<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 June 30, 1996 Commission File No. 0-7916
----------------------- ------------
HARMON INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Missouri 44-0657800
- --------------------------------------------------------------------------------
(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
-------- -------
The number of shares of Registrant's common stock outstanding as of June 30,
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, all of which are considered normal and
recurring, to present fairly the financial position of the Company at June 30,
1996 and December 31, 1995 as well as the results of its operations for the
interim periods ended June 30, 1996 and June 30, 1995.
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<PAGE>
HARMON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
FOR PERIODS ENDED JUNE 30, 1996 AND 1995
IN THOUSANDS OF DOLLARS (EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended June 30 Six months ended June 30
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 39,111 $ 32,854 $ 77,509 $ 62,269
Cost of sales 26,141 21,971 53,366 43,279
Research and development expenditures 1,726 1,236 3,183 2,279
---------- ---------- ---------- ----------
Gross profit 11,244 9,647 20,960 16,711
Selling, general and
administrative expenses 6,560 5,990 12,724 11,602
Amortization of cost in
excess of fair value of
net assets acquired 137 133 274 266
Miscellaneous (income) expense-net (14) (7) (30) (32)
---------- ---------- ---------- ----------
Operating income 4,561 3,531 7,992 4,875
Interest expense (234) (190) (489) (337)
Investment income 29 60 198 76
---------- ---------- ---------- ----------
Earnings before income taxes 4,356 3,401 7,701 4,614
Income tax expense (benefit):
Current 1,723 1,414 3,008 1,949
Deferred (24) (71) (40) (99)
---------- ---------- ---------- ----------
1,699 1,343 2,968 1,850
---------- ---------- ---------- ----------
Net earnings $ 2,657 $ 2,058 $ 4,733 $ 2,764
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net earnings per common share $ 0.39 $ 0.30 $ 0.69 $ 0.41
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average outstanding shares 6,840,464 6,823,650 6,834,674 6,819,217
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
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<PAGE>
HARMON INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS OF DOLLARS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Assets Liabilities and Stockholders'
Equity
Current assets: Current liabilities:
Cash and cash equivalents $ 353 $ ------ Bank overdraft $ ------ $ 676
Trade receivables, less allowance Current debt installments 576 337
for doubtful accounts for doubtful Accounts payable 8,372 11,022
accounts of $307,000 in 1996 and Accrued payroll, bonus and
$362,000 in 1995 22,003 25,317 employee benefit plan
Costs and estimated earnings in contributions 6,441 6,688
excess of billings on Billings in excess of costs
uncompleted contracts 1,811 4,053 and estimated earnings
Inventories: on uncompleted contracts 3,300 1,279
Work in process 4,630 4,583 Federal and state income
Raw materials and supplies 22,067 21,262 taxes payable 302 ------
--------- --------- Other accrued liabilities 1,738 1,825
26,697 25,845 --------- ---------
Total current liabilities 20,729 21,827
--------- ---------
Income tax receivable ------ 434 Deferred compensation liability 3,880 3,696
Deferred tax asset 584 584 Long-term debt 5,507 12,090
Prepaid expenses and other --------- ---------
current assets 1,148 608
--------- ---------
Total current assets 52,596 56,841 Total liabilities 30,116 37,613
--------- --------- --------- ---------
Property, plant and equipment, at cost: Stockholders' equity
Land 356 356 Common stock of $.25 par
Buildings 7,115 5,802 value; authorized
Machinery and equipment 13,546 12,820 20,000,000 shares,
Office furniture and equipment 16,073 14,589 issued 6,805,626 in 1996
Transportation equipment 1,057 1,036 and 6,805,626 in 1995 1,702 1,702
Leasehold improvements 2,334 2,288 Additional paid-in capital 23,003 23,003
--------- --------- Retained earnings 28,750 24,527
40,481 36,891 --------- ---------
Less accumulated depreciation and Total stockholders' equity 53,455 49,232
amortization 24,710 22,714
--------- ---------
Net property, plant and equipment 15,771 14,177
Deferred tax asset 661 621
Cost in excess of fair value of net
assets acquired,net of accumulated
amortization of $2,166,000 in 1996
and $1,892,000 in 1995 7,400 7,674
Deferred compensation asset 5,670 5,575
Other assets 1,473 1,957
--------- --------- ---------- ---------
$83,571 $86,845 $83,571 $86,845
--------- --------- ---------- ---------
</TABLE>
<PAGE>
HARMON INDUSTRIES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995
IN THOUSANDS OF DOLLARS
(UNAUDITED)
JUNE 30, JUNE 30,
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 4,733 $ 2,764
Adjustments to reconcile net earnings to net cash
provided by operating actvities:
Depreciation and amortization 2,373 1,826
Gain on sale of property, plant and equipment 9 (21)
Deferred tax expense (benefit) (40) (99)
Changes in assets and liabilities:
Trade receivables 3,314 1,389
Inventories (852) (4,220)
Estimated cost, earnings and billings on contracts 4,263 (2,019)
Income tax receivable 434 667
Prepaid expenses (540) (282)
Accounts payable (2,650) 426
