<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 SEPTEMBER 30, 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
- - --------------------------------------------------------------------------------
(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 September
30, 1995 was 6,805,626.
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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 September 30, 1995 and December 31, 1994 as well as
the results of its operations for the interim periods ended September 30, 1995
and September 30, 1994.
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<PAGE>
HARMON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
FOR PERIODS ENDED SEPTEMBER 30, 1995 AND 1994
IN THOUSANDS OF DOLLARS (EXCEPT EARNINGS PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 38,026 $ 29,448 $ 100,296 $ 87,517
Cost of sales 26,954 19,997 70,254 59,382
Research and development expenditures 1,503 805 3,761 2,761
---------- ---------- ---------- ----------
Gross profit 9,569 8,646 26,281 25,374
Selling, general and
administrative expenses 5,464 4,973 17,067 15,188
Amortization of cost in
excess of fair value of
net assets of acquired 144 11 410 78
Miscellaneous (income) expense-net (13) 21 (45) (3)
---------- ---------- ---------- ----------
Operating income 3,974 3,641 8,849 10,111
Interest expense (197) (85) (534) (208)
Investment income 4 1 80 21
---------- ---------- ---------- ----------
Earnings before income taxes 3,781 3,557 8,395 9,924
Income tax expense (benefit):
Current 1,524 1,491 3,473 4,184
Deferred (23) (85) (122) (237)
---------- ---------- ---------- ----------
1,501 1,406 3,351 3,947
---------- ---------- ---------- ----------
Net earnings $ 2,280 $ 2,151 $ 5,044 $ 5,977
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net earnings per common share $ 0.33 $ 0.33 $ 0.74 $ 0.91
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average outstanding shares 6,837,112 6,563,411 6,825,182 6,557,710
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
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<PAGE>
HARMON INDUSTRIES, INC
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS OF DOLLARS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 667 $ 250
Trade receivables, less allowance for doubtful accounts
of $366,000 in 1995 and $360,000 in 1994 26,053 21,457
Costs and estimated earnings in excess of billings on
uncompleted contracts 2,950 1,321
Inventories:
Work in process 7,608 5,763
Raw materials and supplies 15,759 11,955
------------- -------------
23,367 17,718
Income tax receivable -- 667
Deferred tax asset 708 586
Prepaid expenses and other current assets 656 731
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Total current assets 54,401 42,730
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Property, plant and equipment, at cost:
Land 356 164
Buildings 5,155 4,596
Machinery and equipment 12,290 11,680
Office furniture and equipment 13,958 11,711
Transportation equipment 995 928
Leasehold improvements 2,125 1,600
------------- -------------
34,879 30,679
Less accumulated depreciation and amortization 21,816 19,610
------------- -------------
Net property, plant and equipment 13,063 11,069
Deferred tax asset 500 500
Cost in excess of fair value of net assets acquired,
net of accumulated amortization of
$1,759,000 in 1995 and $1,349,000 in 1994 7,811 7,967
Deferred compensation asset 5,588 5,146
Other assets 867 983
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$ 82,230 $ 68,395
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September 30, December 31,
1995 1994
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Liabilities and Stockholders' Equity
Current liabilities:
Current debt installments $ 269 $ 1,174
Accounts payable 11,307 8,646
Accrued payroll, bonus and employee beneift plan
contributions 6,627 7,327
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,696 1,420
Federal and state income taxes payable 399 --
Other accrued liabilities 2,410 2,493
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Total current liabilities 22,708 21,060
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Deferred compensation liability 3,617 3,539
Long-term debt 8,015 733
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Total liabilities 34,340 25,332
Stockholders' equity
Common stock of $.25 par value; aurthorized
20,000,000 shares, issued 6,805,626 in 1995
and 6,728,252 in 1994 1,701 1,682
Additional paid-in capital 22,992 22,719
Retained earnings 23,197 18,662
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Total stockholders' equity 47,890 43,063
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$ 82,230 $ 68,395
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</TABLE>
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<PAGE>
HARMON INDUSTRIES, INC
Consolidated Statements of Cash Flows
For the nine month periods ended
September 30, 1995 and 1994
In thousands of dollars
(Unaudited)
<TABLE>
<CAPTION>
September, 30 September, 30
1995 1994
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 5,044 $ 5,977
Adjustments to reconcile net earnings to net cash
provided by operating actvities:
Depreciation and amortization 2,825 1,929
Gain on sale of property, plant and equipment (21) 5
Deferred tax expense (benefit) (122) (237)
Changes in assets and liabilities:
