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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, 2000
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 incorporation or organization) |
(I.R.S. Employer 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 March 31, 2000: 11,407,691
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, 2000 and December 31, 1999 as well as the results of its operations for the interim periods ended March 31, 2000 and March 31, 1999. The Consolidated Balance Sheet as of December 31, 1999 is derived from the audited Consolidated Balance Sheet as of that date.
2
HARMON INDUSTRIES, INC.
Consolidated Statements of Earnings
For periods ended March 31, 2000 and 1999
Amounts in thousands (except per share data)
(Unaudited)
|
Three months ended March 31, |
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2000 |
1999 |
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Net sales | $ | 79,264 | $ | 58,953 | |||
Cost of sales | 62,738 | 44,329 | |||||
Research and development expenditures | 1,617 | 1,937 | |||||
Gross profit | 14,909 | 12,687 | |||||
Selling, general and administrative expenses | 10,685 | 9,876 | |||||
Amortization of cost in excess of fair value of net assets acquired | 735 | 409 | |||||
Special charges | 757 | | |||||
Miscellaneous income, net | (1,050 | ) | (119 | ) | |||
Operating income | 3,782 | 2,521 | |||||
Interest expense | (1,414 | ) | (563 | ) | |||
Investment income | 79 | 63 | |||||
Earnings before income taxes, minority interest and cumulative effect of accounting change | 2,447 | 2,021 | |||||
Income tax expense | 931 | 818 | |||||
Minority interest in income of consolidated subsidiaries | 12 | | |||||
Earnings before cumulative effect of accounting change | $ | 1,528 | $ | 1,203 | |||
Cumulative effect of accounting change, net of tax ($310) | 505 | | |||||
(See footnote 1) | |||||||
Net earnings | $ | 2,033 | $ | 1,203 | |||
Earnings Per Share: | |||||||
Earnings before cumulative effect of accounting change | |||||||
Basic | $ | 0.13 | $ | 0.11 | |||
Diluted | $ | 0.13 | $ | 0.11 | |||
Net earnings |
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Basic | $ | 0.18 | $ | 0.11 | |||
Diluted | $ | 0.18 | $ | 0.11 | |||
Shares used for computation: |
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Basic | 11,363 | 10,732 | |||||
Diluted | 11,401 | 10,864 |
3
HARMON INDUSTRIES, INC.
Consolidated Balance Sheets
In thousands of dollars
|
March 31, 2000 |
December 31, 1999 |
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---|---|---|---|---|---|---|---|
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(unaudited) |
|
|||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 5,220 | $ | 7,524 | |||
Trade receivables, less allowance for doubtful accounts of $968 in 2000 and $893 in 1999 | 93,765 | 92,262 | |||||
Costs and estimated earnings in excess of billings on uncompleted contracts | 27,163 | 27,720 | |||||
Inventories: | |||||||
Work in process | 6,283 | 5,208 | |||||
Raw materials and supplies | 44,135 | 41,400 | |||||
50,418 | 46,608 | ||||||
Income tax receivable | 1,168 | 826 | |||||
Deferred tax asset | 1,989 | 2,246 | |||||
Prepaid expenses and other current assets | 2,095 | 1,248 | |||||
Total current assets | 181,818 | 178,434 | |||||
Property, plant and equipment, at cost: | |||||||
Land | 555 | 555 | |||||
Buildings | 16,345 | 14,902 | |||||
Machinery and equipment | 25,468 | 24,852 | |||||
Office furniture and equipment | 32,091 | 31,841 | |||||
Transportation equipment | 4,899 | 4,825 | |||||
Leasehold improvements | 3,099 | 3,081 | |||||
82,457 | 80,056 | ||||||
Less accumulated depreciation and amortization | 47,925 | 46,349 | |||||
Net property, plant and equipment | 34,532 | 33,707 | |||||
Deferred tax asset | 5,853 | 5,853 | |||||
Cost in excess of fair value of net assets acquired, net of accumulated amortization of $6,664 in 2000 and $5,929 in 1999 | 36,596 | 39,520 | |||||
Deferred compensation asset | 9,499 | 8,602 | |||||
Other assets | 4,675 | 4,859 | |||||
