<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended: March 31, 1998 Commission File Number: 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)
816-229-3345
------------
(Registrant's telephone number, including area code)
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
--- ---
Number of shares of Registrant's common stock outstanding as of March 31,
1998: 10,521,152
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The Consolidated Statements of Earnings, Consolidated Balance Sheets,
Consolidated Statements of Cash Flows and Consolidated Statements of
Stockholders' Equity 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 March
31, 1998 and December 31, 1997 as well as the results of its operations for
the interim periods ended March 31, 1998 and March 31, 1997. The Consolidated
Balance Sheet as of December 31, 1997 is derived from the audited
Consolidated Balance Sheet as of that date.
2
<PAGE>
HARMON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
AMOUNTS IN THOUSANDS (EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1998 1997
-------- --------
<S> <C> <C>
Net sales $ 60,558 $ 35,988
Cost of sales 46,014 26,196
Research and development expenditures 2,107 1,602
-------- --------
Gross profit 12,437 8,190
Selling, general and
administrative expenses 7,540 5,847
Amortization of cost in
excess of fair value of
net assets acquired 217 160
Miscellaneous (income) expense-net 10 (23)
-------- --------
Operating income 4,670 2,206
Interest expense (304) (124)
Investment income 36 138
-------- --------
Earnings before income taxes 4,402 2,220
Income tax expense 1,590 772
-------- --------
Net earnings $ 2,812 $ 1,448
-------- --------
-------- --------
Net earnings per common share:
Basic $ 0.27 $ 0.14
Diluted $ 0.27 $ 0.14
Shares used for computation:
Basic 10,481 10,253
Diluted 10,608 10,304
</TABLE>
3
<PAGE>
HARMON INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS OF DOLLARS
<TABLE>
<CAPTION>
MARCH 31,
1998 DECEMBER 31,
(UNAUDITED) 1997
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,531 $ 6,748
Trade receivables, less allowance for doubtful accounts
of $314 in 1998 and $318 in 1997 47,117 45,001
Costs and estimated earnings in excess of billings on
uncompleted contracts 4,704 2,850
Inventories:
Work in process 7,108 6,171
Raw materials and supplies 34,377 32,894
-------- ---------
41,485 39,065
Deferred tax asset 2,215 2,215
Prepaid expenses and other current assets 1,546 473
-------- ---------
Total current assets 98,598 96,352
-------- ---------
Property, plant and equipment, at cost:
Land 465 465
Buildings 11,644 11,363
Machinery and equipment 17,465 16,319
Office furniture and equipment 21,406 20,671
Transportation equipment 1,462 1,393
Leasehold improvements 3,435 3,120
-------- ---------
55,877 53,331
Less accumulated depreciation and amortization 30,890 29,302
-------- ---------
Net property, plant and equipment 24,987 24,029
Deferred tax asset 414 414
Cost in excess of fair value of net assets acquired,
net of accumulated amortization of
$3,397 in 1998 and $3,180 in 1997 9,707 8,766
Deferred compensation asset 6,532 5,807
Other assets 730 401
-------- ---------
$140,968 $ 135,769
-------- ---------
-------- ---------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
1998 DECEMBER 31,
(UNAUDITED) 1997
----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current debt installments $ 1,260 $ 1,162
Accounts payable 18,427 21,554
Accrued payroll, bonus and employee benefit plan
contributions 7,903 11,893
Billings in excess of costs and estimated earnings
on uncompleted contracts 6,122 5,677
Federal and state income taxes payable 1,942 566
Other accrued liabilities 4,590 5,177
-------- ---------
Total current liabilities 40,244 46,029
-------- ---------
Deferred compensation liability 4,933 4,522
Long-term debt 21,873 15,456
-------- ---------
Total liabilities 67,050 66,007
Stockholders' equity
Common stock of $.25 par value; authorized
20,000,000 shares, issued 10,521,152 in 1998
and 10,437,369 in 1997 2,630 2,609
Additional paid-in capital 25,688 24,514
Foreign currency translation 253 104
Unearned compensation (224) (224)
Retained earnings 45,571 42,759
-------- ---------
Total stockholders' equity 73,918 69,762
-------- ---------
$140,968 $ 135,769
-------- ---------
-------- ---------
</TABLE>
4
<PAGE>
HARMON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
IN THOUSANDS OF DOLLARS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1998 1997
------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,812 $ 1,448
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,765 1,326
(Gain) loss on sale of property, plant and equipment -- (55)
