<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, 1996 Commission File No. 0-7916
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HARMON INDUSTRIES, INC.
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(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
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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,
1996 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 March 31, 1996 and December 31, 1995 as
well as the results of its operations for the interim periods ended March 31,
1996 and March 31, 1995.
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<PAGE>
HARMON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
FOR PERIODS ENDED MARCH 31, 1996 AND 1995
IN THOUSANDS OF DOLLARS (EXCEPT SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31
1996 1995
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Net sales $ 38,397 $ 29,415
Cost of sales 27,224 21,330
Research and development expenditures 1,458 1,022
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Gross profit 9,715 7,063
Selling, general and
administrative expenses 6,164 5,612
Amortization of cost in
excess of fair value of
net assets of acquired 137 133
Miscellaneous (income) expense-net (151) (25)
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Operating income 3,565 1,343
Interest expense (255) (147)
Investment income 34 17
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Earnings before income taxes 3,344 1,213
Income tax expense (benefit):
Current 1,285 535
Deferred (16) (28)
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1,269 507
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Net earnings $ 2,075 $ 706
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Net earnings per common share $ 0.30 $ 0.10
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Weighted average outstanding shares 6,828,883 6,814,783
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<PAGE>
HARMON INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS OF DOLLARS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
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<S> <C> <C>
Assets
Current assets:
Trade receivables, less allowance for doubtful accounts
of $361,000 in 1996 and $362,000 in 1995 $27,975 $25,317
Costs and estimated earnings in excess of billings on
uncompleted contracts 3,309 4,053
Inventories:
Work in process 5,749 4,583
Raw materials and supplies 22,029 21,262
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27,778 25,845
Income tax receivable 212 434
Deferred tax asset 584 584
Prepaid expenses and other current assets 1,013 608
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Total current assets 60,871 56,841
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Property, plant and equipment, at cost:
Land 356 356
Buildings 6,204 5,802
Machinery and equipment 13,194 12,820
Office furniture and equipment 15,440 14,589
Transportation equipment 1,053 1,036
Leasehold improvements 2,320 2,288
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38,567 36,891
Less accumulated depreciation and amortization 23,693 22,714
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Net property, plant and equipment 14,874 14,177
Deferred tax asset 637 621
Cost in excess of fair value of net assets acquired,
net of accumulated amortization of
$2,029,000 in 1996 and $1,892,000 in 1995 7,537 7,674
Deferred compensation asset 5,583 5,575
Other assets 1,489 1,957
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$90,991 $86,845
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MARCH 31, DECEMBER 31,
1996 1995
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<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Bank overdraft $ 336 $ 676
Current debt installments 576 337
Accounts payable 12,175 11,022
Accrued payroll, bonus and employee benefit plan
contributions 5,950 6,688
Billings in excess of costs and estimated earnings
on uncompleted contracts 2,175 1,279
Other accrued liabilities 2,150 1,825
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Total current liabilities 23,362 21,827
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Deferred compensation liability 3,790 3,696
Long-term debt 12,531 12,090
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Total liabilities 39,683 37,613
Stockholders' equity
Common stock of $.25 par value; authorized
20,000,000 shares, issued 6,805,626 in 1996
and 6,805,626 in 1995 1,702 1,702
Additional paid-in capital 23,003 23,003
Retained earnings 26,603 24,527
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Total stockholders' equity 51,308 49,232
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$90,991 $86,845
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</TABLE>
4
<PAGE>
HARMON INDUSTRIES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 1996 AND 1995
IN THOUSANDS OF DOLLARS
(UNAUDITED)
MARCH 31, MARCH 31,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,075 $ 706
Adjustments to reconcile net earnings to net cash
provided by operating actvities:
Depreciation and amortization 1,171 875
Gain on sale of property, plant and equipment 4 (21)
Deferred tax expense (benefit) (16) (28)
Changes in assets and liabilities:
Trade receivables (2,658) 1,659
Inventories (1,933) (2,727)
Estimated cost, earnings and billings on
contracts 1,640 (513)
Income tax receivable 222 499
Prepaid expenses (405) (256)
Accounts payable 1,153 (231)
Accrued payroll and benefits (738) (2,863)
Current income taxes -- --
Other liabilities 325 64
Other deferred liabilities 94 66
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Total adjustments (1,141) (3,476)
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Net cash provided by (used in) operating
activities 934 (2,770)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,733) (1,175)
Proceeds from sale of property, plant and equipment -- 58
Deferred compensation contributions (8) (677)
Other investing activities 468 112
Servo acquisition -- --
SERRMI acquisition -- (1,150)
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Net cash used in investing activities (1,273) (2,832)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- 15
Proceeds from issuance of long-term debt 328 --
Net borrowings under line of credit agreements 454 6,000
Principal payments of long-term debt (103) (92)
Bank overdraft (340) --
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Net cash provided by (used in) financing
activities 339 5,923
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Net increase (decrease) in cash and cash equivalents 0 321
Cash and cash equivalents at beginning of year 0 250
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Cash and cash equivalents at end of period $ 0 $ 571
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 93 $ 109
Income taxes $ 1,123 $ 37
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<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 first quarter ended March 31, 1996 of
$38.4 million, representing a 31% increase over the same quarter one year
ago. Gross profit for the 1996 first quarter was $9.7 million representing a
38% increase from the 1995 first quarter. The quarterly sales increase
reflected strong sales of train control systems, signal systems and asset
management services. Expenditures for research and development for the
quarter increased 43% in 1996 over 1995 and increased as a percentage of
sales from 3.5% in 1995 to 3.8% in 1996. This increase represents the
addition of engineering resources as well as 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 March 31,
1996 increased to 25.3% from 24.0% for the same period last year. Last year's
gross profit was negatively impacted by integration costs from the hot box
detector line acquisition. This factor along with the product mix among the
Company's traditional products, partially offset by the higher proportionate
sales of asset management services which provide a lower gross profit margin
than sales of the Company's manufactured products, substantially account for
this increase in gross profit as a percentage of sales.
