based on that small amount you can determine it’s not that much rolling off in ‘12, the biggest chunk would come rolled off starting in ‘13 in a significant point in fiscal year ‘14.

Christopher Ceraso – Credit Suisse

Is there other business outside of the scalable that’s coming on in ‘12?

Herbert K. Parker

Outside of the scalable? Yeah, we have a little bit of the second, but we’ve told you about around the 5% margin would come on in ’12 and of course the audios consistently around 20% to 25%.

Christopher Ceraso – Credit Suisse

Okay. That's great. That's helpful. And then, let's see, when we get the new information next quarter about the new segments I think it does make sense by the way, will we get history by quarter and by year of what these divisions look like overtime in terms of profitability by segment?

Herbert K. Parker

Well we’ve already given the annual is in our slide deck so you could see that already, and we will give you the quarter for fiscal year ‘11.

Christopher Ceraso – Credit Suisse

Okay. That's great. Just a couple more quick ones, first the, I appreciated the breakdown of what hurt the margin in the quarter. You mentioned an $8 million figure, because you weren’t able to get the typical cost savings that you do and part of that was associated with Japan. Does that also include, Herbert any cost from premium freight or other procurement or other supply-chain work around that you had to deal within the quarter related to Japan?

Herbert K. Parker

Well you know it’s other call, we had expected some, but of course we did a good job on that and we didn't have any cost that was anything material. So that’s not included in the $8 million.

Christopher Ceraso – Credit Suisse

Okay, terrific. And then last one, I know it’s hard with the tax rate, but what should we assume going in here for fiscal ’12 as your full-year rate?

Herbert K. Parker

Yes, Chris we’ve worked very hard in that area and tried to identify various credits, so we believe we can come in around 20% now.

Christopher Ceraso – Credit Suisse

Around 20? Okay, thank you very much.

Herbert K. Parker

Sure.

Dinesh C. Paliwal

Take Care, Chris.

Christopher Ceraso – Credit Suisse

Thank you.

Operator

Our next question comes from the line of Adam Brooks with Sidoti & Company. Please proceed.

Adam Brooks – Sidoti & Company

Yes. Good morning, guys.

Dinesh C. Paliwal

Hi, Adam.

Adam Brooks – Sidoti & Company

Just wanted to kind of hit on the new facility in China, I guess you guys said it was coming online in July and maybe you can give us an update on how things are progressing there?

Dinesh C. Paliwal

Yeah, Adam, this is coming along quite fine. In fact one of the fastest stock up we will have. We broke ground beginning November last year if you recall, so I’m actually in China in two weeks time to personally see. We already have some pilot lines up and running, but full production should be by end of September, and we have two brand new factories in China, one would be dedicated to automotive and one for professional. The professional business is booming and you know it’s a very high margin business, so we're going to make a lot of professional deals out of this factory for Asia particularly, the big box louder speakers for cinemas and (inaudible) and for automotive, since we are looking at huge demand coming up for our automotive audio business. So that will be as the last sense for automotive audio and electronics.

And actually in Mexico, we have also same time coming in line that would be feeding into our growth coming from North American market and that is also going to be up and running in production in September. This is a brand-new facility in Carretero, Mexico.

Adam Brooks – Sidoti & Company

Okay. And maybe any update on cost domestically and in China infotainment?

Dinesh C. Paliwal

Sure. Infotainment business in China is growing very rapidly for us. You call domestic, but we like to call it semi-domestic, because all these European, Japanese, Korean and American OEMs they have production facilities in China and they are building lot of cars now, and we are shipping to them directly. Right now we are not shipping it up from China, because we didn't have enough manufacturing, so we’re doing that. In addition, indigenous Chinese infotainment OEM car company they are also talking to us and we are looking at what their needs are, but typically their needs have been below what we generally produce or make within the quality and the pricing point of view. So we have a 250 man R&D – man, women R&D, rock band in Shanghai, that’s what we have been developing premium entry system infotainment for China, Chinese language base.

