<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: March 12, 1999
---------------
HARMON INDUSTRIES, INC.
-----------------------
(Exact name of registrant as specified in its charter)
Missouri
--------
(State or other jurisdiction of incorporation)
0-7916
------
(Commission File Number)
44-0657800
----------
(IRS Employer Identification Number)
1600 NE Coronado Drive, Blue Springs, Missouri 64014
----------------------------------------------------
(Address of principal executive offices)
(816) 229-3345
--------------
(Registrant's telephone number, including area code)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On March 12, 1999, the Registrant (`Harmon Industries, Inc.', or `Harmon')
acquired all of the issued and outstanding capital stock of Syseca, Inc.
(`Syseca'), a Delaware corporation, from Thomson-CSF Holding Corporation
(`Thomson-CSF'). Total consideration paid was $12.5 million consisting of
$9.5 million for the purchase of capital stock of Syseca and $3.0 million for
the retirement of indebtedness payable by Syseca to Thomson-CSF. Funds for
the acquisition were provided by Harmon's existing $75 million bank credit
agreement.
Syseca is a leader in the design and installation of operations control
systems for the transportation and energy markets. Its capabilities for the
rail transportation industry include train control, centralized traffic
control, train movement planning, automatic train supervision, supervisory
control and data acquisition systems, network optimization and automatic
vehicle identification systems. Harmon intends for Syseca to continue to
pursue its present lines of business. Syseca operates from locations in
Marina del Rey, California and Carrollton, Texas.
William P. Marberg, Executive Vice President - System Sales and Support of
Harmon since April 1998, was previously President and Chief Executive Officer
of a Thomson-CSF affiliate.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Required financial statements and pro forma financial information are
presented on the following pages.
<PAGE>
HARMON INDUSTRIES, INC. AND SUBSIDIARIES
Note to Pro Forma Consolidated Financial Statements
Year ended December 31, 1998
GENERAL
On March 12, 1999 Harmon Industries, Inc. (the Company) acquired Syseca,
Inc. The transaction was accounted for as a purchase.
The following pro forma balance sheet data presents the Company's financial
position adjusted to reflect the acquisition of Syseca, Inc. and the
related financing. This pro forma balance sheet is presented as if such
transaction had occurred as of December 31, 1998.
The following pro forma statement of operations data presents the Company's
1998 results of operations adjusted for the acquisition of Syseca, Inc. and
the related financing. This pro forma statement of operations data is
presented as if such transaction had occurred at the beginning of the
period presented.
The Company's historical information as of and for the year ended December
31, 1998 was derived from our audited consolidated financial statements.
The historical financial information for Syseca, Inc. was derived from the
historical financial statements of Syseca, Inc.
These pro forma financial statements and notes thereto are provided for
informational purposes only and do not purport to be indicative of the
actual financial position or results of operations had such transactions
been completed on the dates indicated or of future results of operations.
Furthermore, the pro forma adjustments reflected herein are based upon
preliminary estimates and actual adjustments to record the purchase could
be different.