Trade receivables (4,596) (3,406)
Inventories (5,439) (2,715)
Estimated cost, earnings and billings on contracts (1,353) (924)
Income tax receivable 667 --
Prepaid expenses 75 (340)
Accounts payable 2,661 523
Accrued payroll and benefits (700) 344
Current income taxes 399 (113)
Other liabilities (83) (402)
Other deferred liabilities 78 192
------------- -------------
Total adjustments (5,609) (5,144)
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Net cash used in operating activities (565) 833
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,462) (3,140)
Proceeds from sale of property, plant and equipment 58 0
Deferred compensation contributions (442) (450)
Other investing activities 116 3
SERRMI acquisition (1,150) --
------------- -------------
Net cash used in investing activities (4,880) (3,587)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 292 277
Proceeds from issuance of long-term debt -- 749
Net borrowings under line of credit agreements 6,400 0
Principal payments of long-term debt (321) (228)
Cash dividends paid (509) (484)
------------- -------------
Net cash provided by financing activities 5,862 314
------------- -------------
Net increase (decrease) in cash and cash equivalents 417 (2,440)
Cash and cash equivalents at beginning of year 250 3,065
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Cash and cash equivalents at end of period $ 667 $ 625
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 442 $ 144
Income taxes $ 2,317 $ 4,153
</TABLE>
-5-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company posted record sales for the third quarter ended September 30, 1995
of $38.0 million, representing a 29% increase over the same quarter one year
ago. Gross profit for the 1995 third quarter was $9.6 million representing an
11% increase from the 1994 third quarter. The quarterly sales increase
reflected strong sales of train control systems, signal systems and products and
the additional sales from the Company's recent acquisitions. Expenditures for
research and development for the quarter increased as a percentage of sales from
2.7% in 1994 to 4.0%. This increase represents a shift of engineering resources
from application engineering projects to research and development activities.
As a percentage of sales, gross profit for the three months ended September 30,
1995 decreased to 25.2% from 29.4% for the same period last year. The decrease
resulted primarily from the increase in research and development expenditures,
integration costs incurred from absorption of the hot box detector acquisition,
and the product mix among the Company's traditional products partially offset by
the smaller proportionate sales of asset management services which provide a
lower gross profit margin than sales of the Company's manufactured products.
Sales for the nine months ended September 30, 1995 increased 15% over last year
to a record $100.3 million. The sales growth is principally reflected in train
control systems, signal systems and products, carborne products and the
additional sales provided from the Company's recent acquisitions, partially
offset by decreased sales of asset management services. Year to date research
and development expenditures increased 36% in 1995. As a percentage of sales,
research and development increased from 3.2% in 1994 to 3.7% reflecting the
shift of engineering resources from applications projects to research and
development activities. Gross profit for the nine month period increased $26.3
million but decreased as a percentage of sales to 26.2% in 1995 from 29.0% in
1994. This decrease in margin percentage reflects the same factors as noted
above.
Selling, general and administrative expenses (SG&A) in absolute dollars,
increased 10% for the three months and 12% for the nine months ended September
30, 1995 compared to the same periods a year ago. The increased expenditures
resulted principally from increased sales and marketing resources, the costs to
move and integrate the recently acquired Servo operations into the Company's
manufacturing operations in California and expenses associated with new computer
systems implementations. However, SG&A as a percentage of sales for the third
quarter, at 14.4%, was down compared to 16.9% for the third quarter of 1994.
For the nine months ended September 30, 1995, SG&A expenses were 17.0% of sales,
down from 17.4% for the same period in 1994. The decreases relative to sales
are due to reductions of incentive compensation based on targeted profits and
the leveraging of costs over higher sales volumes.
Orders for the Company's products and services increased from $25.7 million in
1994 to $28.8 million in 1995 for the third quarter and from $80.4 million in
1994 to $101.7 million in 1995 for the nine months ended September 30. The
increase in orders in the third quarter and year to date reflect strong growth
in the freight rail market in signal systems and train control systems orders
compared to the prior year as well as the addition of the two recent
acquisitions by the Company. The increase in orders for the third quarter also
reflect increased orders from transit customers. Consequently, the order
backlog at September 30, 1995 was $44.5 million, comparable to the $44.6 million
at December 31, 1994 and up significantly from $29.8 million one year ago.
