<PAGE> 1
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: June 30, 1999 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.)
1600 NE Coronado Drive, Blue Springs, Missouri 64014
- ---------------------------------------------- -----
(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 June 30, 1999:
11,089,806
- ----------
<PAGE> 2
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 June 30, 1999 and
December 31, 1998 as well as the results of its operations for the interim
periods ended June 30, 1999 and June 30, 1998. The Consolidated Balance Sheet as
of December 31, 1998 is derived from the audited Consolidated Balance Sheet as
of that date.
2
<PAGE> 3
HARMON INDUSTRIES, INC.
Consolidated Statements of Earnings
For periods ended June 30, 1999 and 1998
Amounts in thousands (except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
------------------------------ ----------------------------
1999 1998 1999 1998
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net sales $79,779 $73,705 $138,732 $134,263
Cost of sales 63,335 55,324 108,369 101,338
Research and development expenditures 2,355 2,376 4,292 4,483
------- ------- -------- --------
Gross profit 14,089 16,005 26,071 28,442
Selling, general and
administrative expenses 9,763 8,426 18,932 15,967
Amortization of cost in
excess of fair value of
net assets acquired 586 217 994 434
Miscellaneous (income) expense-net (68) (27) (186) (18)
------- ------- -------- --------
Operating income 3,808 7,389 6,331 12,059
Interest expense (1,073) (352) (1,636) (656)
Investment income 66 75 128 111
------- ------- -------- --------
Earnings before income taxes and
minority interest 2,801 7,112 4,823 11,514
Income tax expense 1,387 2,510 2,206 4,100
Minority interest in income of
consolidated subsidiaries (35) -- (35) --
------- ------- -------- --------
Net earnings $ 1,379 $ 4,602 $ 2,582 $ 7,414
======= ======= ======== ========
Net earnings per common share:
Basic $0.13 $0.44 $0.24 $0.71
Diluted $0.12 $0.43 $0.23 $0.70
Shares used for computation:
Basic 11,012 10,524 10,873 10,503
Diluted 11,111 10,685 10,988 10,647
</TABLE>
3
<PAGE> 4
HARMON INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS OF DOLLARS
<TABLE>
<CAPTION>
JUNE 30,
1999 DECEMBER 31,
(UNAUDITED) 1998
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 8,833 $ 1,669
Trade receivables, less allowance for doubtful accounts
of $381 in 1999 and $351 in 1998 59,804 52,229
Costs and estimated earnings in excess of billings on
uncompleted contracts 24,481 9,649
Inventories:
Work in process 5,001 6,372
Raw materials and supplies 49,271 36,640
-------- --------
54,272 43,012
Income tax receivable - 597
Deferred tax asset 1,065 587
Prepaid expenses and other current assets 2,384 1,301
-------- --------
Total current assets 150,839 109,044
-------- --------
Property, plant and equipment, at cost:
Land 550 465
Buildings 11,856 11,671
Machinery and equipment 21,347 18,830
Office furniture and equipment 30,550 25,246
Transportation equipment 3,781 1,709
Leasehold improvements 4,267 3,938
-------- --------
72,351 61,859
Less accumulated depreciation and amortization 39,578 35,284
-------- --------
Net property, plant and equipment 32,773 26,575
Deferred tax asset 5,246 654
Cost in excess of fair value of net assets acquired,
net of accumulated amortization of
$5,206 in 1999 and $4,212 in 1998 36,789 17,327
Deferred compensation asset 7,930 6,839
Other assets 3,383 2,414
-------- --------
$236,960 $162,853
======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1999 DECEMBER 31,
(UNAUDITED) 1998
----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current debt installments $ 6,478 $ 280
Accounts payable 27,782 16,415
Accrued payroll, bonus and employee benefit plan
contributions 10,442 13,342
Billings in excess of costs and estimated earnings
on uncompleted contracts 18,720 17,493
Federal and state income taxes payable 327 -
Other accrued liabilities 9,606 5,650
-------- --------
Total current liabilities 73,355 53,180
-------- --------
Deferred compensation liability 6,035 5,175
Other long-term liabilities 4,589 -
Long-term debt 60,744 19,540
-------- --------
Total liabilities 144,723 77,895
