<PAGE>
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                       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, 1997
                         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:

     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 16, 1998, 10,521,189 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 $208,917,000.

    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.

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<PAGE>
                      DOCUMENTS INCORPORATED BY REFERENCE

<TABLE>
<CAPTION>
<S>         <C>                                                 <C>
PART II

Item 6:     Selected Consolidated Financial Data..............  Pages 18 and 19 of the Annual Report to
                                                                  Shareholders for the year ended December 31,
                                                                  1997.

Item 7:     Management's Discussion and Analysis of Financial
              Condition and Results of Operations.............  Pages 20 through 25 of the Annual Report to
                                                                  Shareholders for the year ended December 31,
                                                                  1997.

Item 8:     Financial Statements and Supplementary Data.......  Pages 26 through 43 of the Annual Report to
                                                                  Shareholders for the year ended December 31,
                                                                  1997.

PART III

Item 10:    Directors and Executive Officers of the
              Registrant......................................  Pages 3 through 6 of the Company's Proxy Statement
                                                                  dated April 1, 1998.

Item 11:    Executive Compensation and Other Information......  Pages 7 through 15 of the Company's Proxy
                                                                  Statement dated April 1, 1998.

Item 12:    Security Ownership of Certain Beneficial Owners
              and Management..................................  Pages 2 and 3 of the Company's Proxy Statement
                                                                  dated April 1, 1998.

Item 13:    Certain Relationships and Related Transactions....  Page 6 (last paragraph of Election of Directors)
                                                                  and page 6 ("Certain Transactions") of the
                                                                  Company's Proxy Statement dated April 1, 1998.
</TABLE>

                                       2
<PAGE>
                            HARMON INDUSTRIES, INC.

           ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                                     PART I

ITEM 1.  BUSINESS

    Harmon Industries, Inc. ("Harmon" or "the Company") is a leading supplier of
signal, inspection 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 10 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 27% decrease in Class I employment levels from 1987 to 1996
required the Class I railroads to look to products like those manufactured by
Harmon to monitor the condition of moving trains, help ensure 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 24% reduction from 1987 to 1996 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 94% from 1987 to 1996. The Class I railroads have become more
profitable despite a 35% reduction (in constant 1987 dollars) from 1987 to 1996
in revenue per ton mile.

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

(1) This fact and the other statistical information about the Class I railroads
    in this Annual Report come from Railroad Facts, 1997 Edition, a recognized
    industry source for information on Class I railroads.

                                       3
<PAGE>
                            HARMON INDUSTRIES, INC.

     ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 (CONTINUED)

ITEM 1.  BUSINESS (CONTINUED)
    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 48% from 1987 to 1996. 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 segment of the freight
transportation market. While final figures are not yet available for the year
ended December 31, 1997, the total volume of intermodal shipments is estimated
to have increased approximately 6% to 7% from 1996. 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 1987 to 1996, the Class I railroads have reduced their track miles
by 20%, to approximately 177,000 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 1987 to 1996, capital expenditures by Class I
railroads per mile of track owned has increased from approximately $13,500 to
$34,500 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.

    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 the direct engineering support, materials management 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 543, with 32 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 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 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 Intermodal Surface Transportation Efficiency Act of
1991 (ISTEA) provided federal funds through 1997 for railroad crossing warning
systems in the same amount each year as existed under previous federal
legislation. During 1997, the ISTEA was extended for six months through March
1998 pending agreement on a new, long-term transportation bill. It is currently

                                       4
<PAGE>
                            HARMON INDUSTRIES, INC.

     ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 (CONTINUED)

ITEM 1.  BUSINESS (CONTINUED)
expected that future legislation will provide for grade crossing funding in
amounts comparable to the original ISTEA.

    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 the ISTEA, which nearly
doubled the federal funding available annually for 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 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 signaling 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 totaled $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 exceeded $13 million. The project was
completed successfully and on time under an extremely aggressive schedule, and
established Harmon as a major contender in this market.

