Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 31, 2006

Commission File Number: 1-9764

Harman International Industries, Incorporated

(Exact name of registrant as specified in its charter)

Delaware		11-2534306
(State or other jurisdiction of incorporation or organization)		(I.R.S. EmployerIdentification No.)

1101 Pennsylvania Avenue, NW,
Suite 1010
Washington, DC		20004
(Address of principal executive offices)		(Zip code)

(202) 393-1101
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x

Accelerated filer ¨

Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

As of January 31, 2007, 65,502,975 shares of common stock, par value $.01, were outstanding.

Harman International Industries, Incorporated and Subsidiaries

Form 10-Q

TAB LE OF CONTENTS

		Page
Part I	FINANCIAL INFORMATION	Number


Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets December 31, 2006 (unaudited) and June 30, 2006	4

	Condensed Consolidated Statements of Operations (unaudited) Three and Six months ended December 31, 2006 and 2005	5

	Condensed Consolidated Statements of Cash Flows (unaudited) Six months ended December 31, 2006 and 2005	6

	Notes to Condensed Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25

Item 4.	Controls and Procedures	26

Part II	OTHER INFORMATION

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27

Item 4.	Submission of Matters to a Vote of Security Holders	27

Item 6.	Exhibits	28

	Signatures	29

The page numbers in this Table of Contents reflect actual page numbers, not EDGAR page tag numbers.

References to “Harman International,” the “Company,” “we,” “us” and “our” in this Form 10-Q refer to Harman International Industries, Incorporated and its subsidiaries unless the context requires otherwise.

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Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934. You should not place undue reliance on these statements. Forward-looking statements include information concerning possible or assumed future results of operations, capital expenditures, the outcome of pending legal proceedings and claims, including environmental matters, goals and objectives for future operations, including descriptions of our business strategies and purchase commitments from customers. These statements are typically identified by words such as “believe,” “anticipate,” “expect,” “plan,” “intend,” “estimate” and similar expressions. We base these statements on particular assumptions that we have made in light of our industry experience, as well as our perception of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances. As you read and consider the information in this report, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties and assumptions. In light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking statements contained in this report will in fact transpire.

You should carefully consider the risks described below and the other information in this report. Our operating results may fluctuate significantly and may not meet our expectations or those of securities analysts or investors. The price of our stock would likely decline if this occurs. Factors that may cause fluctuations in our operating results include, but are not limited to, the following:

•	automobile industry sales and production rates and the willingness of automobile purchasers to pay for the option of a premium audio system and/or a multi-functional infotainment system;

•	changes in consumer confidence and spending;

•	fluctuations in currency exchange rates and other risks inherent in international trade and business transactions;

•	our ability to satisfy contract performance criteria, including technical specifications and due dates;

•	our ability to design and manufacture our products profitably under our long-term contractual commitments;

•	the loss of one or more significant customers, including our automotive manufacturer customers;

•	competition in the automotive, consumer or professional markets in which we operate;

•	model-year changeovers in the automotive industry;

•	changes in general economic conditions and specific market conditions;

•	our ability to enforce or defend our ownership and use of intellectual property;

•	our ability to effectively integrate acquisitions;

•	strikes, work stoppages and labor negotiations at our facilities or at a facility of one of our significant customers; or work stoppages at a common carrier or a major shipping location;

•	the outcome of pending or future litigation and administrative claims, including patent and environmental matters; and

•	world political stability.

Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements. As a result, the forgoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this and other reports we file with the Securities and Exchange Commission, including the information in Item 1A, “Risk Factors” of Part I to our Annual Report on Form 10-K for the fiscal year ended June 30, 2006.

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Part I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

Con densed Consolidated Balance Sheets

Harman International Industries, Incorp orated and Subsidiaries

($000s omitted except share amounts)

	December 31,			June 30,
	2006			2006
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	171,108			291,758
Receivables (less allowance for doubtful accounts of $8,910 at December 31, 2006 and $8,738 at June 30, 2006)		480,408			444,474
Inventories		454,682			344,957
Other current assets		172,915			168,168
Total current assets		1,279,113			1,249,357

Property, plant and equipment, net		511,618			521,935
Goodwill		396,219			381,219
Other assets		196,063			202,150
Total assets	$	2,383,013			2,354,661
Liabilities and Shareholders’ Equity
Current liabilities
Short-term borrowings	$	3,977			1,751
Current portion of long-term debt		17,012			16,337
Accounts payable		293,677			320,327
Accrued liabilities		396,442			414,093
Income taxes payable		144,143			116,493
Total current liabilities		855,251			869,001

Borrowings under revolving credit facility		118,495			159,900
Senior notes		2,882			19,566
Minority interest		2,007			2,716
Other non-current liabilities		79,230			75,314
Shareholders’ equity
Preferred stock, $.01 par value. Authorized 5,000,000 shares; none issued and outstanding		---			---
Common stock, $.01 par value. Authorized 200,000,000 shares; issued and outstanding 82,972,715 at December 31, 2006 and 82,754,909 at June 30, 2006		829			827
Additional paid-in capital		558,560			544,871
Accumulated other comprehensive income (loss):
Unrealized loss on hedging derivatives		(1,911	)		(3,267	)
Minimum pension liability adjustment		(11,805	)		(11,789	)
Cumulative foreign currency translation adjustment		82,895			64,280
Retained earnings		1,280,432			1,144,070
Less common stock held in treasury (17,611,282 shares at December 31, 2006 and 16,690,182 at June 30, 2006)		(583,852	)		(510,828	)
Total shareholders’ equity		1,325,148			1,228,164
Total liabilities and shareholders’ equity	$	2,383,013			2,354,661

See accompanying notes to condensed consolidated financial statements.

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Con densed Consolidated Statements of Operations

Harman International Industries, Incorporated and Subsidiaries

(000s omitted except per share amounts)

(Unaudited)

	Three months ended						Six months ended
	December 31,						December 31,
	2006			2005			2006			2005

Net sales	$	931,717			832,645			1,757,260			1,587,293
Cost of sales		612,079			526,876			1,150,333			1,015,229
Gross profit		319,638			305,769			606,927			572,064

Selling, general and administrative expenses		203,918			189,909			404,289			378,011
Operating income		115,720			115,860			202,638			194,053

Other expenses:
Interest expense, net		498			4,558			637			8,397
Miscellaneous, net		484			1,156			1,345			1,770

Income before income taxes and minority interest		114,738			110,146			200,656			183,886

Income tax expense, net		33,839			37,968			63,474			57,741
Minority interest		(490	)		(357	)		(815	)		(357	)

Net income	$	81,389			72,535			137,997			126,502

Basic earnings per share	$	1.25			1.10			2.11			1.92
Diluted earnings per share	$	1.22			1.07			2.07			1.86

Weighted average shares - basic		65,285			65,771			65,401			65,944
Weighted average shares - diluted		66,525			67,948			66,592			68,185

See accompanying notes to condensed consolidated financial statements.

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Co ndensed Consolidated Statements of Cash Flows

Harman International Industries, Incorporated and Subsidiaries

($000s omitted)

(Unaudi ted)

	Six months ended
	December 31,
	2006			2005

Cash flows from operating activities:
Net income	$	137,997			126,502
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		61,497			64,396
(Gain)/loss on disposition of assets		1,607			(55	)
Stock option expense		8,276			7,901
Excess tax benefits from share-based payment arrangements		---			(6,000	)
Changes in working capital, net of acquisition/disposition effects:
Decrease (increase) in:
Receivables		(23,003	)		9,329
Inventories		(101,579	)		(13,047	)
Other current assets		(10,161	)		(14,218	)
Increase (decrease) in:
Accounts payable		(32,370	)		(53,392	)
Accrued liabilities		(24,347	)		34,056
Income taxes payable		22,899			42,599
Other operating activities		7,198			5,738
Net cash provided by operating activities	$	48,014			203,809
Cash flows from investing activities:
Payment for purchase of companies, net of cash acquired	$	(4,525	)		(9,333	)
Proceeds from asset dispositions		1,027			793
Capital expenditures		(39,447	)		(45,323	)
Other items, net		(537	)		(5,134	)
Net cash used in investing activities	$	(43,482	)		(58,997	)
Cash flows from financing activities:
Net increase (decrease) in short-term borrowings	$	2,266			(844	)
Net borrowings (repayments) under revolving credit facility		(44,065	)		75,000
Repayment of long-term debt		(13,168	)		---
Other increase (decrease) in long-term debt		(3,985	)		866
Repurchase of common stock		(73,023	)		(118,972	)
Dividends paid to shareholders		(1,635	)		(1,650	)
Exercise of stock options		5,414			2,367
Excess tax benefits from share-based payment arrangements		---			6,000
Other		---			109
Net cash used in financing activities	$	(128,196	)		(37,124	)
Effect of exchange rate changes on cash		3,014			(4,403	)
Net increase (decrease) in cash and cash equivalents	$	(120,650	)		103,285
Cash and cash equivalents at beginning of period		291,758			291,214
Cash and cash equivalents at end of period	$	171,108			394,499
Supplemental disclosure of cash flow information:
Interest paid	$	2,395			7,643
Income taxes paid	$	40,648			23,208
Supplemental schedule of non-cash investing activities:
Fair value of assets acquired	$	---			9,258
Cash paid for the assets		---			6,133
Liabilities assumed	$	---			3,125

See accompanying notes to condensed consolidated financial statements.

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HA RMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unau dited)

Note 1. Basis of Presentation

Our unaudited, condensed consolidated financial statements at December 31, 2006 and for the three and six months ended December 31, 2006 and 2005, have been prepared pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”). These unaudited condensed consolidated financial statements do not include all information and footnote disclosures included in our audited financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments and accruals, necessary to present fairly, in all material respects, the consolidated financial position, results of operations and cash flows for the periods presented. Operating results for the three and six months ended December 31, 2006 are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2007 due to seasonal, economic and other factors.

