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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
---------------------------------------------
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended Commission File No.
March 31, 1995 O-4041
(Unaudited)
-----------------------------------------------
HATHAWAY CORPORATION
(Incorporated Under the Laws of the State of Colorado)
8228 PARK MEADOWS DRIVE
LITTLETON, COLORADO 80124
TELEPHONE: (303) 799-8200
84-0518115
(IRS Employer Identification Number)
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 ninety (90) days.
YES X NO ______
-----
Number of Shares of the only class of Common Stock outstanding:
(4,283,483 as of May 9, 1995)
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HATHAWAY CORPORATION
--------------------
INDEX
-----
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations
Three and nine months ended March 31, 1995
(Unaudited) and March 31, 1994 (Unaudited)............... 1
Consolidated Balance Sheets
March 31, 1995 (Unaudited) and June 30, 1994............. 3
Consolidated Statements of Cash Flows
Nine months ended March 31, 1995 (Unaudited) and
Nine months ended March 31, 1994 (Unaudited)............. 5
Consolidated Statement of Stockholders' Investment
Nine months ended March 31, 1995 (Unaudited)............. 7
Notes to Consolidated Financial Statements (Unaudited).... 8
Item 2. Management's Discussion and Analysis of Operating
Results and Financial Condition.......................... 13
PART II OTHER INFORMATION
Item 1. Legal Procedures.......................................... 16
Item 6. Exhibits and Reports on Form 8-K.......................... 16
HATHAWAY CORPORATION
--------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------- -----------------------------
1995 1994 1995 1994
----------- ------------- ----------- ----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES $9,405,000 $10,930,000 $29,231,000 $31,972,000
OPERATING COSTS AND EXPENSES:
Cost of products sold 5,137,000 6,294,000 16,686,000 17,760,000
Selling 1,737,000 1,906,000 5,368,000 5,688,000
General and administrative 1,205,000 1,406,000 3,651,000 4,370,000
Engineering and development 968,000 1,137,000 2,736,000 3,055,000
Amortization of intangibles 61,000 66,000 185,000 181,000
----------- ------------- ----------- ----------------
Total operating costs and expenses 9,108,000 10,809,000 28,626,000 31,054,000
----------- ------------- ----------- ----------------
Operating income from continuing operations 297,000 121,000 605,000 918,000
OTHER INCOME (EXPENSES), net:
Interest and dividend income 94,000 83,000 241,000 205,000
Interest expense (55,000) (62,000) (148,000) (228,000)
Foreign exchange gains (losses) 75,000 33,000 43,000 (7,000)
Other income (expenses), net (18,000) 93,000 75,000 7,000
----------- ------------- ----------- ----------------
Total other income (expenses), net 96,000 147,000 211,000 (23,000)
----------- ------------- ----------- ----------------
Income from continuing operations
before income taxes 393,000 268,000 816,000 895,000
Provision for income taxes (148,000) (141,000) (293,000) (441,000)
----------- ------------- ----------- ----------------
NET INCOME FROM CONTINUING
OPERATIONS 245,000 127,000 523,000 454,000
NET INCOME FROM OPERATIONS OF
DIVESTED SEGMENT (Note 3) --- 337,000 --- 885,000
GAIN ON SALE OF SEGMENT, NET OF
INCOME TAXES OF $900,000 (Note 3) --- 4,023,000 --- 4,023,000
----------- ------------- ----------- ----------------
NET INCOME $ 245,000 $ 4,487,000 $ 523,000 $ 5,362,000
=========== ============= ============ ================
The accompanying notes to consolidated financial statements are an
integral part of these statements.
1
HATHAWAY CORPORATION
--------------------
CONSOLIDATED STATEMENTS OF OPERATIONS - (CONTINUED)
---------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------ ------------------------------
1995 1994 1995 1994
----------- ----------- ------------ ----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
PER SHARE AMOUNTS
Primary and Fully Diluted:
Net income per share from continuing operations $ 0.06 $ 0.03 $ 0.12 $ 0.10
Net income per share from operations of
divested segment --- 0.06 --- 0.18
Gain per share from sale of segment --- 0.81 --- 0.81
----------- ----------- ------------ ----------------
Net income per share $ 0.06 $ 0.90 $ 0.12 $ 1.09
=========== =========== ============ ================
Shares used in computing primary per share amounts 4,339,000 4,984,000 4,467,000 4,911,000
=========== =========== ============ ================
Shares used in computing fully diluted per share amounts 4,347,000 4,990,000 4,478,000 4,937,000
=========== =========== ============ ================
The accompanying notes to consolidated financial statements are an
integral part of these statements.
2
HATHAWAY CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, June 30,
1995 1994
----------- -----------
(Unaudited)
ASSETS
- - - - - - ------
CURRENT ASSETS:
Cash and temporary cash investments $ 6,626,000 $ 7,547,000
Trade receivables, net of allowance for
doubtful accounts of $325,000
and $394,000 at March 31, 1995
and June 30, 1994, respectively 6,542,000 6,888,000
Inventories, net 4,755,000 4,673,000
Current deferred income taxes 724,000 732,000
Prepaid expenses and other 664,000 357,000
----------- -----------
Total current assets 19,311,000 20,197,000
Long-term investments, net of
amortization of premium 1,239,000 1,271,000
Property and equipment, net 1,748,000 1,577,000
Cost in excess of net assets acquired 822,000 959,000
Other 361,000 428,000
----------- -----------
Total assets $23,481,000 $24,432,000
=========== ===========
The accompanying notes to consolidated financial statement are an
integral part of these statements.
