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Previous: GREEN MOUNTAIN POWER CORP, 10-K, 2000-03-28 |
Next: HAWAIIAN ELECTRIC CO INC, 10-K405, 2000-03-28 |
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission file number 0-7916
HARMON INDUSTRIES, INC.
IRS
Employer Identification Number
44-0657800
State or other jurisdiction of
incorporation or organization
Missouri
Address
of principal executive offices
1600 NE Coronado Drive, Blue Springs, Missouri 64014
Registrant's telephone number, including area code
(816) 229-3345
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class |
Name of each exchange on which registered |
|
|---|---|---|
| None |
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock
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 / /
As of March 13, 2000, 11,372,441 common shares were outstanding. The aggregate market value of the common stock (based upon the closing price of these shares per NASDAQ for Over-the-Counter trading) of Harmon Industries, Inc. held by non-affiliates was approximately $167,438,000.
The information required by Item 405 of Regulation S-K regarding late filings or failure to file in connection with Form 3, Form 4 or Form 5 is included herein under Part III, Item 12.
Documents Incorporated by Reference
Part II
| Item 6: | Selected Consolidated Financial Data. | Pages 18 and 19 of the Annual Report to Shareholders for the year ended December 31, 1999. | ||
| Item 7: |
|
Management's Discussion and Analysis of Financial Condition and Results of Operations. |
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Pages 20 through 31 of the Annual Report to Shareholders for the year ended December 31, 1999. |
| Item 8: |
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Financial Statements and Supplementary Data. |
|
Pages 32 through 52 of the Annual Report to Shareholders for the year ended December 31, 1999. |
| Part III |
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|
| Item 10: |
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Directors and Executive Officers of the Registrant. |
|
Pages 4 through 7 of the Company's Proxy Statement dated March 30, 2000. |
| Item 11: |
|
Executive Compensation and Other Information. |
|
Pages 7 through 16 of the Company's Proxy Statement dated March 30, 2000. |
| Item 12: |
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Security Ownership of Certain Beneficial Owners and Management. |
|
Pages 2 and 3 of the Company's Proxy Statement dated March 30, 2000. |
| Item 13: |
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Certain Relationships and Related Transactions. |
|
Page 6 (Footnote 6 of Election of Directors) and page 7 ("Certain Transactions") of the Company's Proxy Statement dated March 30, 2000. |
2
HARMON INDUSTRIES, INC.
ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
PART I
ITEM 1. BUSINESS
Harmon Industries, Inc. ("Harmon" or "the Company") is a leading supplier of signal, inspection, train control and communications products, systems and services to freight and transit railroads throughout the world. In the U.S., the Company sells its products to Class I and short line freight railroads and to rail transit systems. Harmon designs, manufactures, markets and services a broad line of products beneficial to the operating efficiency and safety of its customers. The products include an extensive line of railroad signal, train control and communications systems and related components and services. The Company emphasizes innovation and technology to develop timely and sophisticated solutions to problems that confront its customers. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
The company operates in the following three market sectors.
Industry
North American Freight Railroads
The North American freight railroad industry includes U.S. and Canadian Class I railroads, Mexican railroads and regional and short line railroads.
The industry is dominated by the nine U.S. and Canadian railroads the Surface Transportation Board defines as Class I railroads because of their significant annual operating revenues. From the 1930's to the 1980's, the Class I freight railroads endured a nearly constant decrease in their share of the total inter-city freight transportation market.1 The reversal of this trend is a result of their ability to offer customers a lower cost and higher quality method of transporting freight than was provided in the past. Freight railroads achieved this result through strict cost controls, reductions in train crew sizes and other employment expenses, divestiture of unprofitable track and other assets unrelated to the railroad industry and a more marketing oriented operating strategy. The Company has traditionally sold its products to the freight railroad industry.
Many Harmon products are designed to assist the railroads in cutting costs. For example, the 22% decrease in Class I employment levels from 1989 to 1998 required the Class I railroads to look to products like those manufactured by Harmon to monitor the condition of moving trains, replace less-reliable wayside pole lines, and provide real-time remote monitoring of wayside facilities, especially at rail-highway grade crossings.
Class I railroads have also used Harmon products to increase asset utilization, system velocity and productivity. The 16% reduction from 1989 to 1998 in the number of Class I railroad freight cars in service required the railroads to look to products like those manufactured by Harmon which permit the railroads to track more closely the location and performance of a particular train. This improved utilization of cars and the reduction in employment levels have caused the freight revenue ton-miles per employee hour for Class I railroads to increase by 66% from 1989 to 1998. The Class I railroads have become more profitable despite a 30% reduction (in constant 1989 dollars) from 1989 to 1998 in revenue per ton mile.
Many Class I railroads have entered into alliances with large trucking organizations that have resulted in an increase in the shipment of "intermodal" freight (i.e., containerized freight that moves from truck to
3
train and back to truck) for which the railroads have retained the long haul portion. The amount of intermodal traffic has increased 47% from 1989 to 1998. The Company believes that the willingness of the Class I railroads to enter into such alliances with their former competitors is a positive development. The Company believes that the cost reductions and improved efficiencies described above will permit the Class I railroads to better compete in the long haul portion of the freight transportation market.
Class I railroads also have improved profitability by divesting themselves of assets viewed as unprofitable, including large portions of under-utilized track. From 1989 to 1998, the Class I railroads reduced their track miles by 18% to approximately 171,000 miles. These divestitures permit the Class I railroads to spend more money on products like those manufactured by Harmon for their high-traffic corridors. From 1989 to 1998, capital expenditures by Class I railroads per mile of track owned has increased from approximately $17,800 to $42,000 per mile of track. Many of these expenditures are for products, such as the Company's Electro Code product, that reduce the significant maintenance expenses otherwise incurred by Class I railroads. Although railroad capital expenditures decreased in 1999, we believe that their spending on capacity improvement products, such as Harmon's, will return to more normal levels as the railroads seek to increase train velocity and asset utilization.
In recent years, one of the cost containment strategies increasingly adopted by the freight railroads has been outsourcing of support functions formerly done internally. In the areas of interest to Harmon, this has included a reduction in the internal engineering staffs, construction forces and materials management. This has led to a dramatic increase in opportunities and business for Harmon in providing engineering support, materials management, maintenance, training and construction services for the Class I railroads.