Minority interests 969 -
Stockholders' equity
Common stock of $.25 par value; authorized
50,000,000 shares, issued 11,089,806 in 1999
and 10,662,400 in 1998 2,772 2,666
Additional paid-in capital 32,906 27,457
Treasury stock at cost; 30,000 shares (641) -
Foreign currency translation (463) 127
Unearned compensation (218) (287)
Retained earnings 56,912 54,995
-------- --------
Total stockholders' equity 91,268 84,958
-------- --------
$236,960 $162,853
======== ========
</TABLE>
4
<PAGE> 5
HARMON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
IN THOUSANDS OF DOLLARS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,582 $ 7,414
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 4,472 3,642
(Gain) loss on sale of property, plant and equipment 10 8
Earned stock compensation 101 --
Changes in assets and liabilities:
Trade receivables 11,494 714
Inventories (2,764) (1,786)
Estimated costs, earnings and billings on contracts (11,501) (598)
Prepaid expenses (661) (865)
Accounts payable 1,617 (3,721)
Accrued payroll and benefits (8,726) (2,018)
Current income taxes 216 1,877
Other accrued liabilities 1,543 (206)
Deferred compensation liability 860 757
-------- --------
Total adjustments (3,339) (2,196)
-------- --------
Net cash provided by (used in) operating activities (757) 5,218
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (6,332) (4,409)
Proceeds from sale of property, plant and equipment 5 4
Deferred compensation contributions (1,091) (969)
Acquisition of businesses (20,857) --
Other investing activities 46 (837)
-------- --------
Net cash used in investing activities (28,229) (6,211)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 289 333
Purchase of treasury stock (641) --
Borrowings under line of credit agreements 77,960 43,906
Repayments under line of credit agreements (39,996) (43,906)
Principal payments of long-term debt (207) (1,297)
Cash dividends paid (665) (580)
-------- --------
Net cash (used in) provided by financing activities 36,740 (1,544)
-------- --------
-------- --------
Foreign currency translation adjustment (590) 36
-------- --------
Net increase (decrease) in cash and cash equivalents 7,164 (2,501)
-------- --------
Cash and cash equivalents at beginning of period 1,669 6,748
-------- --------
Cash and cash equivalents at end of period $ 8,833 $ 4,247
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,496 $ 716
Income taxes $ 531 $ 4,335
Acquisition of business financed by issuance of common stock $ 5,234 $ 1,158
</TABLE>
5
<PAGE> 6
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, 1997 2,609 24,514 104 (224) 42,759 69,762
---------------------------------------------------------------------------
Net earnings 2,812 2,812 $2,812
Common stock issued:
Acquisition of businesses 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
---------------------------------------------------------------------------
Net earnings 4,602 4,602 $4,602
Cash dividends paid (580) (580)
Common stock issued:
Deferred compensation 7 7
Stock options and other 5 291 296
Foreign currency translation (115) (115) (115)
----------
Comprehensive income $4,487
--------------------------------------------------------------------------- ==========
Balance at June 30, 1998 $2,635 $25,986 $138 ($224) $49,593 $78,128
---------------------------------------------------------------------------
Net earnings 2,468 2,468 $2,468
Common stock issued:
Deferred compensation 2 176 (70) 108
Stock options and other 1 24 25
Foreign currency translation 126 126 126
----------
Comprehensive income $2,594
--------------------------------------------------------------------------- ==========
Balance at September 30, 1998 $2,638 $26,186 $264 ($294) $52,061 $80,855
---------------------------------------------------------------------------
Net earnings 3,520 3,520 $3,520
Cash dividends paid (586) (586)
Common stock issued:
Acquisition of businesses 24 976 1,000
Deferred compensation 7 7
Stock options and other 4 295 299
Foreign currency translation (137) (137) (137)
----------
Comprehensive income $3,383
--------------------------------------------------------------------------- ==========
