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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Date of Report: March 3, 1995
HARMON INDUSTRIES, INC.
IRS Identification No. 44-0657800
State or Other Jurisdiction
of Incorporation: Missouri
Commission File No. 0-7916
Address of Principal Executive Offices:
1300 Jefferson Court, Blue Springs, MO 64015
Registrant's Telephone Number, including Area Code:
816-229-3345
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This Amendment No. 1 amends, in the manner indicated below, the Form 8-K (the
"8-K") filed with the Commission in January 1995 on behalf of Harmon Industries,
Inc. Terms used herein and not defined herein have the same meaning that is set
forth in the 8-K.
ITEM 2. ACQUISITION OF ASSETS
The following information updates the information previously set forth
in Item 2 of the 8-K:
The 260,000 shares of unregistered common stock of the Registrant issued
to Servo pursuant to the Asset Acquisition Agreement documenting the
transaction (the "Acquisition") were valued at $11.25 per share by an
independent investment and securities firm retained to provide a fair
market value analysis. This price reflects a discount because the
shares are unregistered. In addition to the aforementioned shares, Servo
received $6,661,000 in cash and the Registrant assumed certain
liabilities of Servo, including accrued payables and product warranties,
totaling approximately $.7 million. The assets purchased from Servo
include certain tangible assets that the Registrant intends to continue
using for the same purposes after the Acquisition. The Registrant
anticipates that it will ultimately transfer and consolidate such assets
with its existing facilities and operations in California. The
compensation paid to Servo described above was determined by negotiation
between the parties. No material relationship exists between the
Registrant and Servo or their affiliates, directors, officers or their
associates.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The information set forth in Item 7 of the 8-K is hereby amended to read
as follows:
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Audited financial statements of the Transportation Segment of
Servo Corporation of America as of and for the year ended
October 31, 1994 are attached hereto as EXHIBIT 1.
(b) PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The unaudited pro forma statements of earnings for the fiscal
year ended December 31, 1994 give effect
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to the Acquisition as if it had occurred at the beginning of the
period presented. The Servo financial statements utilized in the
pro forma information are for the year ended October 31, 1994.
The unaudited pro forma financial statements were prepared
utilizing available information and certain assumptions which
management believes are reasonable. The unaudited pro forma
financial statements may not be indicative of the Registrant's
results of operations had the Acquisition actually occurred on
the dates indicated.
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HARMON INDUSTRIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1994
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Pro forma
Harmon Servo adjustments Pro forma
------ ----- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $119,703 11,321 - 131,024
Cost of sales 81,023 6,353 - 87,376
Research and development expenditures 4,561 1,248 - 5,809
-------- ----- ----- --------
Gross profit 34,119 3,720 - 37,839
Selling, general and administrative expenses 21,176 2,358 - 23,534
Amortization of cost in excess of fair value
of net assets of subsidiary acquired 78 - 531 (1) 609
Miscellaneous (income) expense, net (34) - - (34)
-------- ----- ----- --------
Operating income 12,899 1,362 (531) 13,730
Interest expense (264) (338) - (602)
Investment income 50 816 (237) (2) 629
-------- ----- ----- --------
Earnings before income taxes 12,685 1,840 (768) 13,757
Income tax expense 5,046 855 (296) (3) 5,605
-------- ----- ----- --------
Net earnings $ 7,639 985 (472) 8,152
-------- ----- ----- --------
Net earnings per share $ 1.16 1.19
-------- --------
Weighted average common shares
outstanding 6,567 6,827
-------- --------
<FN>
NOTES:
(1) Amortization of goodwill resulting from the acquisition.
(2) Recognition of foregone interest income resulting from this transaction
(interest rate assumed to be 3.5%).
(3) Income tax benefit to be derived from pro forma adjustments listed above
assuming a rate of 38.5%.