Changes in assets and liabilities:
Trade receivables (548) 15,315
Inventories (2,173) (4,729)
Estimated costs, earnings and billings on contracts (1,398) (1,582)
Income tax receivable -- (713)
Prepaid expenses (1,085) 1,064
Accounts payable (2,971) (5,805)
Accrued payroll and benefits (4,347) (5,123)
Current income taxes 1,166 (492)
Other liabilities (1,397) (1,645)
Other deferred liabilities 411 65
-------- ---------
Total adjustments (10,577) (2,374)
-------- ---------
Net cash used in operating activities (7,765) (926)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,437) (1,562)
Deferred compensation contributions (725) (241)
Other investing activities (290) 14
-------- ---------
Net cash used in investing activities (3,452) (1,789)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 37 171
Proceeds from issuance of long-term debt -- 15,000
Borrowings under line of credit agreements 21,683 2,519
Repayments under line of credit agreements (15,595) (5,369)
Principal payments of long-term debt (186) (277)
-------- ---------
Net cash provided by financing activities 5,939 12,044
-------- ---------
Foreign currency translation adjustment 61 (107)
-------- ---------
Net increase (decrease) in cash and cash equivalents (5,217) 9,222
-------- ---------
Cash and cash equivalents at beginning of period 6,748 --
-------- ---------
Cash and cash equivalents at end of period $ 1,531 $ 9,222
-------- ---------
-------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 522 $ 92
Income taxes $ 743 $ 1,973
</TABLE>
5
<PAGE>
HARMON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
IN THOUSANDS OF DOLLARS
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Foreign Total
Common Paid-in Currency Unearned Retained Stockholders' Comprehensive
Stock Capital Translation Compensation Earnings Equity Income
------ ---------- ----------- ------------ -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $2,561 $22,340 $203 -- $32,835 $57,939
------ ---------- ----------- ------------ -------- -------------
Net earnings 1,447 1,447 $1,447
Common stock issued:
Stock options and other 12 159 171
Foreign currency translation (107) (107) (107)
---------
Comprehensive income $1,340
---------
------ ---------- ----------- ------------ -------- ------------- ---------
Balance at March 31, 1997 2,573 22,499 96 -- 34,282 59,450
------ ---------- ----------- ------------ -------- -------------
Net earnings 2,987 2,987 $2,987
Cash dividends paid (515) (515)
Common stock issued:
Stock options and other 5 239 244
Foreign currency translation 58 58 58
---------
Comprehensive income $3,045
---------
------ ---------- ----------- ------------ -------- ------------- ---------
Balance at June 30, 1997 2,578 22,738 154 -- 36,754 62,224
------ ---------- ----------- ------------ -------- -------------
Net earnings 2,639 2,639 $2,639
Common stock issued:
Deferred compensation 5 267 (163) 109
Stock options and other 1 31 32
Foreign currency translation (122) (122) (122)
---------
Comprehensive income $2,517
---------
------ ---------- ----------- ------------ -------- ------------- ---------
Balance at September 30, 1997 2,584 23,036 32 (163) 39,393 64,882
------ ---------- ----------- ------------ -------- -------------
Net earnings 3,888 3,888 $3,888
Cash dividends paid (522) (522)
Common stock issued:
Acquisition of businesses 23 1,337 1,360
Deferred compensation 1 88 (61) 28
Stock options and other 1 53 54
Foreign currency translation 72 72 72
---------
Comprehensive income $3,960
---------
------ ---------- ----------- ------------ -------- ------------- ---------
Balance at December 31, 1997 2,609 24,514 104 (224) 42,759 69,762
------ ---------- ----------- ------------ -------- -------------
Net earnings 2,812 2,812 $2,812
Common stock issued:
Acquisition of business 20 1,138 1,158
Stock options and other 1 36 37
Foreign currency translation 149 149 149
---------
Comprehensive income $2,961
------ ---------- ----------- ------------ -------- ------------- ---------
Balance at March 31, 1998 $2,630 $25,688 $253 ($224) $45,571 $73,918
------ ---------- ----------- ------------ -------- -------------
------ ---------- ----------- ------------ -------- -------------
</TABLE>
6
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net sales for the quarter ended March 31, 1998 were $60.6 million, an
increase of $24.6 million, or 68.3%, from the first quarter of 1997. The
increase in net sales is the result of continued strong demand for the
Company's goods and services and substantial shipments on two large projects;
one in the freight market and one in the transit market.
