<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, 1997 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,
1997 was 6,876,608.
---------
-1-
<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, 1997 and December 31, 1996 as well as the results of its
operations for the interim periods ended June 30, 1997 and June 30, 1996.
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<PAGE>
HARMON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
FOR PERIODS ENDED JUNE 30, 1997 AND 1996
IN THOUSANDS OF DOLLARS (EXCEPT EARNINGS PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 47,621 $ 39,111 $ 83,609 $ 77,509
Cost of sales 33,607 26,141 59,803 53,366
Research and development expenditures 1,809 1,726 3,411 3,183
---------- ---------- ---------- ----------
Gross profit 12,205 11,244 20,395 20,960
Selling, general and
administrative expenses 6,687 6,560 12,535 12,724
Amortization of cost in
excess of fair value of
net assets acquired 166 137 326 274
Equity in net loss of affiliate 330 -- 330 --
Miscellaneous (income) expense-net (49) (14) (72) (30)
---------- ---------- ---------- ----------
Operating income 5,071 4,561 7,276 7,992
Interest expense (428) (234) (551) (489)
Investment income 176 29 313 198
---------- ---------- ---------- ----------
Earnings before income taxes 4,819 4,356 7,038 7,701
Income tax expense (benefit):
Current 1,832 1,723 2,604 3,008
Deferred -- (24) -- (40)
---------- ---------- ---------- ----------
1,832 1,699 2,604 2,968
---------- ---------- ---------- ----------
Net earnings $ 2,987 $ 2,657 $ 4,434 $ 4,733
========== ========== ========== ==========
Net earnings per common share $ 0.43 $ 0.39 $ 0.64 $ 0.69
========== ========== ========== ==========
Weighted average outstanding common and
common equivalent shares 6,890,148 6,840,464 6,879,529 6,834,674
========== ========== ========== ==========
</TABLE>
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<PAGE>
HARMON INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS OF DOLLARS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,252 --
Trade receivables, less allowance for doubtful accounts
of $308 in 1997 and $307 in 1996 28,810 $ 39,656
Costs and estimated earnings in excess of billings on
uncompleted contracts 3,826 1,665
Inventories:
Work in process 5,480 4,145
Raw materials and supplies 28,198 23,076
-------- --------
33,678 27,221
Deferred tax asset 1,637 1,637
Prepaid expenses and other current assets 1,471 2,851
-------- --------
Total current assets 76,674 73,030
-------- --------
Property, plant and equipment, at cost:
Land 362 356
Buildings 9,902 9,010
Machinery and equipment 15,141 14,292
Office furniture and equipment 18,286 16,032
Transportation equipment 1,288 1,236
Leasehold improvements 2,550 2,395
-------- --------
47,529 43,321
Less accumulated depreciation and amortization 27,250 25,389
-------- --------
Net property, plant and equipment 20,279 17,932
Deferred tax asset 738 738
Cost in excess of fair value of net assets acquired,
net of accumulated amortization of
$2,809 in 1997 and $2,483 in 1996 8,368 7,606
Deferred compensation asset 5,392 4,998
Other assets 148 373
-------- --------
$111,599 $104,677
======== ========
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current debt installments $ 1,265 $ 737
Accounts payable 10,671 15,119
Accrued payroll, bonus and employee benefit plan
contributions 6,576 10,892
Billings in excess of costs and estimated earnings
on uncompleted contracts 4,853 5,926
Federal and state income taxes payable 489 492
Other accrued liabilities 5,581 6,235
-------- --------
Total current liabilities 29,435 39,401
-------- --------
Deferred compensation liability 4,086 3,925
Long-term debt 15,853 3,412
-------- --------
Total liabilities 49,374 46,738
Stockholders' equity
Common stock of $.25 par value; authorized
20,000,000 shares, issued 6,876,608 in 1997
and 6,829,273 in 1996 1,719 1,707
Additional paid-in capital 23,598 23,194
Foreign currency translation 154 203
Retained earnings 36,754 32,835
-------- --------
Total stockholders' equity 62,225 57,939
-------- --------
$111,599 $104,677
======== ========
</TABLE>
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<PAGE>
HARMON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
IN THOUSANDS OF DOLLARS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 4,434 $ 4,733
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 2,643 2,373
Equity in net loss of affiliate 330 --
(Gain) loss on sale of property, plant and equipment (11) (1)
Deferred tax expense (benefit) -- (40)
Changes in assets and liabilities:
Trade receivables 11,514 3,314
Inventories (6,382) (852)