Where necessary, information for prior periods has been reclassified to conform to the consolidated financial statement presentation for the corresponding periods in the current fiscal year.

These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2006.

Note 2. Inventories

Inventories consist of the following:

	December 31,		June 30,
($000s omitted)	2006		2006
Finished goods	$	223,068		147,663
Work in process		51,797		45,954
Raw materials		179,817		151,340
Total	$	454,682		344,957

Inventories are stated at the lower of cost or market value. Cost is determined principally by the first-in, first-out method. The valuation of inventory requires us to make judgments and estimates regarding obsolete, damaged or excess inventory as well as current and future demand for our products. The estimates of future demand along with analysis of usage data that we use in the valuation of inventory are the basis for our inventory reserves and have an effect on our results of operations. We calculate inventory reserves using a combination of a lower of cost or market analysis, an analysis of historical usage data, forecast demand data and historical disposal rates. Lower of cost or market analysis is typically applied to those items of inventory that represent a substantial portion of the total value of inventory on-hand. The high-value units typically represent a small percentage of the total inventory items, so identification of obsolescence or valuation reserve requirements for the balance of the inventory on-hand is accomplished using either historical or forecast usage to identify slow-moving or obsolete items.

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Note 3. Warranty Liabilities

We warrant our products to be free from defects in materials and workmanship for periods ranging from one to five years from the date of purchase, depending on the product. The warranty is a limited warranty, and it may impose certain shipping costs on the customer and excludes deficiencies in appearance except for those evident when the product is delivered. Our dealers and warranty service providers normally perform warranty service for loudspeakers and electronics in the field, using parts supplied on an exchange basis by our company. Estimated warranty liabilities are based upon past experience with similar types of products, the technological complexity of certain products, replacement cost and other factors. We take these factors into consideration when assessing the adequacy of our warranty provisions for periods still open to claim.

Details of the estimated warranty liabilities are as follows:

	Six months ended
	December 31,
($000s omitted)	2006			2005

Beginning balance (June 30)	$	60,768			48,582
Warranty provisions		29,506			22,756
Warranty payments (cash or in-kind)		(21,320	)		(17,155	)
Ending balance	$	68,954			54,183

The warranty liabilities are included in accrued liabilities.

Note 4. Comprehensive Income

The components of comprehensive income are as follows:

	Three months ended						Six months ended
	December 31,						December 31,
($000s omitted)	2006			2005			2006			2005

Net income	$	81,389			72,535			137,997			126,502
Other comprehensive income (loss):
Foreign currency translation		24,527			(11,405	)		18,615			(15,039	)
Unrealized gains (losses) on hedging		(82	)		(893	)		1,356			(393	)
Minimum pension liability adjustment		(20	)		35			(16	)		50
Total other comprehensive income	$	105,814			60,272			157,952			111,120

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The components of accumulated other comprehensive income (loss) as of December 31, 2006 and June 30, 2006 and the activity for the six months ended December 31, 2006 are presented below:

($000s omitted)	Unrealized gain (loss) on hedging derivatives			Minimum pension liability adjustment			Cumulative foreign currency translation adjustment		Accumulated other comprehensive income (loss)

June 30, 2006	$	(3,267	)		(11,789	)		64,280		49,224
Foreign currency translation adjustments		---			---			18,615		18,615
Change in fair value of foreign currency cash flow hedges		1,356			---			---		1,356
Minimum pension liability adjustment		---			(16	)		---		(16	)
December 31, 2006		(1,911	)		(11,805	)		82,895		69,179

Note 5. Earnings Per Share

The following table presents the calculation of basic and diluted earnings per common share outstanding:

	Three months ended December 31,
(000s omitted except per share amounts)	2006				2005
	Basic		Diluted		Basic		Diluted
Net income	$	81,389		81,389		72,535		72,535

Weighted average shares outstanding		65,285		65,285		65,771		65,771
Employee stock options		---		1,240		---		2,177
Total weighted average shares outstanding		65,285		66,525		65,771		67,948

Earnings per share	$	1.25		1.22		1.10		1.07

	Six months ended December 31,
(000s omitted except per share amounts)	2006				2005
	Basic		Diluted		Basic		Diluted
Net income	$	137,997		137,997		126,502		126,502

Weighted average shares outstanding		65,401		65,401		65,944		65,944
Employee stock options		---		1,191		---		2,241
Total weighted average shares outstanding		65,401		66,592		65,944		68,185

Earnings per share	$	2.11		2.07		1.92		1.86

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Certain options were outstanding and not included in the computation of diluted earnings per share because the assumed exercise of these options would have been antidilutive. Options to purchase 557,175 shares of our common stock with exercise prices ranging from $78.00 to $126.94 per share during the quarter ended December 31, 2006 and options to purchase 912,664 shares of our common stock at prices ranging from $82.00 to $126.94 per share during the quarter ended December 31, 2005, were outstanding and not included in the computation of diluted earnings per share because the exercise of these options would have been antidilutive.

Options to purchase 1,115,802 shares of our common stock at prices ranging from $75.22 to $126.94 per share during the six months ended December 31, 2006 and options to purchase 824,468 shares of common stock at prices ranging from $75.22 to $126.94 per share during the six months ended December 31, 2005, were outstanding and not included in the computation of diluted earnings per share because the exercise of these options would have been antidilutive.

Note 6. Stock Options

On December 31, 2006, we had one share-based compensation plan with shares available for future grants, the 2002 Stock Option and Incentive Plan (the “2002 Plan”). The 2002 Plan permits the grant of stock options, stock appreciation rights and restricted stock. In 2006, the Company’s Board of Directors approved amendments to the 2002 Plan. The amendments provide for the issuance of restricted share units under the 2002 Plan, to reduce the number of options granted annually to non-management directors from a maximum of 9,000 to a fixed number of 5,000 and increase the initial one-time grant of options to new non-management directors from 6,000 to 8,000.

Share-based compensation expense was $4.6 million and $4.0 million for the quarters ended December 31, 2006 and 2005, respectively, and $8.3 million and $7.9 million for the six months ended December 31, 2006 and December 31, 2005, respectively. Share-based compensation expense has been recorded in selling, general and administrative expense for the quarter and six months ended December 31, 2006 and 2005. The total income tax benefit recognized in the income statement for share-based compensation arrangements was $1.4 million and $1.1 million for the quarters ended December 31, 2006 and 2005, respectively, and $2.5 million and $2.2 million for the six months ended December 31, 2006 and 2005, respectively.

Fair Value Determination

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model, which uses the assumptions noted in the following table:

	Six months ended December 31,
	2006	2005

Expected volatility	35.0% - 42.0%	38.0 - 42.0%
Weighted-average volatility	39.2%	38.5%
Expected annual dividend	$0.05	$0.05
Expected term (in years)	1.55 - 7.69	4.24 - 6.33
Risk-free rate	4.4% - 5.0%	3.9 - 4.3%

Groups of option holders (directors, executives and non-executives) that have similar historical behavior are considered separately for valuation purposes. Expected volatilities are based on historical closing prices of our common stock over the expected option term. We use historical data to estimate option exercises and employee terminations within the valuation model. The expected term of options granted is derived using the option valuation model and represents the estimated period of time from the date of grant that the option is expected to remain outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

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Stock Option Activity

A summary of option activity under our stock option plans as of December 31, 2006 and changes during the six months ended December 31, 2006 is presented below:

	Shares			Weighted average exercise price		Weighted average remaining contractual term (years)		Aggregate intrinsic value ($000s omitted)

Outstanding at June 30, 2006		3,299,720		$	47.04
Granted		325,000			80.50
Exercised		(213,474	)		27.01
Forfeited or expired		(100,640	)		81.31
Outstanding at December 31, 2006		3,310,606			50.58		6.29	$	164,349
Exercisable at December 31, 2006		1,938,876		$	33.49		4.97	$	129,176

The weighted-average grant-date fair value of options granted during the quarters ended December 31, 2006 and 2005 was $37.01 and $47.54, respectively. The weighted-average grant-date fair value of options granted during the six months ended December 31, 2006 and 2005 was $34.99 and $30.24, respectively. The total intrinsic value of options exercised during the quarters ended December 31, 2006 and 2005 was $12.2 million and $7.8 million, respectively. The total intrinsic value of options exercised during the six months ended December 31, 2006 and 2005 was $15.3 million and $24.7 million, respectively.

A summary of the status of our nonvested shares of restricted stock as of December 31, 2006 and changes during the six months ended December 31, 2006 is presented as follows:

	Shares			Weighted average grant-date fair value

Nonvested at June 30, 2006		37,000		$	85.36
Granted		---			---
Vested		---			---
Forfeited		(25,000	)		86.98
Nonvested at December 31, 2006		12,000			82.00

As of December 31, 2006, there was $0.4 million of total unrecognized compensation cost related to nonvested restricted share-based compensation arrangements granted under the 2002 Plan. The weighted average recognition period is 1.62 years. No shares of restricted stock vested in the six months ended December 31, 2006.

During the quarter ended December 31, 2006, 25,000 restricted share units were granted with a zero-value exercise price and an aggregate intrinsic value of $2.5 million. As of December 31, 2006, there was $1.5 million of total unrecognized compensation cost related to restricted share unit compensation arrangements granted under the 2002 Plan. The weighted average recognition period is 2.75 years. No restricted share units vested or were exercisable in the six months ended December 31, 2006.

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Note 7. Business Segment Data

We design, manufacture and market high-quality, high fidelity audio products and electronic systems for the automotive, consumer and professional markets. We organize our businesses into reporting segments based upon the end-user markets served. Our chief operating decision makers e valuate performance and allocate resources primarily based on net sales, operating income and working capital in each of the reporting segments. We report on the basis of three segments: Automotive, Consumer and Professional.

