<PAGE>

                          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, 1996
                            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)
                 1300 Jefferson Court, Blue Springs, Missouri  64015

                 Registrant's telephone number, including area code:
                                    (816) 229-3345

             Securities registered pursuant to Section 12(b) of the Act:

                                                 Name of each exchange on
       Title of each class                            which registered
    -------------------------                    ----------------------------
              None
    -------------------------                    ----------------------------

    -------------------------                    ----------------------------

             Securities registered pursuant to Section 12(g) of the Act:

                                     Common Stock
--------------------------------------------------------------------------------
                                 Title of each class
--------------------------------------------------------------------------------

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 17, 1997, 6,836,208 common shares were outstanding, and the
aggregate market value of the common stock (based upon the closing bid price of
these shares per NASDAQ for Over-the Counter trading) of Harmon Industries, Inc.
held by non-affiliates was approximately $112,841,000.

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.

                                        1

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DOCUMENTS INCORPORATED BY REFERENCE
PART II

Item 6:  Selected Consolidated              Pages 16 and 17 of the
         Financial Data.                    Annual Report to Shareholders for
                                            the year ended December 31,1996.

Item 7:  Management's Discussion            Pages 18 through 23 of
         and Analysis of Financial          the Annual Report to
         Condition and Results of           Shareholders for the year
         Operations.                        ended December 31, 1996.


Item 8:  Financial Statements               Page 24 through 39 of
         and Supplementary Data.            the Annual Report to
                                            Shareholders for the year
                                            ended December 31, 1996.


PART III

Item 10: Directors and Executive            Pages 3 through 5 of the
         Officers of the Registrant.        Company's Proxy Statement, dated
                                            April 1, 1997

Item 11: Executive Compensation             Pages 6 through 14 of the
         and Other Information.             Company's Proxy Statement
                                            dated April 1, 1997.

Item 12: Security Ownership of              Pages 2 and 3 of the
         Certain Beneficial Owners          Company's Proxy Statement
         and Management.                    dated April 1, 1997.

Item 13: Certain Relationships and          Page 5 (last paragraph
         Related Transactions               of Election of Directors)
                                            and page 5 ("Certain
                                            Transactions") of the
                                            Company's Proxy Statement
                                            dated April 1, 1997.

                                        2

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                               HARMON INDUSTRIES, INC.

              ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

PART I

ITEM 1.  BUSINESS

    The Company is a leading supplier of signal and train control systems,
products and services to rail systems throughout North America and the world.
The Company sells its products to Class I and short line freight railroads and
to rail transit customers.  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 and train
control systems and related components and services.  The Company emphasizes
innovation and technology to develop timely and sophisticated solutions to
problems that confront its customers.  It also provides customized asset
management services through a warehousing and distribution business.  See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

    A rapidly growing share of the Company's sales now involve combining and
customizing individual products to meet specific customer applications,
representing an evolution for the Company from a supplier of separate component
products to an integrator of systems able to provide customers with solutions to
complex problems.

INDUSTRY

    FREIGHT RAILROADS

    The domestic freight railroad industry includes Class I, regional and short
line railroads.  However, the industry is dominated by the 11 large freight
carriers that the Interstate Commerce Commission 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 segments 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 23% decrease in Class I employment levels from 1986 to 1995
required the Class I railroads to look to products like those manufactured by
Harmon to monitor the condition of moving trains, help ensure

___________________
(1)  This fact and the other statistical information about the Class I railroads
in this Annual Report come from RAILROAD FACTS, 1996 EDITION, a recognized
industry source for information on Class I railroads.

                                        3

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the safe switching and passage of trains and facilitate better communication
among crew members on a train and between moving trains and railroad traffic
controllers.

    Class I railroads have also used Harmon products to increase asset
utilization and productivity.  The 27% reduction from 1986 to 1995 in the number
of Class I railroad freight cars in service required the Class I 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 111% from 1986 to 1995.  The Class I railroads have become more
profitable despite a 38% reduction (in constant 1986 dollars) from 1986 to 1995
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 train and back to
truck) for which the railroads have retained the long haul segment.  The amount
of intermodal traffic has increased 61% from 1986 to 1995. 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 permit the Class I
railroads to better compete in the long haul segment of the freight
transportation market.  While final figures are not yet available for the year
ended December 31, 1996, the total volume of intermodal shipments is estimated
to have increased approximately 2% to 3% from 1995.  The growth momentum of the
Class I railroads is important to the success of Harmon.