Federal legislation in the early 1980's permitted the Class I railroads to sell some of their lines to short line railroads rather than abandon such track. Such sales have increased the number of short line railroads to 550 with 35 of these short line railroads being above the threshold of either $40.0 million in annual revenues or 350 miles of railroad track. Short line railroads are able to profitably operate sections of track deemed unprofitable by Class I railroads because the short line railroads generally have smaller administrative, maintenance and engineering staffs, have locally focused management, generally operate at lower speeds and are typically not burdened with the more restrictive collective bargaining agreements as are many of the Class I railroads.
The manner in which the short line railroads operate creates significant opportunities for Harmon. These railroads typically do not have substantial engineering or maintenance staffs and, therefore, frequently look to Harmon to provide complete solutions to their needs, including pre-engineered systems, installation services and perform maintenance functions. Sales to these customers have become a meaningful portion of the Company's sales. Harmon expects to continue to develop products and services that will meet the evolving maintenance and operating needs of these railroads.
The market in the freight railroad industry for Harmon's grade crossing-related products is influenced by the availability of government funding. The Transportation Equity Act for the 21st Century (TEA-21) which provides funds for railroad crossing warning systems, was signed into law in June 1998. TEA-21 is the largest infrastructure-funding bill ever enacted in the United States. It provides for up to $217 billion in expenditures over its six-year life. TEA-21 provides for an increase of approximately 55% or $50 million, in the amount of federal funds dedicated annually to installing grade crossing warning devices.
The Company has identified Canada and Mexico as areas for increased business. In June 1997, Harmon acquired the remaining interest in Vale-Harmon Enterprises, Ltd. ("Vale Harmon"), located near Montreal, Quebec, Canada, which it previously did not own. Vale Harmon serves the freight and transit markets in Canada. In 1998, Harmon established a wholly-owned subsidiary in Mexico, Industrias Harmon de México, S.A. de C.V., to expand the relationship it has with customers arising from the recent concessions granted to operate portions of a state owned rail in Mexico. The North American Free Trade
4
Agreement is expected to provide opportunities for Harmon in Mexico and Canada because the anticipated growth in trade will increase the railroad traffic in both directions across the borders.
Rail Transit Railroads
The rail transit industry includes Amtrak and numerous existing and proposed commuter and urban transit rail systems. Federal funding generally enhances the development of such systems. TEA-21 includes $41 billion for transit projects of which $36 billion is guaranteed. At the guaranteed level, this represents a 40% increase over appropriated transit funding during the six years of ISTEA.
Harmon's participation in the expansion of existing or construction of new rail transit systems generally requires a long selling cycle and frequently results in multi-year contracts. In addition, the selling process requires Harmon to consult regularly with engineers responsible for designing such systems. Such consultation permits Harmon to better understand the requirements of proposed projects and help insure that such projects are designed in a way that will permit use of many Harmon products. See "Item 1. Business—Marketing and Sales."
In addition to the rail transit projects expected to be expanded or originated in the next several years, Harmon has targeted existing rail transit systems as potential customers. These systems are under pressure to increase their capacity and maintain or improve passenger safety. These dual objectives are met through the increasing use of Harmon products containing advanced technology to control passenger trains and the installation of equipment that guards against human error. An example of Harmon addressing safety concerns arose in 1991, when an over-speeding subway train derailed in New York City and caused several fatalities. As a result, the New York City Transit Authority embarked on a program of installing speed measurement and enforcement systems at critical locations along the subway track. Under sub-contract, Harmon developed a computer-based system for this application and has since been awarded additional sub-contracts.
Harmon's first major contract for new construction in the rail transit market was the Bi-State Metro Link project in St. Louis, which totaled $4.7 million, and entered service in July 1993. This project has served as a visible and successful entry by Harmon into the transit market as a major contractor. In 1998, the Company was awarded the signal and train control contract on the first extension of this system. The Company's transit business has grown to include active transit projects in many major cities in North America.
In December 1997, Harmon obtained a license agreement from Hughes Aircraft Company (now Raytheon Company) to develop, build and market a new Advanced Automatic Train Control (AATC) system which is based in part on a converted military communications system. Hughes, in combination with the San Francisco Bay Area Rapid Transit District (BART), developed a prototype of this system and demonstrated it on BART in 1996. In February 1998, Harmon was awarded, assuming all options are exercised, the contract to complete the development of the full AATC system and deploy it over a substantial portion of the BART system by the end of 2001. Harmon intends to market this system aggressively in the transit marketplace, both domestically and internationally. The first step in this international effort has been an agreement with Nippon Signal of Japan to license the AATC technology in Japan and jointly market AATC systems in the Pacific Rim.
International Opportunities
The Company has identified certain international markets as opportunities for growth. Standards for the railroad industry in South America, Australia, and certain parts of eastern Asia are generally consistent with the standards of the United States railroad industry. In addition, some nationalized railroads in Europe and South America have been recently privatized and United States freight railroads, which are Harmon customers, are investors in some of these privatizations. The Company's relationships with such railroads provide it the opportunity to sell its products to these new entities for international use, subject to
5
local certification processes and, where required, modification to conform with local standards and practices. Harmon is also pursuing strategic alliances with other railroad industry suppliers to assist its efforts to penetrate the international markets.
In July 1996, Harmon acquired Vaughan Harmon Systems Limited ("Vaughan Harmon"), located in the United Kingdom. This acquisition established the first international manufacturing operations for the Company. Vaughan Harmon manufactures train control products which are complementary to the Company's domestic product lines and provide a base for introducing the Company's products into the British market. It has several contracts with Railtrack, including one for the resignaling of the Cromer line in Norfolk, England. This will be the first project in which Vaughan Harmon products and Harmon products from the United States will be combined to provide an integrated system to the customer.
In 1998, Harmon continued its international expansion by purchasing the operating assets of its long-time Australian affiliate, Henkes-Harmon Industries, Pty. Ltd., to establish a new wholly owned subsidiary, Harmon Industries Australia, Pty Ltd.
In 1999, Harmon acquired the majority control of Angiolo Siliani S.p.A. of Florence, Italy, and Siliani Elettronica ed Impianti S.p.A. of Florence and Genoa, Italy (collectively "Siliani Harmon"). This acquisition gives the Company the vital, locally-based platform from which to introduce Harmon systems and products into Italy and subsequently the European market, as well as Siliani Harmon products into the U.S.