Balance at December 31, 1998 $2,666 $27,457 $127 ($287) $54,995 $84,958
---------------------------------------------------------------------------
Net earnings 1,203 1,203 $1,203
Common stock issued:
Acquisition of businesses 50 2,968 3,018
Deferred compensation 32 32
Stock options and other 8 308 316
Foreign currency translation (223) (223) (223)
----------
Comprehensive income $980
--------------------------------------------------------------------------- ==========
Balance at March 31, 1999 $2,724 $30,733 ($96) ($255) $56,198 $89,304
---------------------------------------------------------------------------
Net earnings 1,379 1,379 $1,379
Cash dividends paid (665) (665)
Purchase of Treasury stock (8) (633) (641)
Common stock issued:
Acquisition of businesses 56 2,160 2,216
Deferred compensation 37 37
Stock options and other 5 5
Foreign currency translation (367) (367) (367)
----------
Comprehensive income $1,012
--------------------------------------------------------------------------- ==========
Balance at June 30, 1999 $2,772 $32,265 ($463) ($218) $56,912 $91,268
===========================================================================
</TABLE>
6
<PAGE> 7
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations: Three Months Ended June 30, 1999
Harmon Industries, Inc. ('Harmon' or 'the Company') recorded net sales for the
quarter of $79.8 million, an increase of $6.1 million, or 8.2%, from the second
quarter of 1998. The increase in net sales is the result of a decrease in
product shipments of $7.9 million combined with an increase in deferred contract
revenue of $14.0 million. This decrease in product shipments is largely
attributable to shipments in connection with a significant freight railroad
project that was completed in 1998. This increase in deferred contract revenue
resulted from design, engineering and other work on several major transit
projects. Excluding acquisitions, comparable revenues were $59.5 million.
Gross profit for the quarter decreased by 12.0% to $14.1 million in 1999 from
$16.0 million in 1998. This decrease in gross profit was the result of the
impact of lower gross profit margins. The Company's consolidated gross profit
margin decreased to 17.7% from 21.7% in the prior year quarter. The decline in
gross profit margin is primarily the result of a $2.5 million charge in the 1999
quarter for a performance issue with a subcontractor in connection with a major
transit project that led to delays and rework. Also contributing to the decline
was an increase in the sales mix toward lower margin services, systems and
pass-through sales. While the Company employs a greater number of engineers in
1999 compared to 1998, R&D expenditures are unchanged at $2.4 million as the
Company began work on recent orders for products that were previously under
development. As a result, R&D as a percent of net sales decreased to 3.0% in the
second quarter of 1999 from 3.2% in the second quarter of 1998.
Selling, general and administrative expenses (SG&A) were $9.8 million during the
1999 quarter compared with $8.4 million during the prior year quarter. Much of
the increase in SG&A consisted of personnel and occupancy expenses associated
with acquisitions completed during the first half of 1999. As a result of SG&A
expenses increasing at a rate greater than the sales increase, SG&A as a percent
of net sales increased from 11.4% during the 1998 quarter to 12.2% during the
1999 quarter.
Amortization expense increased to $586 thousand from $217 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 June 30, 1999. The
Company expects further increases in amortization expense in subsequent quarters
as a result of acquisitions completed in the second quarter of 1999.
Net interest expense (interest expense less investment income) for the quarter
increased to $1.0 million from $277 thousand for the prior year quarter as a
result of higher borrowings required to support increased working capital and to
fund recent acquisitions. For the remainder of 1999, the Company expects similar
increases in interest expense over the prior year as a result of acquisitions
completed in the first half of 1999.
