Harmon gained a foothold in the

rail transit industry by adapting

our signaling, inspection and

train control systems

applications to meet the unique

needs of transit customers.

Today, as a leader in train control

systems and contract engineering,

we are expanding our presence in the

transit market by demonstrating the safety, cost effectiveness and

proven track record of microprocessor-based technology, while

continuing our focus on the development of new technology.

The St. Louis Metro Link showcases our microprocessor technology, and

is the first U.S. light rail system to fully utilize this technology. Since

opening in 1993, Metro Link has performed with an outstanding

operational record. As the prime contractor in the Chicago Transit Authority Green Line

rehabilitation program, Harmon designed, furnished, tested and installed

electronic track circuits, impedance bonds and interlockings for the entire

Lake Street branch. By partnering with the CTA, we were able to ensure

the new system's compatibility with existing systems, and completed the

job in just 14 months. As microprocessor technology becomes accepted as a safe, reliable,

cost-effective and easily maintainable means of moving trains and

people, Harmon expects to assume the same leadership role in

rail-transit market that we hold in the freight market. Today, contracts in major cities such as New York, Chicago, Denver,

Philadelphia, Newark, San Diego and Los Angeles reinforce our position

as a proven supplier of advanced technology train control systems; the

value our customers see in our partnership approach to customer

service; and the confidence our customers have in our ability to handle

large jobs.

Harmon is taking steps to build

its international presence through

acquisitions and partnerships

with companies in the

international market, where

product lines compliment

each other and provide international

customers the solutions they need.

The acquisition of U.K.-based Vaughan-Harmon Systems Ltd. in 1996 is a

prime example of this growth strategy.

ISO certification is yet another key advantage in our overseas expansion.

In the process of becoming ISO certified for manufacturing and

engineering, Harmon earned TickIT certification for the quality

management of organizations involved in the development and supply

of its software systems. With ISO certification and the engineering skill

to make Harmon products and systems compatible with a variety of

existing systems, we are poised to move forth into the international

signaling and train control market, estimated at $4-6 billion annually. This

dedication to quality is a direct measure of the commitment Harmon

makes to our customers.

Two examples of our international growth are in Western Australia and

in the People's Republic of China. In Australia, Harmon upgraded the

existing wayside signaling system and designed and furnished an

advanced cab signaling system, Ultra Cab II, to lower the operating costs

and increase the capacity of a major private railroad. Farther North,

Harmon installed its train inspection equipment and hot box detectors

for mainline railroad operations in the People's Republic of China.

Our partnership approach and service-driven philosophy, along with

our solution-oriented cutting edge technology are rapidly gaining

awareness in the international market.

As microprocessor-based technology continues to prove its reliability

and cost effectiveness in both freight and transit applications, signal

engineers are convinced that microprocessor technology will usher

rail transportation into the next century.

Harmon spends approximately four to five percent of its annual

sales on research and development of new products and systems

for its freight and transit customers. Harmon conducts ongoing

tests with major freight and rail-transit partners to develop new

technologies and refine existing ones. One such example is our

Incremental Train Control System (ITCS), an advanced positive

train separation system that is modifiable for use in freight,

high-speed and transit/commuter rail systems.

ITCS offers a practical way to take advantage of advanced technology

methods for achieving train separation, speed enforcement,

advance control of crossing warning systems and other safety

features. ITCS also enables trains to track their location using

satellite positioning systems. Overlaid on top of the existing signal

system, ITCS allows a smooth, low-risk transition to improved

operation.

Harmon takes pride in our technological leadership position.

Our dedicated engineers create the safest, most reliable, efficient and

cost-effective systems for our customers based on their technological requirements.

As the freight and transit

markets look to their suppliers

for ways to move trains faster,

safer, less expensively and more

frequently, the technologies

developed today by Harmon

Industries are leading the rail

supply industry into the 21st Century.

The Federal Railroad Administration selected our Incremental Train

Control System for testing along the Chicago-Detroit high-speed corridor.

This collaborative project between the FRA, Amtrak, Michigan

Department of Transportation and Harmon Industries is setting the

standard for a new era in high-speed operations in the United States.

The market for our systems include several inter-city corridors

designated by the U.S. Department of Transportation. These corridors are highly

traveled routes similar to the Miami-Orlando-Tampa Bay

high-speed project proposed by the State of Florida and Florida Overland

Express consortium.

Investing heavily in research and development, and partnerships with

our customers enable Harmon Industries to provide our customers with

the solutions to today's challenges, and offer a glimpse at a safer

tomorrow.