Business Strategy
Harmon's business strategy is to utilize its technological expertise, ability to install turnkey systems, broad product lines, extensive sales network and customer service orientation to provide high quality products and services to its customers. Harmon plans to continue to expand and improve its product lines and services to meet its customers' needs. Harmon expects that the continued development of its product lines may be accomplished, in part, by strategic acquisitions of product lines or companies that complement the Company's current product lines. The Company actively pursues potential acquisitions as part of this strategy. Internal development of new products and services will continue, consistent with Harmon's desire to expand its product offerings.
The Company intends to improve its leadership position as a vendor to the rail industry by continuing to expand its long-standing relationships with Class I and regional railroads, continuing to explore opportunities with short line railroads, developing new technologies to meet customer needs, and by adding value through its engineering, installation, asset management and other service capabilities. The Company has seen and expects to continue to see a shift in its revenue mix from revenues generated strictly from the sale of its individual products to revenues resulting from the sale of complete systems that are designed, installed and, potentially, maintained by the Company.
In international markets, the Company intends to continue forming strategic alliances with entities resident in such markets that are familiar with the local customers, the railroad standards and the individuals making the decisions to purchase equipment. Growth in this market may also be aided by active pursuit of additional acquisitions, continued development of distributor relationships and increased direct presence in international markets. In addition, the ownership or operation by North American Class I and short line railroads of railroad track in other countries provides Harmon the opportunity to sell its products through its existing customers for international use.
The Company will continue its cost control system that subjects all research and development, acquisition and capital expenditure programs to a return on investment analysis. If the anticipated return from any such expenditure meets objectives set by the Company, such expenditure will generally be considered for implementation. The Company is continuing the process of upgrading its fully integrated financial, manufacturing and inventory control computer system that will assist its efforts to further contain costs.
6
The Company continues to enhance its Total Quality Systems (TQS) in all aspects of its operation. The Company was one of the first in its industry to institute such a program. ISO 9000 certification is one of the foundations of the Company's TQS which is evident by the fact that most of the company's domestic and international facilities are ISO certified. Continuous improvement, employee involvement, education and training continue to receive strong emphasis as a strategic initiative. The Company actively employs TQS teams to improve processes, reduce scrap and rework and enhance customer service with numerous active teams working on improving internal systems.
Product Classifications
The products of the Company can generally be separated into seven categories. Train Control Products & Systems include all Company products related to the control of train movement. These include the Company's signal control track circuits (Electro Code); interlocking control equipment (Electro Logic, HLC and VHLC); car-borne equipment (Ultra Cab); computer-based traffic control systems; train describers and other train control systems. Crossing Products & Systems include all Company products related to rail/highway crossing warning systems including: motion detectors (the Company's PMD and HXP products, among others); flashing lights and cantilevers; and the design, wiring and installation of these products. Asset Management Services involve a single-source, rapid delivery service for railroad components by warehousing commonly used parts and equipment that are manufactured by the Company and other vendors. Train Inspection Products & Systems include all Company products related to monitoring a moving train as it passes by a train inspection site. Communication Products & Systems include voice and data radio communications, security and dispatching systems used in the transportation industry. Printed Wiring Boards include production of custom designed printed wiring boards for use by Harmon and other electronics manufacturers. Other sales include products that do not readily fit into the other six categories.
Profile of Current Operations
The Company's current products are summarized by product category in the following table. The table shows yearly sales and percentages of total sales for each of the past three years.
Sales by Product or Service Function(1)
(dollars in thousands)
| |
Years Ended December 31, |
||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
1997 |
1998 |
1999 |
||||||||||||
| |
Amount |
% |
Amount |
% |
Amount |
% |
|||||||||
| Train Control Products & Systems | $ | 101,624 | 47.4% | $ | 132,348 | 50.5% | $ | 144,618 | 48.2% | ||||||
| Crossing Products & Systems | 55,598 | 25.9% | 53,035 | 20.2% | 65,117 | 21.7% | |||||||||
| Asset Management Services | 29,913 | 14.0% | 34,928 | 13.3% | 23,672 | 7.9% | |||||||||
| Train Inspection Products & Systems | 13,407 | 6.3% | 16,312 | 6.2% | 10,745 | 3.6% | |||||||||
| Communication Products & Systems | 655 | 0.3% | 6,606 | 2.5% | 22,176 | 7.4% | |||||||||
| Printed Wiring Boards | 5,772 | 2.6% | 5,220 | 2.1% | 5,008 | 1.6% | |||||||||
| Other | 7,458 | 3.5% | 13,547 | 5.2% | 28,798 | 9.6% | |||||||||
| Total | $ | 214,427 | 100.0% | $ | 261,996 | 100.0% | $ | 300,134 | 100.0% | ||||||
7
Products
While the Company's principal products and services have been grouped for purposes of discussion by primary product or service function, each product and service interrelates or is complementary to other Company products and services. Substantially all products and services (except printed wiring boards) are marketed to the freight railroad and rail transit industries.
Train Control Products & Systems include all Company products and services related to the control of train movement.
These include the Company's signal control track circuits (Electro Code); interlocking control equipment such as Electro Logic, the Harmon Logic Controller (HLC) and the Vital Harmon Logic Controller (VHLC); car-borne equipment (Ultra Cab); computer-based dispatch and traffic control systems; train describers; and the design, wiring and installation of packages and systems comprised of these products. Signal control track circuits control signals regulating train traffic by sending and receiving coded electrical impulses using the rails for transmission. The primary advantage of this method is the elimination of overhead transmission lines between signal locations. The product also eliminates the need for some of the expensive electro-mechanical signal relays. Computer-based train control systems such as the AIM system of recently acquired Harmon Control and Information Systems, Inc. (formerly Syseca, Inc.) control train movement over designated tracks from a central location. These systems provide important information enabling the railroads to direct the movement of trains over large sections of track, thereby reducing the number of control points and related personnel otherwise required. Although the technology is similar, each system requires some level of individualized design and specialized software.
The acquisition of Siliani Harmon in 1999 augmented Harmon's presence in mainland Europe as a leader in switch point machines for standard and high-speed lines, interlockings, and electromechanical devices for locomotives. Interlocking control equipment controls the track switches and train signals at intersections or junction points (interlockings) where main tracks cross or merge, or where trains may cross over between adjacent main tracks at running speeds. Interlockings generally employ data telemetry to and from a remote location (site of the computer-based dispatch system) and also frequently interface to signal control track circuits. Interlockings use standard products but often require extensive application engineering to define a site-specific configuration.