    Class I railroads also have improved profitability by divesting themselves
of assets viewed as unprofitable, including large portions of under-utilized
track.  From 1986 to 1995, the Class I railroads have reduced their track miles
by 23%, to approximately 180,000 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 1986 to 1995, total capital expenditures by
Class I railroads per mile of track owned has increased from approximately
$15,400 to $33,200 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.

    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 530, with 30 of
these short line railroads being above the threshold of either $40.0 million
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 focussed management, generally
operate at lower speeds and are typically not burdened with the more restrictive
collective bargaining agreements as the Class I railroads.

                                        4

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    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 pre-engineered systems.  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 products is
influenced by the availability of government funding, the relative health of the
freight railroad industry and the changing needs that such industry has for
various Harmon products.  The Intermodel Surface Transportation Efficiency Act
of 1991 (ISTEA) provides federal funds through 1997 for railroad crossing
warning systems in the same amount each year as existed under previous federal
legislation.  For many years this funding has been dedicated solely to railroad
crossing warning systems.  There has been discussion in Washington in recent
years to convert future funding, like most other funding, to block grants to the
states to be used for highway safety.  If this occurs, it is unknown whether the
states would continue to spend all of these funds on railroad crossing warning
systems or spend all or a portion of them on other highway safety projects.

    Harmon expects the Class I railroads to continue their recent favorable
financial performance.  Accordingly, Harmon expects the equipment maintenance
and capital improvement expenditures of Class I railroads to grow, or at least
remain stable, in coming years.

    RAIL TRANSIT RAILROADS

    The rail transit industry includes AMTRAK and numerous existing and
proposed commuter and urban transit rail systems.  The development of such
systems is generally enhanced by the federal funding provided by ISTEA, which
nearly doubled the federal funding available annually for mass transit projects.
The aggregate amount of federal funds appropriated by ISTEA that is expected to
be made available for such projects between January 1992 and September 1997 is
$31.5 billion.  Current expectations are that the 1997 rail transit project
funding will equal or exceed the 1996 level.  In addition, ISTEA permits local
governments to shift funds otherwise allocated for highway construction into
mass transit projects.

    Harmon's participation in the expansion of existing or construction of new
rail transit systems will generally require a long selling cycle and generally
result 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 "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 to install in such trains

                                        5

<PAGE>

equipment that guards against human error.  An example of the Harmon ability to
swiftly address safety concerns is the development by Harmon of its Ultra Cab
product after a highly publicized 1987 passenger train accident in the Northeast
Corridor.  As a result of that accident, federal regulators required that all
trains operating in the Northeast Corridor be equipped with automatic devices to
guard against human error in responding to signals.  Conrail, the major freight
railroad most affected by this requirement, solicited bids from Harmon and its
competitors for development of a product like Ultra Cab.  Harmon won this bid
and completed development of Ultra Cab, which now enjoys a  substantial share of
the cab signalling market.

    Another 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 St. Louis Metro Link project, which totalled $4.7 million,  the
first phase of which 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. The Company's transit business has grown to include active transit
projects in many major cities in North America.  Harmon's first prime contract,
with construction under its direction, was with the Chicago Transit Authority
(CTA) for reconstruction of the signal and train control system for the Green
Line elevated line.  This contract, totalling over $13 million, was also
Harmon's first as a prime contractor, with construction under its direction.
The project was completed successfully and on time under an extremely aggressive
schedule, and establishes Harmon as a major contender in this market.

    In November, 1996, the Company was awarded a $17.6 million contract for the
design and manufacture of the train control system for a new light-rail system
for the New Jersey Transit Authority.  This contract award, the largest in the
Company's history, further establishes Harmon as a significant supplier   in the
rail transit market.

    It is difficult  to  estimate  the  potential  size  of  this  market,
particularly since railroad track used extensively by a rail transit operator in
some metropolitan areas may be owned and maintained by a Class I railroad.
Accordingly, sales to Class I railroads of Harmon products expected to upgrade
certain areas of railroad track may well be sales that are related to or result
from growth in the rail transit industry.

INTERNATIONAL OPPORTUNITIES

    The Company has identified certain international markets as opportunities
for growth.  Standards for the railroad industry in Latin America, Canada,
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 Latin America are now being privatized and United
States freight railroads, many of which are Harmon customers, are potential
purchasers or operators of large portions of such

                                        6

<PAGE>

track.  Harmon expects that its current relationships with such railroads will
provide it the opportunity to sell its products through its existing customers
for international use.  Harmon is also pursuing strategic alliances with other
railroad industry suppliers to assist Harmon's efforts to penetrate the
international markets.  The North American Free Trade Agreement is also expected
to provide opportunities for Harmon in Mexico and Canada because the expected
growth in trade will increase the railroad traffic in both directions across the
borders.