2
<PAGE>
HARMON INDUSTRIES, INC. AND SUBSIDIARIES
Pro Forma Consolidated Balance Sheet
December 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HARMON
INDUSTRIES,
INC. SYSECA, INC. PRO FORMA
ASSETS HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------- ------------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 1,669 1,982 -- 3,651
Restricted cash -- 596 -- 596
Trade receivables 52,229 2,489 -- 54,718
Costs and estimated earnings in excess of billings
on uncompleted contracts 9,649 2,771 -- 12,420
Inventories 43,012 -- -- 43,012
Income tax receivable 597 -- -- 597
Deferred tax asset 587 -- -- 587
Prepaid expense and other current assets 1,301 93 -- 1,394
------------ ------------- ------------- ---------
Total current assets 109,044 7,931 -- 116,975
Property, plant, and equipment, net 26,575 635 -- 27,210
Deferred tax asset 654 -- 4,687 (f) 5,341
Cost in excess of fair value of net assets acquired, net 17,327 3,972 (3,972) (a) 26,320
8,993 (b)
Deferred compensation asset 6,839 -- -- 6,839
Other assets 2,414 42 -- 2,456
------------ ------------- ------------- ---------
Total assets $ 162,853 12,580 9,708 185,141
------------ ------------- ------------- ---------
------------ ------------- ------------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current debt installments $ 280 -- -- 280
Accounts payable 16,415 39 -- 16,454
Accrued payroll, bonus, and employee benefit
plan contributions 13,342 730 -- 14,072
Billings in excess of costs and estimated earnings
on uncompleted contracts 17,493 4,206 500 (d) 22,199
Due to related parties -- 3,129 (3,129)(c) --
Other accrued liabilities 5,650 1,465 1,038 (d) 8,153
------------ ------------- ------------- ---------
Total current liabilities 53,180 9,569 (1,591) 61,158
Deferred compensation liability 5,175 -- -- 5,175
Long-term debt 19,540 -- 12,500 (e) 32,040
Other long-term liabilities -- 1,810 -- 1,810
------------ ------------- ------------- ---------
Total liabilities 77,895 11,379 10,909 100,183
------------ ------------- ------------- ---------
Stockholders' equity
Common stock 2,666 250 (250)(c) 2,666
Additional paid-in capital 27,457 28,622 (28,622)(c) 27,457
Foreign currency translation 127 -- -- 127
Unearned compensation (287) -- -- (287)
Retained earnings (deficit) 54,995 (27,671) 27,671 (c) 54,995
------------ ------------- ------------- ---------
Total stockholders' equity 84,958 1,201 (1,201) 84,958
------------ ------------- ------------- ---------
Total liabilities and stockholders' equity $ 162,853 12,580 9,708 185,141
------------ ------------- ------------- ---------
------------ ------------- ------------- ---------
</TABLE>
See notes to pro forma financial statements.
3
<PAGE>
HARMON INDUSTRIES, INC. AND SUBSIDIARIES
Note to Pro Forma Consolidated Balance Sheet
December 31, 1998
(a) To eliminate the historical cost in excess of fair value of net
assets acquired of Syseca, Inc.
(b) To reflect the cost in excess of fair value of net assets acquired
resulting from the acquisition of Syseca, Inc. Such amount results from the
allocation of the purchase price ($12.5 million) to the fair value of
assets acquired and liabilities assumed, which are described below.
(c) To eliminate liabilities not assumed in the acquisition and the
historical equity of Syseca, Inc.
(d) To reflect purchase accounting adjustments of (i) $.9 million for
estimated severance costs related to Syseca, Inc. employees, (ii) $.5
million for additional costs expected to be incurred on uncompleted
contracts as a result of the acquisition, and (iii) $.1 million for direct
costs related to the acquisition.
(e) To reflect borrowings used to fund the acquisition of Syseca, Inc.
(f) To reflect the income tax impacts of the pro forma adjustments,
together with an adjustment to reduce the valuation allowance recorded for
deferred tax assets, in the historical financial statements of Syseca, Inc.
Syseca, Inc.'s historical balance sheet at December 31, 1998 reflected a
deferred tax valuation allowance of $4,126,000. As a result of the
acquisition, management expects that Syseca, Inc.'s deferred tax assets
will be realized as a part of the Company's consolidated tax return.
4
<PAGE>
HARMON INDUSTRIES, INC. AND SUBSIDIARIES
Pro Forma Consolidated Statement of Operations
Year ended December 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HARMON
INDUSTRIES,
INC. SYSECA, INC. PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------ ------------- ----------
<S> <C> <C> <C> <C>
Net sales $ 265,219 14,611 -- 279,830
Cost of sales 200,478 12,577 -- 213,055
Research and development expenditures 8,454 1,279 -- 9,733
------------ ------------ ------------- ----------
Gross profit 56,287 755 -- 57,042
Selling, general, and administrative expenses 33,415 3,564 -- 36,979
Amortization of cost in excess of fair value
of net assets acquired 1,032 247 (247)(a) 1,525
493 (b)
Miscellaneous income (expense), net 368 (285) -- 83
------------ ------------ ------------- ----------
Operating income 22,208 (3,341) 246 18,621
Interest expense 1,555 696 (696)(c) 2,421
866 (d)
Interest income 396 27 -- 423
------------ ------------ ------------- ----------
Earnings before income taxes 21,049 (4,010) 416 16,623
Income tax expense 7,647 -- (1,727)(e) 5,920
------------ ------------ ------------- ----------
Net earnings $ 13,402 (4,010) (1,311) 10,703
------------ ------------ ------------- ----------
------------ ------------ ------------- ----------
Basic earnings per common share $ 1.27 1.02
Diluted earnings per common share 1.25 1.00
------------ ----------
------------ ----------
Weighted average shares used in computation:
Basic earnings per common share $ 10,541 10,541
Diluted earnings per common share 10,684 10,684
------------ ----------
------------ ----------
</TABLE>
See notes to pro forma financial statements.
