<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended March 31, 1995 Commission File No. 0-7916
---------------------- ------------
HARMON INDUSTRIES, INC.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Missouri 44-0657800
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1300 Jefferson Court, Blue Springs, Missouri 64015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 816-229-3345
--------------------
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.
Yes X No
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The number of shares of Registrant's common stock outstanding as of March 31,
1995 was 6,766,211.
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<PAGE>
PART I. FINANCIAL INFORMATION
-------------------------------
ITEM 1. FINANCIAL STATEMENTS
The Consolidated Statements of Earnings, Consolidated Balance Sheets and
Consolidated Statements of Cash Flows are unaudited, but reflect, in the opinion
of management, all adjustments necessary to present fairly the financial
position of the Company at March 31, 1995 and December 31, 1994 as well as the
results of its operations for the interim periods ended March 31, 1995 and March
31, 1994.
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<PAGE>
HARMON INDUSTRIES, INC.
Consolidated Statements of Earnings
For Periods Ended March 31, 1995 and 1994
In thousands of dollars
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31
1995 1994
------------- -------------
<S> <C> <C>
Net sales $ 29,415 $ 25,902
Cost of sales 21,330 17,503
Research and development expenditures 1,022 990
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Gross profit 7,063 7,409
Selling, general and
administrative expenses 5,612 4,837
Amortization of cost in
excess of fair value of
net assets acquired 133 33
Miscellaneous (income) expense-net (25) (4)
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Operating income 1,343 2,543
Interest expense (147) (43)
Investment income 17 14
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Earnings before income taxes 1,213 2,514
Income tax expense (benefit):
Current 535 1,063
Deferred (28) (45)
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507 1,018
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Net earnings $ 706 $ 1,496
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Net earnings per common share $ 0.10 $ 0.23
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Weighted average shares outstanding 6,814,783 6,551,192
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</TABLE>
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<PAGE>
HARMON INDUSTRIES, INC
Consolidated Balance Sheets
In thousands of dollars
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
---------- --------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 571 $ 250
Trade receivables, less allowance for doubtful accounts
of $363,000 in 1995 and 360,000 in 1994 19,798 21,457
Costs and estimated earnings in excess of billings on
uncompleted contracts 1,739 1,321
Inventories:
Work in process 7,421 5,763
Raw materials and supplies 13,234 11,955
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20,655 17,718
Income tax receivable 168 667
Deferred tax asset 614 586
Prepaid expenses and other current assets 987 731
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Total current assets 44,532 42,730
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Property, plant and equipment, at cost:
Land 356 164
Buildings 5,077 4,596
Machinery and equipment 12,004 11,680
Office furniture and equipment 12,367 11,711
Transportation equipment 995 928
Leasehold improvements 1,744 1,600
---------- ------------
32,543 30,679
Less accumulated depreciation and amortization 20,276 19,610
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Net property, plant and equipment 12,267 11,069
Deferred tax asset 500 500
Cost in excess of fair value of net assets acquired,
net of accumulated amortization of 7,972 7,967
$1,482,000 in 1995 and $1,349,000 in 1994
Deferred compensation asset 5,823 5,146
Other assets 871 983
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$ 71,965 $ 68,395
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March 31, December 31,
1995 1994
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<C> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Current debt installments $ 339 $ 1,174
Accounts payable 8,415 8,646
Accrued payroll, bonus and employee beneift plan
contributions 4,464 7,327
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,325 1,420
Other accrued liabilities 2,557 2,493
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Total current liabilities 17,100 21,060
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Deferred compensation liability 3,605 3,539
Long-term debt 7,476 733
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Total liabilities 28,181 25,332
StockCommon stock of $.25 par value; aurthorized
20,000,000 shares, issued 6,766,211 in 1995
and 6,728,252 in 1994 1,692 1,682
Additional paid-in capital 22,724 22,719
Retained earnings 19,368 18,662
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Total stockholders' equity 43,784 43,063
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$ 71,965 $ 68,395
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</TABLE>
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<PAGE>
HARMON INDUSTRIES, INC