$ | 272,973 | $ | 270,975 | ||||
Liabilities and Stockholders' Equity | |||||||
Current liabilities: | |||||||
Current debt installments | $ | 5,860 | $ | 6,667 | |||
Accounts payable | 34,961 | 32,242 | |||||
Accrued payroll, bonus and employee benefit plan contributions | 9,509 | 11,322 | |||||
Billings in excess of costs and estimated earnings on uncompleted contracts | 27,865 | 30,792 | |||||
Accrued special charges | 4,976 | 6,195 | |||||
Other accrued liabilities | 8,906 | 11,915 | |||||
Total current liabilities | 92,077 | 99,133 | |||||
Deferred compensation liability | 6,852 | 6,322 | |||||
Other long-term liabilities | 2,799 | 2,799 | |||||
Long-term debt | 74,700 | 67,896 | |||||
Total liabilities | 176,429 | 176,150 | |||||
Minority interests | 1,179 | 1,191 | |||||
Stockholders' equity | |||||||
Common stock of $.25 par value; authorized 50,000,000 shares, issued 11,407,691 in 2000 and 11,399,000 in 1999 | 2,852 | 2,850 | |||||
Additional paid-in capital | 37,597 | 37,509 | |||||
Treasury stock at cost; 30,000 shares | (641 | ) | (641 | ) | |||
Foreign currency translation | (807 | ) | (377 | ) | |||
Unearned compensation | (150 | ) | (189 | ) | |||
Retained earnings | 56,515 | 54,482 | |||||
Total stockholders' equity | 95,366 | 93,634 | |||||
$ | 272,973 | $ | 270,975 | ||||
4
HARMON INDUSTRIES, INC.
Consolidated Statements of Cash Flows
For the three month periods ended March, 2000 and 1999
In thousands of dollars
(Unaudited)
|
March 31 2000 |
March 31 1999 |
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Cash flows from operating activities: | |||||||
Net earnings | $ | 2,033 | $ | 1,203 | |||
Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||
Depreciation and amortization | 2,550 | 2,002 | |||||
Loss on sale of property, plant and equipment | 10 | | |||||
Earned stock compensation | 39 | 64 | |||||
Minority Interest in income of consolidated subsidiaries | (12 | ) | | ||||
Changes in assets and liabilities, net of businesses acquired: | |||||||
Trade receivables | (1,503 | ) | (1,095 | ) | |||
Inventories | (3,810 | ) | (2,884 | ) | |||
Estimated costs, earnings and billings on contracts | (2,370 | ) | (1,840 | ) | |||
Prepaid expenses and other current assets | (847 | ) | (1,140 | ) | |||
Income tax asset (net) | (85 | ) | 336 | ||||
Accounts payable | 2,719 | (4,257 | ) | ||||
Accrued payroll and benefits | (1,813 | ) | (6,803 | ) | |||
Special charges | (1,219 | ) | | ||||
Other accrued liabilities | (821 | ) | (577 | ) | |||
Other deferred liabilities | 530 | 701 | |||||
Total adjustments | (6,631 | ) | (15,493 | ) | |||
Net cash used in operating activities | (4,598 | ) | (14,290 | ) | |||
Cash flows from investing activities: | |||||||
Capital expenditures | (2,663 | ) | (2,568 | ) | |||
Acquisition of businesses | | (14,620 | ) | ||||
Proceeds from sale of property, plant and equipment | 14 | 5 | |||||
Deferred compensation, net | (897 | ) | (986 | ) | |||
Other investing activities | 184 | (414 | ) | ||||
Net cash used in investing activities | (3,362 | ) | (18,583 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from issuance of common stock | 90 | 284 | |||||
Borrowings under line of credit agreements | 21,985 | 46,586 | |||||
Repayments under line of credit agreements | (14,669 | ) | (11,150 | ) | |||
Principal payments of long-term debt | (1,319 | ) | (56 | ) | |||
Net cash provided by financing activities | 6,087 | 35,664 | |||||
Foreign currency translation | (430 | ) | (223 | ) | |||
Net increase (decrease) in cash and cash equivalents | (2,304 | ) | 2,568 | ||||
Cash and cash equivalents at beginning of period | 7,524 | 1,669 | |||||
Cash and cash equivalents at end of period | $ | 5,220 | $ | 4,237 | |||
Supplemental disclosures of cash flow information: | |||||||
Cash paid during the period for: | |||||||
Interest | $ | 1,564 | $ | 734 | |||
Income taxes | $ | 336 | $ | 271 | |||
Acquisitions of businesses financed by issuance of common stock | $ | | $ | 3,018 |
5
HARMON INDUSTRIES, INC.