</TABLE>
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SIGNATURE
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: March 3, 1995 By:/s/Charles M. Foudree
---------------------
Charles M. Foudree
Executive Vice President-
Finance,
Secretary and Treasurer
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INDEX TO EXHIBITS
Exhibit Sequentially
number Description numbered
- - ------ ----------- --------
page
----
1 Audited Financial Statements of the Transportation 7
Segment of Servo Corporation of America as of and
for the year ended October 31, 1994
2 Consent of Arthur Andersen LLP to filing of the 14
audited financial statements referred to above
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EXHIBIT 1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Servo Corporation of America:
We have audited the accompanying statement of net assets related to the
Transportation Segment of Servo Corporation of America (a Delaware corporation)
and subsidiaries (the "Company") acquired by Harmon Industries, Inc. as of
October 31, 1994 and the related statements of identified income and expenses
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The Transportation Segment acquired by Harmon Industries, Inc. has been operated
as an integral part of the Company and has no separate legal existence. The
basis of preparation of these statements and the transaction with the Company
are described in Note 1 to the financial statements.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets related to the Transportation Segment of
the Company at October 31, 1994 that were acquired by Harmon Industries, Inc.
and the results of its operations and its cash flows for the year then ended on
the basis described in the preceding paragraph in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Melville, New York
February 10, 1995
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SERVO CORPORATION OF AMERICA AND SUBSIDIARIES
STATEMENT OF NET ASSETS RELATED
TO THE TRANSPORTATION SEGMENT
ACQUIRED BY HARMON INDUSTRIES, INC.
AS OF OCTOBER 31, 1994
<TABLE>
<S> <C>
INVENTORY, net $1,773,921
PROPERTY, PLANT AND EQUIPMENT, net 237,023
---------
Assets of the Transportation Segment Acquired 2,010,944
---------
ACCRUED VACATION EXPENSE 62,681
ACCRUED WARRANTY EXPENSE 137,192
CUSTOMER ADVANCES 300,000
--------
Liabilities of the Transportation Segment Assumed 499,873
--------
Net assets of the Transportation Segment Acquired $1,511,071
---------
---------
</TABLE>
The accompanying notes are an integral part of this statement.
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SERVO CORPORATION OF AMERICA AND SUBSIDIARIES
STATEMENT OF IDENTIFIED INCOME AND EXPENSES
OF THE TRANSPORTATION SEGMENT
ACQUIRED BY HARMON INDUSTRIES, INC.
FOR THE YEAR ENDED OCTOBER 31, 1994
<TABLE>
<S> <C>
NET SALES $11,321,013
-----------
COSTS AND EXPENSES:
Cost of sales 6,353,193
Selling expenses 1,206,367
Allocated administrative expenses 1,151,134
Research and development expenses 1,248,283
-----------
Total operating expenses 9,958,977
-----------
Income from operations 1,362,036
OTHER INCOME (EXPENSE):
Allocated interest expense, net (337,793)
Allocated other income, net 816,191
-----------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,840,434
ALLOCATED PROVISION FOR INCOME TAXES 855,758
-----------
Net income $ 984,676
-----------
-----------
</TABLE>
The accompanying notes are an integral part of this statement.
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SERVO CORPORATION OF AMERICA AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
OF THE TRANSPORTATION SEGMENT
ACQUIRED BY HARMON INDUSTRIES, INC.
FOR THE YEAR ENDED OCTOBER 31, 1994
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 984,676
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 66,093
Changes in assets and liabilities:
Inventory (194,055)
Accrued vacation expense 4,476
Accrued warranty expense 36,280
Customer advances 137,214
----------
Net cash provided by operating activities 1,034,684
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (39,982)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contribution to Servo Corporation of America, Inc. (994,702)
----------
Change in cash and cash equivalents -
CASH AND CASH EQUIVALENTS, beginning of year -
----------
CASH AND CASH EQUIVALENTS, end of year $ -
----------
</TABLE>
The accompanying notes are an integral part of this statement.
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SERVO CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS OF THE TRANSPORTATION SEGMENT
ACQUIRED BY HARMON INDUSTRIES, INC.
OCTOBER 31, 1994
1. BASIS OF PRESENTATION:
The accompanying financial statements present the net assets and the identified
income and expenses of the Transportation Segment (the "Acquired Transportation
Segment") of Servo Corporation of America and subsidiaries (the "Company") that
were acquired by Harmon Industries, Inc. (the "Buyer") effective December 20,
1994 pursuant to an Asset Purchase Agreement (the "Agreement").
