<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, 1997 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
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(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 March 31,
1997 was 6,862,108.
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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, 1997 and December 31, 1996 as
well as the results of its operations for the interim periods ended March 31,
1997 and March 31, 1996.
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<PAGE>
HARMON INDUSTRIES, INC.
Consolidated Statements of Earnings
For Periods Ended March 31, 1997 and 1996
In thousands of dollars (except earnings per share data)
(Unaudited)
Three months ended March 31
1997 1996
--------- ---------
Net sales $ 35,988 $ 38,397
Cost of sales 26,196 27,224
Research and development expenditures 1,602 1,458
--------- ---------
Gross profit 8,190 9,715
Selling, general and
administrative expenses 5,847 6,164
Amortization of cost in
excess of fair value of
net assets acquired 160 137
Miscellaneous (income) expense-net (23) (151)
--------- ---------
Operating income 2,206 3,565
Interest expense (124) (255)
Investment income 138 34
--------- ---------
Earnings before income taxes 2,220 3,344
Income tax expense (benefit):
Current 772 1,285
Deferred -- (16)
--------- ---------
772 1,269
--------- ---------
Net earnings $ 1,448 $ 2,075
========= =========
Net earnings per common share $ 0.21 $ 0.30
========= =========
Weighted average outstanding common and
common equivalent shares 6,868,909 6,828,883
========= =========
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<PAGE>
HARMON INDUSTRIES, INC
Consolidated Balance Sheets
In thousands of dollars
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 9,222 $ --
Trade receivables, less allowance for doubtful accounts
of $298 in 1997 and $307 in 1996 24,341 39,656
Costs and estimated earnings in excess of billings on
uncompleted contracts 3,237 1,665
Inventories:
Work in process 4,872 4,145
Raw materials and supplies 27,078 23,076
---------- ----------
31,950 27,221
Income tax receivable 713 --
Deferred tax asset 1,637 1,637
Prepaid expenses and other current assets 1,787 2,851
---------- -----------
Total current assets 72,887 73,030
---------- -----------
Property, plant and equipment, at cost:
Land 356 356
Buildings 8,879 9,010
Machinery and equipment 14,487 14,292
Office furniture and equipment 17,343 16,032
Transportation equipment 1,251 1,236
Leasehold improvements 2,484 2,395
---------- -----------
44,800 43,321
Less accumulated depreciation and amortization 26,417 25,389
---------- -----------
Net property, plant and equipment 18,383 17,932
Deferred tax asset 738 738
Cost in excess of fair value of net assets acquired,
net of accumulated amortization of
$2,643 in 1997 and $2,483 in 1996 7,445 7,606
Deferred compensation asset 5,239 4,998
Other assets 359 373
---------- -----------
$ 105,051 $ 104,677
---------- -----------
</TABLE>
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<PAGE>
HARMON INDUSTRIES, INC
Consolidated Balance Sheets
In thousands of dollars
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- -----------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Current debt installments $ 736 $ 737
Accounts payable 9,314 15,119
Accrued payroll, bonus and employee benefit plan
contributions 5,769 10,892
Billings in excess of costs and estimated earnings
on uncompleted contracts 5,916 5,926
Federal and state income taxes payable -- 492
Other accrued liabilities 4,590 6,235
---------- ----------
Total current liabilities 26,325 39,401
---------- ----------
Deferred compensation liability 3,990 3,925
Long-term debt 15,285 3,412
---------- ----------
Total liabilities 45,600 46,738
Stockholders' equity
Common stock of $.25 par value; authorized
20,000,000 shares, issued 6,862,108 in 1997
and 6,829,273 in 1996 1,715 1,707
Additional paid-in capital 23,349 23,194
Foreign currency translation 96 203
Retained earnings 34,291 32,835
---------- ----------
Total stockholders' equity 59,451 57,939
---------- ----------
$ 105,051 $ 104,677
---------- ----------
</TABLE>
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<PAGE>
HARMON INDUSTRIES, INC
Consolidated Statements of Cash Flows
For the three month periods ended
March 31, 1997 and 1996
In thousands of dollars
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,448 $ 2,075
Adjustments to reconcile net earnings to net cash
provided by operating actvities:
Depreciation and amortization 1,326 1,171
(Gain) loss on sale of property, plant and equipment (55) 4
Deferred tax expense (benefit) -- (16)
Changes in assets and liabilities:
Trade receivables 15,315 (2,658)
Inventories (4,729) (1,933)
Estimated costs, earnings and billings on contracts (1,582) 1,640
Income tax receivable (713) 222
Prepaid expenses 1,064 (405)
Accounts payable (5,805) 1,153
Accrued payroll and benefits (5,123) (738)
Current income taxes (492) --
Other liabilities (1,645) 325
Other deferred liabilities 65 94
---------- ----------
Total adjustments (2,374) (1,141)
---------- ----------
Net cash provided by (used in) operating activities (926) 934
---------- ----------
Cash flows from investing activities:
Capital expenditures (1,562) (1,733)
Deferred compensation contributions (241) (8)
Other investing activities 14 468
---------- ----------
Net cash used in investing activities (1,789) (1,273)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock 171 --
Proceeds from issuance of long-term debt 15,000 328
Borrowings under line of credit agreements 2,519 454
Repayments under line of credit agreements (5,369) --
Principal payments of long-term debt (277) (103)
Bank overdraft -- (340)
---------- ----------
Net cash provided by (used in) financing activities 12,044 339
---------- ----------
Foreign currency translation adjustment (107) --
---------- ----------
Net increase (decrease) in cash and cash equivalents 9,222 --
Cash and cash equivalents at beginning of period -- --
---------- ----------
Cash and cash equivalents at end of period $ 9,222 $ --
---------- ----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 92 $ 93
Income taxes $ 1,973 $ 1,123
</TABLE>
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net sales for the first quarter ended March 31, 1997 were $36.0 million, a
6.3% decline from a record first quarter one year ago. This decline is the
result of an interruption of capital expenditures by several major railroads
while in merger negotiations, severe winter weather in the northern United
States, flooding in the northwestern United States and accelerated capital
investments by some customers in the fourth quarter of 1996.