In July, 1996, Harmon acquired Vaughan Systems Ltd., subsequently renamed
Vaughan Harmon Systems Ltd., located in the United Kingdom.  The Vaughan Harmon
Systems Ltd. acquisition established the first international manufacturing
operations for the Company.  Vaughan Harmon Systems Ltd. manufactures train
control products which are complementary to the Company's domestic product lines
and should provide a base for introducing the Company's products into the
European market. Also, in December 1994, Harmon  acquired the railroad division
of SERVO Corporation of America (SERVO), including SERVO's distributors in
Europe, Africa and the Middle East, which should enable the Harmon products to
become more widely represented in these markets.

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
will continue, consistent with Harmon's desire to expand its product base.

    The Company intends to improve its leadership position as a vendor to the
freight railroad industry by continuing to expand its long-standing
relationships with Class I railroads, continuing to explore opportunities with
short line railroads, developing new technologies to meet customer needs, and by
adding value through its engineering, installation and asset management services
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. Systems sales
now represent over half of total sales.  The Company plans to utilize its
extensive experience and expertise in the freight railroad industry to expand
its presence in the rail transit market.  The Company has successfully adapted
several of its products to the needs of the rail transit industry and plans to
add to the products and services that it can offer to the rail transit market.

    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

                                        7

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markets.  In addition, the ownership or operation by domestic 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.

    The Company continued its training and education efforts to finalize
implementation of its Total Quality System program and to complete its ISO 9000
certification efforts in 1996. The Company's Grain Valley manufacturing and
engineering, the Riverside Hot Box Detector manufacturing, the Warrensburg
systems and the Long Island engineering facilities became ISO 9000 certified in
1996. In January 1997, the circuit board manufacturing plant attained its ISO
certification. Substantially all of the Company's facilities are now ISO 9000
certified, with the final two facilities planned for certification in 1997.

    The Company underwent a realignment at the end of 1996 to provide a
management structure organized along functional lines instead of separate
operating subsidiaries.  Effective December 31, 1996, the Company's domestic
operating subsidiaries Harmon Electronics, Inc.; Electro Pneumatic Corporation;
and Consolidated Asset Management Company, Inc., were merged into the parent
company Harmon Industries, Inc.  This realignment should allow the Company to
better serve its customers and streamline its operations.

    Finally, the Company will continue to enhance its Total Quality System,
promoting continuous improvement in all aspects of the Company's operations.
The Company was one of the first in its industry to institute such a program.


PRODUCT CLASSIFICATIONS

    The products of the Company can generally be separated into six categories.
TRAIN CONTROL 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 (TTM);
and train describers and other train control systems manuafactured by Vaughan
Harmon Systems Ltd. SIGNAL 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 SYSTEMS include all Company
products related to monitoring information regarding a moving train as it passes
by a train inspection site. PRINTED WIRING BOARDS include production of customer
designed printed wiring

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boards for use by other electronics manufacturers.  OTHER sales include products
that do not readily fit into the other five 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)

                                       Years Ended December 31,

                              1994               1995               1996
                              ----               ----               ----
                                      (dollars in thousands)

                       Amount   Percent    Amount   Percent    Amount   Percent
                     --------   -------  --------   -------  --------   -------
Train Control
Systems               $45,711     38.4%   $55,437     40.7%   $87,080     47.4%

Signal Systems         35,448     29.8%    42,375     32.1%    48,927     26.6%

Asset Management
Services               20,894     17.5%    14,194     10.4%    22,217     12.1%

Train Inspection
Systems                 5,054      4.2%    11,360      8.4%    12,906      7.1%

Printed Wiring
Boards                  6,307      5.3%     6,752      5.0%     5,249      2.9%

Other                   5,712      4.8%     5,999      4.4%     7,489      4.1%
                     --------    ------  --------    ------  --------    ------

Total                $119,126    100.0%  $136,117    100.0%  $183,868    100.0%
                     --------    ------  --------    ------  --------    ------
                     --------    ------  --------    ------  --------    ------

(1)Sales volumes shown above are gross totals and do not include cash discounts
or deferred contract revenue.  As a result, there are small differences between
the figures in this table and those presented in the "Consolidated Statements of
Operations".  See "Financial Statements."  The differences do not affect the
validity of the discussion and analysis.

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 railroad industry.

    TRAIN CONTROL SYSTEMS include all Company products and services related to
the control of train movement.  These include the Company's signal control

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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  dispatch systems monitor and
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 towers and related personnel otherwise required.  Although the
technology is similar, each system requires individualized design and
specialized software.

    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 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.  An initial installation of ITCS is being done
on an Amtrak line in southern Michigan under an FRA grant to demonstrate
enhanced train control technology for High Speed Rail corridors.