The effective tax rate for the quarter increased to 49.5% in 1999 from 35.3% in
1998. This increase is due to a high effective tax rate for the Company's
majority-owned Italian subsidiary acquired on April 30, 1999. For the full year
1999, the Company expects an effective tax rate of 40% to 41%.
7
<PAGE> 8
Net income decreased 70.0% to $1.4 million from $4.6 million in the prior year
quarter. Diluted earnings per common share decreased 72.1% to $0.12 from $0.43.
Approximately $0.03 of the decrease in diluted earnings per common share is
attributable to acquisitions made during the first quarter of 1999. The Company
currently estimates that profits from these acquisitions during the second half
of 1999 will result in a break even performance for the acquisitions, in
aggregate, for the full year.
During the quarter ended June 30, 1999, orders for the Company's products and
services increased 85.5% to $116.5 million from $62.8 million during the same
period of 1998. Excluding acquisitions, comparable orders for the quarter
increased 45.7% to $91.5 million.
Results of Operations: Six Months Ended June 30, 1999
Net sales for the six months ended June 30, 1999 were $138.7 million, an
increase of $4.5 million, or 3.3%, from the same period in 1998. The increase in
net sales is the result of a decrease in product shipments of $9.5 million
combined with an increase in deferred contract revenue of $14.0 million for the
reasons discussed above.
Gross profit for the six month period ended June 30, 1999 decreased by 8.3% to
$26.1 million from $28.4 million in 1998. This decrease in gross profit was the
result of the impact of lower gross profit margins. The Company's consolidated
gross profit margin decreased to 18.8% from 21.2% in the prior year period. The
decline in gross profit margin is primarily the result of a $2.5 million charge
in the second quarter of 1999 for a performance issue with a subcontractor in
connection with a major transit project that led to delays and rework.
Additionally, an increase in the sales mix toward lower margin services, systems
and pass-through sales negatively impacted gross margin. Research and
development expenditures (R&D) for the period decreased to $4.3 million from
$4.5 million in the same period one year ago as the Company began work on recent
orders for products that were previously under development. As a result, R&D as
a percent of net sales decreased to 3.1% in the period from 3.3% in the same
period of 1998.
Selling, general and administrative expenses (SG&A) were $18.9 million during
the six months ended June 30, 1999 compared with $16.0 million during the prior
year period. Much of the increase in SG&A was represented by personnel and
occupancy expenses necessary to support the revenue growth experienced in 1998
and planned for 1999 as well as expenses associated with acquisitions completed
during the first half of 1999. As a result, SG&A as a percent of net sales
increased from 11.9% during the 1998 period to 13.6% during the 1999 period.
Amortization expense increased to $994 thousand from $434 thousand in the same
period one year ago. This increase is attributable to the increase in goodwill
resulting from acquisitions during the twelve months ended June 30, 1999.
Net interest expense (interest expense less investment income) for the six
months ended June 30, 1999 increased to $1.5 million from $545 thousand for the
prior year period as a result of higher borrowings required to support increased
working capital and to fund recent acquisitions.
The effective tax rate for the six months ended June 30, 1999 increased to 45.7%
from 35.6% in 1998. This increase is due to a high effective tax rate for the
Company's majority-owned Italian
8
<PAGE> 9
subsidiary acquired on April 30, 1999. For the full year 1999, the Company
expects an effective tax rate of 40% to 41%.
For the six months ended June 30, 1999, net income decreased 65.2% to $2.6
million from $7.4 million in the prior year. Diluted earnings per common share
decreased 67.1% to $0.23 from $0.70.
During the six months ended June 30, 1999, orders for the Company's products and
services increased 39.4% to $195.7 million from $140.4 million during the same
period of 1998. Excluding orders received by companies acquired in 1998 and
year-to-date 1999, orders for the first half increased 10.4% to $155.0 million.