Our Automotive segment designs, manufactures and markets audio, electronic and infotainment systems for vehicle applications primarily to be installed as original equipment by automotive manufacturers. Our automotive products and systems are marketed worldwide under brand names including JBL, Infinity, Harman/Kardon, Becker, Logic 7 and Mark Levinson. Our premium branded audio, video, navigation and infotainment systems are offered to automobile manufacturers through engineering and supply agreements. See Note 12 “Significant Customers.”

Our Consumer segment designs, manufactures and markets audio, video and electronic systems for home, mobile and multimedia applications. Our Consumer home products and systems are marketed worldwide under brand names including JBL, Infinity, Harman/Kardon, Lexicon, Mark Levinson and Revel. Our audio and electronic products are offered through audio/video specialty and retail chain stores. Our branded audio products for multimedia applications are focused on retail customers that sell products designed to enhance sound for computers, Apple’s iPods and other music control players.

The Professional segment designs, manufactures and markets loudspeakers and electronic systems used by audio professionals in concert halls, stadiums, houses of worship, airports and other public spaces. We also create products for recording, broadcast, cinema and music reproduction applications. Our Professional products are marketed worldwide under brand names including JBL Professional, AKG, Crown, Soundcraft, Lexicon, Digitech, dbx and Studer. We provide high-quality products to the sound reinforcement, music instrument support and broadcast and recording segments of the professional audio market. We offer complete systems solutions for professional installations and users around the world.

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The following table reports net sales and operating income (loss) by each reporting segment:

	Three months ended						Six months ended
	December 31,						December 31,
($000s omitted)	2006			2005			2006			2005
Net sales:
Automotive	$	632,303			547,584			1,233,301			1,067,880
Consumer		163,011			155,008			256,137			266,376
Professional		136,403			130,053			267,822			253,037
Total	$	931,717			832,645			1,757,260			1,587,293

Operating income (loss):
Automotive	$	92,408			88,021			182,576			161,958
Consumer		14,701			21,993			10,252			32,571
Professional		20,098			14,984			37,173			27,851
Other		(11,487	)		(9,138	)		(27,363	)		(28,327	)
Total	$	115,720			115,860			202,638			194,053

Other operating loss is comprised of activity related to our corporate operations, net of reporting segment allocations.

Note 8. Derivatives

We use foreign currency forward contracts to hedge a portion of our forecasted foreign currency denominated purchase transactions. These forward contracts are designated as foreign currency cash flow hedges and recorded at fair value in the accompanying consolidated balance sheet with a corresponding entry to other accumulated comprehensive income (loss) until the underlying forecasted foreign currency transaction occurs.

When the transaction occurs, the gain or loss from the derivative designated as a hedge of the transaction is reclassified from accumulated other comprehensive income (loss) to the same income statement line item in which the foreign currency gain or loss on the underlying hedged transaction is recorded. When it becomes apparent that an underlying forecasted transaction will not occur, the amount recorded in accumulated other comprehensive income (loss) related to the hedge is reclassified to the miscellaneous, net line of the income statement in the then-current period.

Because the amounts and the maturities of the derivatives approximate those of forecasted exposures, changes in the fair value of the derivatives are highly effective in offsetting changes in the cash flows of the hedged items. When we determine that a hedge has become ineffective, the ineffective portion of the hedge is recorded in current earnings.

At December 31, 2006, we had contracts maturing through June 2008 to sell Euros and buy U.S. Dollars of approximately $65.9 million, and through June 2007 to buy Canadian dollars and sell US dollars of approximately $3.9 million, to hedge future foreign currency purchases. At December 31, 2006, the amount associated with these hedges that is expected to be reclassified from accumulated other comprehensive income (loss) to earnings within the next twelve months is a loss of approximately $2.0 million and thereafter a gain of $0.1 million. These amounts represent the fair market value of these foreign currency forward contracts at December 31, 2006. In the six months ended December 31, 2006 we recognized approximately $1.7 million in net losses from cash flow hedges of forecasted foreign currency transactions compared to $3.6 million in net gains in the same period last year.

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As of December 31, 2006, we also had contracts maturing through January 2007 to purchase and sell the equivalent of $60.8 million of various currencies to hedge foreign currency denominated loans to foreign subsidiaries. These loans are of a long-term investment nature. Adjustments to the carrying value of the foreign currency forward contracts offset the gains and losses on the underlying loans in the same statement of operations line item. At December 31, 2006, the market value of these contracts was a net loss of $1.2 million.

Note 9. Commitments and Contingencies

At December 31, 2006, we were involved in several legal actions. The outcome of these legal actions cannot be predicted with certainty; however, management, based upon advice from legal counsel, believes such actions are either without merit or will not have a material adverse effect on our financial position or results of operations. In fiscal 2005, we recorded a $6.0 million liability for probable unasserted claims. There was no change in the status of these claims at December 31, 2006.

At December 31, 2006, our Board of Directors has authorized the repurchase of a total of up to 20 million shares of common stock. During the quarter ended December 31, 2006, no shares of common stock were repurchased. Through December 31, 2006, we had acquired and placed in treasury 17,611,282 shares of our common stock at a total cost of $583.9 million. We expect future share repurchases to be funded primarily with cash generated by operations and borrowings under our revolving credit facility.

Note 10. Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements . The statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles in the United States of America (“GAAP”), and enhances disclosures about fair value measurements. This statement applies when other accounting pronouncements require fair value measurements; it does not require new fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. We do not expect SFAS No. 157 to have a material impact on our consolidated financial statements upon adoption during fiscal 2009.

In September 2006, FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans . This statement requires an employer to recognize on its balance sheet the overfunded or underfunded status of a defined benefit postretirement plan measured as the difference between the fair value of plan assets and the benefit obligation. Employers must also recognize as a component of accumulated other comprehensive income, net of tax, the actuarial gains and losses and the prior service costs and credits that arise during the period. SFAS No. 158 requires companies to apply the requirement to recognize the funded status of a benefit plan and the disclosure requirements as of the end of the fiscal years ending after December 15, 2006. We are currently assessing the impact of adoption of SFAS No. 158 for the 2007 fiscal year end.

In September 2006, the SEC released SEC Staff Accounting Bulletin (“SAB”) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements , which addresses how uncorrected errors in previous years should be considered when quantifying errors in current-year financial statements. SAB No. 108 requires registrants to consider the effect of all carry over and reversing effects of prior-year misstatements when quantifying errors in current-year financial statements. SAB No. 108 allows registrants to record the effects of adopting the guidance as a cumulative-effect adjustment to retained earnings. This adjustment must be reported as of the beginning of the first fiscal year ending after November 15, 2006. We do not expect SAB No. 108 to have a material impact on our consolidated financial statements.

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Note 11. Pensions and Other Postretirement Benefits

We provide defined benefit pension and other postretirement benefits to certain eligible employees. In Europe, we have business units that maintain defined benefit pension plans for certain current and former employees. Generally, plan benefits are based on age, years of service and average compensation during the final years of service. In the United States, other postretirement benefits are comprised of an unfunded Supplemental Executive Retirement Plan (SERP) that provides retirement, pre-retirement and termination benefits, as defined, to certain key executives designated by our Board of Directors.

Our pension and other postretirement benefit plans are more fully disclosed in Notes 1 and 12 to our Consolidated Financial Statements included in Item 8 of our Annual Report on Form 10-K for the year ended June 30, 2006. The following table presents the components of net periodic benefit costs for the three months ended December 31, 2006 and 2005:

	Pension benefits						Other postretirement benefits
($000s omitted)	2006			2005			2006		2005
Components of net periodic benefit cost:

Service cost	$	382			300			388		400
Interest cost		590			466			616		587
Expected return on plan assets		(29	)		(24	)		---		---
Amortization of prior service cost		---			---			182		182
Amortization of net loss		(29	)		14			438		368
Net periodic benefit cost	$	914			756			1,624		1,537

The following table presents the components of net periodic benefit costs for the six months ended December 31, 2006 and 2005.

	Pension benefits						Other postretirement benefits
($000s omitted)	2006			2005			2006		2005
Components of net periodic benefit cost:

Service cost	$	756			607			776		800
Interest cost		1,173			946			1,232		1,174
Expected return on plan assets		(60	)		(48	)		---		---
Amortization of prior service cost		---			---			364		364
Amortization of net loss		---			27			876		736
Net periodic benefit cost	$	1,869			1,532			3,248		3,074

During the three and six months ended December 31, 2006, we made an insignificant contribution to the defined benefit pension plans and expect full year contributions to be immaterial.

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Note 12. Significant Customers

Presented below are the percentages of net sales to and receivables due from customers who represent 10 percent or more of our net sales or accounts receivable:

	Net sales						Receivables
	Six months ended December 31,						December 31,
	2006			2005			2006			2005
DaimlerChrysler		26	%		25	%		15	%		17	%
BMW		8			10			5			6
Other Customers		66			65			80			77
Total		100	%		100	%		100	%		100	%

We anticipate that DaimlerChrysler and BMW will continue to account for a significant portion of our net sales and accounts receivable for the foreseeable future. These automotive customers are not obligated to any long-term purchase of our products. The loss of sales to DaimlerChrysler or BMW would have a material adverse effect on our total consolidated net sales, earnings and financial position.

Note 13. Income Taxes

Income tax expense for the quarter ended December 31, 2006 was $33.8 million, compared to $38.0 million for the same period last year. The effective tax rate for the three months ended December 31, 2006 was 29.5 percent, compared to 34.5 percent in the prior year period. Income tax expense for the six months ended December 31, 2006 was $63.5 million, compared to $57.7 million for the same period last year. The effective tax rate for the six months ended December 31, 2006 was 31.6 percent, compared to 31.4 percent in the prior year period. During the quarter ended December 31, 2006, Congress reinstated the R&D tax credit resulting in a $4.0 million tax benefit. The tax rate for the prior year quarter included a $1.1 million charge for the repatriation of cash from our non-U.S. subsidiaries under the American Jobs Creation Act of 2004. We currently expect the tax rate for the full fiscal year 2007 to range between 32 and 33 percent.