    SIGNAL 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 packages and systems comprised of
these 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

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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.

    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.  Asset management services
include a portion of the revenues of our former subsidiary, Consolidated Asset
Management Company, Inc. (CAMCO).  In late 1988, CAMCO received its first orders
and began providing services for the railroad industry including assembly and
storage of materials for track projects.  CAMCO 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.  CAMCO's success has helped Harmon diversify from a predominantly
manufacturing operation into the service portion of the railroad supply
industry.

    TRAIN INSPECTION SYSTEMS include all Company products and services related
to monitoring information regarding 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 the transportation
division of SERVO Corporation of America in December 1994 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 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.

    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.

    The category OTHER includes a variety of items.  One of these is radio
communication equipment which includes mobile and stationary two-way radios
specifically designed for railroad applications involving transmission of voice
and/or data messages.

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 during the past few years, as the
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.

                                        11

<PAGE>

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 dictate the
need.  Major development efforts have recently concentrated on several key
areas:  (i) the new Incremental Train Control System (ITCS) for initial
application to the FRA funded demonstration project in Michigan, (ii) a
communication-based train control system called UltraBlock which is intended for
Rail Transit applications, and (iii) ongoing enhancements to most of the
existing products including crossing warning systems, interlocking controls,
signal control track circuits, train inspection systems, and Ultra Cab.
Development of these products 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 market.

    Consistent with its objective of protecting its position as a leading
developer of technologically advanced products, the Company spent approximately
$4,561,000, $5,218,000 and $6,331,000  in the years ended December 31, 1994,
1995 and 1996, respectively, on research and development activities related
either to the improvement of existing products or to the development of new
products.  While the dollar amount classified as research and development has
fluctuated over the years, the number of engineers in the Company's employ has
increased.  A significant portion of the engineering resources are involved in
applying  developed products to specific customer needs.  In addition to
expanding its product line by means of internal research and development, 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 Vaughan Systems
Ltd., the Company obtained their existing complementary product lines,
technology and R&D projects along with a significant research and development
workforce that was 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.

MARKETING AND SALES

    The Company's products are sold to the freight railroads 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 of the market segments:  Class I, short line, rail
transit and international.

    The international marketing organization is assisted by a distributor in
which the Company has a minority interest.  Henkes-Harmon Industries, Pty. Ltd.
is based in Melbourne, Victoria, Australia and sells the Company's products in
Australia and New Zealand.  The Company also utilizes foreign nationals to
assist the Company's sales staff with sales in other foreign

                                        12

<PAGE>

markets.  The addition of Vaughan Harmon Systems, Ltd. in England and the
distributor network associated with the SERVO hot box detector product line
acquisition should enable Harmon to increase its penetration in the
international market, particularly in Europe.

    The Company considers Mexico and Canada to be a portion of its domestic
market and these countries are serviced by its domestic marketing group.  This
effort is enhanced in Canada by using Vale-Harmon Enterprise Ltd., which is
based in Quebec, Canada and sells Harmon products to the Canadian railroads.
Harmon has a minority equity interest in Vale-Harmon.

    Harmon is considering strategic alliances with entities that design and
manage the construction and expansion of track systems to assist Harmon with
sales in the United States and elsewhere.  The Company's products are sold
individually or are packaged together as a system to provide a broad array of
combined products and services.  Although sales of some of the Company's
products are seasonal, the Company does not consider its business generally to
be seasonal.

    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 $59.4 Million at December
31, 1996.  Approximately, $12.8 million of these orders have delivery dates in
1998 and 1999.  Management believes the remaining $46.6 million in orders are
firm and will be filled in 1997.  The backlog of orders was approximately $49.1
million at December 31, 1995, the majority of which were filled during 1996.
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.

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 to its customers.  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

                                        13

<PAGE>

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 consists of the assembly of component parts 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.  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, 1996, the Company had 1,202 full-time employees.  There
were 1,059 employees in manufacturing, 32 in marketing and sales and 111 in
general and administrative services.  Some of the 1,059 manufacturing employees
are engaged in research and development.  The Company  estimates that the time
expended on research and development equals approximately 77 full-time
employees.  In addition, the Company estimates that approximately 103 full-time
employees are involved in applications engineering.  In general, the Company
believes its relations with its employees are excellent.  The Company's
employees are not covered by a collective bargaining agreement.

ITEM 2.