The Company's order backlog was a record $254.0 million at June 30, 1999
compared with $131.8 million at December 31, 1998 and $77.0 million one year
ago. The growth in backlog from December 31, 1998 to June 30, 1999 is the result
of orders exceeding shipments during the first half of 1999 combined with
backlog obtained from acquisitions during the period.
Segment Information
The Company manages its operations through two business segments: domestic and
international. Each unit sells train control and train signal products as well
as services to railroads and transit authorities. The international business
segment sells the Company's products and services outside the U.S. The Company
is reporting business segment information in accordance with the provisions of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information which was issued in June 1997. The Company
evaluates performance based upon net operating profit. Administrative functions
such as finance, treasury and information systems are centralized. However,
where applicable, portions of the administrative function expenses are allocated
between the operating segments. The operating segments do not share
manufacturing or distribution facilities. In the event any materials and/or
services are provided to one operating segment by the other, the transaction is
valued according to the company's transfer policy, which approximates market
price. The costs of operating the manufacturing plants are captured discretely
within each segment. The Company's property, plant and equipment, inventory and
accounts receivable are captured and reported discretely within each operating
segment. Summary financial information for the segments is as follows (dollars
in thousands):
<TABLE>
<CAPTION>
Three months ended Three months ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
USA Operations
Net Sales $70,782 $69,644
Operating Income/(Loss) 3,450 6,849
International Operations
Net Sales 8,997 4,061
Operating Income/(Loss) 360 540
Consolidated
Net Sales 79,779 73,705
Operating Income/(Loss) 3,810 7,389
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
Six months ended Six months ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
USA Operations
Net Sales $127,010 $125,709
Operating Income/(Loss) 6,205 10,818
Assets 201,880 135,984
Accounts Receivable 44,595 42,332
Inventory 45,337 40,537
International Operations
Net Sales 11,722 8,554
Operating Income/(Loss) 126 1,241
Assets 35,080 6,991
Accounts Receivable 15,209 2,562
Inventory 8,935 315
Consolidated
Net Sales 138,732 134,263
Operating Income/(Loss) 6,331 12,059
Assets 236,960 142,972
Accounts Receivable 59,804 44,894
Inventory 54,272 40,852
</TABLE>
Financial Condition at June 30, 1999
At June 30, 1999, the Company had $38.2 million in liquidity. This consisted of
$8.8 million in cash and cash equivalents plus $29.4 million available under
bank lines of credit. The current ratio at June 30, 1999 was 2.06 to 1 compared
to 2.05 to 1 at December 31, 1998 and 2.26 to 1 at June 30, 1998. Cash used in
operating activities for the six months ended June 30, 1999 was $757 thousand
compared to cash provided by operating activities of $5.2 million for the same
period one year ago. This decrease is largely attributable to lower earnings and
a larger decrease in accrued payroll and benefits in 1999 compared to 1998. For
the six months ended June 30, 1999, $11.5 million of cash used as a result of an
increase in contracts in progress was offset by an $11.5 million decrease in
trade accounts receivable.
Acquisitions
On April 30, 1999, the Company acquired majority control of Angiolo Siliani
S.p.A. and Siliani Elettronica ed Impianti S.p.A. (collectively, 'Siliani').
With locations in Florence and Genoa, Italy, Siliani was, prior to the
acquisitions, the largest independent Italian rail supply company with revenues
in excess of $30 million. The companies are now doing business as Siliani Harmon
and will continue to operate in their primary markets of train control and train
inspection products and services. The Company may be obligated, pursuant to
certain conditions, to purchase the remaining minority interest in 2005 at a
price determined by a formula based on the future performance of Siliani Harmon.
10
<PAGE> 11
Year 2000 Issue
Year 2000 issue or Y2k refers to the practice in many existing computer programs
that uses only the last two digits when designating a year. Therefore, these
programs cannot distinguish a year that begins with 19 from a year that begins
with 20. If not corrected, many computer applications could fail or create
erroneous results beginning January 1, 2000.