Consolidated Statements of Cash Flows
For the three month periods ended
March 31, 1995 and 1994
In thousands of dollars
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
1995 1994
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 706 $ 1,496
Adjustments to reconcile net earnings to net cash
provided by operating actvities:
Depreciation and amortization 875 599
Gain on sale of property, plant and equipment (21) (1)
Deferred tax expense (benefit) (28) (45)
Changes in assets and liabilities:
Trade receivables 1,659 1,106
Inventories (2,727) (2,722)
Estimated cost, earnings and billings on contracts (513) (1,181)
Income tax receivable 499 --
Prepaid expenses (256) (622)
Accounts payable (231) 430
Accrued payroll and benefits (2,863) (1,702)
Current income taxes -- 753
Other liabilities 64 (140)
Other deferred liabilities 66 11
--------------- ---------------
Total adjustments (3,476) (3,514)
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Net cash used in operating activities (2,770) (2,018)
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Cash flows from investing activities:
Capital expenditures (1,175) (1,020)
Proceeds from sale of property, plant and equipment 58 --
Deferred compensation contributions (677) (407)
Other investing activities 112 102
SERRMI acquisition (1,150) --
--------------- ---------------
Net cash used in investing activities (2,832) (1,325)
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Cash flows from financing activities:
Proceeds from issuance of common stock 15 133
Proceeds from issuance of long-term debt -- 332
Net borrowings under line of credit agreements 6,000 --
Principal payments of long-term debt (92) (45)
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Net cash provided by financing activities 5,923 420
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Net increase (decrease) in cash and cash equivalents 321 (2,923)
Cash and cash equivalents at beginning of year 250 3,065
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Cash and cash equivalents at end of period $ 571 $ 142
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--------------- ---------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 109 $ 35
Income taxes $ 37 $ 310
</TABLE>
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<PAGE>
PART I. FINANCIAL INFORMATION
-------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Sales for the three months ended March 31, 1995 increased 14% over the $25.9
million for 1994. The sales increase was present in many of our products, with
the largest increases in train inspection systems, carborne equipment and signal
control track circuits. Sales of products acquired last year from the SERVO
Corporation of America (SERVO) are included in train inspection systems and they
accounted for the increased sales for that category. The SERVO acquisition
should add approximately ten million dollars in sales this year.
Margins decreased 4.6% from 28.6% last year to 24.0% this year. The major
reasons for the decrease are changes in product mix; larger volume of low
margin pass through services sold as a portion of our systems business; and
planned lower margins associated with the products acquired from SERVO in
December 1994. We spent the first quarter integrating these products into the
existing Harmon organization, incurring a significant portion of the training
and other transition expenses. To ensure that our customers did not experience
any problems in connection with the move from SERVO's New York facilities to our
Riverside, California facilities, the former owners of the SERVO Transportation
Division produced the products through April 30, 1995. Thus the savings and
synergies associated with this acquisition were not realized during the quarter
ended March 31, 1995, but will be realized as the year progresses.
Selling, general and administrative (SG&A) expenses increased approximately
$775,000 from $4.8 million for the first quarter of last year and increased as
a percentage of net sales from 18.7% to 19.1%. Significant factors relating to
the increase in SG&A are the transition costs of the SERVO acquisition, costs
incident with the higher sales and costs to implement new management information
computer systems.
Net interest expense increased $101,000 to $130,000 for the quarter ended March
31, 1995. The increased expense is caused by both higher interest rates and
higher borrowing. Interest bearing debt at March 31, 1995 increased $6.9
million from one year ago and $5.9 million from December 31, 1994. In December
1994, the Company used its cash to fund the purchase of the assets of the
Transportation Division of SERVO Corporation of America. The 1995 first
quarter cash requirements associated with normal payments of accrued employee
incentives, payments of income taxes, funding the working capital needs of the
SERVO acquisition, and the purchase of the assets of SERRMI Services, Inc. were
paid through increases in interest bearing debt. As of the end of April 1995,
the Company had approximately $12.0 million in available unused lines of credit.
The Company acquired SERRMI Services, Inc. (SERRMI) in February 1995 for
approximately $1.2 million in cash. SERRMI is a respected railroad signal
design and engineering company that also provides wiring and grade crossing
installations for railroads, primarily in the southeast portion of the U.S.