Consolidated Statements of Stockholders' Equity
In thousands of dollars
(Unaudited)
|
Common Stock |
Additional Paid-in Capital |
Treasury Stock |
Foreign Currency Translation |
Unearned Compensation |
Retained Earnings |
Total Stockholders' Equity |
Comprehensive Income |
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Balance at December 31, 1998 | $ | 2,666 | $ | 27,457 | 0 | $ | 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 | 0 | $ | (96 | ) | $ | (255 | ) | $ | 56,198 | $ | 89,304 | ||||||||||
Net earnings | 1,379 | 1,379 | $ | 1,379 | |||||||||||||||||||||
Cash dividends paid | (665 | ) | (665 | ) | |||||||||||||||||||||
Purchase of Treasury stock | (641 | ) | (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 | $ | 2,780 | $ | 32,898 | $ | (641 | ) | $ | (463 | ) | $ | (218 | ) | $ | 56,912 | $ | 91,268 | ||||||||
Net earnings | 1,093 | 1,093 | $ | 1,093 | |||||||||||||||||||||
Common stock issued: | |||||||||||||||||||||||||
Acquisition of businesses | 73 | 4,687 | 4,760 | ||||||||||||||||||||||
Deferred compensation | 39 | 39 | |||||||||||||||||||||||
Stock options and other | 7 | 7 | |||||||||||||||||||||||
Foreign currency translation | 545 | 545 | 545 | ||||||||||||||||||||||
Comprehensive income | $ | 1,638 | |||||||||||||||||||||||
Balance at September 30, 1999 | $ | 2,853 | $ | 37,592 | $ | (641 | ) | $ | 82 | $ | (179 | ) | $ | 58,005 | $ | 97,712 | |||||||||
Net earnings | (2,829 | ) | (2,829 | ) | $ | (2,829 | ) | ||||||||||||||||||
Cash dividends paid | (694 | ) | (694 | ) | |||||||||||||||||||||
Common stock issued: | |||||||||||||||||||||||||
Acquisition of businesses | (3 | ) | (85 | ) | (88 | ) | |||||||||||||||||||
Deferred compensation | (10 | ) | (10 | ) | |||||||||||||||||||||
Stock options and other | 2 | 2 | |||||||||||||||||||||||
Foreign currency translation | (459 | ) | (459 | ) | (459 | ) | |||||||||||||||||||
Comprehensive income | $ | (3,288 | ) | ||||||||||||||||||||||
Acquisition of 30,000 common shares | |||||||||||||||||||||||||
Balance at December 31, 1999 | $ | 2,850 | $ | 37,509 | $ | (641 | ) | $ | (377 | ) | $ | (189 | ) | $ | 54,482 | $ | 93,634 | ||||||||
Net earnings | 2,033 | 2,033 | $ | 2,033 | |||||||||||||||||||||
Common stock issued: | |||||||||||||||||||||||||
Deferred compensation | 39 | 39 | |||||||||||||||||||||||
Stock options and other | 2 | 88 | 90 | ||||||||||||||||||||||
Foreign currency translation | (430 | ) | (430 | ) | (430 | ) | |||||||||||||||||||
Comprehensive income | $ | 1,603 | |||||||||||||||||||||||
Balance at March 31, 2000 | $ | 2,852 | $ | 37,597 | $ | (641 | ) | $ | (807 | ) | $ | (150 | ) | $ | 56,515 | $ | 95,366 | ||||||||
6
Harmon Industries, Inc. and Subsidiaries
Note to Condensed Consolidated Financial Statements
March 31, 2000 and 1999
(Unaudited)
Note (1) Change in Accounting for Inventory Cost
Effective January 1, 2000, the Company changed its method of applying certain overhead costs to inventories. Previously, all overhead costs were applied to inventory during the production process based on labor hours. Under the new method, certain overhead costs are applied to purchased raw materials at the time inventory is received based on cost of the related procurement activities, and the remaining overhead costs are applied to inventory during the production process. The change was made to improve the valuation of inventory by applying overhead costs to inventory as the costs are incurred, thereby resulting in a better matching of revenues and expenses. The change in accounting for inventory is recorded as a cumulative effect of a change in an accounting principle, which had the effect of increasing first quarter 2000 net income by $505 thousand (net of $310 thousand for taxes). This change had no significant impact on the first quarter 2000 income before cumulative effect of accounting change. The financial statements have not been restated to reflect the accounting change. If this newly adopted policy had been applied in the first quarter of 1999 net income would have been increased by $121 thousand, net of tax ($0.01 per share).