We had a full Chinese language based system now. We have launched high and mid, and now we are launching premium entry. And for the Audio, we already have one some 5, 6 unique awards from Chinese automakers, I’ll give you a few names. We won an interesting award from Gillie for their Premium Sedan, has a great audio system with some 16 speakers in the car. You can imagine how Chinese are going down the road. We won the award from BYD. We also won the award from the joint venture of Daimler and BYD for the very first electric vehicle; Daimler will put on the market, we will be doing the audio in that too. We won the audio award from Dongfeng. We do already audio with

Shanghai GM. So you know things are looking good.

Adam Brooks – Sidoti & Company

Maybe I’ll slide one more in there shifting kind of gears; as far as you talked a little bit about advanced driver safety system, maybe conversations with OEMs on kind of the base level camera base systems that they want.

Dinesh C. Paliwal

Right, camera based system is very integral part of our offering. If you look at Porsche Panamera, it’s one of the world class camera base system done by us, we’re very proud of that. So we have very high-end camera base, at the same time, we have basic camera base system as well.

By the way our ADAS, Advanced Driver Assistance & Safety Systems including camera, infrared camera, ultra sound and other rays, that central of excellence is in Shanghai now for the whole world, which means we have bunch of Germans and Americans also sitting in China. So we have a good robust offering. What we are also doing Adam, we are integrating our Aha Mobile radio in the safety system as well. So lot of things which we do in safety but also we delivered to not just by view but also by sound. So this is going quite well, and I would say the safety systems not only as regulatory requirement in US, which is a great opportunity but often we are particularly call NHTSA by 2014, we have lot to gain from that. But we also seeing the similar regulatory requirements being put forward by Chinese automaker government authorities in German and we are working very closely with them.

In fact, we see great side Adam saying that we are and we will be the first commercial infotainment company to bring safe and sound system in the car so that your texting, your emailing, your social media can be in the car without touching anything without looking at anything; that is very different with some of our competitors right here in US, you hear the news every now often, but they get into trouble because of the safety concerns. So we had a very good robust offering. If you ever get a chance with you and your customers or your clients, we’ll love to host you; we had hosted few other top analyst in Shanghai to show them what we’re developing.

Adam Brooks – Sidoti & Company

Okay, thank you very much.

Dinesh C. Paliwal

Sure, thank you.

Operator

Our next question comes from the line of David Leiker with Baird. Please proceed.

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

Good morning everyone.

Dinesh C. Paliwal

Good morning, David. How are you doing?

David Leiker – Robert W. Baird

Doing very well, thank you Dinesh. The impact on Japan, you had identified that EBIT impact there about $15 million, do you have any idea ballpark what the revenue impact might be?

Dinesh C. Paliwal

We look at that David, we didn’t want to split there and say how much is it the revenue and how much is it the fixed cost under absorption in the factory. So, we combined it, but if you really push and twist my ankle, I would say it’s not two digit number.

David Leiker – Robert W. Baird

Okay. And then on the restructuring of $9 million, Herbert, I think the last quarter when we talked about this you were talking about a $5 million number going forward. Just wondering if you've accelerated some actions and realized that's what lumpy. Is that what we've seen there?

Herbert K. Parker

No, you’re absolutely right in the third, that’s what I said, and as you know I’ll remind you I looked at everything on a annual basis but we split about 20 million for the year to be inline with that 5 million goal, so I would necessarily categorize it as lumpy. We saw some opportunity and we took a little bit in Europe related to the share service function we’re setting up, and we also took on some – we standardized the ERP system and that related to some people in some write-off. So you can average at a 20 million a year but you can have one quarter to three and one quarter to five going forward.

David Leiker – Robert W. Baird

Is there a point where these restructuring costs which seem to happen quarter after quarter become a regular cost of doing business.

Herbert K. Parker

Yes, 0.5% we would say our sales as we would call a regular cost of doing business.