5
<PAGE>
HARMON INDUSTRIES, INC. AND SUBSIDIARIES
Note to Pro Forma Consolidated Statements of Operations
Year ended December 31, 1998
(a) To eliminate Syseca, Inc.'s historical amortization of cost in excess
of fair value of net assets acquired.
(b) To give effect to the estimated amortization of cost in excess of
fair value of net assets acquired (goodwill) recorded in purchase
accounting based upon an aggregate purchase price of $12,500,000 and a
useful life of twenty years.
(c) To eliminate Syseca, Inc.'s historical interest expense on
intercompany debt which was either forgiven or repaid at the acquisition
date.
(d) To give effect to interest expense on borrowings, aggregating
approximately $12,500,000, used to finance the purchase price based on the
average borrowing rate of 6.95% for Harmon Industries, Inc., with the
assumption that such borrowing had occurred at the beginning of the period
presented.
(e) To reflect the income tax impacts of the pro forma adjustments
described above.
6
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Syseca Inc.:
We have audited the accompanying balance sheet of Syseca Inc. as of December
31, 1998 and the related statements of operations, stockholder's equity, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and the
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Syseca Inc. as of December
31, 1998 and the results of their operations and their cash flows for the
year then ended, in conformity with generally accepted accounting principles.
Prior to the acquisition of Syseca, Inc. by Harmon Industries, Inc. on March
12, 1999, Syseca, Inc. was a wholly-owned subsidiary of Thomson-CSF Holding
Corporation. As discussed in note 4, Syseca, Inc. engaged in significant
transactions with its parent and affiliated companies in conducting its
operations and was dependent on its parent to fund its working capital needs.
s/ KPMG LLP
April 19, 1999
7
<PAGE>
SYSECA, INC.
A Wholly-owned Subsidiary of Thomson-CSF Holding Corporation of America
Balance Sheet
December 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 1,982,462
Restricted cash 595,764
Trade accounts receivable, less allowance for doubtful accounts of $35,090 2,489,347
Costs and estimated earnings in excess of billings on uncompleted contracts (note 2) 2,770,703
Prepaid expenses and other current assets 93,256
-------------
Total current assets 7,931,532
Property, plant, and equipment, net (note 3) 635,084
Cost in excess of fair value of net assets acquired (net of accumulated amortization
of $967,307) 3,972,217
Other assets 41,596
-------------
Total assets $ 12,580,429
-------------
-------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable - trade $ 38,983
Accrued expenses 270,196
Accrued vacation and payroll 730,355
Billings in excess of costs and estimated earnings on uncompleted contracts (note 2) 4,205,984
Due to related parties (note 4) 3,129,257
Other current liabilities (note 2) 1,195,060
-------------
Total current liabilities 9,569,835
Other long term liabilities (note 2) 1,810,120
-------------
Total liabilities 11,379,955
-------------
Stockholder's equity:
Common stock of $100 par value; authorized 2,500 shares, issued 2,500 shares 250,000
Additional paid-in capital 28,723,021
Retained deficit (27,772,547)
-------------
Total stockholder's equity 1,200,474
-------------
Total liabilities and stockholder's equity $ 12,580,429
-------------
-------------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
SYSECA, INC.