Accrued payroll and benefits (247) (1,943)
Current income taxes 302 609
Other liabilities (87) (34)
Other deferred liabilities 184 149
-------- --------
Total adjustments 6,463 (3,552)
-------- --------
Net cash provided by (used in)
operating activities 11,196 (788)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,702) (2,315)
Proceeds from sale of property, plant and equipment -- 58
Deferred compensation contributions (95) (523)
Other investing activities 484 116
Servo acquisition
SERRMI acquisition -- (1,150)
-------- --------
Net cash used in investing activities (3,313) (3,814)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- 292
Proceeds from issuance of long-term debt 337 --
Borrowings under line of credit agreements 23,464 10,950
Repayments under line of credit agreements (29,925) (5,950)
Principal payments of long-term debt (220) (212)
Bank overdraft (676) --
Cash dividends paid (510) (509)
-------- --------
Net cash provided by (used in)
financing activities (7,530) 4,571
-------- --------
Net increase (decrease) in cash and cash equivalents 353 (31)
Cash and cash equivalents at beginning of year -- 250
-------- --------
Cash and cash equivalents at end of period $ 353 $ 219
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest $ 398 $ 220
Income taxes $ 2,351 $ 665
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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's sales for the second quarter ended June 30, 1996 were $39.1
million, representing a 19.0% increase over the same quarter one year ago.
Gross profit for the 1996 second quarter of $11.2 million represented a 16.6%
increase over the 1995 second quarter. The quarterly sales increase resulted
from strong sales of train control systems, carborne equipment and asset
management services partially offset by lower train inspection systems sales.
Expenditures for research and development for the second quarter increased 39.6%
in 1996 and increased as a percentage of sales to 4.4% from 3.8% in 1995. This
increase represents a shift of engineering resources from application
engineering projects to research and development along with the addition of new
engineering resources. One of the major development activities is Incremental
Train Control System as described in our 1995 Form 10K. As a percentage of
sales, gross profit for the three months ended June 30, 1996 decreased to 28.7%
from 29.4% for the same period last year. This decline is almost entirely the
result of the increase in research and development expenditures in the second
quarter of 1996 compared to 1995.
Sales for the six months ended June 30, 1996 increased 24.5% over last year to
$77.5 million. The sales increase reflects strong sales of train control
systems, carborne equipment, asset management services and signal hardware
products, partially offset by lower sales of printed circuit boards. Year to
date expenditures for research and development increased 39.7% for the first six
months of 1996 compared to the same period a year ago. As a percentage of sales
for the same period, research and development increased to 4.1% in 1996 from
3.7% in 1995. This increase for the first six months of 1996 is due to the
same reasons noted above for the quarter. Gross profit for the six month period
increased 25.4% to $21.0 million in 1996 and increased slightly as a percentage
of sales to 27.0% in 1996 from 26.8% last year. The increase in margins
resulting from the absence of the 1995 integration costs of the acquired hot box
detector line was virtually offset by the increased research and development
expenditures and the higher proportionate sales of lower margin asset management
services.
Selling, general and administrative expenses (SG&A), increased 9.5% for the
three months ended June 30, 1996 compared to the same period last year. As a
percentage of sales for the same period, SG&A decreased to 16.8% from 18.2%.
The increased SG&A expenses in absolute dollars in the second quarter of 1996
was primarily higher selling expenses commensurate with higher sales
(approximately $250 thousand), higher fringe benefit expenses (approximately
$200 thousand), increased incentive based compensation expenses which vary
with the earnings of the Company (approximately $100 thousand), higher
depreciation expenses (approximately $80 thousand) and general inflation,
partially offset by lower legal and audit expenses (approximately $325
thousand). The decrease in SG&A as a percentage of sales reflects generally
the leveraging of costs over the higher sales volume, as well as the absence
of integration costs of the acquired hot box detector line and costs
associated with new computer systems implementations incurred during 1995.
For the six month period ended June 30, 1996, SG&A increased 9.7% over last
year but similarly decreased as a percentage of sales to 16.4% in 1996 from
18.6% in 1995. The increased SG&A expenses for the six months was again
primarily due to higher selling
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<PAGE>
expenses (approximately $335 thousand), higher incentive based compensation
(approximately $275 thousand), higher depreciation (approximately $200
thousand) and general inflation, partially offset by decreased legal and audit
expenses (approximately $400 thousand). The decrease in SG&A as a percentage of
sales for the first six months of 1996 reflects the same reasons noted above.