Estimated costs, earnings and billings on contracts (3,171) 4,263
Income tax receivable -- 434
Prepaid expenses 1,653 (540)
Accounts payable (5,817) (2,650)
Accrued payroll and benefits (4,316) (247)
Current income taxes (3) 302
Other liabilities (726) (87)
Other deferred liabilities 161 184
-------- --------
Total adjustments (4,125) 6,453
-------- --------
Net cash provided by operating activities 309 11,186
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,482) (3,702)
Proceeds from sale of property, plant and equipment 15 10
Deferred compensation contributions (394) (95)
Other investing activities 14 484
Vale Harmon acquisition (167) --
-------- --------
Net cash used in investing activities (5,014) (3,303)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 416 --
Proceeds from issuance of long-term debt 15,000 337
Borrowings under line of credit agreements 12,905 23,464
Repayments under line of credit agreements (15,250) (29,925)
Principal payments of long-term debt (550) (220)
Bank overdraft -- (676)
Cash dividends paid (515) (510)
-------- --------
Net cash provided by (used in)
financing activities 12,006 (7,530)
-------- --------
Foreign currency translation adjustment (49) --
-------- --------
Net increase in cash and cash equivalents 7,252 353
-------- --------
Cash and cash equivalents at beginning of period -- --
-------- --------
Cash and cash equivalents at end of period $ 7,252 $ 353
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 118 $ 398
Income taxes $ 2,650 $ 2,351
</TABLE>
-5-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net sales for the second quarter ended June 30, 1997 were $47.6 million
compared with net sales of $39.1 million for the quarter ended June 30, 1996,
an increase of 21.8%. Net sales for the six months ended June 30, 1997
increased 7.9% to $83.6 million from $77.5 million for the six months ended
June 30, 1996.
Gross profit for the 1997 second quarter was $12.2 million, an 8.6% increase
from the 1996 second quarter. Gross profit margin was 25.6% versus 28.7% in
the prior year quarter. The decline in gross profit margin is primarily the
result of an increase in the sales mix toward services, systems and
pass-through sales. Research and development expenditures (R&D) increased to
$1.8 million in the second quarter of 1997 from $1.7 million in the same
quarter one year ago. As a percent of net sales, R&D for the quarter
decreased to 3.8% from 4.4% in the 1996 second quarter.
Gross profit for the six months ended June 30, 1997 was $20.4 million, a
decrease of 2.7% from $21.0 million for the first half of 1996. This decline
in gross profit resulted from a decrease in gross profit margin from 27.0%
for the six months ended June 30, 1996 to 24.4% for the six months ended
June 30, 1997. The decline in gross profit margin is primarily the result of an
increase in the sales mix toward services, systems and pass-through sales.
R&D increased to $3.4 million for the six months ended June 30, 1997 from
$3.2 million for the same period in 1996. For the first half of 1997, R&D as
a percent of net sales of 4.1% was equal to R&D as a percent of net sales for
the same period in 1996.
Selling, general and administrative expenses (SG&A) were $6.7 million for the
quarter ended June 30, 1997, an increase of 1.9% from $6.6 million during the
1996 quarter. SG&A as a percent of net sales was 14.0% during the second
quarter of 1997 versus 16.8% for the second quarter of 1996. For the six
months ended June 30, 1997, SG&A was $12.5 million, or 15.0% of net sales, a
decrease of 1.5% from $12.7 million, or 16.4% of net sales, for the
comparable period in 1996. The decreases in SG&A as a percent of net sales
for both the three months and six months ended June 30, 1997 compared with
the prior year periods resulted from leveraging fairly constant SG&A over
higher sales volumes.
During the quarter ended June 30, 1997, the Company acquired the remaining
62% of the issued and outstanding shares of its Canadian affiliate,
Vale Harmon Enterprises, Ltd. (Vale), that it previously did not own. The
Company recorded a charge of $330 thousand during the second quarter of 1997 to
recognize its share of Vale's pre-acquisition losses.
As a result of increased borrowings during 1997, net interest expense
(interest expense less investment income) for the second quarter increased to
$252 thousand in 1997 from $205 thousand in 1996. For the six months ended
June 30, 1997, net interest expense was $238 thousand compared with $291
thousand for the prior year period. This decrease resulted from lower
weighted average interest rates for borrowed funds during 1997 compared with
1996.