Selling, general and administrative expenses (SG&A), in absolute dollars,
increased 10% for the three months ended March 31, 1996 compared to the same
period a year ago. The increased expenditures resulted principally from
increased profit based incentive compensation for the current quarter.
However, SG&A as a percentage of sales for the first quarter, at 16.1%, was
down compared to 19.1% for the first quarter of 1995. The decrease relative
to sales was primarily due to leveraging costs over high sales volume.
Orders for the Company's products and services in the first quarter decreased
slightly from $35.7 million in 1995 to $34.9 million in 1996. The decrease
in orders for the first quarter reflects decreased orders from transit
customers, mostly offset by strong growth in the freight rail market in
signal systems, train control systems, and asset management services orders
compared to the prior year. The order backlog at March 31, 1996 was $40.9
million, down from $49.1 million at December 31, 1995 and $51.4 million one
year ago. The backlog decrease reflects the high shipment levels and
comparison to backlog containing a large transit project order which was
substantially completed by first quarter 1996.
Interest expense increased from $147 thousand to $255 thousand for the three
months ended March 31, 1996 compared to the same period last year. Increased
interest bearing debt incurred to fund working capital needs and higher
interest rates are the primary factors for the increased interest expense in
1996.
The effective tax rate decreased to 37.9% from 41.8%. This decrease is
primarily the result of decreased non-deductible expenses and lower state
income taxes.
The Company's liquidity and capital resources remain strong. The Company has
approximately $4 million available under existing bank lines of credit at the
end of the first quarter of 1996, down from approximately $6 million at
December 31, 1995 and $11 million one year ago. The decrease reflects
additional borrowing primarily to fund increased accounts receivables
supporting the high level of shipments in the first quarter of 1996 and
increased inventories to support anticipated shipments in the second quarter
of 1996.
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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 9
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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 10, 1996 /s/ Bjorn E. Olsson
--------------------------------
Bjorn E. Olsson,
President
Date: May 10, 1996 /s/ Charles M. Foudree
--------------------------------
Charles M. Foudree,
Executive Vice President-Finance
Date: May 10, 1996 /s/ Stephen L. Schmitz
--------------------------------
Stephen L. Schmitz,
Vice President-Controller
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<PAGE>
HARMON INDUSTRIES, INC. EXHIBIT A
FORM 10-Q
MARCH 31, 1996
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, 1996 and 1995.
<TABLE>
(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
--------- ----------- ---------- -----------------------
<S> <C> <C> <C> <C>
1996
January 1 - March 31 6,805,626 90 612,506,340
Equivalent shares under the
Company's option plans 23,257 90 2,093,130
-----------
614,599,470 6,828,883
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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
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613,330,429 6,814,783
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</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, 1996
and for the three months then ended 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 28,336
<ALLOWANCES> (361)
<INVENTORY> 27,778
<CURRENT-ASSETS> 60,871
<PP&E> 38,567
<DEPRECIATION> (23,693)
<TOTAL-ASSETS> 90,991
<CURRENT-LIABILITIES> 23,362
<BONDS> 13,107
0
0
<COMMON> 1,702
<OTHER-SE> 49,606
<TOTAL-LIABILITY-AND-EQUITY> 90,991
<SALES> 38,397
<TOTAL-REVENUES> 38,397
<CGS> 28,682
<TOTAL-COSTS> 28,682
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 255
<INCOME-PRETAX> 3,344
<INCOME-TAX> 1,269
<INCOME-CONTINUING> 2,075
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,075
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>