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Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

General

The following discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the related notes included in Item 1 of this Quarterly Report on Form 10-Q, together with Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended June 30, 2006 (“2006 Form 10-K”). This discussion contains forward-looking statements. See the information under the caption “Forward-Looking Statements” on page 3 of this report.

We begin our discussion with an overview of our company to give you an understanding of our business and the markets we serve. This is followed with a discussion of our results of operations for the three and six months ended December 31, 2006 and 2005. This discussion includes an analysis of certain significant period-to-period variances in our consolidated statements of operations. We also provide specific information regarding our three reportable business segments. Our liquidity, capital resources and cash flows are discussed under the caption Financial Condition. We then provide a Business Outlook at the end of this discussion.

Overview

We design, manufacture and market high-quality, high fidelity audio products and electronic systems for the automotive, consumer and professional markets. We have developed, both internally and through a series of strategic acquisitions, a broad range of product offerings sold under renowned brand names in our principal markets. Our three reportable business segments, Automotive, Consumer and Professional, are based on the end-user markets we serve.

Automotive designs, manufactures and markets audio, electronic and infotainment systems for vehicle applications. Our systems are generally shipped directly to our automotive customers for factory installation. Infotainment systems are a combination of infotainment and entertainment components with features including or controlling GPS navigation, traffic information, cellular phone service, wireless Internet access, security, climate control, backup camera, digital audio playback and rear seat entertainment. These systems are increasingly developed using scaleable software allowing us to better serve a full range of vehicles from luxury through entry-level. Automotive also produces aftermarket personal navigation devices (“PNDs”) that are currently sold in Europe. Our PNDs leverage many of the successful applications developed by our Automotive segment.

Consumer designs, manufactures and markets audio, video and electronic systems for home, mobile and multimedia applications. Home product applications include systems to provide high-quality audio throughout the home and to enhance home theatre performance. Our aftermarket mobile products, including in-vehicle iPod adaptors, deliver audio entertainment in the vehicle. Our multimedia products include accessories for computers and portable electronic devices, such as the iPod and other MP3 players. Our consumer systems are primarily distributed through retail outlets.

Professional designs, manufactures and markets loudspeakers and electronic systems used by audio professionals in concert halls, stadiums, airports and other public spaces. We also create products for recording, broadcast, cinema and music reproduction applications. These products are increasingly linked by our HiQnet network protocol that provides a central digital network giving audio professionals control of a complex system from a central location.

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Our products are sold worldwide, with the largest markets being the United States and Germany. In the United States, our primary manufacturing facilities are located in California, Indiana, Kentucky, Missouri and Utah. Outside of the United States, we have significant manufacturing facilities in Germany, Austria, the United Kingdom, Mexico, Hungary, France and Switzerland. Our businesses operate using local currencies. Therefore, we are subject to currency fluctuations that are partially mitigated by the fact that we purchase raw materials and supplies locally when possible. Our operating results are especially affected by changes in the exchange rates of the Euro compared to the U.S. dollar since a significant percentage of our sales are in countries where the local currency is the Euro.

We experience seasonal fluctuations in sales and earnings. Historically, our first quarter ending September 30 is generally the weakest due to automotive model changeovers and the summer holidays in Europe. Our sales and earnings may also vary due to customer acceptance of our products, product offerings by our competitors and general economic conditions, including fluctuations in currency exchange rates.

We achieved record sales and earnings for the second quarter and six months ended December 31, 2006. Our Automotive and Professional business segments reported solid results when compared to the prior year periods, while our Consumer segment experienced lower operating income due primarily to increased competition in the North America multimedia market.

Critical Accounting Policies

Our critical accounting policies are described under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2006 Form 10-K. These policies include inventory valuation, allowance for doubtful accounts, warranty liabilities, income taxes, pre-production and development costs, goodwill and stock-based compensation. Also see Note 1 “Summary of Significant Accounting Policies” to our Consolidated Financial Statements included in our 2006 Form 10-K.

Results of Operations

Sales

Our net sales for the quarter ended December 31, 2006 were $931.7 million compared to $832.6 million in the same period last year, an increase of 12 percent. For the six months ended December 31, 2006, net sales were $1.757 billion compared to net sales of $1.587 billion in the same period last year, an increase of 11 percent. Foreign currency translation contributed approximately $43 million and $62 million respectively, for the three and six months ended December 31, 2006. For the three months ended December 31, 2006, each of our three operating groups reported higher sales when compared to the prior year period. For the six months ended December 31, 2006, the increase in net sales was primarily due to higher sales of our automotive audio and infotainment systems to automotive customers and higher automotive aftermarket sales of our personal navigation devices. For the six months ended December 31, 2006, Professional sales were up 6 percent and Consumer sales were down 4 percent when compared to the prior year.

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Presented below is a summary of our net sales by reporting segment:

($000s omitted)	Three months ended December 31,										Six months ended December 31,
	2006		%			2005		%			2006		%			2005		%
Net sales:
Automotive	$	632,303		68	%		547,584		66	%	$	1,233,301		70	%		1,067,880		67	%
Consumer		163,011		17	%		155,008		19	%		256,137		15	%		266,376		17	%
Professional		136,403		15	%		130,053		15	%		267,822		15	%		253,037		16	%
Total	$	931,717		100	%		832,645		100	%	$	1,757,260		100	%		1,587,293		100	%

Automotive - Net sales for the quarter ended December 31, 2006 increased $84.7 million, or 15 percent compared to the same perio d last year. Foreign currency translation contributed approximately $35 million to the increase in sales. Because a significant percentage of our automotive sales are to customers in Europe, Automotive is responsible for most of our foreign currency exposure. Increased sales of our infotainment systems to European automakers and strong sales of our aftermarket navigation products contributed significantly to the increase in sales over the prior period quarter. The primary contributors were higher sales of our infotainment systems to Mercedes-Benz to support higher production of the S-Class and higher sales of infotainment systems to Audi for its new Q7 platform. Sales of audio systems to Toyota/Lexus also increased due to the ramp up of the new Lexus LS460 and Toyota Camry. Aftermarket sales increased due to higher PDN sales in Europe. These increases in net sales were offset by lower sales to Porsche due to lower car production for the Cayenne.

Net sales for the six months ended December 31, 2006 increased $165.4 million, or 15 percent compared to the same period last year. Foreign currency translation contributed approximately $51 million to the increase in sales. The primary contributors to the higher sales were strong sales of our infotainment systems to Mercedes-Benz for the S-Class, E-Class, and B-Class platforms and higher sales of infotainment systems to Audi for its new Q7 platform. Sales of audio systems to Toyota/Lexus were also up due to the launch of the new Lexus LS460 and Toyota Camry. Strong sales of our new aftermarket PND, Traffic Assist, also contributed to the sales growth. These sales increases were partially offset by lower sales to BMW due to lower production for the 1 and 7-series and the phase-out of the current X5 and the postponed ramp up of the new X5 series. Sales to Porsche and Landrover were also lower than the prior year period.

Consumer - Net sales for the quarter ended December 31, 2006 increased $8.0 million, or 5 percent, compared to the same perio d last year. Foreign currency translation contributed approximately $6 million to the increase in sales compared to the prior year period. The in crease in n et sales was primarily due to higher international multimedia sales of the OnStage and OnTime products, which are accessories for the Apple iPod, and higher sales of Harman/Kardon home electronic products. These sales increases were partially offset by lower North America sales of Infinity loudspeakers and Harman/Kardon electronics due to the decision to exit distribution through a major North American retailer.

Net sales for the six months ended December 31, 2006 decreased $10.2 million, or 4 percent compared to the same period last year. Foreign currency translation contributed approximately $7 million to sales compared to the prior year period. The sales decrease was primarily due to lower North America multimedia sales due to increased competition within the multimedia market and lower Infinity loudspeaker and Harman/Kardon electronics sales due to the decision to exit distribution through a major retailer in North America.

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Professional - Net sales for the quarter ended December 31, 2006 increased $6.4 million, or 5 percent compared to the same period last year. Foreign currency translation contributed approximately $3 million to the increase in sales compared to the prior year. The increase in sales compared to the same period last year was primarily due to higher sales of JBL Professional and Crown products to major retailers. Soundcraft/Studer and AKG also contributed to the increase in sales due to higher sales of installed sound and mixing consoles.

Net sales for the six months ended December 31, 2006 increased $14.8 million, or 6 percent compared to the same period last year. Foreign currency translation contributed approximately $4 million to the increase in sales compared to the prior year. Professional sales were higher due to an increase in sales of JBL Professional and Crown products to our major US retailers. These increases were partially offset by lower Harman Music Group sales to retailers.

Gross Profit

Gross profit as a percentage of net sales decreased 2.4 percentage points to 34.3 percent for the quarter ended December 31, 2006 compared to 36.7 percent of sales in the same period last quarter. Gross profit as a percentage of net sales decreased 1.5 percentage points to 34.5 percent for the six months ended December 31, 2006 compared to 36.0 percent of sales in the same period in the prior year period.

Presented below is a summary of our gross profit by reporting segment:

($000s omitted)	Three months ended December 31,												Six months ended December 31,
	2006			Percent of net sales			2005			Percent of net sales			2006			Percent of net sales			2005			Percent of net sales
Gross Profit:
Automotive	$	225,420			35.7	%		206,903			37.8	%	$	440,160			35.7	%		391,182			36.6	%
Consumer		43,036			26.4	%		52,259			33.7	%		66,543			26.0	%		91,066			34.2	%
Professional		52,432			38.4	%		47,857			36.8	%		102,724			38.4	%		93,239			36.8	%
Other		(1,250	)		---			(1,250	)		---			(2,500	)		---			(3,423	)		---
Total	$	319,638			34.3	%		305,769			36.7	%	$	606,927			34.5	%		572,064			36.0	%

Automotive - Gross profit as a percentage of net sales decreased 2.1 percentage points for the quarter ended December 31, 2006 compared to the same period in the prior year. Gross profit as a percentage of net sales decreased 0.9 percentage points for the six months ended December 31, 2006 compared to the same period in the prior year. The gross margin percentage decrease for the three and six month periods is primarily related to unfavorable changes in product mix compared to the prior year period.