-6-
<PAGE>
Interest expense increased from $85 thousand to $197 thousand for the three
months ended September 30, 1995 compared to the same period last year. Year to
date interest expense through September 30, 1995 also increased
to $534 thousand from $208 thousand in 1994. Increased interest bearing debt
incurred to help fund the two recent acquisitions and their working capital
needs and higher interest rates are the primary factors for the increased
interest expense in 1995.
The Company's liquidity and capital resources remain strong. The Company has
approximately $11 million available under existing bank lines of credit at the
end of the third quarter of 1995, down from approximately $19 million at both
December 31, 1994 and one year ago. The decreases reflect additional borrowing
to fund the Company's two recent acquisitions and their working capital needs as
well as increased inventories to support anticipated high level of shipments for
the remainder of 1995.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
No Form 8-K was required to be filed during the most recent quarter.
Exhibit Table
Reference # Page #
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Computation of earnings per share A 10 - 11
-8-
<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: November 10, 1995 /s/Bjorn E. Olsson
-------------------------------
Bjorn E. Olsson,
President
Date: November 10, 1995 /s/Charles M. Foudree
-------------------------------
Charles M. Foudree,
Executive Vice President-Finance
Date: November 10, 1995 /s/Stephen L. Schmitz
-------------------------------
Stephen L. Schmitz,
Vice President-Controller
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<PAGE>
HARMON INDUSTRIES, INC. EXHIBIT A
FORM 10-Q
SEPTEMBER 30, 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 September 30, 1995 and 1994.
<TABLE>
<CAPTION>
(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
<S> <C> <C> <C> <C>
July 1 - September 30 6,802,411 92 625,821,812
Equivalent shares under
the Company's bonus plan-'95 2,061 92 189,622
Options exercised 3,215 44 141,460
Equivalent shares under the
Company's option plans 31,102 92 2,861,384
-------------
629,014,278 6,837,112
------------- ---------------------
------------- ---------------------
1994
July 1 - September 30 6,459,052 92 594,232,784
Equivalent shares under
the Companys' bonus plan 2,110 92 194,118
Equivalent shares under the
Company's option plans 102,249 92 9,406,908
-------------
603,833,810 6,563,411
------------- ---------------------
------------- ---------------------
</TABLE>
- 10 -
<PAGE>
HARMON INDUSTRIES, INC.
FORM 10-Q
SEPTEMBER 30, 1995
Computation of the average number of shares of Common Stock outstanding for the
nine months ended September 30, 1995 and 1994.
1995
Quarter 1 weighted average 6,814,783
Quarter 2 weighted average 6,823,650
Quarter 3 weighted average 6,837,112
-------------
Divided by
20,475,545 3 Quarters = 6,825,182
------------
------------
1994
Quarter 1 weighted average 6,551,192
Quarter 2 weighted average 6,558,527
Quarter 3 weighted average 6,563,411
-------------
Divided by
19,673,130 3 Quarters = 6,557,710
------------
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- 11 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF HARMON INDUSTRIES, INC. AT SEPTEMBER 30,
1995 AND FOR THE NINE MONTHS THEN ENDED (UNAUDITED).
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 667
<SECURITIES> 0
<RECEIVABLES> 26,419
<ALLOWANCES> (366)
<INVENTORY> 23,367
<CURRENT-ASSETS> 54,401
<PP&E> 34,879
<DEPRECIATION> (21,816)
<TOTAL-ASSETS> 82,230
<CURRENT-LIABILITIES> 22,708
<BONDS> 8,015
<COMMON> 1,701
0
0
<OTHER-SE> 46,189
<TOTAL-LIABILITY-AND-EQUITY> 82,230
<SALES> 100,296
<TOTAL-REVENUES> 100,296
<CGS> 88,551
<TOTAL-COSTS> 88,551
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 534
<INCOME-PRETAX> 8,395
<INCOME-TAX> 3,351
<INCOME-CONTINUING> 5,044
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,044
<EPS-PRIMARY> .74
<EPS-DILUTED> .74
</TABLE>