Gross profit for the quarter ended March 31 increased by 51.9% to $12.4
million in 1998 from $8.2 million in 1997. This increase in gross profit in
the result of the sales increase previously discussed. Gross profit margin
for the first quarter of 1998 decreased to 20.5% from 22.8% 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) for the quarter ended March 31,
1998 increased to $2.1 million from $1.6 million in the same quarter one year
ago. As a result of the increase in net sales, R&D as a percent of net sales
decreased from 4.5% in the first quarter of 1997 to 3.5% in the first quarter
of 1998.
Selling, general and administrative expenses (SG&A) were $7.5 million during
the first quarter of 1998 compared with $5.8 million during the prior year
quarter. Much of the increase in SG&A was represented by labor and benefit
expenses resulting from an increase in full-time employees from the first
quarter of 1997 to the first quarter of 1998 of approximately 25%. SG&A as a
percent of net sales decreased from 16.2% during the quarter ended March 31,
1997 to 12.5% during the quarter ended March 31, 1998. The decrease in SG&A
as a percent of net sales for the first quarter of 1998 compared with the
prior year quarter resulted from net sales increasing at a rate which
exceeded the rate of increase in SG&A.
Amortization expense increased to $217 thousand in the first quarter of 1998
from $160 thousand in the same quarter one year ago. This increase is
attributable to the increase in goodwill resulting from acquisitions during
the twelve months ended March 31, 1998.
Interest expense for the quarter ended March 31, 1998 increased to $304
thousand from $124 thousand for the prior year quarter. This increase is the
result of higher borrowings in support of increased working capital in 1998
versus 1997. Additionally, the Company completed a $15 million private debt
placement during the first quarter of 1997 on which interest expense was
incurred for the entire first quarter of 1998 and only a portion of the first
quarter of 1997. Investment income decreased from $138 thousand during the
first quarter of 1997 to $36 thousand during the first quarter of 1998. This
decrease is the result of lower cash balances available for investment during
the 1998 quarter compared to the 1997 quarter. Cash balances available for
investment were substantially higher during the 1997 quarter as a result of
the private placement discussed above.
7
<PAGE>
For the quarter ended March 31, 1998, the effective tax rate increased to
36.1% from 34.8% for the comparable period of 1997. This increase is due to
the use of United Kingdom tax loss carryforwards during the 1997 period.
Orders for the Company's products and services during the quarter ended March
31, 1998 increased to $77.5 million from $46.6 million during the 1997
quarter. The Company's order backlog increased to $89.4 million at March 31,
1998, up from $74.5 million at December 31, 1997 and $70.2 million one year
ago.
On January 29, 1998 the Company acquired the stock of a railroad industry
maintenance and installation services provider. This acquisition was made
with the issuance of 80,820 shares of unregistered common stock valued at
$14.33 per share. This acquisition has been accounted for by the purchase
method of accounting and accordingly, the operating results have been
included in the Company's consolidated results of operations from the date of
acquisition. The excess of the consideration given over the fair value of net
assets acquired has been recorded as goodwill of $1,158,000.