                                       5
<PAGE>
                            HARMON INDUSTRIES, INC.

     ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 (CONTINUED)

ITEM 1.  BUSINESS (CONTINUED)
    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 further established
Harmon as a significant supplier in the rail transit market.

    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 system (AATC) 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. Harmon will now complete the development and
has a contract with BART to continue through two additional phases of test and
deployment of the system over a substantial portion of the BART system by 2001.
Harmon intends to market this system aggressively in the transit marketplace,
both domestically and internationally.

    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 Mexico, Canada, 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 Mexico, 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. Harmon is also pursuing strategic alliances with other
railroad industry suppliers to assist its 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 anticipated growth in
trade will increase the railroad traffic in both directions across the borders.

    In June 1997, Harmon acquired the remaining interest in Vale-Harmon
Enterprises, Ltd. ("Vale"), located near Montreal, Quebec, Canada, which it
previously did not own. Vale serves the freight and transit markets in Canada.
In July 1996, Harmon acquired Vaughan Systems, Ltd., subsequently renamed
Vaughan Harmon Systems, Ltd. ("Vaughan"), located in the United Kingdom. This
acquisition established the first international manufacturing operations for the
Company. Vaughan 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 European market. Vaughan has a contract with
Railtrack for the resignaling of the Cromer line in Norfolk, England. This will
be the first project in which Vaughan products and Harmon products from the
United States will be combined to provide an integrated system to the customer.

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

                                       6
<PAGE>
                            HARMON INDUSTRIES, INC.

     ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 (CONTINUED)

ITEM 1.  BUSINESS (CONTINUED)
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 compliment 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. 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 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 continues to enhance its Total Quality Systems (TQS) is 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 the Company has thirteen
facilities certified to either ISO 9001 or ISO 9002. 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 up to 50
active teams, at any one time, working on improving internal systems.

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; and
train describers and other train control systems manufactured by Vaughan Harmon
Systems, Ltd. CROSSING SYSTEMS include

                                       7
<PAGE>
                            HARMON INDUSTRIES, INC.

     ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 (CONTINUED)

ITEM 1.  BUSINESS (CONTINUED)
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 a moving train as it passes
by a train inspection site. 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 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)
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                       YEARS ENDED DECEMBER 31,
                                                  -------------------------------------------------------------------
                                                          1995                   1996                   1997
                                                  ---------------------  ---------------------  ---------------------
                                                    AMOUNT        %        AMOUNT        %        AMOUNT        %
                                                  ----------  ---------  ----------  ---------  ----------  ---------
<S>                                               <C>         <C>        <C>         <C>        <C>         <C>
Train Control Systems...........................  $   55,437       40.7% $   87,080       47.3% $  101,624       47.4%
Crossing Systems................................      42,375       31.1%     48,927       26.6%     55,598       25.9%
Asset Management Services.......................      14,194       10.4%     22,217       12.1%     29,913       14.0%
Train Inspection Systems........................      11,360        8.4%     12,906        7.0%     13,407        6.2%
Printed Wiring Boards...........................       6,752        5.0%      5,249        2.9%      5,772        2.7%
Other...........................................       5,999        4.4%      7,489        4.1%      8,113        3.8%
                                                  ----------  ---------  ----------  ---------  ----------  ---------
Total...........................................  $  136,117      100.0% $  183,868      100.0% $  214,427      100.0%
                                                  ----------  ---------  ----------  ---------  ----------  ---------
                                                  ----------  ---------  ----------  ---------  ----------  ---------
</TABLE>

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

(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 amounts 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 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

                                       8
<PAGE>
                            HARMON INDUSTRIES, INC.

     ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 (CONTINUED)

ITEM 1.  BUSINESS (CONTINUED)
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 taking place on an Amtrak line in southern
Michigan under a FRA grant to demonstrate enhanced train control technology for
High-Speed Rail corridors.