Gross profit for the 1997 first quarter was $8.2 million, a 15.7% decline
from the 1996 first quarter. This decline resulted from the decrease in net
sales and a lower gross margin rate for the quarter. As a percent of sales,
gross margin was 22.8% versus 25.3% in the first quarter of 1996. The
decline in gross margin is primarily the result of an increase in the sales
mix toward services, systems and pass-through sales. In addition, research
and development expenditures increased to 4.5% of sales in the first quarter
of 1997 compared to 3.8% of sales in the same quarter one year ago.
Selling, general and administrative expenses (SG&A) decreased to $5.8 million
in the first quarter of 1997 from $6.2 million in the first quarter of 1996.
The decrease is primarily attributable to lower incentive-based compensation
expenses. As a percent of sales, SG&A was 16.2% during the first quarter of
1997 versus 16.1% for the first quarter of 1996.
Orders for the Company's products and services increased significantly during
the first quarter of 1997 to $46.6 million from $34.9 million during the
first quarter of 1996, an increase of 33.4%. Order increases occurred in all
three of the Company's markets; freight, transit and international. The
order backlog at March 31, 1997 was $70.2 million, up from $59.4 million at
December 31, 1996 and $40.9 million one year ago.
Interest expense decreased to $124 thousand from $255 thousand for the three
months ended March 31, 1997 compared to the same period last year. This
decrease is attributed to lower average outstanding debt during the 1997
first quarter compared to the 1996 first quarter and a lower weighted average
interest rate on borrowed funds in the 1997 quarter versus the 1996 quarter.
The effective tax rate decreased to 34.8% in the first quarter of 1997 from
38.0% in the first quarter of 1996. This decrease is due to lower state
income taxes and use of United Kingdom tax loss carryforwards.
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<PAGE>
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 March 31, 1997 the Company had $42.6 million in liquidity. This consisted
of $9.2 million in cash and cash equivalents plus $33.4 million available
under bank lines of credit. This cash position is the result of the issuance
of $15.0 million of senior unsecured notes on January 24, 1997. The notes
have a ten year maturity, an average life of seven years and were priced to
yield 6.87%. The current ratio at March 31, 1997 was 2.8 to 1 compared to
1.9 to 1 at December 31, 1996 and 2.6 to 1 at March 31, 1996. The increase
in the current ratio from December 31, 1996 to March 31, 1997 is the result
of an increase in cash and cash equivalents following the issuance of the
senior unsecured notes and decreases in accounts payable and accrued payroll,
bonus and employee benefit plan contributions during the period.
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<PAGE>
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
N/A
Exhibit Table
Reference # Page #
------------- ------
Computation of earnings per share A 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: May 8, 1997 /s/ Bjorn E. Olsson
--------------------------------
Bjorn E. Olsson, President
Date: May 8, 1997 /s/ Charles M. Foudree
---------------------------------
Charles M. Foudree,
Executive Vice President-Finance
Date: May 8, 1997 /s/ Stephen L. Schmitz
---------------------------------
Stephen L. Schmitz,
Vice President-Controller
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<PAGE>
HARMON INDUSTRIES, INC. EXHIBIT 11A
FORM 10-Q
MARCH 31, 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 March 31, 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
January 1 - March 31 6,829,273 90 614,634,570
Options exercised 1,000 52 52,000
5,935 34 201,790
1,000 27 27,000
4,100 13 53,300
20,800 7 145,600
Equivalent shares under the
Company's option plans 34,306 90 3,087,540
-----------
618,201,800 6,868,909
=========== =========
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
=========== =========
</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, 1997
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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 9,222
<SECURITIES> 0
<RECEIVABLES> 24,639
<ALLOWANCES> (298)
<INVENTORY> 31,950
<CURRENT-ASSETS> 72,887
<PP&E> 44,800
<DEPRECIATION> (26,417)
<TOTAL-ASSETS> 105,051
<CURRENT-LIABILITIES> 26,325
<BONDS> 15,285
0
0
<COMMON> 1,715
<OTHER-SE> 57,736
<TOTAL-LIABILITY-AND-EQUITY> 105,051
<SALES> 35,988
<TOTAL-REVENUES> 35,988
<CGS> 27,798
<TOTAL-COSTS> 27,798
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 124
<INCOME-PRETAX> 2,220
<INCOME-TAX> 772
<INCOME-CONTINUING> 1,448
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,448
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