A Wholly-owned Subsidiary of Thomson-CSF Holding Corporation of America
Statement of Operations
Year ended December 31, 1998
<TABLE>
<S> <C>
Net sales $ 14,610,780
Cost of sales 12,577,490
Research and development 1,279,247
-------------
Gross profit 754,043
Selling, general, and administrative expenses 3,563,988
Amortization of intangibles 246,972
Other expenses 386,305
-------------
Operating loss (3,443,222)
Interest expense 695,684
Interest income (26,886)
-------------
Loss before income taxes (4,112,020)
Income taxes (note 5) --
-------------
Net loss $ (4,112,020)
-------------
-------------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
SYSECA, INC.
A Wholly-owned Subsidiary of Thomson-CSF Holding Corporation of America
Statement of Stockholder's Equity
Year ended December 31, 1998
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDER'S
STOCK CAPITAL DEFICIT EQUITY
----------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 $ 250,000 11,327,800 (23,660,527) (12,082,727)
Contribution of capital by parent (note 4) -- 17,395,221 -- 17,395,221
Net loss -- -- (4,112,020) (4,112,020)
----------- ---------- ------------ -------------
Balance at December 31, 1998 $ 250,000 28,723,021 (27,772,547) 1,200,474
----------- ---------- ------------ -------------
----------- ---------- ------------ -------------
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
SYSECA, INC.
A Wholly-owned Subsidiary of Thomson-CSF Holding Corporation of America
Statement of Cash Flows
Year ended December 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $(4,112,020)
Adjustment to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 480,791
Changes in assets and liabilities:
Restricted cash (160,031)
Trade accounts receivable 5,636,400
Estimated costs, earnings, and billings on contracts (3,072,472)
Due from related parties 174,079
Prepaid expenses and other current assets (60,199)
Accounts payable (728,722)
Accrued expenses (259,675)
Accrued vacation and payroll 139,494
Other long-term liabilities 420,000
------------
Net cash used in operating activities (1,542,355)
------------
Cash flows from investing activities - capital expenditures (408,270)
------------
Cash flows from financing activities:
Net borrowings from related parties 2,909,245
Contribution from parent 1,242,908
Change in bank overdraft (219,066)
------------
Net cash provided by investing activities 3,933,087
------------
Net increase in cash 1,982,462
Cash and cash equivalents at beginning of year --
------------
Cash and cash equivalents at end of year $ 1,982,462
------------
------------
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
(1) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
NATURE OF BUSINESS
Syseca, Inc. (the Company) is a leading provider of real time control and
monitoring systems for the transportation and energy markets and also
supplies security systems for nuclear power plants. The Company's focus is
on developing the software components of a system which allows for the
synthesis and monitoring of the various hardware, equipment, and devices
which typically come from other vendors. The transportation department and
corporate headquarters are in Marina del Rey, California and the energy
department is in Dallas, Texas. The Company also has project offices in
Baltimore, Maryland.
The Company is a wholly-owned subsidiary of Thomson-CFS Holding Corporation
of America (THOCORAM), which is a wholly-owned subsidiary of Thomson-CSF.
As discussed in note 4, the Company engaged in significant transactions
with its parent and affiliated companies in conducting its operations and
was dependent on its parent to fund its working capital needs.
PROPERTY, PLANT, AND EQUIPMENT
The cost of computer equipment, computer software, and furniture and
fixtures are depreciated using the straight-line method over the estimated
useful lives of the assets, which range from three to seven years.
Maintenance and repairs are charged to operations as incurred. Upon sale or
retirement of assets, the cost and related accumulated depreciation
applicable to such assets are removed from the accounts, and any resulting
gain or loss is reflected in operations.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, ACCOUNTING FOR INCOME TAXES.
SFAS No. 109 requires the asset/liability method in accounting for income
taxes. Deferred income tax assets and liabilities are determined based on
the difference between the financial statement carrying amounts and tax
bases of existing assets and liabilities. A valuation allowance is
established for deferred income tax assets unless it is "more likely than
not" that such assets will be realized. Deferred income tax assets and
liabilities at the end of each period are determined using the tax rate
expected to be in effect when taxes are actually paid or recovered.