Consumer - Gross profit as a percentage of net sales decreased 7.3 percentage points for the quarter ended December 31, 2006 compared to the same period in the prior year. Gross profit as a percentage of net sales decreased 8.2 percentage points for the six months ended December 31, 2006 compared to the same period in the prior year. For the three and six months, gross margins were lower due to increased competition in the multimedia market, new product introductions with lower margins to respond to the competitive environment and the discontinuance of sales of higher margin products to a major North American retailer.

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Professional - Gross profit as a percentage of net sales increased 1.6 percentage points for the three and six months ended December 31, 2006 compared to the same period in the prior year. For the three and six months, gross margins improved as a percentage of sales primarily due to improvements in net variable costs at JBL and AKG.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A”), as a percentage of sales, decreased 0.9 percentage points for the quarter ended December 31, 2006 compared to the same period in the prior year. For the six-month period ended December 31, 2006, SG&A expenses decreased 0.8 percentage points compared to the same period last year. The percent of sales decrease primarily relates to the impact of higher sales offset by higher research and development costs associated with new infotainment system programs. For the three and six months ended December 31, 2006, research and development costs were $90.0 million or 9.7 percent of sales, and $172.8 million or 9.8 percent of sales, respectively. For the same periods in the prior year, research and development costs were $75.2 million or 9.0 percent of sales, and $143.6 million or 9.0 percent of sales, respectively. Research and development costs continue to increase to support new automotive awards to be supplied in future years.

During the fourth quarter of fiscal 2006, we initiated a restructuring program designed to increase efficiencies in our manufacturing facilities and to realign our engineering organization. SG&A expenses associated with this program were $1.3 million for the three months ended December 31, 2006. We also made cash payments of $0.9 million during the second quarter ended December 31, 2006, primarily for severance. Since the inception of the restructuring program, we have incurred costs of $11.5 million. We presently expect to record an additional $4.5 million, for total restructuring costs of $16.0 million, in future periods in connection with this program.

Presented below is a summary of SG&A expenses by reporting segment:

($000s omitted)	Three months ended December 31,										Six months ended December 31,
	2006		Percent of net sales			2005		Percent of net sales			2006		Percent of net sales			2005		Percent of net sales
SG&A Expenses:
Automotive	$	133,012		21.0	%		118,882		21.7	%	$	257,584		20.9	%		229,224		21.5	%
Consumer		28,335		17.4	%		30,266		19.5	%		56,291		22.0	%		58,495		22.0	%
Professional		32,334		23.7	%		32,873		25.3	%		65,551		24.5	%		65,388		25.8	%
Other		10,237		---			7,888		---			24,863		---			24,904		---
Total	$	203,918		21.9	%		189,909		22.8	%	$	404,289		23.0	%		378,011		23.8	%

Automotive - SG&A expenses as a percentage of sales decreased 0.7 percentage points for the quarter ended December 31, 2006 compared to the same period last year. SG&A expenses as a percentage of sales decreased 0.6 percentage points for the six months ended December 31, 2006 compared to the same period last year. For the three and six months ended December 31, 2006, the decrease as a percentage of sales is primarily due to the impact of higher sales offset by higher research and development costs associated with new infotainment system programs. SG&A expenses primarily increased due to higher research and development costs. Research and development expenses were $73.1 million or 11.6 percent of sales, for the quarter ended December 31, 2006 compared to $58.6 million or 10.7 percent of sales, in the prior year. Research and development expenses were $138.5 million or 11.2 percent of sales, for the six months ended December 31, 2006 compared to $110.2 or 10.3 percent of sales, for the same period in the prior year. For the three and six-month periods, research and development expenses increased primarily due to higher spending to support new automotive infotainment systems for programs launching in fiscal 2008 and 2009, in Europe and North America.

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Consumer - SG&A expenses as a percentage of sales decreased 2.1 percentage points for the three months ended December 31, 2006 compared to the same period last year. SG&A expenses as a percentage of sales for the six months ended December 31, 2006 were approximately the same as the six months ended December 31, 2005. In the quarter, the decrease is primarily due to lower general and administrative expenses resulting from cost control measures and slightly lower research and development costs. For the three and six months ended December 31, 2006, research and development expenses were $8.3 million or 5.1 percent of sales, and $17.2 million or 6.7 percent of sales, respectively. In the same periods last year research and development expenses were $9.1 million, or 5.9 percent of sales, and $17.6 million or 6.6 percent of sales, respectively.

Professional - SG&A expenses as a percentage of sales decreased 1.6 percentage points for the quarter ended December 31, 2006 compared to the same period last year. SG&A expenses as a percentage of sales decreased 1.3 percentage points for the six months ended December 31, 2006 compared to the same period last year. For the three and six month periods, the SG&A decrease as a percentage of sales is primarily due to cost controls across the organization, partially offset by higher research and development expenses. Research and development expenses were $8.5 million or 6.2 percent of sales, for the quarter ended December 31, 2006 compared to $7.6 million or 5.8 percent of sales in the same period last year. Research and development expenses were $17.0 million or 6.3 percent of sales for the six months ended December 31, 2006 compared to $15.8 million or 6.2 percent in the same period last year.

Other - Corporate SG&A expenses for the three months ended December 31, 2006 increased $2.3 million compared to the same period last year. SG&A expenses increased primarily due to increased salary, stock option and pension expenses. Corporate SG&A expenses for the six months ended December 31, 2006 were approximately the same as the six month period in the prior year.

Operating Income

Operating income for the quarter ended December 31, 2006 was $115.7 million or 12.4 percent of sales compared to $115.9 million or 13.9 percent of sales in the same period last year. Operating income for the six months ended December 31, 2006 was $202.6 million or 11.5 percent of sales compared to $194.1 million or 12.2 percent of sales in the same prior year period. The decrease in operating margins for the three and six months was primarily the result of lower gross margins and higher research and development costs in our Automotive reporting segment and lower Consumer operating margins.

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Interest Expense, Net

Interest expense is reported net of interest income in our consolidated statements of operations. Net interest expense for the three and six months ended December 31, 2006 was $0.5 million and $0.6 million, respectively. In the same periods last year, net interest expense was $4.6 million and $8.4 million, respectively. For the quarter, interest expense, net, included $2.4 million of gross interest expense and $1.9 million of interest income. For the same period in the prior year, interest expense, net, included $6.6 million of gross interest expense and interest income was $2.0 million. For the six months ended December 31, 2006, interest expense, net, included $4.7 million of gross interest expense and $4.1 million of interest income. For the same period last year, interest expense net, included $12.1 million of gross interest expense and interest income was $3.7 million.

Interest expense, net has decreased primarily due to the repayment of debt. Weighted average borrowings outstanding were $176.7 million for the quarter ended December 31, 2006 compared to $399.7 million for the same period in the prior year. Weighted average borrowings outstanding were $175.0 million for the six months ended December 31, 2006 compared to $376.1 million for the same period in the prior year. For the three and six months ended December 31, 2005, the weighted average borrowings excluded the average fair value of the interest rate swaps of $2.7 million, and $4.2 million, respectively. There were no interest rate swaps at December 31, 2006.

The weighted average interest rate on borrowings was 5.5 percent for the quarter ended December 31, 2006 and 5.4 percent for the six months ended December 31, 2006. The weighted average interest rates for the comparable periods in the prior year were 6.7 percent and 6.4 percent, respectively. The weighted average interest rate decreased due to lower rates on current outstanding debt and the repayment of fixed rate debt at higher interest rates.

Miscellaneous Expenses

Miscellaneous, net expenses were $0.5 million for the quarter ended December 31, 2006 and $1.3 million for the six months ended December 31, 2006 compared to $1.2 million and $1.8 million, respectively, in the same periods last year. Miscellaneous net, primarily consists of bank charges for the three and six months ended December 31, 2006.

Income Taxes

Income tax expense for the quarter ended December 31, 2006 was $33.8 million, compared to $38.0 million for the same period last year. The effective tax rate for the three months ended December 31, 2006 was 29.5 percent, compared to 34.5 percent in the prior year period. Income tax expense for the six months ended December 31, 2006 was $63.5 million, compared to $57.7 million for the same period last year. The effective tax rate for the six months ended December 31, 2006 was 31.6 percent, compared to 31.4 percent in the prior year period. During the quarter ended December 31, 2006, Congress reinstated the research and development tax credit resulting in a $4.0 million tax benefit. The tax rate for the prior year quarter included a $1.1 million charge for the repatriation of cash from our non-U.S. subsidiaries under the American Jobs Creation Act of 2004. We currently expect the tax rate for the full fiscal year 2007 to range between 32 and 33 percent.

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Financial Condition

Liquidity and Capital Resources

We primarily finance our working capital requirements through cash generated by operations, trade credit and borrowings under our revolving credit facility. Cash and cash equivalents were $171.1 million at December 31, 2006 compared to $291.8 million at June 30, 2006. During the six-month period, cash was primarily used to repurchase shares of our common stock, meet our working capital needs, and make investments in property, plant and equipment.

We will continue to have cash requirements to support seasonal working capital needs, capital expenditures, interest, principal and dividend payments and stock and debt repurchases. We intend to use cash on hand, cash generated by operations and borrowings under our revolving credit facility to meet these requirements. We believe that cash from operations and our borrowing capacity will be adequate to meet our cash requirements over the next twelve months. Following is a more detailed discussion of our cash flow activities during the six months ended December 31, 2006.

Operating Activities

For the six months ended December 31, 2006, our cash flows from operations were $48.0 million compared to $203.8 million during the same period last year. The decrease in operating cash flows was primarily due to higher working capital requirements.