David Leiker – Robert W. Baird

I mean that they're just embedded in the cost as opposed to being called a non-GAAP item.

Herbert K. Parker

No, that is our non-GAAP item. We keep that as restructuring, we show that specifically. That basically all we call to be very consistent we know we only would delve in the restructuring item in good results.

David Leiker – Robert W. Baird

And then on the software fix that you -- there's been a handful of these over the last several quarters which part of me says -- wonders why there's a warranty coming up front is appropriate, that you're running the issues here later or just characterize what the nature of that was?

Dinesh C. Paliwal

Yes we can as much as we’re allowed to. I mean one of the German car company’s they had was one of the, I would say it was a one-off in our opinion because David on one hand I agree with you that can we do so much software and hardware system engineering and development. These things do come. But it’s not been regular event for us. We haven’t seen such things in the last few quarters. So this one was total one off, the fix it we paid the customer for that in fixing it.

And as we have done this that was not something very spread over – all over the car company was unique to one. And that’s what we took. Coming back to your warranty question, we have also been clear that 2% to 2.5% of our sales is our goal to manage our warranties especially the kind of development we do and we have realized our own sector are doing quite well on that and you can expect that going forward that number to be rather than 2% to 2.5% of our sales in warranty.

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

Yeah. On the software item, is this something that you're in the process of launching right now or that you're doing engineering work or it’s something already in the field?

Herbert K. Parker

It’s being worked on, we took the charge and I would say the next quarter or two that would be all flushed out, it is flushing the software in certain costs.

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

Okay. And then on the expense for reimbursement from your customers for R&D spending, what was that number in the quarter versus a year ago and versus third quarter? Was there any big move in that?

Herbert K. Parker

No. Let me clarify that David. What happens is we have consistently tried to get more reimbursement from customers and more of capitalization. So the number 80 about 80 million last year, 83 million last year versus 83 million this year quarter is in line. The model reimbursement is not anything significant once we get our reimbursement that would bring that number down that will see like 7% like it was a couple of quarters ago, then we’ve called it out. But it’s been pretty consistent now around the $80 million for the quarter.

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

Okay, great. And then lastly, Dinesh, I think you're in production right now on Entune. Is that in production in Toyota in those vehicles that you can buy it that way or has that not happened yet?

Dinesh C. Paliwal

You could buy probably one of this first cars, it would be starting to ramp up, but we have not seen really any revenue yet but they have produced it, it’s being produced, how it works on the first – of ramp up probably they will make 30, 40, 50,000 cars and then fiscal ’13 will be very robust. So that’s what Herbert was alluding to that we will have a very sizable part of our revenue to come from and June will be big part of that from scalable. So right now, you could probably go and test drive the cars, but the dealers are not getting enough yet it should happen in coming quarters.

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

And then, you’re producing that, where, in one of the low-cost facilities. That’s somewhere else, I don't recall right now.

Dinesh C. Paliwal

Currently, it’s being produced both in Europe and North America and we are also looking at how do we balance our manufacturing as Toyota is requesting for some of the property selling in Asia also. So we’ll also look at making it in Asia. So it was part of North America, so being both in Mexico and in United States and of course, in Europe as well.

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

Currently you’re building it in all three locations?

Dinesh C. Paliwal

Not on all three locations, right now it is being built in North America and Europe, not in Asia.

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

Okay, thank you. That is all I had. Thank you.

Dinesh C. Paliwal

Thank you, David.

Operator

Our next question is a follow-up question from the line of Chris Ceraso of Credit Suisse. Please proceed?

Christopher Ceraso – Credit Suisse

Well, thank you. Just one quick follow-up. As you went through the list of all the car companies in China that you're doing audio with them, I'm wondering if you can tell us how much branded audio revenue did you generate in China in fiscal '11 and how much do you think will show up in fiscal '12?