PROPERTIES

    The Company owns or leases an aggregate of approximately 500,000 square
feet of space for manufacturing, warehousing, research and general office use.
In addition, the Company owns 32 acres of land zoned for industrial use, on
which the Grain Valley manufacturing and research facilities, and the
Warrensburg component plant are located.  All real property owned or leased by
the Company is subject to liens arising from the Company's long term debt, as
described in Note 3 of Notes to the Consolidated Financial Statements.  The
following table summarizes the Company's principal facilities.

                                        14

<PAGE>

                                  Floor Space    Annual Lease   Expiration
Location        Principal Use     (square feet)  Payment (1)    Date of Lease
--------        -------------     ------------   ------------   -------------
Grain Valley,   Design and            77,750         Owned         Owned
Missouri        manufacture of
(2 facilities)  electronic
                products and
                railroad signal
                systems

Warrensburg,    Manufacture of        48,000         Owned         Owned
Missouri        railroad
                crossing warning
                systems and
                hardware


Warrensburg,    Manufacture of        30,400         Owned         Owned
Missouri        printed wiring
                boards


Jacksonville,   Design and            94,300       $351,004     12-31-2001
Florida         manufacture of
                railroad
                crossing warning
                systems and
                hardware


Omaha,          Design of              2,000       $ 20,100       3-02-98
Nebraska        railroad
                crossing warning
                systems

Louisville,     Design of              9,765       $ 57,500       8-31-99
Kentucky        railroad
                crossing warning
                systems

Atlanta,        Design and            35,364         Owned         Owned
Georgia         assembly
                of railroad
                crossing warning
                systems

Riverside,      Administration        88,027      $ 344,949   9-30-2001(2)
California      and product
(3 facilities)  design,
                management
                information
                service
                operations and
                manufacture of
                electronic
                products

                                        15

<PAGE>

                                  Floor Space    Annual Lease   Expiration
Location        Principal Use     (square feet)  Payment (1)    Date of Lease
--------        -------------     ------------   ------------   -------------
Hauppauge,      Design of             10,000       $103,612    5-1-2000(3)
New York        electronic
                products for the
                railroad industry

Riverside,      Assembly,             47,000       $107,128        2-01-98
California      storage and
                distribution
                of products for
                the railroad
                industry

Blue Springs,   Assembly,             38,500       $ 32,083        6-30-97
Missouri        storage and
                distribution
                of products for
                the railroad
                industry

Lee's Summit,   Assembly, storage     20,000       $ 68,000     7-01-99(4)
Missouri        and distribution
                of products for
                the railroad
                industry

Lee's Summit,   Assembly,             10,000       $ 34,050     7-01-98(5)
Missouri        storage and
                distribution
                of products for
                the railroad
                industry

Blue Springs,   Corporate             14,166       $135,930    11-01-99(6)
Missouri        Headquarters

Ware,           Design and            18,145          Owned          Owned
England         manufacture of
(2 facilities)  electronic
                products and
                control systems


(1) For additional discussion and information concerning the Company's lease
    commitments, see "Financial Statements - Note 6 of Notes to the
    Consolidated Financial Statements."

(2) Consumer price indexed increases (maximum 4% per year) are effective
    October 1, 1998 and October 1, 1999.  Upon notice by January 1, 1998, the
    Company has the right to terminate this lease on October 1, 1998 subject to
    an early termination penalty.

                                        16

<PAGE>

(3) Lease payments are as follows:
      May 1, 1997 through April 30, 1998 - $107,368/year
      May 1, 1998 through April 30, 1999 - $111,275/year
      May 1, 1999 through April 30, 2000 - $115,338/year

(4) The annual lease payment increases to $73,000 and $77,000 effective July 1,
    1997 and 1998, respectively.  The Company may terminate this lease in June
    1997 upon payment of a predetermined early termination fee.

(5) The Company has the option to extend and renew this lease for three
    successive one year terms after June 30, 1997.

(6) The Company has the option to renew the lease for up to two successive five
    year terms.

    In addition to these facilities, the Company also leases office space in
Grain Valley and Blue Springs, Missouri.  The Company owns all significant
machinery and equipment used in its manufacturing operations.  The Company is at
near-capacity in several areas of its business and anticipates spending
significant amounts of money over the next several years to expand its
manufacturing and engineering facilities.

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"),
and negotiations are ongoing regarding the extent of remedial or clean up
actions and monitoring requirements.  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 Decree which authorizes the Company to implement
the approved Closure/Post-Closure Plan pending the issuance of a post-closure
permit.  The Company submitted a post-closure permit application to MDNR in
October 1994. Any remediation requirements are set forth in the post-closure
permit. The Company has designed and installed a system to begin soil
remediation and expects that system will be required to continue in operation
for some time.  The Company completed closure work and submitted its closure
report to MDNR for approval on February 1, 1996. A post closure permit was
issued to the Company by the MDNR in June, 1996. 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.
To date, the Company has contributed approximately $490,000 million to a
trust to cover these costs.