Accordingly, income tax provisions will increase or decrease in the same
period in which a change in income tax rates are enacted.
12
<PAGE>
LONG-TERM CONTRACTS
Profits on long-term contracts are recorded on the basis of the Company's
estimates of the percentage of completion of individual contracts. That
portion of the total contract price is accrued which is allocable, on the
basis of the Company's engineering estimates of the percentage of
completion, to contract expenditures incurred. Profits are not recorded
during the start-up phase of the contract. All losses are recognized in the
period during which they become evident.
COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED
Cost in excess of the fair value of net assets acquired is amortized on a
straight-line basis over a twenty year life. The Company assesses the
recoverability and measures impairment, if any, of such costs by
determining whether the amortization of the costs in excess of the fair
value of net assets acquired over its remaining life can be recovered
through undiscounted future operating cash flows.
RESEARCH AND DEVELOPMENT
Costs incurred in the creation of new products or in changing existing
products are charged to expense as incurred.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimates of fair values are subjective in nature and involve uncertainties
and matters of significant judgement and, therefore, cannot be determined
with precision. Changes in assumptions could affect the estimates. The fair
market value of the Company's financial instruments, consisting of accounts
receivable and accounts payable, approximate their carrying values.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
RESTRICTED CASH
The Company maintains an interest bearing account that holds retention
payments received from contract customers. The Company does not have rights
to the cash in the account until the contract specifies, which is usually
at contract completion. The Company does receive the interest earned on the
account.
13
<PAGE>
(2) CONTRACTS IN PROGRESS
Contract costs on uncompleted contracts are as follows at December 31,
1998:
<TABLE>
<CAPTION>
COST AND BILLINGS IN
ESTIMATED EXCESS OF
EARNINGS COSTS AND
IN EXCESS ESTIMATED
OF BILLINGS EARNINGS TOTAL
----------- ------------ ----------
<S> <C> <C> <C>
Costs and estimated earnings $22,270,405 53,018,856 75,289,261
Billings 19,499,702 57,224,840 76,724,542
----------- ------------ ----------
$2,770,703 (4,205,984) (1,435,281)
----------- ------------ ----------
----------- ------------ ----------
</TABLE>
Included in other current liabilities and other long-term liabilities at
December 31, 1998, are estimated costs, aggregating approximately
$2,585,000, related to the completion of system software and related
customer modifications previously committed to customers under contracts.
(3) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at December 31, 1998 consists of the
following:
<TABLE>
<S> <C>
Computer equipment $ 944,054
Computer software 154,395
Furniture and fixtures 415,832
-----------
1,514,281
Less accumulated depreciation (879,197)
-----------
$ 635,084
-----------
-----------
</TABLE>
(4) TRANSACTIONS WITH RELATED PARTIES
The Company is an affiliate of the Syseca Group of companies, which are
controlled by Thomson-CSF. The Company has had related party transactions
with other wholly-owned subsidiaries within the Syseca Group, including
Syseca SA and THOCORAM.
The Company pays management service fees to Thomson-CSF and Syseca SA for
services such as financial management assistance, accounting, auditing and
planning matters, insurance, risk management, governmental relations, human
resources, legal assistance, marketing, research and development, and
foreign employee benefits. The cost related to these services was $653,000
for the year ended December 31, 1998. The Company had a payable to
Thomson-CSF of $111,000 and a payable to Syseca SA of $90,000 at December
31, 1998.
14
<PAGE>
The Company participates in various health and insurance plans, which are
provided to the Syseca Group of companies. THOCORAM pays the premiums
related to these plans. During 1998, reimbursement costs paid to THOCORAM
were $643,000.
An operational relationship exists between the Company and Syseca SA.
During 1998, the Company purchased a software system for $61,000 from
Syseca SA and incurred costs of $96,000 for the use of Syseca SA employees.
Also in 1998, the Company received $107,000 from Syseca SA for the use of
the Company's employees.
