Harman F2Q06 (Qtr Ending Dec 31, 2005) Earnings Conference Call Transcript (HAR)

Harman International (HAR)
Q2 2006 Earnings Conference Call
January 25th 2006, 4:30 PM.

Executives:

Dr Sidney Harman, Executive Chairman
Kevin L Brown, CFO
Greg Henry, Treasurer& Principle Officer for Investor Relations
Bernard Girod, CEO

Analysts:

John Rogers, CitiGroup
Godfrey Burkett, SBK Brothers
Peter Barry, Bear Stearns
Lehman Brothers, Jeff Kessler
Ron Tadross, Bank of America Securities
Chris Ceraso, Credit Suisse
Scott Merlis, Thomas Weisel Partners

Presentation

Operator

Ladies and Gentleman, thank you very much for standing by. We do appreciate your patience today while the conference assembled and good afternoon. Welcome to the Harman International Industries Second Quarter Fiscal 2006 Earnings Release Conference Call. Operator Instructions Certain statements made by the company during this call are forward-looking statements. These statements include the company’s beliefs and expectations as to future events and trends affecting the company’s business and are subject to risks and uncertainties. Persons participating on the call today are advised to review the reports filed by Harman International with the Securities and the Exchange Commission regarding these risks and uncertainties. Well with that being said and here with our opening remarks, it’s always my pleasure to introduce Harman International Industries’ Executive Chairman, Dr. Sidney Harman. Happy New Year, Dr. Harman and please go ahead sir.

Dr Sidney Harman, Executive Chairman

Happy New Year friends. Good afternoon, I am joined today again in Northridge by Bernard Girod, our CEO; Kevin Brown, our CFO; and Greg Henry, our treasurer and Principle Officer for Investor Relations. We will report today on our second quarter results and we will provide perspective on the balance of the year and the years ahead.

Consolidated sales in the second quarter totaled $832.645 million. On those sales, we generated operating profit of $115.860 million, a solid 13.9%. We are in the $1.07 in the quarter. As a consequence, we complete the first half of the year with sales of $1.587293 billion, operating profit of $194.053 million equal to 12.2%, earnings per share of $1.86. Five key elements effect and define our work.

The first is the continued growth of significant new awards to our automotive OEM division. The second is the arch of R&D expense. The third is the scale and quality of our consumer business. The fourth is the character of our professional business and the fifth is the impact of currency and taxes on our earnings.

I will comment briefly, Bernie and Kevin will develop each of them more completely. At automotive OEM, we have received two additional awards of consequence. We have been selected by BMW to develop and supply the next generation BMW infotainment platform. This totally new vehicle platform will be introduced in 2009. The development based on Harman-Becker’s scalable platform has begun; finalization of the contract is underway. We have also received the award from Mercedes Benz for it’s new E-class mid level infotainment system with full Navigation Display and Voice Control along with an all digital Logic 7® high content Harman Kardon branded audio system.

We are now very well positioned at BMW and we see ourselves as the prime provider for Mercedes Benz, with the entire S class, the mid level system for E, the mid level system for C and Harman Kardon branded audio systems throughout the range. When added to our recently received awards from Audi and PSA, these new commitments round out the order books for fiscal ‘08 and fiscal ‘09. We have a very active role in the full range of industry models from entry level to mid level to high end. Bernie will present an updated view of fiscal ‘06 and ‘07.

R&D expense is a major factor in our operations and it has understandably grown over the years. For the second quarter and the year, we expect it to be over 9% of sales, that level of investments in Research and Development will continue in fiscal ’07. It should begin to decline in ’08.

Our consumer business is very healthy and we have many good reasons to expect it to continue to grow at both the top and operating percentage lines. Sales for the quarter reached a $155.008 million. Operating profit of $21.993 million represented a very impressive 14.2% in the quarter. We expect operating profit to be a 10% for the year consumer and to grow half a point next year. We are the leading provider of multimedia products for iPod Docking and Loud Speaker reproduction.

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