Ultra Cab communicates speed commands directly to moving locomotives through electrical currents in the rails, displays the resulting speed requirements to the engine crew using colored light signals or speed indicators in the cab, and enforces compliance with the speed commands by initiating an automatic brake application if the engineer fails to stay within prescribed limits. A more advanced system called Incremental Train Control System (ITCS) is being developed by the Company. It uses radio data communications rather than currents in the rails to exchange data between trains and the wayside equipment, and provides many added features. The system is being installed on a 70-mile stretch of track between Chicago and Detroit, which will enable trains to operate in excess of 100 mph.
Advanced Automatic Train Control (AATC) employs leading-edge radio network technology developed originally for critical military applications to pinpoint the location, speed and direction of rapid transit trains. Because it locates a train within a 15-foot range, the system is well suited for BART in San Francisco, CA, to maintain safety while increasing the speed of its trains and simultaneously reducing the space between them. Thus, it will carry more people in a given time frame. In order to introduce this technology into Japan and other Asian countries where we have little market representation, we recently completed a sublicensing agreement with The Nippon Signal Co. of Japan whereby Nippon Signal will integrate Harmon's AATC as part of its own systems offerings.
Crossing Products & Systems include all Company products and services related to rail/highway crossing warning systems including: motion detectors (the Company's PMD and HXP products, among others); flashing lights and cantilevers; and the design, wiring and installation of complete systems utilizing these
8
products. Rail/highway crossing warning systems activate flashing lights and audible bells, and initiate the lowering of crossing gates to provide traffic barriers in installations so equipped. While the Company offers complete systems, the more sophisticated electronic equipment that activates the warning lights or crossing gates is often sold separately.
The Harmon Railroad Crossing Processor (HXP) and the Phase Motion Detector (PMD) are the trade names for the electronic controllers used in most of these systems. The HXP is the Company's most sophisticated device for control of railroad crossing warning devices, and is protected by U.S. patent #4,581,700. It uses microprocessors to calculate the train's speed and distance to the crossing and provides a consistent warning time. The less-costly PMD activates the warning device when the approaching train is within a predefined distance from the crossing and may be used over a wider range of trackside conditions. The latest versions of these two products, HXP-3 and PMD-3, represent superior technology and offer the convenience of modular interchangeability between the two products.
The Highway Crossing Analyzer (HCA) is a recording and monitoring device intended mostly for use at grade crossings that can monitor and record many aspects of the warning system operation, detect anomalies and report trouble to a central reporting location. It is being adopted in many areas as a means for improving the efficiency of maintenance procedures by providing better and faster information on the location and nature of potential problems and the ability to develop pro-active preventative maintenance procedures. The acquisition of Devtronics, Inc. in 1997 added other products similar to the HCA and additional capability and expertise in this area.
The Company expanded its service offering for crossing products in January 1998 with the acquisition of CSS, Inc., a provider of installation and maintenance services to domestic freight railroads. DJR, Inc., acquired in 1999 adds to our installation and maintenance capacity and helps us respond to customers' needs more quickly. DJR installs railroad grade-crossing warning systems and highway traffic signal equipment, mostly in the mid-Atlantic region.
Asset Management Services involve a single-source, rapid delivery service for railroad components by warehousing commonly used parts and equipment that are manufactured by the Company and other vendors. The Company provides other services including purchasing and distribution of communication and signal inventory. One of the predominant services is the assembly of containerized construction kits including all material needed for a signal installation project, some of which is not made by Harmon. These kits greatly improve the productivity of the railroad's construction crews and are finding growing acceptance in the industry. Success in this area has helped Harmon diversify from a predominantly manufacturing operation into the service portion of the railroad supply industry.
Train Inspection Products & Systems include all Company products and services related to monitoring a moving train as it passes by a train inspection site and the design, wiring and installation of packages and systems comprised of these products. The Company's acquisition of Devtronics in November 1997 has increased its market share of this product line. The principal product used in these systems is a hot-bearing detector, which is installed beside the track and is designed to detect overheated axle bearings of passing rail cars. Overheated bearings, if not detected in time, may cause derailments, resulting in substantial expense and potential liability to the railroads. Some hot bearing detectors include an auxiliary function to provide hot wheel detection. Hot wheels can result from sticking brakes on a car and can cause severe wheel damage and even derailments if left unchecked. Other train inspection products include a device to detect when a rail car is dragging an unwanted object and a sensor to monitor high or wide loads.
Communication Products & Systems includes conventional and fiber optic communication networks, tunnel and above ground radio systems, vehicle radio systems, passenger emergency telephone systems, audio/visual passenger information systems, fire and intrusion systems, closed circuit television, premise distribution, local area networks and Supervisory Control and Data Acquisition (SCADA) systems.
9
The Company's October 1998 acquisitions of SES Co., Inc. and Seaboard Systems Co., Inc. significantly enhanced its ability to offer complete communications solutions to its customers, particularly in the transit market.
Printed Wiring Boards include production of customer-designed printed wiring boards (PWB) for shipment to other electronics manufacturers. A substantial portion of the plant capacity for PWB is used in the Company's own products.
Other includes services such as contract engineering, repair, installation and maintenance as well as the sale of miscellaneous products outside the categories discussed above. The company expanded its product offering with the acquisition of Golden Gate Switchgear, Inc. producing switchgear for electrified rail and commercial applications.
Product Development and Patents
The Company considers product development essential to both maintaining its market position and to future growth. Product innovation has been a major contributor to the Company's profitability as railroads have sought more cost-effective methods of controlling and monitoring train operations. Frequently, a customer's technical staff works closely with the Company's staff on the design of a system or component parts. The Company will continue to focus on rapid response to customer needs in its introduction of new products. The Company anticipates increasing its efforts and expenditures for product development.
The Company continues to develop new products and new variations of previously successful products, where market demands and competition dictates the need. Major development efforts have recently concentrated on several key areas: (i) the communication-based train control system called Advanced Automatic Train Control (AATC) which is intended primarily for rail transit applications, (ii) development of next-generation products in the area of signal control track circuits and train inspection systems, (iii) development of special features on several products to adapt them for the international market, and (iv) ongoing enhancement to most of the other traditional products including crossing warning systems, interlockings, interlocking controls, and Ultra Cab. Development of these products and enhancements is expected to maintain the Company's position in the freight railroad market and improve the Company's ability to compete in the rail transit and international markets.
Consistent with its objective of protecting its position as a leading developer of technologically advanced products, the Company spent approximately $7,664,000, $8,454,000 and $8,713,000 in the years ended December 31, 1997, and December 31, 1998, and December 31, 1999 respectively, on research and development (R&D) activities related either to the improvement of existing products or to the development of new products. The AATC system, however, is being developed under a commercial contract therefore most of its development costs are not considered R&D expense.