Herbert K. Parker

We don’t obviously split out local Chinese versus local automakers being sold, selling their costs in China. But I would give you just directional visibility. Assume we have $200 million sales in China for automotive, 70% typically is infotainment, 30% audio, that number is very true still in China. However, I expect that audio penetration will start to outpace infotainment in the coming years.

So local pure Chinese manufacturers, there volumes are small, because as you would expect, because those guys are not coming with hundreds of millions dollar worth of contract each. They are doing certain models to begin with. So Geely has one nice model, but they want to learn – they want to learn how to sell, they want to learn how to teach dealers and this is how it started in North America and Europe. So very, very we are doing lot of dealer training; we are doing a lot of the stuff, we are building infrastructure, acoustics, anechoic chambers, in car labs and lot of steps. This is you can call it foot in the door or Trojan horse if you will in a big way.

Christopher Ceraso – Credit Suisse

Right, okay. So yeah the $200 million is what I was after. All of your automotive in China…

Herbert K. Parker

It’s not 200; I just gave you an example. If it was 200, 70:30 volume was split. Our total sales in China I think we had a split that I can give you that number, I think that was like 260, 270 million. So you’re not too far off, by the way, because automotive is a lion’s share of that. Yeah. So it’s around that number.

Christopher Ceraso – Credit Suisse

And then does that double in fiscal '12? I know you're looking at a pretty good ramp-up. How much of an increase to that in fiscal '12 should we see?

Herbert K. Parker

You can expect I have said publicly, I want to go three to four times to GDP that is the number I have said and I go for it my guys in the team don’t like it, because they think it’s too aggressive. But we grew 66% last year, so why can’t we grow three to four times GDP or actually exceed that. So you count on that.

Unidentified Company Representative

And Chris just a note there is a slide deck, we can give you later. We have that in detail the 270 that Dinesh mentioned is a total challenge not all automotives we’ll keep that in mind as well.

Dinesh C. Paliwal

We have a 270; if you take the ratio you are about $200 million in automotive.

Christopher Ceraso – Credit Suisse

Okay. Thank you.

Dinesh C. Paliwal

Sure, you’re welcome.

Operator

Our next question comes from the line of (Inaudible) with HSBC Bank. Please proceed.

Unidentified Analyst

Yes, good afternoon. I have couple of questions number one, being with your expansions into China, how is the renminbi appreciation affecting those plans and the other question would be regarding neodymium and how are you hedging funding suppliers or other products to substitute this?

Dinesh C. Paliwal

Sure. Let’s start with renminbi first, it’s a classic question I get asked all the time. The way we’re going to handle this currency situation is, you got to be self sufficient in the [base] of markets. So in China, if our payables and receivables can be balanced then there is no problem. We don’t care where the renminbi goes, then comes the question of sourcing, how much do we source when renminbi denominated and that’s where we come into hedging and we look at multiyear contract with our suppliers and we have indexing built into it how much they can increase the cost, but we apply natural hedging by the way, I just explained to you with the growing local, so we had a local sales, we collected renminbi and we paid renminbi, we collected renminbi so that’s the idea. And in future depending on where the renminbi will go, if it goes X percent I appreciate it, we’ll continue to balance out sourcing also within China. And within China as I should tell you there is no one China from East Coast to West Coast you do a lot of currency hedging by going from east to west.

I used to live in China, so if you go and make a factory in Chengdu that is 35%, 40% lower cost so what you do with renminbi 40% appreciation, you go to west, that’s how you manage it. So even the factories exporting outside by having the footprint in the strategic locations of lower cost within China you can do lot of managing. So I think at this point for the next three to four years we feel between our natural hedging, between our financial hedging instruments and our global footprint in China we feel pretty comfortable.