Orders for the Company's products and services increased from $35.2 million in
1995 to $36.2 million in 1996 for the second quarter and increased slightly from
$70.9 million in 1995 to $71.1 in 1996 for the six months ended June 30. The
second quarter increase reflects growth in train control systems, asset
management services and signal hardware products offset partially by decreased
carborne equipment and printed circuit board orders. The slight increase in
orders for the first six months of 1996 compared to 1995 reflects strong growth
in the freight rail market for control systems, asset management services and
signal hardware products offset by decreased orders for train control systems
from the rail transit market and decreased orders for carborne equipment from
freight rail customers and printed wiring boards. The order backlog at June 30,
1996 was $34.7 million, down from $49.1 million at December 31, 1995 and $55.0
million one year ago. The backlog decrease reflects the high shipment levels
and comparison to backlogs containing a large rail transit project order which
was substantially completed by the first quarter of 1996.
Interest expense increased from $190 thousand to $234 thousand for the three
months ended June 30, 1996 compared to the same period last year. Year to date
interest expense through June 30, 1996 also increased to $489 thousand from $337
thousand in 1995. Increased average outstanding interest bearing debt and
higher interest rates when compared to last year account for the increased
interest expense.
The effective tax rate decreased from 39.5% in 1995 to 39.0% in 1996 for the
three months and decreased from 40.1% in 1995 to 38.5% in 1996 for the six
months ended June 30, 1996. This decrease reflects a combination of lower non-
deductible expenses and lower state income taxes in 1996.
The Company's liquidity and capital resources remain strong. The Company has
approximately $9 million available under existing bank lines of credit at the
end of the second quarter of 1996, up from approximately $6 million at December
31, 1995 but down from approximately $13 million one year ago. Positive cash
was generated through collection of account receivables and a significant
reduction in contracts in progress.
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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 #
Computation of earnings per share A 10 - 11
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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: August 9, 1996 /s/Bjorn E. Olsson
--------------------------------
Bjorn E. Olsson,
President
Date: August 9, 1996 /s/Charles M. Foudree
--------------------------------
Charles M. Foudree,
Executive Vice President-Finance
Date: August 9, 1996 /s/Stephen L. Schmitz
--------------------------------
Stephen L. Schmitz,
Vice President-Controller
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<PAGE>
HARMON INDUSTRIES, INC. EXHIBIT A
FORM 10-Q ---------
JUNE 30, 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 June 30, 1996 and 1995.
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Average number
of shares
outstanding
as shown on
consolidated
statements of
operations (3)
divided by
Shares of Number of days Share days number of
common stock outstanding (2 x 1) days in period
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
1996
April 1 - June 30 6,805,626 91 619,311,966
Equivalent shares
under the
Company's option
plans 34,838 91 3,170,258
------------
622,482,224 6,840,464
------------ --------------
------------ --------------
1995
April 1 - June 30 6,766,211 91 615,725,201
Equivalent shares
under
the Company's bonus
plan 1,144 91 104,119
Options exercised 9,350 86 804,100
1,800 65 117,000
9,500 63 598,500
2,000 44 88,000
2,000 39 78,000
1,000 38 38,000
2,000 37 74,000
1,600 30 48,000
2,000 30 60,000
Shares issued under
the 1994 bonus plan 4,950 51 252,450
Equivalent shares
under the
Company's option
plans 32,580 91 2,964,780
------------
620,952,150 6,823,650
------------ --------------
------------ --------------
</TABLE>
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<PAGE>
Computation of the average number of shares of Common Stock outstanding for the
six months ended June 30, 1996 and 1995.
1996
Quarter 1 weighted average 6,828,883
Quarter 2 weighted average 6,840,464
------------ Divided by
13,669,347 2 quarters = 6,834,674
----------
----------
1995
Quarter 1 weighted average 6,814,783
Quarter 2 weighted average 6,823,650
------------ Divided by
13,638,433 2 quarters = 6,819,217
----------
----------
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFO EXTRACTED FROM THE CONSOLIDATED
FINANCIAL STATEMENTS OF HARMON INDUSTRIES INC. AT JUNE 30, 1996 AND FOR THE SIX
MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 353
<SECURITIES> 0
<RECEIVABLES> 22,310
<ALLOWANCES> (307)
<INVENTORY> 26,697
<CURRENT-ASSETS> 52,596
<PP&E> 40,481
<DEPRECIATION> (24,710)
<TOTAL-ASSETS> 83,571
<CURRENT-LIABILITIES> 20,729
<BONDS> 6,083
0
0
<COMMON> 1,702
<OTHER-SE> 51,753
<TOTAL-LIABILITY-AND-EQUITY> 83,571
<SALES> 77,509
<TOTAL-REVENUES> 77,509
<CGS> 56,549
<TOTAL-COSTS> 56,549
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 489
<INCOME-PRETAX> 7,701
<INCOME-TAX> 2,968
<INCOME-CONTINUING> 4,733
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,733
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.69
</TABLE>