At December 31, 2006, net working capital, excluding cash and short term debt, was $273.7 million compared to $106.7 million at June 30, 2006. The $167.0 million increase was primarily due to higher inventory levels to support increased sales to our automotive customers and demand for our PND products. Accounts receivable also increased due to record sales during the three months ended December 31, 2006.

Investing Activities

We had capital expenditures of $39.4 million during the six months ended December 31, 2006 compared to $45.3 million for the same period last year. The decrease is primarily due to capital expenditures in the prior year to complete a new manufacturing facility in Missouri and substantial investments in Europe for customer tooling and other manufacturing equipment to support infotainment system programs for automotive customers. We anticipate total capital expenditures for fiscal 2007 to be approximately $150 million.

Financing Activities

In the six months ended December 31, 2006, we paid $73.0 million to repurchase 921,100 shares of our common stock. Since the inception of our share repurchase program in June 1998, we have acquired and placed into treasury 17,611,282 shares. At December 31, 2006, we had the authority to purchase up to 2.4 million additional shares of our common stock under our current share repurchase program. We presently intend to continue our share repurchase program for the remainder of the fiscal year, evaluating the buy levels on a quarter-to-quarter basis.

Our total debt at December 31, 2006 was $142.4 million, primarily comprised of $118.5 million of borrowings under our revolving credit facility. Also included in total debt is $16.5 million principal amount of 7.32 percent senior notes due July 1, 2007 and capital leases and other short-term borrowings of $7.4 million.

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We have a $300 million committed multi-currency revolving credit facility that expires in June 2010. The interest rate on the revolving credit facility at December 31, 2006 is LIBOR plus 40 basis points. At June 30, 2006, we had outstanding borrowings of $159.9 million under our revolving credit facility. At December 31, 2006, we had reduced the balance by $41.4 million to $118.5 million. At December 31, 2006 we had borrowings of $118.5 million and outstanding letters of credit of $5.6 million under this facility. Unused availability under the revolving credit facility was $175.9 million at December 31, 2006.

Our long-term debt agreements contain financial and other covenants that, among other things, limit our ability to incur additional indebtedness, restrict subsidiary dividends and distributions, limit our ability to encumber certain assets and restrict our ability to issue capital stock of our subsidiaries. Our long-term debt agreements permit us to pay dividends or repurchase our capital stock without any dollar limitation provided that we would be in compliance with the financial covenants in our revolving credit facility after giving effect to such dividend or repurchase. At December 31, 2006, we were in compliance with the terms of our long-term debt agreements.

Equity

Total shareholders’ equity at December 31, 2006 was $1.325 billion compared with $1.228 billion at June 30, 2006. The increase is primarily due to net income of $138.0 million and favorable foreign currency translation increase of $18.6 million offset by share repurchases of $73 million.

Business Outlook

We had a strong second quarter and six-month period ended December 31, 2006. Our Automotive and Professional business segments reported solid results when compared to the prior year periods, while our Consumer segment experienced lower operating income due primarily to increased competition in the North America multimedia market. We continue to believe we will see growth in all three of our core business segments in fiscal 2007. For the full fiscal year ending June 30, 2007, we currently believe our net sales will be approximately $3.5 billion and earnings per share will be approximately $4.35 per share. Our current expectation for fiscal 2007 could be affected by the potential impact of changes in currency exchange rates, softness in automobile sales or increases in research and development costs to support new infotainment business. We are contemplating changes in the second half of fiscal 2007 to our engineering and manufacturing operations that would result in a restructuring charge. We estimate the charge would be in the range of $0.10 to $0.15 cents per share. Our earnings guidance for fiscal 2007 does not include the effect of this contemplated charge.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

We are required to include information about potential effects of changes in interest rates and currency exchange rates in our periodic reports filed with the Securities and Exchange Commission. Since June 30, 2006, there have been no material changes in the quantitative or qualitative aspects of our market risk profile.

Interest Rate Sensitivity/Risk

At December 31, 2006, interest on approximately 12 percent of our borrowings was determined on a fixed rate basis. The interest rates on the balance of our debt are subject to changes in U.S. and European short-term interest rates. To assess exposure to interest rate changes, we have performed a sensitivity analysis assuming a hypothetical 100 basis point increase or decrease in interest rates across all outstanding debt and investments.

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Our analysis indicates that, based on our December 31, 2006 positions, the impact of such changes in interest rates would increase or decrease net income by approximately $0.3 million for the six months ended December 31, 2006.

Foreign Currency Risk

We maintain significant operations in Germany, the United Kingdom, France, Austria, Hungary, Mexico and Switzerland. As a result, we are subject to market risks arising from changes in foreign currency exchange rates, principally the change in the value of the Euro compared to the U.S. dollar. Our subsidiaries purchase products and raw materials in various currencies. As a result, we may be exposed to the cost changes relative to local currencies in the markets to which we sell our products. To mitigate these transactional risks, we enter into forward foreign exchange contracts. Also, foreign currency positions are partially offsetting and are netted against one another to reduce exposure.

The effect of changes in currency exchange rates, principally the change in the value of the Euro compared to the U.S. dollar, has an impact on our reported results when the financial statements of non-U.S. subsidiaries are translated into U.S. dollars. Over half of our sales are now denominated in Euros. Currency translation for the Euro versus the U.S. dollar had a significant impact on earnings for the first half of fiscal 2007 compared to the prior year first half due to the strengthening of the Euro relative to the U.S. dollar. The first half average exchange rate for the Euro versus the U.S. dollar increased 6.46 percent from the prior year’s first half average exchange rate.

To assess exposure to changes in currency exchange rates, we prepared an analysis assuming a hypothetical 10 percent change in currency exchange rates across all currencies used by our subsidiaries. This analysis indicated that a 10 percent increase or decrease in exchange rates would have increased or decreased income before income taxes by approximately $20 million for the six months ended December 31, 2006.

Competitive conditions in the markets in which we operate may limit our ability to increase prices in the event of adverse changes in currency exchange rates. For example, certain products made in the U.S. are sold outside of the U.S. Sales of these products are affected by the value of the U.S. dollar relative to other currencies. Any long-term strengthening of the U.S. dollar could depress the demand for these U.S. manufactured products and reduce sales. However, due to the multiple currencies involved in our business and the netting effect of various simultaneous transactions, our foreign currency positions are partially offsetting.

Actual gains and losses in the future may differ materially from the hypothetical gains and losses discussed above based on changes in the timing and amount of interest rate foreign currency exchange rate movements and our actual exposure and hedging transactions.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures - Under the supervision and with the participation of our management, including our Executive Chairman and Chief Executive Officer and our Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Executive Chairman and Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms. We note that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions.

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Change in Internal Control Over Financial Reporting - There has not been any change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) as promulgated by the Securities and Exchange Commission under the Securities Act of 1934) during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II.

OTHER INFORMATION

Item 2.

Unregistered Sales of Eq uity Securities and Use of Proceeds

We did not repurchase any shares of our common stock in the quarter ended December 31, 2006. Our share repurchase program was first publicly announced on June 16, 1998. In August 2005, the Board authorized the purchase of up to an additional four million shares, bringing the total authorized to 20 million shares. The total number of shares repurchased through December 31, 2006 was 17,611,282. A maximum of 2,388,718 shares may yet be purchased under our share repurchase program. For a description of limitations on repurchases of shares and on the payment of dividends, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition.”

Item 4.

Submi ssion of Matters to a Vote of Security Holders

Our 2006 Annual Meeting of Stockholders was held on November 2, 2006. The following item of business was presented to the stockholders at the annual meeting:

Election of Directors

At our Annual Meeting of Stockholders, two directors were elected to serve a three-year term expiring at the 2009 Annual Meeting of Stockholders. The vote with respect to the election of these directors was as follows:

Name	Total vote for each Director		Total vote withheld from each Director
Edward H. Meyer		57,204,564		4,636,933
Gina Harman		156,325,593		5,515,904

Sidney Harman, Ann McLaughlin Korologos and Shirley Hufstedler will continue to serve as directors of the Company.

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Item 6.

Exhibits

Exhibits required by Item 601 of Regulation S-K

10.1		Consulting Agreement dated January 15, 2007 between the Company and Dr. A. Erich Geiger.

10.2		Consulting Agreement dated December 8, 2006 between the Company and Dr. Floyd Toole.

31.1		Certification of Sidney Harman pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Kevin L. Brown pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Sidney Harman and Kevin L. Brown, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIG NATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, Harman International Industries, Incorporated has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		Harman International Industries, Incorporated
		(Registrant)

Date: February 9, 2007		By: /s/ Kevin L. Brown
		Kevin L. Brown
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)


Date: February 9, 2007		By: /s/ Sandra B. Robinson
		Sandra B. Robinson
		Vice President - Financial Operations and Chief Accounting Officer
		(Principal Accounting Officer)

harman international

Harman International Industries, Incorporated 8500 Balboa Blvd., P.O. Box 2200, Northridge, CA 91329 (818) 893-8411

January 15, 2007

Dr. A. Erich Geiger

8323 Ocotillo Court

Naples, FL 34113

Re:	Exclusive Consulting Agreement (“Agreement”)

Dear Dr. Geiger:

This letter is written to confirm the terms of your engagement as a consultant to Harman International Industries, Inc. and its subsidiaries (collectively, the “Company”) following termination of your employment with the Company, which we now anticipate will be at the end of August 2008. This letter agreement (“Agreement”) will become effective when countersigned by you, and your engagement as a consultant will commence upon termination of your employment, on the terms set forth below. It is our mutual intention that, following the termination of your November 6, 2006 employment agreement with the Company (“Current Employment Agreement”), this Agreement will supersede and replace any and all other employment, consulting or other agreements with the Company save for any separate written agreements now existing regarding post-employment benefits to which you are entitled under your Current Employment Agreement, and any other agreements specifically excepted in this Agreement.