The number of engineers involved in research and development activity has increased significantly, commensurate with the rise in investment in this field. However, a much larger increase has occurred in the number of engineers dedicated to applications engineering which apply developed products to specific customer needs and, in part, replace the customer's internal engineering staffs.
In addition to expanding its product line by means of internal R&D, the Company will consider acquisitions of complementary product lines like those that have previously allowed the Company rapid entry into new areas of the railroad equipment market. In conjunction with the purchase of Harmon Control and Information Systems, Inc., the Company obtained its technology along with a software engineering workforce that is already in place.
Although the Company believes that its patents and patent applications have value, the Company relies primarily on trade secrets to protect its technology. Rapidly changing technology makes the Company's future success dependent on the technical competence and creative skill of its personnel.
10
Marketing and Sales
The Company's products are sold to the freight railroad and rail transit industries through experienced direct sales employees who work closely with the Company's customers to identify existing or potential products to improve the efficiency and enhance the safety of their operations. The Company's sales force is organized along industry lines. A separate group is primarily responsible for sales to each market: Class I, short line, rail transit and international.
The United States-based marketing organization is assisted by wholly owned subsidiaries in the United Kingdom, Canada, Mexico, Australia and Italy. The Company also utilizes foreign nationals to assist the Company's sales staff with sales in other foreign markets.
The Company is actively pursuing opportunities on freight and passenger railroads in both the United States and international markets. Sales in the rail transit market are usually large, multi-year contracts for major new installations compared with shorter-term projects or individual product sales that typically occur in the freight market. If the Company is successful in obtaining such contracts, which are generally awarded on a fixed price bid basis, significant variations in overall sales and backlog may result.
Backlog
The Company's backlog of orders was approximately $220 million at December 31, 1999. Approximately $138 million of these orders are expected to be filled in 2000 with the balance filled in 2001. The backlog of orders was approximately $131.8 million at December 31, 1998. Although the Company has historically experienced few order cancellations or delays in filling orders, cancellations could occur and delivery dates could be extended due to customer requests or production scheduling.
The Company has entered into long-term agreements with two major Class 1 freight railroads to provide interlocking control equipment, crossing equipment, hardware and services. These agreements range from one to three years in length. The value of these contracts is not included in backlog until the customer releases an order for specific products.
Competition
The Company's business is highly competitive. The Company competes effectively on the basis of the reliability and design of its products, customer service and price. Competition will require the Company to continue to introduce new products and services. The Company's three major competitors, all of which are subsidiary units of foreign companies, appear to have greater financial resources than the Company. Nonetheless, the Company has demonstrated its ability to develop and introduce new products and expects that a continuation of such ability will permit it to maintain its competitive position.
Warranty and Field Service
The Company provides a high level of customer support through warranty and customer service departments. The Company's engineers and technicians provide field service support, repairs and customer training in the use and maintenance of the Company's products. These efforts are important to maintain customer satisfaction and learn of customer needs, but do not now directly generate significant revenue for the Company.
Manufacturing
Manufacturing generally consists of the assembly of component pieces either purchased from others or produced internally and the production of printed wiring boards. The Company generally manufactures products in response to specific customer orders and specifications and, as a result, does not maintain a significant finished goods inventory.
11
Furthermore, an increasing number of the products sold by the Company are incorporated into a complete system that is assembled by the Company and delivered as a package.
The Company's employees participate in the Total Quality System, working in teams to improve processes and products. Harmon was one of the first vendors to the railroad industry to institute a total quality program and considers its program to be an important part of its continuing efforts to improve its manufacturing process and products.
The Company is dependent upon a continuing supply, both domestic and foreign, of some component parts and materials. The Company occasionally experiences some delays in the availability of certain component parts and materials, and in many cases suppliers require long lead times. In recent years, there has been no significant interruption of the Company's business due to a shortage of components or manufacturing materials.
Employees
As of December 31, 1999, the Company had 2,079 full-time employees. There were 1,402 employees in manufacturing, 263 in engineering, 314 in general and administrative services and 100 in marketing and sales. In general, the Company believes its relations with its employees are excellent. Approximately 28 of the Company's employees are covered by a collective bargaining agreement.
In November 1999, the Company implemented a restructuring program to close facilities in Riverside, California, and Long Island, New York. In addition the Company will relocate its Lee's Summit, Missouri asset management operations to Warrensburg, Missouri. These actions will affect approximately 200 employees in Riverside, 25 employees in Long Island and 60 employees in the balance of the organization. The net reductions, after increases in employment in the Missouri manufacturing facilities, will be approximately 200 people.
12
ITEM 2. PROPERTIES
The Company owns or leases an aggregate of approximately 1,000,000 square feet of space for manufacturing, warehousing, research and general office use. In addition, the Company owns land zoned for industrial use, on which the Grain Valley and Warrensburg facilities are located. The following table summarizes the Company's principal locations.
| Location |
Principal Use |
|
|---|---|---|
| Grain Valley, Missouri | Administration, design and manufacture of electronic products and railroad signal systems | |
| Warrensburg, Missouri | Manufacture of railroad crossing warning systems and hardware and printed wiring boards | |
| Jacksonville, Florida | Design and manufacture of railroad crossing warning systems and hardware | |
| Atlanta, Georgia | Design and assembly of railroad crossing warning systems | |
| Riverside, California | Administration, product design, and manufacture of electronic products | |
| Lee's Summit, Missouri | Assembly, storage and distribution of products for the railroad industry | |
| Blue Springs, Missouri | Corporate headquarters | |
| Ware, England | Design and manufacture of electronic products and control systems | |
| St. Laurent, Quebec, Canada | Design, manufacture and distribution of products for the railroad industry | |
| Monterrey, Mexico | Assembly, storage and distribution of products for the railroad industry | |
| Bayswater, Victoria, Australia | Design and distribution of products for the railroad industry | |
| Hingham, Massachusetts | Administration, design, project management and installation of communications systems for the transit industry | |
| Marina del Rey, CA | Software development, control systems for transit industry | |
| Napa, CA | Manufactures switch gear for electrified rail and commercial applications | |
| Glenelg, MD | Installs railroad grade-crossing warning systems | |
| Carrollton, TX | Software development, security management systems for utility companies | |
| Florence and Genoa, Italy | Manufacturing equipment and systems for signaling and train control |
In addition to these principal locations, the Company also owns or leases various other office, engineering and warehouse facilities. Management believes that its facilities are adequate for current and foreseeable needs. For additional discussion and information concerning the Company's lease commitments, see "Financial Statements—Note 6 of Notes to the Consolidated Financial Statements."