    Advanced Automatic Train Control (AATC) is a very sophisticated radio data
network that links trains with wayside computers to continuously monitor the
location of trains and update the instructions to each train based on the
reported locations of other trains. This will allow much more capacity in high
density transit operations such as San Francisco's Bay Area Rapid Transit
District (BART) where the ability to safely reduce headway between trains will
permit more trains per hour to handle peak load conditions. It also achieves
this result with a dramatic reduction in the amount of physical equipment
required along the track, compared to more conventional train control
techniques.

    CROSSING 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 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.

                                       9
<PAGE>
                            HARMON INDUSTRIES, INC.

     ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 (CONTINUED)

ITEM 1.  BUSINESS (CONTINUED)

    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 related products similar to
the HCA and additional capability and expertise in this area.

    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. The Company expanded its service offering in January
1998 with the acquisition of CSS, Inc., a provider of installation and
maintenance services to domestic freight railroads.

    TRAIN INSPECTION 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, Inc. 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 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 that 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. 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.

                                       10
<PAGE>
                            HARMON INDUSTRIES, INC.

     ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 (CONTINUED)

ITEM 1.  BUSINESS (CONTINUED)
    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 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 Advanced Automatic Train Control
(AATC) 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
$5,218,000, $6,331,000 and $7,664,000 in the years ended December 31, 1995, 1996
and 1997, respectively, on research and development (R&D) activities related
either to the improvement of existing products or to the development of new
products. 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 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
Devtronics, Inc., the Company obtained its technology and R&D projects along
with a research 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.

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 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 markets. The addition of
Vaughan Harmon Systems, Ltd. 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 was enhanced in Canada by the June 1997 acquisition of Vale-Harmon
Enterprises, Ltd., which is based in Quebec, Canada and sells Harmon products to
the Canadian railroads. Prior to this acquisition, Harmon had a minority equity

                                       11
<PAGE>
                            HARMON INDUSTRIES, INC.

     ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 (CONTINUED)

ITEM 1.  BUSINESS (CONTINUED)
interest in Vale-Harmon Enterprises, Ltd. The Company is in the process of
establishing a subsidiary in Mexico to manage the increased business it expects
from its customers there.

    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 $74.5 million at December
31, 1997. Substantially all of these orders will be filled in 1998. The backlog
of orders was approximately $59.4 million at December 31, 1996, the majority of
which were filled during 1997. 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. 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 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.

                                       12
<PAGE>
                            HARMON INDUSTRIES, INC.

     ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 (CONTINUED)

ITEM 1.  BUSINESS (CONTINUED)
    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, 1997, the Company had 1,510 full-time employees. There
were 1,099 employees in manufacturing, 200 in engineering, 143 in general and
administrative services and 68 in marketing and sales. 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 675,000 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.

<TABLE>
<CAPTION>
LOCATION                                                              PRINCIPAL USE
---------------------------------------  ------------------------------------------------------------------------
<S>                                      <C>
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
</TABLE>

                                       13
<PAGE>
                            HARMON INDUSTRIES, INC.

     ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 (CONTINUED)

ITEM 2.  PROPERTIES (CONTINUED)
    In addition to these principal locations, the Company also owns or leases
various other office, engineering and warehouse facilities. The Company is
planning to relocate its corporate headquarters during the third quarter of 1998
to a larger office building currently under construction in Blue Springs,
Missouri. 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"), 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.
MDNR issued a permit on July 31, 1996. Groundwater and other remediation
requirements are set forth in the post-closure permit. The Company has designed
and installed a system to begin 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 current market value of
assets in this trust exceeds $550,000.

    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. Prior to the hearing, the judge found the Company liable for
all alleged violations. The Company presented evidence on several penalty
reduction theories, including good faith, minor potential for harm to human
health and the environment, and minimum economic benefit.

    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") and on May 1,
1996, the EAB heard oral arguments. The EAB affirmed the penalty of the
administrative law judge. On June 6,

                                       14
<PAGE>
                            HARMON INDUSTRIES, INC.

     ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 (CONTINUED)

ITEM 3.  LEGAL PROCEEDINGS (CONTINUED)
1997, Harmon filed a complaint in the Federal District Court for the Western
District of Missouri seeking judicial review of the EAB's decision.

    A court-ordered mediation session was held on September 11, 1997. Based on
the parties' statement of position at the mediation session, the facilitator
concluded that the prospects for settlement of this matter were limited.

    Harmon and the defendants filed a joint motion with the court to
preliminarily enjoin U.S. EPA from taking any actions to collect on the penalty
assessed by the EAB. While U.S. EPA contends that statutory interest on the
penalty amount continues to accrue while the preliminary injunction remains in
effect, U.S. EPA has agreed that it will not seek any other penalties or fees
based on Harmon's non-payment of the penalty assessed by the EAB while the
litigation is pending in the District Court.

    The Court has entered an order requiring Harmon to file its motion for
summary judgment on February 17, 1998, and briefing on cross-motions for summary
judgment will be concluded by mid-April 1998. We are unable to predict when a
decision from the district court may issue.

    Special legal counsel has advised the Company that the penalties sought by
EPA in this case are inconsistent with the 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, 1997.

                                       15
<PAGE>
                            HARMON INDUSTRIES, INC.

     ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 (CONTINUED)

                                    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 March 9, 1998 the following securities firms were making a dual auction
market in the Company's common stock:

    George K. Baum & Company
    Piper Jaffray Companies Inc.
    PaineWebber Inc.
    C.L. King & Associates

    The approximate number of holders of record for the Company's common stock
as of March 9, 1998 was 600.

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.

                                       16
<PAGE>
                            HARMON INDUSTRIES, INC.

     ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 (CONTINUED)

                                    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.

<TABLE>
<CAPTION>
                                                       PRINCIPAL OCCUPATION FOR THE LAST FIVE
INDIVIDUAL                        OFFICE          AGE                  YEARS
-------------------------  ---------------------  --- ----------------------------------------
<S>                        <C>                    <C> <C>
Breshears, Ronald G......  VP-Human Resources     51  VP-Human Resources of the Company since
                                                        7/1/81.

Bush, William L..........  VP-Research and        52  VP-Research and Development Engineering
                           Development                  of the Company since 1/1/98. Prior to
                           Engineering                  that, Director-Research and
                                                        Development since 8/8/93. Prior to
                                                        that, Manager, Defense Business Unit
                                                        of Xetron Corporation since 1990.

Daniels, Richard A.......  VP-Transit and         57  VP-Transit and International Systems
                           International Systems        Sales of the Company since 1/1/98.
                           Sales                        Prior to that, VP-Transit since
                                                        2/1/93. Prior to that, Director,
                                                        Transit/ Commuter Systems since 1991.

Foudree, Charles M.......  Executive VP-Finance,  53  Executive VP-Finance of the Company
                           Secretary and                since 9/9/86. Secretary of the Company
                           Treasurer                    since 2/2/82. Treasurer of the Company
                                                        since 2/5/74.

Harmon, Robert E.........  Chairman of the Board  58  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          59  VP-Technology of the Company since
                                                        10/2/86.

John, James R............  VP-Services            49  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-Domestic Sales      50  VP-Domestic Sales of the Company since
                                                        2/1/93. Prior to that,
                                                        Director-Product Support since 1992.

Kaiser, Lloyd T..........  Executive VP-Domestic  46  Executive VP-Domestic Sales and Service
                           Sales and Service            of the Company since 1/1/98. Prior to
                                                        that, Executive VP-Systems since
                                                        5/1/96. Prior to that, President of
                                                        Harmon Electronics, Inc. since 1992.
</TABLE>

                                       17
<PAGE>
                            HARMON INDUSTRIES, INC.

     ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 (CONTINUED)

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)

<TABLE>
<CAPTION>
                                                       PRINCIPAL OCCUPATION FOR THE LAST FIVE
INDIVIDUAL                        OFFICE          AGE                  YEARS
-------------------------  ---------------------  --- ----------------------------------------
<S>                        <C>                    <C> <C>
Olsson, Bjorn E..........  President and Chief    52  President and Chief Executive Officer of
                           Executive Officer            the Company since 1/1/95. President of
                                                        the Company since 8/1/90.

Rosewall, Raymond A......  VP-Manufacturing       46  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-Applications        50  VP-Applications Engineering of the
                           Engineering                  Company since 1/4/94. Prior to that,
                                                        various positions with CSX
                                                        Transportation, most recently Chief
                                                        Engineer-Train Control.

Schmitz, Stephen L.......  VP-Controller          44  VP-Controller of the Company since
                                                        11/1/83.

Utterback, Jeffery J.....  Assistant VP-Quality   36  Assistant VP-Quality Systems of the
                           Systems                      Company since 1/1/98. Prior to that,
                                                        Director-Quality Assurance since 1993.
                                                        Prior to that, Manager-Product
                                                        Assurance since 1990.
</TABLE>

    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 Board of Directors and are appointed for one
year terms.

                                       18
<PAGE>
                            HARMON INDUSTRIES, INC.

     ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 (CONTINUED)

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
    The following is a list of the Board of Directors of the Company:(1)

<TABLE>
<CAPTION>
INDIVIDUAL                                                                          AFFILIATION
---------------------------------------------------------------  -------------------------------------------------
<S>                                                              <C>
Robert E. Harmon...............................................  Chairman of the Board

Bruce M. Flohr.................................................  Chairman and Chief Executive Officer
                                                                 RailTex, Inc., San Antonio, Texas

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

Rodney L. Gray.................................................  Executive Vice President-Finance
                                                                 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................................................  President and Chief Executive Officer

John A. Sprague(2).............................................  Managing Partner
                                                                 Jupiter Partners, LP, New York, New York

Judith C. Whittaker............................................  Vice President, General Counsel/Secretary
                                                                 Hallmark Cards, Inc., Kansas City, Missouri
</TABLE>

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

(1) Thomas F. Eagleton and Donald V. Rentz each served as a Director until
    retirement in May 1997.

(2) John A. Sprague is a newly nominated Director subject to election at the
    shareholders' meeting on May 12, 1998.

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
<PAGE>
                            HARMON INDUSTRIES, INC.

     ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 (CONTINUED)

                                    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 1997 Annual
Report to Shareholders at the following pages:

<TABLE>
<CAPTION>
                                                                                                             PAGE(S)
                                                                                                           -----------
<S>                                                                                                        <C>
Independent Auditors' Report.............................................................................          41

Consolidated Balance Sheets--December 31, 1997 and 1996..................................................       26-27

Consolidated Statements of Earnings--Years ended December 31, 1997, 1996 and 1995........................          28

Consolidated Statements of Stockholders' Equity--Years ended December 31, 1997, 1996 and 1995............          29

Consolidated Statements of Cash Flows--Years ended December 31, 1997, 1996 and 1995......................          30

Notes to Consolidated Financial Statements...............................................................       31-40
</TABLE>

(a)(2)  Financial Statement Schedules

    Selected Financial Data--for the years ended December 31, 1997, 1996 and
1995, are attached hereto at the following pages:

<TABLE>
<CAPTION>
<S>                                                                                                        <C>
Independent Auditors' Report on Financial Statement Schedule.............................................          23

Schedule VIII--Valuation and Qualifying Accounts.........................................................          24
</TABLE>

    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.

(a)(3)  Exhibits:

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                                                                                               PAGE(S)
---------                                                                                         ----------------
<S>        <C>                                                                                    <C>
3(ii)      Amended Bylaws.......................................................................  25 through 35

11         Computation of Per Share Earnings....................................................         36

13         1997 Annual Report to Shareholders...................................................  37 through 82

21         Listing of Subsidiaries..............................................................         83

27         Financial Data Schedule..............................................................         84

99-1       Forward Looking Information..........................................................  Incorporated by
                                                                                                  reference to
                                                                                                  page 40 of
                                                                                                  Exhibit 13

N/A        Notice of Annual Meeting and Proxy Statement dated April 1, 1998.....................  85 through 104
</TABLE>

(b)  Reports on Form 8-K:

    There were no reports on Form 8-K for the three months ended December 31,
1997.