The effective tax rate decreased to 38.0% in the second quarter of 1997 from
39.0% in the prior year quarter. For the six months ended June 30, the
effective tax rate decreased from 38.5% in 1996 to 37.0% in 1997. These
decreases are due to lower state income taxes resulting from changes in the
Company's business activity by state, state exemption for United Kingdom
earnings and use of United Kingdom tax loss carryforwards.
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<PAGE>
Orders for the Company's products and services during the second quarter of
1997 were $57.3 million, exceeding orders of $46.6 million in the first
quarter of 1997 by 23%. Orders for the second quarter of 1997 were led by
the freight railroad market. Class I railroads in the United States are
making significant capital improvements to achieve efficiencies within
recently merged operations. For the six months ended June 30, 1997, orders
were $103.9 million, an increase of 46.1% from $71.1 million for the first
half of 1996. The Company's order backlog increased to $78.4 million at
June 30, 1997, up from $59.4 million at December 31, 1996 and $34.7 million
one year ago.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share" which revises the calculation and
presentation provisions of Accounting Principles Board Opinion 15 and related
interpretations. Statement No. 128 is effective for the Company's fiscal
year ending December 31, 1997. The Company believes the adoption of
Statement No. 128 will not have a significant effect on its reported earnings
per share.
At June 30, 1997 the Company had $38.6 million in liquidity. This consisted
of $7.3 million in cash and cash equivalents plus $31.3 million available
under bank lines of credit. The current ratio at June 30, 1997 was 2.6 to 1
compared to 1.9 to 1 at December 31, 1996 and 2.5 to 1 at June 30, 1996. The
increase in the current ratio from December 31, 1996 to June 30, 1997 is the
result of an increase in cash and cash equivalents and decreases in accounts
payable and accrued payroll, bonus and employee benefit plan contributions
during the period. For the six months ended June 30, 1997, accounts
receivable have decreased following strong shipments in December, 1996 and
inventories have increased in anticipation of third quarter demand.
-7-
<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
-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 there unto duly authorized.
HARMON INDUSTRIES, INC.
Date: August 7, 1997 /s/Bjorn E. Olsson
--------------------------------------------
Bjorn E. Olsson,
President
Date: August 7, 1997 /s/Charles M. Foudree
--------------------------------------------
Charles M. Foudree,
Executive Vice President-Finance
Date: August 7, 1997 /s/Stephen L. Schmitz
--------------------------------------------
Stephen L. Schmitz,
Vice President-Controller
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<PAGE>
HARMON INDUSTRIES, INC. EXHIBIT 11A
FORM 10-Q
JUNE 30, 1997
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, 1997 and 1996.
<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
------------- ------------ ------------- -----------------------
<S> <C> <C> <C> <C>
1997
April 1 - June 30 6,862,108 91 624,451,828
Options exercised 8,000 39 312,000
100 34 3,400
2,900 33 95,700
3,500 21 73,500
0
Equivalent shares under the
Company's option plans 22,715 91 2,067,065
-----------
627,003,493 6,890,148
=========== ===========
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
=========== ===========
</TABLE>
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<PAGE>
Computation of the average number of shares of Common Stock outstanding for the
six months ended
June 30, 1997 and 1996.
1997
Quarter 1 weighted average 6,868,909
Quarter 2 weighted average 6,890,148
Divided by
13,759,057 2 quarters = 6,879,529
=========
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
=========
-11-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDTATED FINANCIAL STATEMENTS OF HARMON INDUSTRIES, INC. AT JUNE 30, 1997
AND FOR THE SIX MONTHS THEN ENDED.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,252
<SECURITIES> 0
<RECEIVABLES> 29,118
<ALLOWANCES> (308)
<INVENTORY> 33,678
<CURRENT-ASSETS> 76,674
<PP&E> 47,529
<DEPRECIATION> (27,250)
<TOTAL-ASSETS> 111,599
<CURRENT-LIABILITIES> 29,435
<BONDS> 17,118
0
0
<COMMON> 1,719
<OTHER-SE> 60,506
<TOTAL-LIABILITY-AND-EQUITY> 111,599
<SALES> 83,609
<TOTAL-REVENUES> 83,609
<CGS> 63,214
<TOTAL-COSTS> 63,214
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 551
<INCOME-PRETAX> 7,038
<INCOME-TAX> 2,604
<INCOME-CONTINUING> 4,434
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,434
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.64
</TABLE>