The net assets of the Acquired Transportation Segment as presented in the
accompanying statement of net assets acquired, include the historical balances
at October 31, 1994 of inventory and certain fixed assets that were sold to the
Buyer and accrued vacation and warranty expenses and customer advances assumed
by the Buyer effective December 20, 1994. The Transportation Segment has never
been operated as a separate business entity but, rather, has been an integral
part of the business of the Company.
The statement of identified income and expenses of the Acquired Transportation
Segment includes the specifically identitable net sales, cost of sales, selling
expenses and research and development expenses that substantially relate
directly to the transportation segment sold. All other income and expense items
are allocated based on estimations and assumptions as if the Acquired
Transportation Segment had been operated on a stand-alone basis during the
periods presented. The basis for presenting the allocated income and expense
items is as follows: (a) administrative expenses and other income and expense,
including interest expense, are allocated based on the proportion of net sales
volume of the Acquired Transportation Segment to the Company's total net sales
for the year; (b) income taxes are provided assuming the activities of the
Acquired Transportation Segment were those of a separate tax paying entity,
including the allocation of a portion of a settlement with the Internal Revenue
Service (see Notes 2 and 6).
The above allocations are believed by management to be reasonable allocations
under the circumstances; however, there can be no
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assurances that such allocations will be indicative of future results of
operations. In addition, the carrying values as reflected in the accompanying
statement of net assets acquired do not include losses, if any, realized at the
time of the December 20, 1994 sale.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INVENTORY
Inventory is stated at the lower of cost or market. Cost is determined by the
first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT
Fixed assets are stated at cost less accumulated depreciation and amortization.
Depreciation of building and building improvements is provided for on the
straight-line basis over estimated useful lives of five to thirty years.
Equipment is depreciated on the declining balance and straight-line methods over
estimated useful lives ranging from three to ten years. The Company principally
utilizes accelerated depreciation methods for tax reporting purposes.
INCOME TAXES
In February 1992, the financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes",
which amended SFAS No. 96, which had previously significantly amended Accounting
Principles Board Opinion No. 11. The Company has adopted this standard.
3. INVENTORY:
The following is a summary of the components of inventory of the Acquired
Transportation Segment at October 31, 1994:
<TABLE>
<S> <C>
Work-in-process $ 969,265
Materials (parts and components) 1,079,039
-----------
2,048,304
Less: reserve for obsolescence (274,383)
------------
$ 1,773,921
------------
------------
</TABLE>
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4. PROPERTY, PLANT AND EQUIPMENT:
At October 31, 1994, property, plant and equipment of the Acquired
Transportation Segment consisted of the following:
<TABLE>
<S> <C>
Production equipment $1,311,348
Office equipment 572,717
----------
1,884,065
Less: accumulated depreciation 1,647,042
----------
Property, plant and equipment, net $ 237,023
----------
----------
</TABLE>
5. ALLOCATED OTHER INCOME:
Allocated other income includes an allocation of $144,000 of the rent received
from a tenant which rented office space in the Company's building, as well as an
allocation of $653,000 of the Company's gain on the sale of its building to the
tenant.
6. INCOME TAXES:
The activities of the Company's DISC were terminated effective December 31,
1984. In accordance with Federal income tax statutes, all of the DISC's
accumulated earnings, which totaled $1,105,000 at December 31, 1984, are
permanently exempted from United States taxation. The Company did not provide
taxes on DISC earnings.
During the fourth quarter of fiscal 1988, the IRS completed an examination of
the Company's and the DISC's 1984 Federal income tax returns and proposed
adjustments. In December 1992, the Company received a formal notice of
assessment from the IRS. On October 31, 1994, a decision was entered in the
United States Tax Court in favor of the Commissioner of Internal Revenue Service
and resulted in an additional tax and interest charge of approximately $600,000
which has been included in the provision for income taxes, a portion of which
was allocated to the Acquired Transportation Segment in the accompanying
Statement of Identified Income and Expenses (see Note 1).
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EXHIBIT 2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated February 10, 1995 and to all references to our Firm included in or made a
part of the Form 8-K of Harmon Industries, Inc.
ARTHUR ANDERSEN LLP
Melville, New York
March 1, 1995
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