                                       20
<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.

<TABLE>
<S>                             <C>  <C>
                                HARMON INDUSTRIES, INC.

Date:  March 27, 1998           By:             /s/ BJORN E. OLSSON
                                     -----------------------------------------
                                                  Bjorn E. Olsson
                                                     PRESIDENT

Date:  March 27, 1998           By:            /s/ CHARLES M. FOUDREE
                                     -----------------------------------------
                                                 Charles M. Foudree
                                          EXECUTIVE VICE PRESIDENT-FINANCE

Date:  March 27, 1998           By:            /s/ STEPHEN L. SCHMITZ
                                     -----------------------------------------
                                                 Stephen L. Schmitz
                                             VICE PRESIDENT-CONTROLLER
</TABLE>

                                       21
<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:

<TABLE>
  <S>  <C>                                         <C>
  By:              /s/ BRUCE M. FLOHR              Date:  March 27, 1998
       ------------------------------------------
                     Bruce M. Flohr
                        DIRECTOR

  By:            /s/ CHARLES M. FOUDREE            Date:  March 27, 1998
       ------------------------------------------
                   Charles M. Foudree
                        DIRECTOR

  By:              /s/ RODNEY L. GRAY              Date:  March 27, 1998
       ------------------------------------------
                     Rodney L. Gray
                        DIRECTOR

  By:             /s/ ROBERT E. HARMON             Date:  March 27, 1998
       ------------------------------------------
                    Robert E. Harmon
                        DIRECTOR

  By:             /s/ HERBERT M. KOHN              Date:  March 27, 1998
       ------------------------------------------
                    Herbert M. Kohn
                        DIRECTOR

  By:            /s/ DOUGLASS WM. LIST             Date:  March 27, 1998
       ------------------------------------------
                   Douglass Wm. List
                        DIRECTOR

  By:             /s/ GERALD E. MYERS              Date:  March 27, 1998
       ------------------------------------------
                    Gerald E. Myers
                        DIRECTOR

  By:             /s/ BJORN E. OLSSON              Date:  March 27, 1998
       ------------------------------------------
                    Bjorn E. Olsson
                        DIRECTOR

  By:           /s/ JUDITH C. WHITTAKER            Date:  March 27, 1998
       ------------------------------------------
                  Judith C. Whittaker
                        DIRECTOR
</TABLE>

                                       22
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

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

    Under date of February 10, 1998, we reported on the consolidated balance
sheets of Harmon Industries, Inc. and subsidiaries as of December 31, 1997 and
1996 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,
1997, as contained in the 1997 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 1997. 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 PEAT MARWICK LLP
Kansas City, Missouri
February 10, 1998

                                       23
<PAGE>
                                                                   SCHEDULE VIII

                    HARMON INDUSTRIES, INC. AND SUBSIDIARIES

                       VALUATION AND QUALIFYING ACCOUNTS

                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                                 CHARGED TO
                                                                     BEGINNING    COSTS AND    RECOVERIES     ENDING
DESCRIPTION                                                           BALANCE     EXPENSES    (DEDUCTIONS)    BALANCE
------------------------------------------------------------------  -----------  -----------  -------------  ---------
<S>                                                                 <C>          <C>          <C>            <C>
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

  Warranty reserve................................................   $  --        $   2,988     $  --        $   2,988

Year ended December 31, 1997:
  Allowance for doubtful trade accounts receivable................   $     307    $      18     $      (7)   $     318

  Warranty reserve................................................   $   2,988    $      70     $    (335)   $   2,723
</TABLE>

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