The Company relies on THOCORAM for its working capital needs which have
been funded through a demand note payable to THOCORAM. On July 31, 1998,
the balance of this note was $17,395,000. THOCORAM forgave the balance of
the note on July 31, 1998. The Company recorded the forgiveness of debt and
related accrued interest as a capital contribution of 17,395,000. As a
result of subsequent borrowings, as of December 31, 1998, the Company had a
demand note payable to THOCORAM of $2,909,000 and related accrued interest
and fees of $19,000. Interest and fees on the note accrue daily based on
THOCORAM's daily cost of funds, which at December 31, 1998 was 6.675%.
Interest expense for the year on the borrowings from THOCORAM was $696,000.
(5) TAXES
Total income taxes are allocated as follows as of December 31, 1998:
<TABLE>
<S> <C>
Current
Federal --
State and local --
----------
Total current tax provision --
----------
Deferred
Federal --
State and local --
----------
Total deferred tax provision --
----------
Total tax provision $ --
----------
----------
</TABLE>
15
<PAGE>
A reconciliation of the income tax provision (benefit) to the statutory
federal rate is as follows for the year ended December 31, 1998:
<TABLE>
<S> <C>
Statutory federal tax rate $ (1,616,000)
Nondeductible expenses 2,000
State income taxes (150,000)
Net operating loss not benefited 1,764,000
-------------
Total $ --
-------------
-------------
</TABLE>
The operations of the Company are included in the consolidated federal
income tax return of the parent THOCORAM. The policy of the parent is to
allocate consolidated federal income tax expense to members of the
affiliated group, including the Company on a stand-alone basis. No income
tax benefit on the Company's net operating losses were credited by the
parent. The parent company is in a net operating loss carryforward position
and, therefore, no current or deferred benefit was available for the losses
of Syseca, Inc.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of
December 31, 1998 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Compensated absence accrual $ 211,000
Allowance for doubtful accounts 14,000
Long-term contract reserve 2,819,000
Product reserve 1,008,000
Other various reserves 214,000
-------------
Total gross deferred tax assets 4,266,000
Deferred tax liabilities:
Property, plant, and equipment (4,000)
Intangible asset amortization (136,000)
Less valuation allowance (4,126,000)
-------------
Net deferred tax asset $ --
-------------
-------------
</TABLE>
In assessing the recoverability of deferred tax assets, management
considers whether it is more likely than not that some portion of, or all
of, deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which the temporary differences become
deductible. A valuation allowance in the amount of $4,126,000 was
established as of December 31, 1998.
16
<PAGE>
(6) EMPLOYEE BENEFIT PLAN
The Company's eligible employees participate in a multiemployer qualified
deferred compensation plan under section 401(k) of the Internal Revenue
Code. Under the plan, employees may elect to defer up to 15% of their
salary, subject to the Internal Revenue Service limits. The Company
contributes (matches) 50% up to 6% of eligible compensation. Costs related
to the plan were $165,000 in 1998 and accrued contributions were $24,000 at
December 31, 1998.
(7) COMMITMENTS AND CONTINGENCIES
Future minimum rental payments required under the terms of operating leases
that have initial or remaining noncancelable lease terms in excess of one
year from December 31, 1998 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AMOUNT
------------ -------------
<S> <C>
1999 $ 385,000
2000 206,000
2001 158,000
2002 27,602
-------------
-------------
</TABLE>
Principal operating leases are for office space. Rent expense related to
continuing operations for all operating leases was $694,000 in 1998. It is
expected that in the ordinary course of business leases will be renewed or
replaced as they expire.
The Company is involved in various claims and litigation arising in the
normal course of business. In the opinion of management, the ultimate
resolution of these actions will not have a material adverse effect on the
Company's financial statements.
(8) SUBSEQUENT EVENT
On March 12, 1999, the Company's stock was acquired by Harmon Industries,
Inc.
17
<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 hereunto duly authorized.
HARMON INDUSTRIES, INC.
------------------------------
(Registrant)
Date: May 14, 1999 By: /s/ Charles M. Foudree
------------ --------------------------
Charles M. Foudree
Executive Vice President-
Finance
Date: May 14, 1999 By: /s/ Stephen L. Schmitz
------------ --------------------------
Stephen L. Schmitz
Vice President-Controller
18