1. Scope of Work; Responsibilities .

(a) General. You will be responsible for advising the Company concerning its global technological direction, for providing strategic counsel to the Company’s top management team, and for providing guidance to the Company’s worldwide technology organization to assist them in achieving technical and strategic leadership across all business units. You will furnish the Company with the full benefit of your knowledge, skill and experience as to all questions and problems which Company may present you and you shall answer, advise, suggest and opine with respect to such questions and problems to the best of your ability. You shall submit a written report on the twentieth (20 ^th ) day of each month summarizing the previous month’s activities, progress on the assigned projects, and plans for the coming months including a calendar of your location and activities for the following month.

(b) Specific Tasks. Your specific tasks will include the items listed below, and you will investigate and consult as requested or as you deem necessary in order to accomplish them. The completion of those tasks pursuant to the agreed upon performance criteria, rather than the amount of hours you spend in providing services to the Company, shall determine whether you are performing adequately under this Agreement.

Dr. A. Erich Geiger

January 15, 2007

Page 2

Identifying emerging technologies, ensuring their appropriate and timely communication to Company business units, and developing and implementing plans to acquire these technologies;

Identifying market opportunities in related fields, and developing and implementing plans to realize such opportunities including by means of acquisition, licensing, and otherwise;

Assisting each business group in developing and implementing master technology roadmaps;

Assisting the Automotive OEM Group in engineering implementation and customer visits, as needed;

Identifying, developing and growing the technology talent pool for the Company;

Developing and implementing a strategic roadmap for the management, protection and commercialization of the Company’s intellectual property.

(c) Exclusive Engagement. This is an exclusive consulting engagement for the Company in the area of automotive, consumer and professional audio electronics, and you will not accept or participate in any consulting arrangement or business involving any other automotive, consumer or professional audio electronics.

(d) Reporting Relationships. You will be accountable to the Executive Chairman and to the Chief Executive Officer of the Company for all phases of your activities, or to such other person as may be designated by the Company. You will advise and consult with the Company’s Group/Division R&D and/or Technology executives, as well as with executive officers of the Company and with the Group and Division presidents.

(e) Outside Activities. You will refrain from engaging in any other activity that might impair your ability to fulfill your obligations under this Agreement. Subject to the foregoing, you are free to perform consulting services for others in areas other than automotive, consumer or professional audio electronics.

2. Compensation . The Company shall pay you Forty thousand dollars ($40,000.00) per month on the first day of each month following a month in which consulting services were rendered. Such compensation shall be full consideration for your services hereunder regardless of any additional time that you may devote.

3. Expense Reimbursement . You will be entitled to reimbursement from the Company for any ordinary and necessary expenses incurred by you in performing your duties hereunder upon submission to the Company of an expense report in accordance with Company policies and procedures, and providing such additional receipts and records as may be requested by Company to substantiate such expenses.

4. Term . The term of this Agreement shall commence on the first business day after the date upon which your employment with the Company terminates, subject to earlier termination as provided herein, and will continue thereafter until August 31, 2011; provided, however, that the term of this Agreement may be extended or renewed pursuant to mutual written agreement between you and the Company. The Company may immediately terminate this Agreement at any time for breach by you of any term hereof. Except as otherwise provided in this Agreement, and except for post-employment benefits to which you are entitled under the terms of your Current Employment Agreement with the Company, neither you nor Harman shall have any obligation to the other following termination of this Agreement.

Dr. A. Erich Geiger

January 15, 2007

Page 3

5. Place of Performance . The Company shall make available to you such of its facilities as are reasonably required by you in the performance of your services hereunder. If the parties agree that you should perform your services elsewhere, the Company shall not be responsible for rent or other charges in connection with those facilities.

6. Warranties . You represent, warrant and undertake that on the day your employment with the Company ends (a) you will be free to render consulting services to Company, (b) such services will not conflict with any prior commitment or obligation you have, and (c) you will not at any time use for the Company’s benefit or disclose to the Company any information you have received from third parties and that you are lawfully obligated to keep confidential.

7. Confidentiality . You will keep in strict confidence, and will not, directly or indirectly, at any time during or after your employment or consultancy with the Company, disclose, furnish, disseminate, make available or, except in the course of performing your duties of employment or consultancy, use any trade secrets or confidential business and technical information of the Company or its customers or vendors, without limitation as to when or how you may have acquired such information. Such confidential information shall include, without limitation, the Company’s unique selling, manufacturing and servicing methods and business techniques, training, service and business manuals, promotional product information, customer and prospective customer lists, other customer and prospective customer information and other business information. You specifically acknowledge that all such confidential information, whether reduced to writing, maintained on any form of electronic media, or maintained in your mind or memory and whether compiled by the Company and/or you, derives independent economic value from not being readily known to or ascertainable by proper means by others who can obtain economic value from its disclosure or use, that reasonable efforts have been made by the Company to maintain the secrecy of such information, that such information is the sole property of the Company and that any retention and use of such information by you during your employment or consultancy with the Company (except in the course of performing your duties and obligations hereunder) or after the termination of your employment or consultancy shall constitute a misappropriation of the Company’s trade secrets.

8. Inventions .

(a) You agree that upon conception and/or development of any idea, discovery, invention, improvement, software, writing or other material or design that : (i) relates to the business of the Company, or (ii) relates to the Company’s actual or demonstrably anticipated research or development, or (b) results from any work performed by you for the Company, you will assign to the Company the entire right, title and interest in and to any such idea, discovery, invention, improvement, software, writing or other material or design.

(b) You have no obligation to assign any idea, discovery, invention, improvement, software, writing or other material or design that you conceive and/or develop entirely on your own time without using the Company’s equipment, supplies, facilities or trade secret information unless the idea, discovery, invention, improvement, software, writing or other material or design either (i) relates to the business of the Company, or (ii) relates to the Company’s actual or demonstrably anticipated research or development, or (b) results from any work performed by you for the Company.

Dr. A. Erich Geiger

January 15, 2007

Page 4

(c) You agree that any idea, discovery, invention, improvement, software, writing or other material or design that relates to the business of the Company or relates to the Company’s actual or demonstrably anticipated research or development which is conceived or suggested by you, either solely or jointly with others, within one (1) year following termination of your employment under this Agreement or any successor agreements shall be presumed to have been so made, conceived or suggested in the course of such employment with the use of the Company’s equipment, supplies, facilities and/or trade secrets.

(d) In order to determine the rights of you and the Company in any idea, discovery, invention, improvement, software, writing or other material, and insure the protection of the same, you agree that during the term of this Agreement or any successor agreements, you will disclose immediately and fully to the Company any idea, discovery, invention, improvement, software, writing or other material or design conceived, made or developed by you solely or jointly with others. The Company agrees to keep any such disclosures confidential. You also agree to record descriptions of all work in the manner directed by the Company and agree that all such records and copies, samples and experimental materials will be the exclusive property of the Company.

(e) You agree that at the request of and without charge to the Company, but at the Company’s expense, you will execute a written assignment of the idea, discovery, invention, improvement, software, writing or other material or design to the Company and will assign to the Company any application for letters patent or for trademark registration made thereon, as well as to any common-law or statutory copyright therein; and that you will do whatever may be necessary or desirable to enable the Company to secure any patent, trademark, copyright, or other property right therein in the United States and in any foreign country, and any division, renewal, continuation or continuation in part thereof, or for any reissue of any patent issued thereon.

(f) In the event that the Company is unable, after reasonable effort, and in any event after ten business days, to secure your signature on a written assignment to the Company of any application for letters patent or to any common-law or statutory copyright or other property right therein, whether because of your physical or mental incapacity or for any other reasons whatsoever, you irrevocably designate and appoint the General Counsel of the Company as your attorney-in-fact to act on your behalf to execute and file any such application and to do all other lawfully permitted acts to further the prosecution and issuance of such letters patent, copyright or trademark.

Dr. A. Erich Geiger

January 15, 2007

Page 5

(g) You acknowledge that to the extent permitted by law, all work papers, reports, documentation, drawings, photographs, negatives, tapes and masters therefor, prototypes and other materials (hereinafter, “items”), including without limitation, any and all such items generated and maintained on any form of electronic media, generated by you during your engagement as a consultant to the Company under this Agreement shall be considered a “work made for hire,” and that ownership of any and all copyrights in any and all such items shall belong to the Company. The item will recognize the Company as the copyright owner, will contain all proper copyright notices, e.g., “(creation date) Harman International Industries, Inc., All Rights Reserved,” and will be in condition to be registered or otherwise placed in compliance with registration or other statutory requirements throughout the world. You will not knowingly incorporate in any work prepared under this Agreement any copyrighted or proprietary material of another. You authorize the Company to apply for registration of the copyright in the works, and you acknowledge the Company’s exclusive right to exploit all such copyrights at its absolute discretion without accounting to you. The obligations set forth in this subsection 8(g) shall survive any termination of this Agreement

9. Noncompetition . During the term of this Agreement you shall not, without the Company’s prior written approval, establish or engage in, or assist any other person in establishing or engaging in, any business which is directly competitive with the Company. The provisions of this Section 9 shall not preclude your establishing or engaging in business activities that do not relate to the Company’s business or to its actual or demonstrably anticipated research or development.

10. Independent Contractor . You will at all times be acting and performing under this Agreement as an independent contractor and not as an agent or employee of Company. Nothing in this Agreement shall be deemed to create an employee-employer or agent-principal relationship between you and the Company, nor to authorize you to act as an agent or legal representative for Company. You hereby acknowledge that you are not authorized to act as Company legal representative or otherwise. You further acknowledge that you will not be entitled to participate as an employee in or under any employee benefit plan of Company, nor to receive any other employment rights or benefits available to or enjoyed by Company employees.

11. Assignment . This Agreement requires the performance of personal services by you. You shall not assign any right, delegate any duty or otherwise transfer any interest hereunder without the Company’s prior written approval, and any attempted such assignment, delegation or transfer without such consent shall be null and void.

12. Notices . All notices and other communications required or permitted to be given hereunder, if in written form, will be deemed given two days after deposit in the U.S. mail, postage prepaid and addressed to the parties at their respective addresses set forth below (unless by written notice a different person or address shall have been designated).