At the end of the first quarter of 1998, the Company had $25.6 million in
liquidity. This consisted of $1.5 million in cash and cash equivalents plus
$24.1 million available under bank lines of credit. The current ratio at
March 31, 1998 was 2.45 to 1 compared to 2.09 to 1 at December 31, 1997 and
2.77 to 1 at March 31, 1997. The increase in the current ratio from December
31, 1997 to March 31, 1998 is the result of increases in inventory and
accounts receivable related to the increase in sales and decreases in
accounts payable and accrued payroll and benefits from year-end levels. Cash
used in operating activities for the quarter ended March 31, 1998 was $7.8
million compared to $0.9 million for the same quarter one year ago. The
principal reason for this increase was a decrease in trade accounts payable
and accrued payroll and benefits from December 31, 1997.
For the quarter ended March 31, 1998 the Company adopted Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income. The
adjustment to stockholders' equity as a result of the cumulative foreign
currency translation adjustment is included in comprehensive income as
presented in the Consolidated Statements of Stockholders' Equity.
8
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
The Registrant's common stock was split on a three-for-two basis during the
quarter ended March 31, 1998. The split was effective February 27, 1998 for
shareholders of record February 13, 1998 and increased the common shares
outstanding from approximately 7.0 million to approximately 10.5 million.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Exhibit Page
------- ------------------------ ----
11 Computation of per share earnings 11
(b) Reports on Form 8-K:
There were no reports on Form 8-K for the quarter ended March 31, 1998.
9
<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.
<TABLE>
<CAPTION>
<S> <C>
Date: May 11, 1998 /s/Bjorn E. Olsson
------------------
Bjorn E. Olsson,
President and Chief
Executive Officer
Date: May 11, 1998 /s/Charles M. Foudree
---------------------
Charles M. Foudree,
Executive Vice
President-Finance
Date: May 11, 1998 /s/Stephen L. Schmitz
---------------------
Stephen L. Schmitz,
Vice President-Controller
</TABLE>
10
<PAGE>
Exhibit 11
Harmon Industries, Inc.
Form 10-Q
Computation of Per Share Earnings
(in thousands, except earnings per share)
Three Months ended March 31,
----------------------------
1998 1997
--------- --------
Basic:
Net earnings $ 2,812 $ 1,448
--------- --------
--------- --------
Weighted average shares outstanding 10,493 10,253
Shares representing unearned compensation (12) 0
--------- --------
Total 10,481 10,253
--------- --------
--------- --------
Basic earnings per share $ 0.27 $ 0.14
--------- --------
--------- --------
Diluted:
Net earnings $ 2,812 $ 1,448
--------- --------
--------- --------
Weighted average shares outstanding 10,493 10,253
Shares representing unearned compensation (12) 0
Equivalent shares under option plans 127 51
--------- --------
Total 10,608 10,304
--------- --------
--------- --------
Diluted earnings per share $ 0.27 $ 0.14
--------- --------
--------- --------
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 MARCH 31, 1998
AND FOR THE THREE MONTHS THEN ENDED.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,531
<SECURITIES> 0
<RECEIVABLES> 47,431
<ALLOWANCES> (314)
<INVENTORY> 41,485
<CURRENT-ASSETS> 98,598
<PP&E> 55,877
<DEPRECIATION> (30,890)
<TOTAL-ASSETS> 140,968
<CURRENT-LIABILITIES> 40,244
<BONDS> 23,133
0
0
<COMMON> 2,630
<OTHER-SE> 71,288
<TOTAL-LIABILITY-AND-EQUITY> 140,968
<SALES> 60,558
<TOTAL-REVENUES> 60,558
<CGS> 48,121
<TOTAL-COSTS> 48,121
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 304
<INCOME-PRETAX> 4,402
<INCOME-TAX> 1,590
<INCOME-CONTINUING> 2,812
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,812
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