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations: Three Months Ended March 31, 2000
Sales
Harmon Industries, Inc. ("Harmon" or "the Company") recorded net sales for the quarter of $79.3 million, an increase of $20.3 million, or 34.5%, from the first quarter of 1999. This increase is primarily the combination of an increase in gross sales of $10 million in North American transit sales, $9 million in international sales and $1 million in other sales. North American Freight sales were relatively unchanged. Excluding acquired businesses, comparable revenues for the quarter were $66 million.
Gross profit
Gross profit for the quarter increased by 17.5% to $14.9 million in 2000 from $12.7 million in 1999, however the consolidated gross profit margin percentage decreased to 18.8% from 21.5%. The increase in the amount of gross profit was the result of an increase in sales, net of the impact of the lower gross profit margin percentage and a decrease in R&D expenditures by $0.3 million. The decline in gross profit margin percentage is primarily the result of the continuing trend in the sales mix toward lower margin transit and services sales, net of a decrease in R&D expenditures to 2.0% as a percent of sales in the first quarter of 2000 from 3.3% in the first quarter of 1999. The decline in R&D expenditures does not mean reduced engineering resources as in many cases the Company's engineers are working on direct projects. Direct project engineering costs are recorded as cost of sales.
SG&A
Selling, general and administrative expenses (SG&A) were $10.7 million for the first quarter 2000 compared with $9.9 million for 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. SG&A as a percent of net sales decreased from 16.8% for the 1999 quarter to 13.5% for the 2000 quarter.
Goodwill amortization
Amortization expense increased to $735 thousand from $409 thousand in the same quarter one year ago. This increase is attributable to the increase in goodwill resulting from acquisitions made in the first half of 1999.
Special charges
The Company recorded a special charge of $9.1 million ($5.6 million after tax) in the fourth quarter of 1999 in connection with a restructuring plan which was announced in November 1999. Reference the 10K for the period ended December 31, 1999 for a complete discussion of the plan. The restructuring plan entails the consolidation of the Company's component assembly operations and the majority of its research and development efforts into its Grain Valley, Missouri facility and its product assembly and asset management operations into its Warrensburg, Missouri plant. Progress to date includes closure of the Long Island, New York facility by consolidating it into the Grain Valley, Missouri facility, completion of the move of the operation from Riverside, California to Missouri and completion of numerous cost reduction activities throughout the remainder of the Company. The Company expects the restructuring of operations to be completed during the year 2000. The restructuring program is proceeding as planned with respect to facility closings, transfer of manufacturing operations and severance pay outs. The Company expects the remaining accruals to be fully utilized and to be sufficient.
8
A summary of activity related to accrued special charges is as follows (in thousands):
|
Accrual at December 31, 1999 |
Amount Paid Through March 31, 2000 |
Accrual at March 31, 2000 |
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Severance | $ | 4,490 | $ | 1,202 | $ | 3,288 | |||
Cost related to future lease obligations and other | 1,705 | 17 | 1,688 | ||||||
Total | $ | 6,195 | $ | 1,219 | $ | 4,976 | |||
The Company experienced special charges in the first quarter 2000 in the amount of $757 thousand for expenses associated with cross training employees on the manufacture of products previously assembled in the Riverside California plant, consulting support, travel and relocation.
Miscellaneous Income
Miscellaneous income for the first quarter 2000 was $1.05 million compared to $0.1 million for the same period 1999. The increase is due principally to a royalty payment from Nippon Signal as a result of the agreement involving the Company's Advanced Automated Train Control technology.
Interest
Net interest expense (interest expense less investment income) for the quarter increased to $1.3 million from $563 thousand for the prior year's quarter as a result of higher interest rates and higher borrowings required to support increased working capital levels and to fund acquisitions completed in 1999.
Taxes
The effective income tax rate for the quarter decreased from 40.5% in 1999 to 38.1% in 2000. This decrease is due primarily to certain foreign tax loss carry forwards that are expected to be used against foreign net income for which a tax benefit has not previously been recorded.