Second question you asked is neodymium, how much do we hedge, well hedging is nonetheless as early applied to this particular element, because these rare assets you might be reading in Financial Times and Wall Street. If Chinese government taking shots, their pulling punches and 90% of the world’s production of rare earth come from China today, it may change at this price increase of 1000% in such short period there will be bunch of new mines opening up including one in Untied States in the West Coast and few more. So right now, you are in a tough spot, you means, anybody who buys neodymium or ferrite. You are lucky to get your allocation and nobody is going to hedge, because when those things gone up 1000%, you go to an insurance or any hedging it doesn't work.

So right now what we are doing, with our skill we are able to have at least guaranteed amount allocated to us and pricing is what government has set there is not much you can do with the pricing. What we can do is we do a lot of alternatives product design so we will use different materials, we know that, we can use bunch of other things with different characteristics and how do we do the acoustics characteristics tuning that something we know, we have patterns on that. We do that plus in the meantime, we’re going to pass this cost entries to our customers.

Automotive industry generally tracks the commodity and minerals pricing index and we have all reasons to believe that a reasonable discussion would yield to reasonable results, but it is to too early for us to say that's why we’re going to update you all with our first quarter earnings release, by then you would have better information how negotiations with our German automakers, the Japanese and the Americans and in the meantime we will have a heck of a good idea of how much what products is the fact we know that, but how many products we can design differently so that we design now this cost impact, so that’s what we are.

I think we are doing very well in the situation we are in and I feel comfortable with the steps we have taken and the impact we have to share with you. This is one of those things. We will resolve it one way or the other, it's not going to be hanging around on our head for long time, it's a question of timing. So that's why I didn't want to say anything beyond 2012. We have to resolve this neodymium challenge in 2012 so that ’13 can be a good clean start.

Unidentified Analyst

Thank you.

Dinesh C. Paliwal

You're welcome.

Operator

Our next question is a follow-up question from the line of David Leiker with Baird. Please proceed.

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

Hello again.

Herbert K. Parker

Hi, David.

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

Dinesh on the pro side with the year ending, can you, I know that business sells into a lot of different end markets, but is there a way you could get us a sense of what that revenue mix is between large project stadiums, concert hall things like that versus recording studios versus other, is there any bucketing we can do there to look at that revenue mix?

Dinesh C. Paliwal

I can give you a broad idea. I think we had shared the pie charts how the business splits and what the market shares are. I don’t have it in front of me, but I do have pretty good idea. Our largest businesses are installed sound business, okay. That’s about one third of out total revenue, that means large installation venues and that’s why we are reasonably upbeat that we will do well in fiscal ’12 because there are large installations coming up in South America particularly Brazil, Russia is booming, China is booming, India is booming, Eastern European countries doing well and even in United States in anemic growth environment, we’re getting a lot of requests for places of worship installations and also a lot of upgrades of analog to digital change over. So installation business generally get effected with the recession and we were hurting for a quite some time, and now we are seeing inquiry level quite significantly picked up, which means it should turn into orders and revenue soon and book and bill in this business would be three to six months. Then we have got of course, the touring sound that business is finally picking up. That’s probably one of the – I would say, second or third largest. then we had this musicians business, then we have our headphone business. So in those, the six categories total we have.

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

Okay.

Dinesh C. Paliwal

But I hesitate and to give complete breakdown, because we have not given, just wanted to give you the largest one is installed sound.

Cinema is another one I forgot. David, cinema is another, which is big and we have done very well traditionally, 60% world market share we have, but there, the growth is not coming from Europe or US, the growth is coming, explanation growth is coming from China, India particularly those are the cinema loving countries.

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

And with some of the turmoil and things going on around the world are you seeing any slowing in schedules in terms of that or the pipeline of future projects, has that slipped at all?

Dinesh C. Paliwal

I don’t know we will see. I mean we have to assess this, the latest situation in the US downgrade, what have you and what does that do in terms of ripple effect in Europe if it all it does, but at the moment, we have nothing to report, we feel things are fine.