While SERRMI will not have a material impact on sales or earnings, it expands
our signal design and engineering services nationwide, and its location in
Atlanta is especially important. It will enable us to better serve two major
railroads who are purchasers of many of the types of products that Harmon sells.
The effective income tax rate increased to 41.8% from 40.5% reflecting higher
federal tax rates, increased nondeductible expenses and higher state income
taxes.
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<PAGE>
Our incoming order rate, including orders for the recently acquired products, is
26% ahead of the same quarter a year ago, booking orders aggregating
approximately $37 million in the first quarter. Orders for cab signal
equipment, control systems, and signal products were particularly strong. As a
result, our backlog rose to over $51 million, the highest on record, up 16% from
the $44.4 million backlog this time a year ago. The record backlog, order
stream and the quotation activity to date, are consistent with our expectation
of new record levels for sales and earnings for the year.
-7-
<PAGE>
PART II. OTHER INFORMATION
---------------------------
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
A Form 8-K concerning the SERVO transaction was filed January 3, 1995.
Amendment 1 to Form 8-K (financials) was filed March 4, 1995.
Exhibit Table
Reference # Page #
------------- --------
Computation of earnings per share A 10
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARMON INDUSTRIES, INC.
Date: May 5, 1995 /s/Bjorn E. Olsson
---------------------------------
Bjorn E. Olsson, President
Date: May 5, 1995 /s/Charles M. Foudree
---------------------------------
Charles M. Foudree,
Executive Vice President-Finance
Date: May 5, 1995 /s/Stephen L. Schmitz
---------------------------------
Stephen L. Schmitz,
Vice President-Controller
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<PAGE>
<TABLE>
<CAPTION>
HARMON INDUSTRIES, INC. EXHIBIT A
FORM 10-Q -------------------
MARCH 31, 1995
Computation of earnings per share (Instruction H(g))
- - ---------------------------------------------------
Computation of the average number of shares of Common Stock outstanding for the three months ended
March 31, 1995 and 1994.
<S> <C> <C> <C> <C>
(1) (2) (3) (4)
Average number of
shares outstanding
as shown on
consolidated statements
Shares of Number of operations (3)
common of days Share days divided by number
stock outstanding (2 x 1) of days in period
----------- ------------ -------------- -------------------
1995
January 1 - March 31 6,728,252 90 605,542,680
Equivalent shares under
the Company's bonus plan 381 90 34,274
Options exercised 35,359 85 3,005,515
400 81 32,400
2,200 43 94,600
Equivalent shares under the
Company's option plans 51,344 90 4,620,960
0
--------------
613,330,429 6,814,783
-------------- -------------------
-------------- -------------------
1994
January 1 - March 31 6,328,437 90 569,559,330
Equivalent shares under
the Companys' bonus plan 594 90 53,440
Options exercised 5,750 86 494,500
1,000 60 60,000
2,000 29 58,000
13,300 25 332,500
1,000 15 15,000
1,650 10 16,500
1,600 9 14,400
18,270 7 127,890
Equivalent shares under the
Company's option plans 209,730 90 18,875,711
--------------
589,607,271 6,551,192
-------------- -------------------
-------------- -------------------
</TABLE>
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF HARMON INDUSTRIES INC. AT MARCH 31,
1995 AND FOR THE THREE MONTHS THEN ENDED (UNAUDITED) AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 571
<SECURITIES> 0
<RECEIVABLES> 20,161
<ALLOWANCES> (363)
<INVENTORY> 20,655
<CURRENT-ASSETS> 44,532
<PP&E> 32,543
<DEPRECIATION> (20,276)
<TOTAL-ASSETS> 71,965
<CURRENT-LIABILITIES> 17,100
<BONDS> 7,476
<COMMON> 1,692
0
0
<OTHER-SE> 43,784
<TOTAL-LIABILITY-AND-EQUITY> 71,965
<SALES> 29,415
<TOTAL-REVENUES> 29,415
<CGS> 22,352
<TOTAL-COSTS> 22,352
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 147
<INCOME-PRETAX> 1,213
<INCOME-TAX> 507
<INCOME-CONTINUING> 706
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 706
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