Background
In 1997, the Company's Management Information Systems Steering Team developed a
long-range plan to consolidate substantially all of its domestic operations onto
a single computer operating system. The software vendor chosen was the one that
currently supplies the largest of the Company's three primary operating systems.
The benefits of this consolidation are increased efficiency and uniformity
throughout the Company, particularly in the areas of manufacturing, inventory
management and engineering, as well as achieving Y2k compliance.
Readiness
Project Management: To properly manage and coordinate the Company's Y2k efforts,
the Management Information Systems Steering Team, using a formal team structure,
appointed a Director of Y2k Compliance who is accountable to the chief executive
officer and executive staff for Y2k compliance. This person supervises various
sub-teams in the following areas:
System Y2k Compliance: To achieve Y2k compliance, the Company has completed
three systems upgrades and one systems conversion. The conversion or upgrade of
an ancillary system along with certain tests are scheduled to be completed prior
to the end of 1999. The Company is also evaluating two other systems to
determine if action is required to ensure Y2k compliance. An inventory of
workstation hardware identified over 300 personal computers that require
installation of Y2k compliant systems boards. These boards are scheduled to be
installed by September 1999.
Product Y2k Compliance: A review by the Company of the products it sells
identified no primary function (i.e., safety critical) aspects of Y2k
non-compliance and a minimal number of secondary function (i.e., non-safety
critical) areas of Y2k non-compliance. The Company is informing customers
effected by the secondary function non-compliance. The Company believes that
none of the Y2k issues described above, if not corrected, would jeopardize the
systems of any of its customers or the safety of the public at large. The
Company does not believe the costs necessary to achieve Y2k compliance for its
products will be material to the Company's financial statements on a
consolidated basis.
One of the Company's subsidiaries that provides integration services has
notified its customers that it can make no assurances regarding Y2k compliance
for products manufactured by other companies. Another subsidiary of the Company
that develops software has notified effected customers they may have
non-compliant versions of the software and has offered to make the software
compliant at the customers' expense.
Supplier Y2k Compliance: The Company is nearing completion of a survey of all
significant vendors to determine if the Company's operations could be materially
impacted by the failure of key vendors to achieve Y2k compliance. Where
necessary, alternate suppliers or other contingency plans are scheduled to be
finalized by September 1999.
11
<PAGE> 12
Facility Y2k Compliance: The Company tested manufacturing and production
equipment, telephone systems, security systems, and other peripheral devices
associated with the Company's facilities for Y2k compliance. The results of
these tests revealed the need for equipment upgrades from several vendors. The
necessary upgrades have been ordered and will be installed and tested prior to
the end of 1999.
Customer and Investor Requests for Y2k Compliance Information: The Company has
designated members of senior management as points of contact for Y2k compliance
information requests from external constituents; one for customers and one for
current and prospective shareholders.
Costs
As discussed above, Y2k compliance is one of two benefits achieved by the
Company's upgrade and conversion efforts. While the Company is monitoring the
costs of these projects against established budgets, it is not possible to
allocate these costs between the two objectives; the benefits of a common
operating system and the requirement for Y2k compliance. The Company incurred
operating expenses of approximately $1.1 million in 1998 and has budgeted
operating expenses of $1.1 million in 1999. These costs will be funded by cash
flow from operations and borrowings, as necessary, under the Company's line of
credit.
Risks
The Company's primary Y2k risks are related to systems and products. There is a
risk that there may not be sufficient time for testing following conversions or
upgrades with respect to two of the Company's systems. In the area of products,
resolutions with customers regarding the need for software changes or assurances
of Y2k compliance by other vendors in connection with integration projects may
not be achieved on a timely basis.
Contingency Plans
In the area of suppliers, the Company is identifying alternative suppliers for
certain critical components. Where this is not feasible, a safety stock of
inventory will be established. In the area of systems, if either of the two
systems yet to be reviewed is not compliant and a conversion cannot be completed
in time, an upgrade of the existing system will be performed.