    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

                                        17

<PAGE>

penalties to $2,343,706.  The Company is vigorously defending the EPA Complaint
and related proposed penalties under RCRA.  Management believes that all of the
allegations are for technical violations.

    The case proceeded to hearing before an Administrative Law Judge on January
12-14, 1995, on the issue of penalties.  The Company presented evidence on a
variety of penalty reduction theories, including good faith, minor potential
harm to human health and the environment, and economic benefit.  On December 12,
1995, the Administrative Law Judge issued an Initial Decision, in which he
assessed penalties of $586,716 against the Company.  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  unattainable.  On January
9, 1996, the Company filed a Notice of Appeal of the Initial Decision with the
Environmental Appeals Board.  On appeal, the Company will argue that the
complaint is barred by the federal statute of limitations, that EPA lacks
jurisdiction to bring the Complaint and that the penalties assessed against the
Company are excessive in light of the Company's discovery during an internal
audit and subsequent voluntary disclosure and clean-up.  The Company will also
argue that the Judge's Order for the Company to obtain liability coverage is
inconsistent with the State Consent Decree and violates the spirit of the RCRA
state authorization provisions.  EPA did not appeal the Initial Decision, but
has filed briefs in support of the $586,716 penalty.

    Special legal counsel has advised that the penalties sought by EPA in this
case are consistent with its applicable penalty guidelines that were adopted by
the EPA in October, 1990.  Based on the Company's cooperation with MDNR (which
has original jurisdiction and, therefore, primary responsibility in the matters
complained by the EPA), in voluntarily disclosing the alleged violations, and in
promptly undertaking all remedial actions specified to date by the MDNR, the
penalties appear to the Company's special legal counsel to be excessive.
However, because so few analogous cases have been disposed of by settlement or
by administrative or judicial proceedings since the new penalty guidelines were
adopted, special legal counsel cannot express an opinion as to the ultimate
amount, if any, of the Company's liability.  Since the amount of the penalties
cannot be reasonably determined at this time, no estimate is included here or in
the financial statements.

                                    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, 1996.

                                        18

<PAGE>

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 1, 1997 the following securities firms were making a dual
auction market in the Company's common stock:

    George K. Baum & Company
    Piper Jaffray Companies Inc.
    Paine Webber Inc.

    The approximate number of holders of record for the Company's common stock
as of March 18, 1997 was 637.

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.

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
(Pages 3 through 4).

                                                        Principal Occupation For
Individual              Office                   Age   For The Last Five Years
--------------------------------------------------------------------------------

Breshears, Ronald G.    VP-Human Resources        50   VP-Human Resources of
                                                       the Company since
                                                       7/1/81.

Bush, William L.        Director-Research         51   Director-Research &
                          & Development                Development of the
                                                       Company since 8/8/93.
                                                       Prior to that, Manager,
                                                       Defense Business Unit
                                                       with Xetron Corporation,
                                                       a subsidiary of Northrop
                                                       Grumman.

                                        19

<PAGE>

                                                        Principal Occupation For
Individual              Office                   Age   For The Last Five Years
--------------------------------------------------------------------------------

Bush, William L.        Director-Research &      51    Director-Research &
                        Development                    Development of the
                                                       Company since 8/8/93.
                                                       Prior to that, Manager,
                                                       Defense Business Unit
                                                       with Xetron Corporation
                                                       since 1990.

Daniels, Richard A.     VP-Transit Sales          56   Appointed VP Transit
                                                       Sales 2/1/93. Prior to
                                                       that, Director Transit /
                                                       Commuter Systems of the
                                                       Company since April
                                                       1991.

Foudree, Charles M.     Exec. VP-Finance,         52   Exec. VP of the Company
                        Secretary and                  since 9/9/86. Secretary
                        Treasurer                      of the Company since
                                                       2/2/82. Treasurer of the
                                                       Company since 2/5/74.

Harmon, Robert E.       Chairman of the           57   Chairman of the Board
                        Board                          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             58   VP-Technology of the
                                                       Company since 10/2/86.

John, James R.          VP-Services               48   Appointed VP-Services of
                                                       the Company on May 1,
                                                       1996.  President of
                                                       Consolidated Asset
                                                       Management Services
                                                       Company, Inc. from March
                                                       1992 to April 1996.
                                                       Prior to that VP
                                                       Manufacturing of Harmon
                                                       Electronics, Inc. since
                                                       February 1987.