The Company owns all significant machinery and equipment used in its manufacturing operations.
ITEM 3. LEGAL PROCEEDINGS
Grain Valley Matter
During the last quarter of 1987, officials of the Company discovered ground contamination from used solvents classified as hazardous waste at the Grain Valley, Missouri production facility that it owns. A voluntary report was made to the State of Missouri Department of Natural Resources ("MDNR"). MDNR has approved the Company's Closure/Post-Closure plan which sets forth the soil remediation and groundwater monitoring obligations at this site. The Company and MDNR also have entered into a Consent
13
Decree which authorizes the Company to implement the approved Closure/Post-Closure Plan pending the issuance of a post-closure permit. MDNR issued a post closure permit on July 31, 1996. Groundwater and other remediation requirements are set forth in the post-closure permit. The Company designed and installed a system to undertake soil remediation and that system will continue in operation for some time. The Company has established a trust fund to provide financial assurance for the anticipated post-closure costs of approximately $500,000 to be incurred over approximately 30 years. The market value of assets in this trust exceeded $583,000 at December 31, 1999.
On September 30, 1991, the EPA issued a Complaint against the Company alleging violations of the Resource Conservation and Recovery Act ("RCRA") and RCRA regulations in its disposal of the solvents that created the contamination described above. The Complaint initially sought penalties in the amount of $2,777,000 and proposed certain compliance actions. On December 6, 1994, EPA amended its Complaint to decrease the amount of proposed penalties to $2,343,706.
After several unsuccessful settlement attempts, the case proceeded to hearing before an EPA administrative law judge on January 12-14, 1994, on the issue of penalties. On December 12, 1994, the administrative law judge issued an Initial Decision in which he assessed penalties against the Company of $586,716. Additionally, the judge issued a Compliance Order requiring the Company to obtain liability coverage for sudden and non-sudden accidental occurrences, despite a Consent Decree with the Missouri Department of Natural Resources which excused the Company from this requirement as long as the Company continued to make semi-annual showings that the type of insurance required by the regulations was unobtainable. On January 9, 1995, the Company filed a Notice of Appeal of the Initial Decision with the Environmental Appeals Board ("EAB"). The EAB affirmed the penalty of the administrative law judge. On June 6, 1997, Harmon filed a complaint in the Federal District Court for the Western District of Missouri seeking judicial review of the EAB's decision.
On August 25, 1998, the District Court entered its Order Reversing the Final Decision of the Environmental Appeals Board. The District Court held that RCRA, as well as Missouri law principles of res judicata, barred the EPA from filing a duplicative enforcement action after the violator has entered a final settlement with an authorized State agency. The effect of the District Court's holding is to bar the EPA from collecting penalties from Harmon based on the alleged violations.
On October 21, 1998, the EPA filed a Notice of Appeal in the United States Court of Appeals for the Eight Circuit requesting the Appeals Court to reverse the District Court's order setting aside the penalty against Harmon. On September 16, 1999, the United States Court of Appeals for the Eighth Circuit unanimously affirmed the district court's decision. The EPA petitioned the Court for a rehearing by the entire court. On January 24, 2000, the Court denied the EPA's petition. The decision will become final on April 24, 2000 unless the EPA petitions the U.S. Supreme Court to overturn the decision.
Harmon intends to vigorously present its position in the Supreme Court if the Supreme Court agrees to hear the appeal. However, because so few analogous cases have been disposed of by judicial decision, special legal counsel cannot express an opinion as to the likelihood of Harmon ultimately prevailing on appeal.
Patent Litigation
In July 1999, Union Switch & Signal Inc. ("Union") served a complaint against the Company alleging that a sensing coil used in the Company's locomotive cab signal systems infringed two Union patents. Union seeks to enjoin the Company from infringing the patents and for an accounting of any profits, damages, and unjust enrichment resulting from the alleged infringement. Union also seeks treble damages based on its allegation that the Company intentionally infringed Union's patents. Union also seeks pre and post-judgment interest and attorneys' fees. In September 1999, the Company filed its answer and counterclaim to Union's complaint. The Company denies that it infringes Union's patents. The Company further seeks a court order finding that Union's patents are invalid and unenforceable. The Company seeks
14
to enjoin Union from continuing any further infringement litigation against the Company with respect to these patents. The Company also seeks its costs and attorney fees. In September 1999, Union filed its reply to the Company's counterclaim. In its reply, Union denies that its patents are invalid and unenforceable. The parties are in the preliminary stages of discovery. The Company intends to vigorously defend itself against Union's infringement claim and to prosecute the Company's own invalidity claim against Union's patents. Given that this litigation is in early stages of discovery, the Company is unable to predict the likelihood of an unfavorable outcome.
Other Matters
The Company has been named as a defendant in several other lawsuits in the normal course of its business. In the opinion of management of the Company, after consulting with legal counsel, the liabilities, if any, resulting from these matters are not expected to have a material effect on the consolidated financial statements of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during the quarter ended December 31, 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's common stock trades on The NASDAQ Market under the symbol HRMN. Stock price quotations can be found in major daily newspapers and in The Wall Street Journal.
At February 8, 2000 the following securities firms were making a dual auction market in the Company's common stock:
George K. Baum & Company
Spear, Leeds & Kellogg
PaineWebber Inc.
Herzog, Heine, Geduld, Inc.
Knight Securities L.P.
Mayer & Schweitzer, Inc.
Sherwood Securities Corporation
B-Trade Services LLC
The approximate number of holders of record for the Company's common stock as of February 8, 2000 was 660.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Incorporated by reference.
15
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's principle exposures to market risk associated with financial instruments relate to interest rate risk associated with fixed rate borrowings and foreign currency exchange rate risk associated with borrowings denominated in foreign currency. The Company does not currently use, nor has it historically used derivative financial instruments to manage or reduce market risk.
At December 31, 1999 22% of the Company's total indebtedness contained fixed rates of interest. The most significant fixed rate obligation is the Company's 6.87% senior unsecured notes, having a principle balance of 15.0 million, payable in equal annual installments commencing in 2001 through 2007. Substantially all of the Company's remaining indebtedness is at variable rates of interest and, accordingly, while changes in interest rates would not impact the fair value of these financial instruments, such changes would impact net earnings in future periods.