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Exhibit Page(s)
------ ------- -------
11 Computation of per share earnings 14
27 Financial Data Schedule 15
(b) Reports on Form 8-K:
On April 14, 1999, the Company filed a report on Form 8-K containing Item 5,
Other Events, to report the adoption of a Shareholder Rights Agreement.
On May 13, 1999, the Company filed a report on Form 8-K containing Item 2,
Acquisition or Disposition of Assets, to report the acquisition of majority
control of Angiolo Siliani S.p.A. and Siliani Elettronica ed Impianti S.p.A. on
April 30, 1999.
On May 14, 1999, the Company filed a report on Form 8-K/A to amend its Form 8-K
filed March 29, 1999 to included required historical and pro forma financial
information in connection with its acquisition of Syseca, Inc. on March 12,
1999.
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 11, 1999 /s/Bjorn E. Olsson
--------------------------------
Bjorn E. Olsson,
President and Chief Executive Officer
Date: August 11, 1999 /s/Stephen L. Schmitz
--------------------------------
Stephen L. Schmitz,
Executive Vice President-Finance
13
<PAGE> 1
Exhibit 11
Harmon Industries, Inc.
Form 10-Q
Computation of Per Share Earnings
(in thousands, except earnings per share)
<TABLE>
<CAPTION>
Three Months ended June 30,
---------------------------
1999 1998
---- ----
<S> <C> <C>
Basic:
Net earnings $ 1,379 $ 4,602
======= =======
Weighted average shares outstanding 11,023 10,534
Shares representing unearned compensation (11) (10)
------- -------
Total 11,012 10,524
======= =======
Basic earnings per share $ 0.13 $ 0.44
======= =======
Diluted:
Net earnings $ 1,379 $ 4,602
======= =======
Weighted average shares outstanding 11,023 10,534
Shares representing unearned compensation (11) (10)
Equivalent shares under option plans 99 161
------- -------
Total 11,111 10,685
======= =======
Diluted earnings per share $ 0.12 $ 0.43
======= =======
</TABLE>
<TABLE>
<CAPTION>
Six Months ended June 30,
---------------------------
1999 1998
---- ----
<S> <C> <C>
Basic:
Net earnings $ 2,582 $ 7,414
======= =======
Weighted average shares outstanding 10,884 10,514
Shares representing unearned compensation (11) (11)
------- -------
Total 10,873 10,503
======= =======
Basic earnings per share $ 0.24 $ 0.71
======= =======
Diluted:
Net earnings $ 2,582 $ 7,414
======= =======
Weighted average shares outstanding 10,884 10,514
Shares representing unearned compensation (11) (11)
Equivalent shares under option plans 115 144
------- -------
Total 10,988 10,647
======= =======
Diluted earnings per share $ 0.23 $ 0.70
======= =======
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 8,833
<SECURITIES> 0
<RECEIVABLES> 60,185
<ALLOWANCES> (381)
<INVENTORY> 54,272
<CURRENT-ASSETS> 150,839
<PP&E> 72,351
<DEPRECIATION> (39,578)
<TOTAL-ASSETS> 236,960
<CURRENT-LIABILITIES> 73,355
<BONDS> 67,222
0
0
<COMMON> 2,772
<OTHER-SE> 88,496
<TOTAL-LIABILITY-AND-EQUITY> 236,960
<SALES> 138,732
<TOTAL-REVENUES> 138,732
<CGS> 112,661
<TOTAL-COSTS> 112,661
<OTHER-EXPENSES> 19,926
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,636
<INCOME-PRETAX> 4,823
<INCOME-TAX> 2,206
<INCOME-CONTINUING> 2,582
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,582
<EPS-BASIC> 0.24
<EPS-DILUTED> 0.23
</TABLE>