Johnson, John W.        VP-Domestic Sales         50   Appointed VP-Domestic
                                                       Sales 2/1/93.  Prior to
                                                       that Director-Product
                                                       Support for the Company
                                                       since March 1992; prior
                                                       to that held several
                                                       positions with the
                                                       Company, including Sales
                                                       Manager-Signal Products,
                                                       Director of Engineering
                                                       for Harmon Electronics,
                                                       Director of Customer
                                                       Service and Sales since
                                                       1972.

                                        20

<PAGE>

                                                        Principal Occupation For
Individual              Office                   Age   For The Last Five Years
--------------------------------------------------------------------------------

Kaiser, Lloyd T.        Exec. VP-Systems          45   Appointed Exec. VP-
                                                       Systems May 1, 1996.
                                                       President of Harmon
                                                       Electronics, Inc. from
                                                       March 1992 to April
                                                       1996. Prior to that VP-
                                                       Research & Development
                                                       of Harmon Electronics,
                                                       Inc. (HEI) since 4/1/91.

Olsson, Bjorn E.        President & Chief         51   President & Chief
                        Executive Officer              Executive Officer
                                                       Officer of the Company
                                                       since 1/1/95. President
                                                       of the Company since
                                                       8/1/90. Chief Operating
                                                       Officer of the Company
                                                       from 8/1/90 through
                                                       12/31/94.

Rosewall, Raymond A.    VP-Manufacturing          45   VP-Manufacturing 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; prior to
                                                       that Executive VP
                                                       Operations for QMS, Inc.
                                                       since 1989.

Ryker, Gary E.          Exec. VP-Marketing,      47    Appointed Exec. VP-
                        Sales and Service              Marketing Sales and
                                                       Service Marketing Sales
                                                       and Service 2/1/93. Prior
                                                       to that VP-Marketing and
                                                       Sales of the Company
                                                       since 9/1/92; prior to
                                                       that Marketing and
                                                       Operations Director and
                                                       Marketing and Support
                                                       Manager for Railroad
                                                       Electronics for Rockwell
                                                       International since
                                                       1979.

                                        21

<PAGE>

                                                        Principal Occupation For
Individual              Office                Age      For The Last Five Years
--------------------------------------------------------------------------------

Scheerer, William J.    VP-Applications       49    Appointed VP-
                        Engineering                 Applications Engineering
                                                    1/4/94. Prior to that
                                                    held various positions
                                                    with the CSX Railroad,
                                                    the latest one being
                                                    Chief Engineer Train
                                                    Control for CSX
                                                    Transportation.

Schmitz, Stephen L.     VP-Controller          43   VP-Controller of the
                                                    Company since 11/1/83.


Utterback, Jeffery J.   Director-Quality            Director-Quality Assurance
                        Assurance                   of the Company since 1993.
                                                    Prior to that, Manager of
                                                    Product Assurance of the
                                                    Company since 1990.


    Although some of the above have employment agreements which provide for
twelve months of continued employment on a rolling basis, all of the above serve
as officers at the pleasure of the respective 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

    Thomas F. Eagleton       Attorney-at-Law, Thompson & Coburn
                             St. Louis, Missouri

    Bruce M. Flohr           Chairman and CEO
                             RailTex, Inc., San Antonio, Texas

    Charles M. Foudree       Executive Vice President-Finance,
                             Treasurer and Secretary

    Rodney L. Gray           Chairman & CEO
                             Enron International, Inc., Houston, Texas

    Herbert M. Kohn          Attorney-at-Law, Bryan Cave
                             Kansas City, Missouri

    Douglass Wm. List        Management Consultant
                             Baltimore, Maryland

    Gerald E. Myers          Management Consultant
                             Tempe, Arizona

    Bjorn E. Olsson          Chief Executive Officer and President

    Donald V. Rentz          Grant Leighton Associates of Texas, Inc.
                             Plano, Texas

    Judith C. Whittaker      Vice President,General Counsel / Secretary
                             Hallmark Cards, Incorporated
                             Kansas City, Missouri

                                        22

<PAGE>

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.

PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS, 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
         1996 Annual Report to Shareholders at the following pages:
                                                                           Page
                                                                          -----
         Independent Auditors' Report                                        37
         Consolidated Balance Sheets -
         December 31, 1996 and 1995                                       24-25
         Consolidated Statements of Earnings -
           Years ended December 31, 1996, 1995 and 1994                      26
         Consolidated Statements of Stockholders'
           Equity - Years ended
           December 31, 1996, 1995 and 1994                                  27
         Consolidated Statements of Cash Flows -
           Years ended December 31, 1996, 1995, and 1994                     28
         Notes to Consolidated Financial
           Statements                                                     29-35

    (a)(2)    Financial Statement Schedules

         Selected Financial Data - for the years ended December 31, 1996, 1995
         and 1994, are  attached hereto at the following pages:

         Independent Auditors' Report on Financial
           Statement Schedule                                             27
         Schedule VIII - Valuation and Qualifying
           Accounts                                                       28

         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.