The Company has operations in Great Britain, Canada, Australia, Mexico and Italy. The functional currency for each of these operations is the respective local currency. At December 31, 1999, long-term debt includes foreign subsidiary obligations of 12.4 billion lira ($6.45 million) under a line of credit which bears interest at a variable rate based upon the Euribar rate.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no disagreements on accounting and financial disclosure as described in Item 304 of Regulation S-K. There has been no change in the Company's accountants within the preceding twenty-four months.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the officers and key employees of the Company. This information should be read in connection with the Company's Proxy Statement.
| Individual |
Office |
Age |
Principal Occupation For The Last Five Years |
|||
|---|---|---|---|---|---|---|
| Anderson, Robert F. |
|
VP–Business Development |
|
62 |
|
VP–Business Development of the Company since 2/25/00. Prior to that, Director, Systems Engineering, 1998-2/25/00 and Manager, Systems Engineering, 1996-1998. |
| Breshears, Ronald G. |
|
VP–Human Resources and Safety |
|
53 |
|
VP–Human Resources of the Company since 7/1/81. |
| Brandi, Silvano |
|
Managing Director– Siliani Harmon |
|
51 |
|
Managing Director of Siliani Harmon since 4/30/99. Prior to that, VP–Marketing & Business Development of Ansaldo Transporti S.p.A. since 1996 and General Manager, Signaling Business Unit since 1992. |
| |
|
|
|
|
|
|
16
| Daniels, Richard A. |
|
VP & General Manager–Harmon Control and Information Systems, Inc. ("HCIS") |
|
59 |
|
VP of the Company & General Manager HCIS since 5/11/99. Prior to that, VP–Transit and International Systems Sales of the Company since 1/1/98 and VP–Transit from 2/1/93 until 12/31/97. |
| Danley, Robert L. |
|
VP–Train Control Products & Systems |
|
50 |
|
VP–Train Control Products & Systems of the Company since 2/1/00. Prior to that, Assistant VP–Product Management since 1/1/98, Director of Product Management, 7/96 - 12/98, and Director of Control and Signal Systems, 1990-1996. |
| Harmon, Robert E. |
|
Chairman of the Board |
|
60 |
|
Chairman of the Board of the Company since 2/4/75. Chief Executive Officer of the Company from 8/1/90 through 12/31/94. |
| Heggestad, Robert E. |
|
VP–Technology |
|
61 |
|
VP–Technology of the Company since 10/2/86. |
| John, James R. |
|
VP–Services |
|
51 |
|
VP–Services of the Company since 5/1/96. Prior to that, President of Consolidated Asset Management Company, Inc. since 1992. |
| Johnson, John W. |
|
VP–Crossing Products & Services |
|
52 |
|
VP–Crossing Products & Services since 2/1/00. VP–Domestic Sales of the Company since 2/1/93. |
| Kaiser, Lloyd T. |
|
Executive VP–Sales and Marketing |
|
48 |
|
Executive VP–Sales & Marketing of the Company since 8/16/99. Prior to that, Executive VP–Domestic Sales and Service since 1/1/98; Executive VP–Systems since 5/1/96; and President of Harmon Electronics, Inc. since 1992. |
| Marberg, William P. |
|
Executive VP–Technology |
|
48 |
|
Executive VP–Technology of the Company since 8/16/99; Executive VP–Systems Sales and Support since 4/13/98. Prior to that, President and Chief Executive Office of Airsys ATM, Inc. since December 1995. Prior to that, VP–Air Traffic Control of Unisys, Inc. |
| McKenna, Gerald S. |
|
VP–Project Management |
|
41 |
|
VP–Project Management of the Company since 8/16/99. Prior to that, Assistant VP–Project Management, 1/5/98; Director II, 1/1/97; and Program Manager, 9/6/94. |
| |
|
|
|
|
|
|
17
| Noffsinger, Joseph F. |
|
Deputy Managing Director– Vaughan Harmon Systems Ltd. ("VHSL") |
|
48 |
|
Deputy Managing Director of VHSL since 3/99. Prior to that, Chief Engineering Communications & Signal Assets for Conrail, 1990-1998. |
| Olsson, Björn E. |
|
President and Chief Executive Officer |
|
54 |
|
President and Chief Executive Officer of the Company since 1/1/95. President of the Company since 8/1/90. |
| Porter, Colin |
|
Managing Director–Vaughan Harmon Systems Ltd. ("VHSL") |
|
50 |
|
Managing Director of VHSL since 7/99. Prior to that, Director of Marketing & Sales and Deputy Managing Director, 7/97-6/99. Group S&T Engineer British Rail Infrastructure Services London since 1994. |
| Rosewall, Raymond A. |
|
Executive VP & Chief Operating Officer |
|
48 |
|
Executive VP & Chief Operating Officer of the Company since 1/27/00. Prior to that, Executive VP–Manufacturing since June 1998 and VP–Manufacturing of the Company since 12/27/95. President of Electro Pneumatic Corporation from 12/27/95 to 4/30/96. Prior to that, Executive VP Worldwide Sales and Marketing for QMS, Inc. since 1992. |
| Scheerer, William J. |
|
VP–Systems Operations |
|
52 |
|
VP–Systems Operations of the Company since 1/4/94. Prior to that, various positions with CSX Transportation, most recently Chief Engineer–Train Control. |
| Schmitz, Stephen L. |
|
Executive VP–Finance and Secretary |
|
46 |
|
Executive VP–Finance and Secretary of the Company since 7/1/99. Prior to that, VP–Controller of the Company since 11/1/83. |
| Taylor, Russell E. |
|
VP–Transit and International Sales |
|
41 |
|
VP–Transit and International Sales of the Company since 8/16/99. Prior to that, Assistant VP–Transit and International from 1/1/99 to 8/16/99; Director–Transit Sales and Business Development, 1/1/97-12/31/98; General Manager –Transit Operations, 1991-1997. |
| Testerman, Gary E. |
|
AVP–Quality Systems |
|
49 |
|
AVP–Quality Systems of the Company since 12/6/99. Prior to that, Director Quality Assurance since 1987. |
| Utterback, Jeffery J. |
|
Vice President and General Manager– Riverside Operations |
|
38 |
|
Vice President and General Manager–Riverside Operations of the Company since June 1998. Prior to that, Assistant VP–Quality Systems of the Company since 1/1/98. Prior to that, Director–Quality Assurance since 1993. |
18
Although some of the above have employment agreements which provide for 12 - 24 months of continued employment on a rolling basis, all of the above serve as officers at the pleasure of the Board of Directors and are appointed for one year terms.