If to Company, to:

If to Consultant, to:

Harman International Industries, Inc.

Dr. Erich Geiger

8500 Balboa Blvd.

8323 Ocotillo Court

Northridge, CA 91329

Naples, FL 34113

Attn : Vice President & General Counsel

Phone: (818) 895-5724

Phone: (239) 775-2420

Dr. A. Erich Geiger

January 15, 2007

Page 6

13. Entire Agreement . This Agreement contains the entire agreement between the parties and all prior and collateral representations or promises are merged herein. No modification, waiver or termination of any provision contained herein nor any future representation, promise or condition in connection with the subject matter hereof shall be binding upon the parties unless made in writing, signed by you and an officer of, or the original signatory hereon for Company, as the case may be.

14. Waiver . No waiver by either party of any breach of any covenant or provision of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other covenant or provision.

15. Law . This Agreement shall be construed in accordance with the laws of the State of Michigan, without regard to its conflict of laws doctrine.

16. Arbitration . Any dispute concerning your employment or its termination shall be resolved by final and binding arbitration before a neutral arbitrator; provided, however, that no dispute concerning breach or performance of the terms set forth in paragraphs 7, 8 or 9 of this Agreement shall be arbitrated. The arbitrator shall be selected by mutual agreement or in accordance with the procedures of the American Arbitration Association. Arbitration shall take place in Detroit, Michigan unless you and the Company otherwise agree in writing.

	Harman International Industries, Inc.
	(“Company”)

/s/Erich Geiger	By:	/s/ Sidney Harman
Dr. Erich Geiger (“Consultant”)	Name:	Sidney Harman
	Title:	Executive Chairman

harman international

Harman International Industries, Incorporated 8500 Balboa Blvd., P.O. Box 2200, Northridge, CA 91329 (818) 893-8411

December 8, 2006

Dr. Floyd Toole

1301 St. James Ct.

Oak Park, CA 91377

Re:	Exclusive Consulting Agreement (“Agreement”)

Dear Dr. Toole:

This letter is written to confirm the terms of your engagement as a consultant to Harman International Industries, Inc. (“Harman”) and its subsidiaries (collectively, the “Company”) following termination of your employment with the Company on January 31, 2007. This letter agreement (“Agreement”) will become effective when countersigned by you, and your engagement as a consultant will commence upon termination of your employment, on the terms set forth below. It is our mutual intention that, following the termination of your employment with the Company (“Current Employment Agreement”), this Agreement will supersede and replace any and all other employment, consulting or other agreements with the Company save for post-employment benefits to which you are entitled from the Company, and any other agreements specifically excepted in this Agreement.

1. Scope of Work; Responsibilities .

(a) General. You will be responsible for advising the Company generally concerning acoustic science and emerging technologies, for assisting its business leaders in achieving acoustic excellence, and for representing the Company and at professional and trade association forums. You will furnish the Company with the full benefit of your knowledge, skill and experience as to all questions and problems which Company may present you and you shall answer, advise, suggest and opine with respect to such questions and problems to the best of your ability.

(b) Specific Tasks. Your specific tasks will fall into the three categories listed below, and you will investigate and consult as requested or as you deem necessary in order to accomplish them. The completion of those tasks pursuant to the agreed upon performance criteria, rather than the amount of hours you spend in providing services to the Company, shall determine whether you are performing adequately under this Agreement.

Making presentations as requested by and as mutually agreed with the Company’s Consumer, Professional and Automotive OEM groups, either internally or to customers, introducing them to the Company and its contributions to acoustic science;

Attendance at major conferences or trade shows by the following organizations, plus any others agreed to by the Company, as well as membership therein as required or appropriate, including participation as a speaker or panelist as requested by the Company or the relevant organization and agreed by you:

Dr. Floyd Toole

December 8, 2006

Page 2

Audio Engineering Society (AES) - one U.S. and one European convention per year;

Custom Electronic Design and Installations Association (CEDIA) - once per year; and

2007 International Electroacoustics Technology Symposium in Nanjing and Shenzhen, China.

Continued work on completion or updating of various white papers, articles and books for audio professional or trade associations and/or individuals engaged in the field of acoustics, including among others the following -

Permanent educational curriculum on loudspeakers and rooms (CEDIA); and

Technical treatise on Sound Reproduction.

(c) Exclusive Engagement. This is an exclusive consulting engagement for the Company, and you will not accept or participate in any consulting arrangement or business involving any other automotive, consumer or professional audio electronics.

(d) Reporting Relationships. You will be accountable to the Chief Executive Officer of the Company and to Tim Nind of Harman Becker Automotive Systems GmbH for all phases of your activities, or to such other person as may be designated by the Company. You will as necessary and at times mutually agreed by you, advise and consult with the Company’s Group/Division R&D and/or Technology executives, as well as with executive officers of the Company and with the Group and Division presidents.

2. Compensation . The Company shall pay you Five thousand dollars ($5,000.00) per month on the first day of each month following a month in which consulting services were rendered. Such compensation shall be full consideration for your services hereunder regardless of any additional time that you may devote.

4. Term . The term of this Agreement shall commence on the first business day after the date upon which your employment with the Company terminates, subject to earlier termination as provided herein, and will continue thereafter for a period of one (1) year; provided, however, that the term of this Agreement may, at the Company’s option at the expiration of its initial or any subsequent term, be extended for one additional year unless you advise the Company in writing at least thirty (30) days prior to such expiration of your intention not to extend this Agreement. The Company may immediately terminate this Agreement at any time for breach by you of any term hereof. Except as otherwise provided in this Agreement, and except for post-employment benefits to which you are entitled from the Company, neither you nor Harman shall have any obligation to the other following termination of this Agreement.

Dr. Floyd Toole

December 8, 2006

Page 3

8. Inventions . You will fully and promptly disclose in writing to Company any and all ideas, inventions and discoveries which are solely or jointly made, conceived, developed or reduced to practice during the term hereof which relate to loudspeakers or the production thereof. All documents, drawings and other material which constitute your work product shall be and remain the sole property of Company, and you will return to Company all such documents, and all copies thereof, upon termination hereof. Your entire right, title and interest in and to such ideas, discoveries and inventions, both domestic and foreign, shall become the sole property of Company. You will execute, acknowledge and deliver to Company any and all further assignments, contracts or other instruments Company deems necessary or expedient, without further compensation, to carry out and effectuate the intents and purposes of this Agreement and to vest in Company each and all of the rights granted or stated to be granted to Company. The obligations set forth in this Section 8 shall survive any termination of this Agreement.

Dr. Floyd Toole

December 8, 2006

Page 4

9. Independent Contractor . You shall render services hereunder personally without delegating any part of your work to any other person. You will at all times be acting and performing hereunder as an independent contractor and not as an agent or employee of the Company. Nothing in this Agreement shall be deemed to create an employee-employer or agent-principal relationship between you and the Company, nor to authorize you to act as an agent or legal representative for the Company. You hereby acknowledge that you are not authorized to act as a Company legal representative or otherwise. You further acknowledge that you will not be entitled to participate as an employee in or under any employee benefit plan of Company, nor to receive any other employment rights or benefits available to or enjoyed by employees of the Company, except to the extent earned prior to your termination of employment with the Company.

10. Noncompetition . During the term of this Agreement you shall not, without the Company’s prior written approval, establish or engage in any competitive business, directly or through any enterprise or company in which you are interested or act as a partner, shareholder, director, officer, employee, or consultant. For purposes hereof, the words “competitive business” shall mean an enterprise engaged in designing, developing, manufacturing or procuring loudspeakers for consumer, professional audio or automotive applications.

If to Company, to:

If to Consultant, to:

Harman International Industries, Inc.

Dr. Floyd Toole

8500 Balboa Blvd.

1301 N. King James Ct.

Northridge, CA 91329

Oak Park, CA 91377

Attn : Vice President & General Counsel

Phone: (818) 895-5724

Phone: (818) 889-4864

15. Law . This Agreement shall be construed in accordance with the laws of the State of California, without regard to its conflict of laws doctrine.

Dr. Floyd Toole

December 8, 2006

Page 5

16. Arbitration . Any dispute concerning your employment or its termination shall be resolved by final and binding arbitration before a neutral arbitrator; provided, however, that no dispute concerning breach or performance of the terms set forth in paragraphs 7, 8, or 10 of this Agreement shall be arbitrated. The arbitrator shall be selected by mutual agreement or in accordance with the procedures of the American Arbitration Association. Arbitration shall take place in Los Angeles, California unless you and the Company otherwise agree in writing.

	Harman International Industries, Inc.
	(“Company”)


/s/ Dr. Floyd Toole	By:	/s/ Bernard Girod
Dr. Floyd Toole (“Consultant”)	Name:	Bernard Girod
	Title:	Chief Executive Officer

Exhibit 31.2

PRINCIPAL EXECUTIVE OFFICER’S CERTIFICATION

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Kevin L. Brown, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Harman International Industries, Incorporated;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 9, 2007	/s/ Kevin L. Brown
	Kevin L. Brown
	Executive - Vice President, Chief Financial Officer and Assistant Secretary

Exhibit 32.1

Certification Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Harman International Industries, Incorporated (the "Company") for the period ended December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to such officer's knowledge:

1).

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2).

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

Date: February 9, 2007


/s/ Sidney Harman
Name: Sidney Harman
Title: Executive Chairman and Chief Executive Officer


/s/ Kevin L. Brown
Name: Kevin L. Brown
Title: Executive - Vice President, Chief Financial Officer and Assistant Secretary (Principal Financial Officer)

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.

Exhibit 31.1

PRINCIPAL EXECUTIVE OFFICER’S CERTIFICATION

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Sidney Harman, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Harman International Industries, Incorporated;

(a)

(b)

(c)

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report ) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 9, 2007	/s/ Sidney Harman
	Sidney Harman
	Executive Chairman and Chief Executive Officer