Accounting Change
Effective January 1, 2000, the Company changed its method of applying certain overhead costs to inventories. Previously, all overhead costs were applied to inventory during the production process based on labor hours. Under the new method, certain overhead costs are applied to purchased raw materials at the time inventory is received based on cost of the related procurement activities, and the remaining overhead costs are applied to inventory during the production process. The change was made to improve the valuation of inventory by applying overhead costs to inventory as the costs are incurred, thereby resulting in a better matching of revenues and expenses. The change in accounting for inventory is recorded as a cumulative effect of a change in an accounting principle, which had the effect of increasing first quarter 2000 net income by $505 thousand (net of $310 thousand for taxes). This change had no significant impact on the first quarter 2000 income before cumulative effect of accounting change. The financial statements have not been restated to reflect the accounting change. If this newly adopted policy had been applied in the first quarter of 1999 net income would have been increased by $121 thousand, net of tax ($0.01 per share).
Net earnings
Net earnings before the special charges and the cumulative effect of the accounting change were $2.0 million for 2000 compared to $1.2 million last year. In addition to the royalty income described above, the
9
main drivers to the performance improvement before the special charges and the accounting change were strict cost controls, an earlier than expected effect of our restructuring effort and to some extent the effect of the increased sales volume. The Company experienced special charges in the amount of $469 thousand, net of tax, as well as the cumulative effect of an accounting change of $505 thousand, net of tax.
Earnings per Share
Basic and diluted earnings per common share including special charges and the accounting change were $0.18 for the first quarter 2000. The following pro forma table shows the effect of the various items on earnings per common share:
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2000 |
1999 |
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Basic and diluted | ||||||
Net earnings before special charges and accounting change: | $ | 0.18 | $ | 0.11 | ||
Cumulative effect of accounting change | 0.04 | | ||||
Effect of special charge | (0.04 | ) | | |||
Net earnings | $ | 0.18 | $ | 0.11 | ||
Orders and Backlog
The Company's orders for the first quarter 2000 from North American freight railroads increased 12 percent versus 1999's first quarter. Last year, a delay in orders from the North American freight railroad sector adversely affected the Company and the industry. The Company's orders from international customers grew from $2.6 million in the first quarter of 1999 to $11 million in 2000. The majority of this increase was from the Italian subsidiary, Siliani Harmon, which was acquired in April 1999. Due to normal timing differences with the award of new contracts, orders from North American rail transit was down from $33 million in 1999 to $10.3 million for the first quarter 2000.
The company's total backlog increased $26 million to $214 million at March 31, 2000 from $188 million at March 31, 1999. The increase is due principally to growth in international market, which is the result of the Siliani Harmon acquisition completed in April 1999. The Company's backlog as compared to December 31, 1999 decreased 3% or $7 million due to shipments made to North American transit customers.
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
10
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):
|
Three months ended March 31, 2000 |
Three months ended March 31, 1999 |
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USA Operations | |||||||
Net Sales | $ | 66,637 | $ | 56,228 | |||
Expenses excluding special charges | 61,911 | 53,473 | |||||
Special Charges | 757 | | |||||
Operating Income/(Loss) | 3,969 | 2,755 | |||||
Assets | 239,302 | 193,226 | |||||
Accounts Receivable | 76,196 | 54,345 | |||||
Inventory | 44,570 | 45,612 | |||||
International Operations |
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Net Sales | 12,627 | 2,725 | |||||
Expenses excluding special charges | 12,814 | 2,959 | |||||
Special charges | | | |||||
Operating Income/(Loss) | (187 | ) | (234 | ) | |||
Assets | 33,671 | 6,016 | |||||
Accounts Receivable | 17,569 | 3,977 | |||||
Inventory | 5,848 | 510 | |||||
Consolidated |
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Net Sales | 79,264 | 58,953 | |||||
Expenses excluding special charges | 74,725 | 56,432 | |||||
Special charges | 757 | | |||||
Operating Income/(Loss) | 3,782 | 2,521 | |||||
Assets | 272,973 | 199,242 | |||||
Accounts Receivable | 93,765 | 58,322 | |||||
Inventory | 50,418 | 46,122 |
The changes in the USA operations can be attributed to the acquisitions made last year and the growth in the transit business. These items are explained above and in the 10K for the year ended December 31, 1999.