The following is a list of the Board of Directors of the Company:
| Individual |
Affiliation |
|
|---|---|---|
| Robert E. Harmon | Chairman of the Board | |
| Bruce M. Flohr | President of Flohr Enterprise, Inc. | |
| Rodney L. Gray | Management Consultant | |
| Herbert M. Kohn | Attorney-at-Law Bryan Cave LLP, Kansas City, Missouri |
|
| Douglass Wm. List | Management Consultant, Boston Consulting Group Baltimore, Maryland |
|
| Gerald E. Myers | President of GEM Financial Services, Inc. Tempe, Arizona |
|
| Björn E. Olsson P | resident and Chief Executive Officer Harmon Industries, Inc. |
|
| John A. Sprague | Managing General Partner Jupiter Partners, LP, New York, New York |
|
| Judith C. Whittaker | Vice President, General Counsel/Secretary Hallmark Cards, Inc., Kansas City, Missouri |
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference.
19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following consolidated financial statements of Harmon Industries, Inc. and subsidiaries are incorporated by reference from the Company's 1999 Annual Report to Shareholders at the following pages:
| |
Page(s) |
|
|---|---|---|
| Independent Auditors' Report | 50 | |
| Consolidated Balance Sheets—December 31, 1999 and 1998 |
|
32-33 |
| Consolidated Statements of Earnings—Years ended December 31, 1999, 1998 and 1997 |
|
34 |
| Consolidated Statements of Stockholders' Equity—Years ended December 31, 1999, 1998 and 1997 |
|
35 |
| Consolidated Statements of Cash Flows—Years ended December 31, 1999, 1998 and 1997 |
|
36 |
| Notes to Consolidated Financial Statements |
|
37-49 |
(a)(2) Financial Statement Schedules
Selected Financial Data—for the years ended December 31, 1999, 1998 and 1997, are attached hereto at the following pages:
| |
Page(s) |
|
|---|---|---|
| Independent Auditors' Report on Financial Statement Schedule | 24 | |
| Schedule VIII—Valuation and Qualifying Accounts |
|
25 |
All other schedules are omitted as they are either not applicable or the required information is presented in the footnotes to the financial statements in the annual report.
20
(a)(3) Exhibits:
| Number |
Page(s) |
|||
|---|---|---|---|---|
| |
|
|
|
|
| 3 (ii) | Amended Bylaws | 29 through 47 | ||
| 10 |
|
Employee Contract Amendment |
|
48-56 |
| 11 |
|
Computation of per share earnings |
|
57 |
| 13 |
|
1999 Annual Report to Shareholders |
|
58 through 112 |
| 21 |
|
Subsidiaries of the registrant |
|
113 |
| 23 |
|
Consent of experts and counsel |
|
114 |
| 27 |
|
Financial Data Schedule |
|
115 |
| 99-1 |
|
Forward Looking Information |
|
Incorporated by reference to page 31 of Exhibit 13 |
| N/A |
|
Notice of Annual Meeting and Proxy Statement dated March 30, 2000 |
|
118 through 139 |
(b) Reports on Form 8-K:
There were no reports on Form 8-K for the three months ended December 31, 1999.
21
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) 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: March 16, 2000 |
|
By: |
/s/ BJÖRN E. OLSSON Björn E. Olsson President |
| Date: March 16, 2000 |
|
By: |
/s/ STEPHEN L. SCHMITZ Stephen L. Schmitz Executive Vice President-Finance |
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in their capacities as directors and on the dates indicated:
| |
|
|
|---|---|---|
| |
|
|
| By: | /s/ BRUCE M. FLOHR Bruce M. Flohr, Director |
Date: March 16, 2000 |
| By: |
/s/ RODNEY L. GRAY Rodney L. Gray, Director |
Date: March 16, 2000 |
| By: |
/s/ ROBERT E. HARMON Robert E. Harmon, Director |
Date: March 16, 2000 |
| By: |
/s/ HERBERT M. KOHN Herbert M. Kohn, Director |
Date: March 16, 2000 |
| By: |
/s/ DOUGLASS WM. LIST Douglass Wm. List, Director |
Date: March 16, 2000 |
| By: |
/s/ GERALD E. MYERS Gerald E. Myers, Director |
Date: March 16, 2000 |
| By: |
/s/ BJÖRN E. OLSSON Björn E. Olsson, Director |
Date: March 16, 2000 |
| By: |
/s/ JOHN A. SPRAGUE John A. Sprague, Director |
Date: March 16, 2000 |
| By: |
/s/ JUDITH C. WHITTAKER Judith C. Whittaker, Director |
Date: March 16, 2000 |
23
Independent Auditors' Report
The
Board of Directors and Stockholders
Harmon Industries, Inc.
Under date of February 11, 2000, we reported on the consolidated balance sheets of Harmon Industries Inc. and subsidiaries as of December 31, 1999 and 1998 and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1999, as contained in the 1999 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10K for the year 1999. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule as listed under item 14 of Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.
In our opinion, this financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
KPMG LLP
Kansas
City, Missouri
February 11, 2000
24
Schedule VIII
Harmon Industries, Inc. and Subsidiaries
Valuation and Qualifying Accounts
(Dollars in Thousands)
| Description |
Beginning balance |
Charged to costs and expenses |
Recoveries (deductions) |
Ending balance |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year ended December 31, 1997: | ||||||||||||
| Allowance for doubtful trade accounts receivable | $ | 307 | $ | 18 | $ | (7 | ) | $ | 318 | |||
| Warranty reserve |
|
$ |
2,988 |
|
$ |
70 |
|
$ |
(335 |
) |
$ |
2,723 |
| Year ended December 31, 1998: |
|
|
|
|
|
|
|
|
|
|
|
|
| Allowance for doubtful trade accounts receivable | $ | 318 | $ | 59 | $ | (26 | ) | $ | 351 | |||
| Warranty reserve |
|
$ |
2,723 |
|
$ |
217 |
|
$ |
(885 |
) |
$ |
2,055 |
| Year ended December 31, 1999; |
|
|
|
|
|
|
|
|
|
|
|
|
| Allowance for doubtful trade accounts receivable | $ | 351 | $ | 895 | $ | (264 | ) | $ | 982 | |||
| Warranty reserve |
|
$ |
2,055 |
|
$ |
333 |
|
$ |
(320 |
) |
$ |
2,068 |
25
|
|