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

And then if you look at the European business, particularly the German automakers that have been a key engine of growth. Some of those automakers I know didn't shut down here all of August. My question here is have you seen any slipping in production schedules there at all in the real near term with some of this turmoil going on around the world?

Dinesh C. Paliwal

David, none whatsoever. We’re very pleased with our German situation. And in fact, we have received now written accolades from German suppliers that how we handle their sourcing particularly after the math, after the Japanese tsunami disaster we handled very well, we ran entire production line coming for them. No disruptions from our side while they had from our Japanese competitors to be precise. So things are looking good and we see Germany continues to lead the way in Europe. They have lot of sort of tail wind.

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

Okay. And then one last item. I'm sure at your Analyst Day you'll talk about 2012 here a little bit more. But we finished 2011 here with earnings on a non-GAAP basis right around $2 call it, plus or minus $0.50 a quarter. As we looked at 2012, is there any qualitative comments you can give us in terms of what moves that number higher, any offsets to that that we might see?

Dinesh C. Paliwal

Well, as I said in opening comments, I can only reiterate that, despite these neodymium situation will still make, we feel comfortable in saying that we will improve the profitability. You should expect that anyway because we came out $2.08 even if you put you know the one ops lets say 230, 235 depends who does the calculation, but we take your numbers. So we should see improvement, now you’re questioning, you’re asking where it would it come from, well will it continue to come from productivity improvement in across the two divisions lifestyle, I definitely expect synergy effect to coming with combining the consumer and automotive audio. So I expect that. We didn’t have this neodymium headwind I would have given you the number some 200 basis point improvement, but now we will see how we handle this and how the negotiations of the customers come out.

Then infotainment, that’s something I hope you guys really give some credit to us, because we are leader in profitability and we have done a superb job from 0.5% to 4.2% and we believe this trend is picking up speed, so we should continue to see improvement there too and that’s going come from backlog, that’s a clear one. We do backlog analysis by year. We also look at backlog by quarterly, the profitability in each quarter as it comes out and it’s improving, it’s a nice trend going forward, it’s a timing issue.

And then BRIC countries last, but most important, BRIC country business is very profitable. I wish I could have BRIC country business even going faster than 68%, but even 68% creates a lot of growing pain for the company for anybody. So that’s very good business, because anything we do at BRIC countries there are different price levels and they accept it.

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

Okay, great. Thank you very much.

Dinesh C. Paliwal

You’re welcome.

Operator

(Operator Instructions) At this time we have no more questions registered.

Dinesh C. Paliwal

[Jincy] we’re going to give our friends another minute as we typically do because they're digesting a lot of information and I will hold, I will pause and let us see if there are any other questions or clarification. Of course, to our listeners we will be on the road we’ll be meeting lots of you one on one, Herbert and I and Bob Lardon so we’ll be doing that, but let's give our self another minute here.

Operator

Very good (Operator Instructions)

Dinesh C. Paliwal

Well, if there’s no other question, I will only say that I sincerely request you to look at the slide that we have put in and a lot of good information particularly for your models as we go forward we’ve given you new structure pro forma EBIT, sales as an example infotainment how it has developed from 0.1% EBIT to 4.2% or one year, how lifestyle has been coming up from 5.1% in 2009 for 10% in ’11, professional from 12.7 to 15.8 in two years time. So I would encourage you to take time to see. Also we have other good information here in terms of orders and what have you.

All right, so if there are no other questions, I would like to close it by once again thanking all of you for dialing in and listening our Harman story. Obviously, we are very encouraged with what we have and what we could do in our company operationally. We feel we are best-in-class in how we manage our operations. Obviously, we cannot control all external factors, but we do know that we’ll find ways to circumvent and offset as much as we can including the argument. So we remain pretty bullish about our company’s future. As Herbert has said many times that we don’t run the company on a quarterly basis, if you keep on looking at us on an annual basis, you will find in Harman a great investment thesis.

I thank you all and wish you a very good day and we will be seeing you in one-on-one.

Operator

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

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