                                        23

<PAGE>

    (a)(3) Exhibits:

         Exhibit No.                                                       Page
         ----------------------------------------------------------------------
         11   Computation of Weighted Average
              Shares Outstanding                                29 thru 30

         13   Sections of the 1996 Annual Report to
              Shareholders                                      31 thru 72
         20   Notice of Annual Meeting and
              Proxy Statement dated April 1, 1997.
              Incorporated by reference                         N/A
         21   Listing of Subsidiaries                           73
         99-1 Articles of Merger                                75 thru 81
         99-2 Forward Looking Information                       Incorporated by
                                                                reference from
                                                                Page 36 of
                                                                Exhibit 13
(b) Reports on Form 8-K:

    There were no reports on Form 8-K for the three months ended December 31,
    1996.

                                        24

<PAGE>

                                      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 25, 1997                     By: /s/ Bjorn E. Olsson
                                                -----------------------
                                                Bjorn E. Olsson
                                                President

Date:    March 25, 1997                     By: /s/ Charles M. Foudree
                                                ------------------------
                                                Charles M. Foudree
                                                Executive Vice President-
                                                Finance

Date:    March 25, 1997                     By: /s/ Stephen L. Schmitz
                                                ------------------------
                                                Stephen L. Schmitz
                                                Vice President-Controller

                                        25

<PAGE>

                                      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:                                         Date:   March 25, 1997
    ---------------------------
    Thomas F. Eagleton, Director


By: /s/ Bruce M. Flohr                      Date    March 25, 1997
    ---------------------------
    Bruce M. Flohr, Director


By: /s/ Charles M. Foudree                  Date:   March 25, 1997
    ---------------------------
    Charles M. Foudree, Director

By:                                         Date:   March 25, 1997
    ---------------------------
    Rodney L. Gray, Director


By: /s/ Robert E. Harmon                    Date:   March 25, 1997
    ---------------------------
    Robert E. Harmon, Director


By: /s/ Herbert M. Kohn                     Date:   March 25, 1997
    ---------------------------
    Herbert M. Kohn, Director


By: /s/ Douglass Wm. List                   Date:   March 25, 1997
    ---------------------------
    Douglass Wm. List, Director


By: /s/ Gerald E. Myers                     Date:   March 25, 1997
    ---------------------------
    Gerald E. Myers, Director


By: /s/ Bjorn E. Olsson                     Date:   March 25, 1997
    ---------------------------
    Bjorn E. Olsson, Director


By:                                         Date:   March 25, 1997
    ---------------------------
    Donald V. Rentz, Director


By: /s/ Judith C. Whittaker                 Date:     March 25, 1997
    ---------------------------
    Judith C. Whittaker, Director

                                        26

<PAGE>



                             INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Harmon Industries, Inc.:


Under date of February 4, 1997, we reported on the consolidated balance sheets
of Harmon Industries, Inc. and subsidiaries as of December 31, 1996 and 1995,
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,
1996, as contained in the 1996 annual report to stockholders.  These
consolidated financial statements and our report thereon are incorporated by
reference in the annual report on Form 10-K for the year 1996.  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.



Kansas City, Missouri
February 4, 1997

                                      27
<PAGE>
                                                                  Schedule VIII


                       HARMON INDUSTRIES, INC. AND SUBSIDIARIES

                          VALUATION AND QUALIFYING ACCOUNTS

                                (DOLLARS IN THOUSANDS)



                                               Charged to
                                  Beginning    costs and   Recoveries     Ending
          Description              balance      expenses  (deductions)   balance
          -----------             ---------    ---------  ------------   -------
Year ended December 31, 1994:
 Allowance for doubtful trade
  accounts receivable              $  241        $    1       $  118      $  360
                                   ------        ------       ------      ------
                                   ------        ------       ------      ------
Year ended December 31, 1995:
 Allowance for doubtful trade
  accounts receivable              $  360        $  -         $    2      $  362
                                   ------        ------       ------      ------
                                   ------        ------       ------      ------
Year ended December 31, 1996:
 Allowance for doubtful trade
  accounts receivable              $  362        $   32       $ (87)      $  307
                                   ------        ------       ------      ------
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 Warranty reserve                  $  -          $2,938       $  -        $2,938
                                   ------        ------       ------      ------
                                   ------        ------       ------      ------


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