The changes in the international operations are primarily due to the acquisition of Siliani Harmon on April 30, 1999 as described in the 10K for the year ended December 31, 1999. Due to the timing regarding when the Italian railroads release projects to suppliers, Siliani Harmon normally generates the vast majority of its profit in the second half of the year.
Liquidity at March 31, 2000
At March 31, 2000, the Company had $20.3 million in liquidity. This consisted of $5.2 million in cash and cash equivalents plus $15.1 million available under bank lines of credit. The current ratio at March 31, 2000 was 1.97 to 1 compared to 1.80 to 1 at December 31, 1999 and 2.60 to 1 at March 31, 1999. Cash used in operating activities for the three months ended March 31, 2000 was $4.6 million compared to cash used in operating activities of $14.3 million for the same period one year ago. Cash used for investing activities in the three months ended March 31, 2000 was $3.3 million as compared to $18.6 million in the prior year. The prior year included $14.6 million paid in connection with the acquisition of businesses. Cash provided by financing activities in the three months ended March 31, 2000 decreased to $6.0 million from $35.7 million in the prior year. The decrease was principally the result of borrowings in 1999 used to fund
11
acquisitions and working capital investments. The company believes it has sufficient liquidity to execute its plans.
Litigation Update
Grain Valley Matter
Since 1991 the Company, as previously reported in published 10Qs and 10Ks, has been involved in a dispute with the Environmental Protection Agency ("EPA") regarding payment of civil penalties. The "EPA" has declined to appeal to the U.S. Supreme Court the decision issued by the U.S. District Court for the Western District of Missouri and affirmed by the U.S. Court of Appeals. The District Court decision in favor of the Company is now final and subject to no further appeals. The Company will not have to pay civil penalties of $586,716 to the Environmental Protection Agency ("EPA") related to the Grain valley environmental matter
Patent Litigation
The Company has previously reported in its December 31, 1999 10K that it was engaged in a dispute with Union Switch & Signal ("US&S") regarding a patent infringement related to the US&S locomotive cab signal system. The Company filed counterclaims against "US&S" as a result of the allegations. The Company and Union Switch & Signal, Inc. ("US&S") have agreed to settle the claims and counterclaims they have filed against each other with respect to US&S' locomotive cab signal system patents. The terms of the settlement are confidential. The settlement is not expected to have a material effect on the consolidated financial statements of the Company or on its future business operations.
Termination of Subsidiary's Subcontract
Union Switch & Signal ("US&S") has recently declared the Company's subsidiary, Harmon Control and Information Systems, Inc. ("HCIS") in default on a New York City Transit System Automatic Train supervision subcontract. US&S consequently terminated the subcontract on April 18, 2000. The Company considers the action taken by US&S to be improper and unjustified and HCIS intends to vigorously pursue the matter through arbitration. The total original contract award was approximately $15 million. Because the dispute is in the early stages, the Company is unable to predict the outcome.
Forward-looking Statements
Statements made in this document, which are not historical in nature, are forward-looking statements. The forward-looking statements made in this document, as well as all other forward-looking statements or information provided by Harmon Industries, Inc. or its officers and employees, whether written or oral, are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements of Harmon Industries, Inc. are based upon, among other things, internal estimates, preliminary information, management assumptions, and the performance of the U.S. and international economies, as well as the freight rail and transit rail industries in which Harmon Industries, Inc. does business. These statements should be considered in light of risks and uncertainties, including but not limited to the Company's restructuring initiative, the uncertainty of the above described litigation and other factors which may affect Harmon Industries, Inc.'s actual performance, including the ability of Harmon Industries, Inc. to complete its long-term contracts within current estimated costs, the completion of the Company's restructuring consistent with estimated timing and cost assumptions, timing of Class 1 freight railroad orders, the ability of Harmon Industries, Inc. to achieve a product mix consistent with its current projections and other factors as discussed in the Company's most recent Form 10-K. The Company assumes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise.
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Item 6. Exhibits and Reports on Form 8-K
Exhibit Number |
|
Exhibit |
---|---|---|
11 | Computation of per share earnings | |
18 | Letter on change in accounting principle | |
27 | Financial Data Schedule |
None.
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 1, 2000 |
|
/s/ BJÖRN E. OLSSON Björn E. Olsson, President and Chief Executive Officer |
Date: May 1, 2000 |
|
/s/ STEPHEN L. SCHMITZ Stephen L. Schmitz, Executive Vice PresidentFinance |
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