3
HATHAWAY CORPORATION
CONSOLIDATED BALANCE SHEETS--(Continued)
March 31, June 30,
1995 1994
----------- -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- - - - - - ----------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,000 $ 7,000
Accounts payable 1,425,000 1,448,000
Accrued compensation and fringe benefits 886,000 1,092,000
Accrued commissions 652,000 626,000
Other accrued liabilities 1,493,000 1,501,000
Income taxes payable 698,000 417,000
Product service reserve 467,000 433,000
----------- -----------
Total current liabilities 5,624,000 5,524,000
Long-term debt--less current portion 2,238,000 2,298,000
----------- -----------
Total liabilities 7,862,000 7,822,000
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' INVESTMENT:
Preferred stock, par value $1.00 per share, authorized
5,000,000 shares; no shares outstanding -- --
Common stock, at aggregate stated value, authorized
50,000,000 shares; 5,307,143 and 5,289,643 issued at
March 31, 1995 and June 30, 1994, respectively
(Note 5) 100,000 100,000
Additional paid-in capital (Note 5) 9,836,000 9,717,000
Loan receivable for stock (133,000) (133,000)
Loan receivable from Leveraged Employee Stock
Ownership Plan and Trust (157,000) (157,000)
Retained earnings 9,367,000 9,380,000
Cumulative translation adjustments (Note 2) 162,000 156,000
Treasury stock, at cost (1,004,596 and 674,585 shares
at March 31, 1995 and June 30, 1994, respectively)
(Note 5) (3,556,000) (2,453,000)
----------- -----------
Total stockholders' investment 15,619,000 16,610,000
----------- -----------
Total liabilities and stockholders' investment $23,481,000 $24,432,000
=========== ===========
The accompanying notes to consolidated financial statement are an
integral part of these statements.
4
HATHAWAY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31,
---------------------------
1995 1994
------------ ------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM CONTINUING OPERATIONS
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 29,574,000 $ 31,848,000
Cash paid to suppliers and employees (28,120,000) (30,708,000)
Interest and dividends received 255,000 162,000
Interest paid (150,000) (297,000)
Income taxes paid (89,000) (540,000)
------------ ------------
Net cash from operating activities 1,470,000 465,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (719,000) (619,000)
Investment in joint ventures (115,000) (100,000)
Long-term investments --- (1,288,000)
Cash received from sale of segment --- 6,803,000
Cash paid for expenses related to sale of segment --- (310,000)
------------ ------------
Net cash from investing activities (834,000) 4,486,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on line of credit and long-term debt (358,000) (11,766,000)
Borrowing on line of credit and long-term debt 287,000 7,261,000
Cash paid for loan costs --- (448,000)
Dividends paid to stockholders (536,000) (992,000)
Proceeds from exercise of stock options 43,000 232,000
Purchase of treasury stock (1,103,000) (710,000)
------------ ------------
Net cash from financing activities (1,667,000) (6,423,000)
------------ ------------
EFFECT OF FOREIGN EXCHANGE RATE
CHANGES ON CASH 110,000 (23,000)
------------ ------------
NET DECREASE IN CASH AND TEMPORARY
CASH INVESTMENTS (921,000) (1,495,000)
CASH AND TEMPORARY CASH INVESTMENTS
AT BEGINNING OF YEAR 7,547,000 10,267,000
------------ ------------
CASH AND TEMPORARY CASH INVESTMENTS
AT MARCH 31 $ 6,626,000 $ 8,772,000
============ ============
CASH FLOWS FROM DIVESTED SEGMENT
Net cash from operating activities $ --- $ 1,070,000
Net cash from investing activities --- (1,742,000)
Net cash from financing activities --- 48,000
------------ ------------
Net increase in cash and temporary cash investments --- (624,000)
Cash and temporary cash investments at beginning of year --- 624,000
------------ ------------
Cash and temporary cash investments at March 31 $ --- $ -0-
============ ============
The accompanying notes to consolidated financial statements are an
integral part of these statements.
5
HATHAWAY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
NINE MONTHS ENDED MARCH 31,
---------------------------
1995 1994
---------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES OF
CONTINUING OPERATIONS:
Net income $ 523,000 $ 4,477,000
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 745,000 734,000
Unrealized foreign currency exchange (gains) losses (103,000) 21,000
Provision for doubtful accounts (78,000) 170,000
Long-term incentive plan bonus payable in stock 76,000 ---
Gain on sale of divested segment --- (4,923,000)
Other (17,000) (1,000)
Change in assets and liabilities:
(Increase) decrease in -
Trade receivables 386,000 (189,000)
Inventories (48,000) (232,000)
Current deferred income taxes 8,000 (380,000)
Prepaid expenses and other --- 131,000
Increase (decrease) in -
Accounts payable (43,000) (19,000)
Accrued liabilities (206,000) (597,000)
Product service reserve 30,000 78,000
Income taxes payable 197,000 1,195,000
---------- -----------
Net cash from operating activities $1,470,000 $ 465,000
========== ===========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
6
HATHAWAY CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT
FOR THE NINE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
COMMON STOCK ADDITIONAL TREASURY STOCK
---------------------- PAID-IN LOANS RETAINED -------------------------
SHARES AMOUNT CAPITAL RECEIVABLE(1) EARNINGS SHARES AMOUNT
--------- -------- ---------- ---------- ---------- --------- ----------
Balances,
June 30, 1994 5,289,643 $100,000 $9,717,000 $(290,000) $9,380,000 674,585 $(2,453,000)
Exercise of stock
options 17,500 --- 43,000 --- --- --- ---
Long-term incentive
bonus plan --- --- 76,000 --- --- --- ---
Purchase of treasury
stock (Note 5) --- --- --- --- --- 330,011 (1,103,000)
Dividends paid to
stockholders --- --- --- --- (536,000) --- ---
Net income for the
nine months ended
March 31, 1995 --- --- --- --- 523,000 --- ---
--------- -------- ---------- --------- ---------- --------- -----------
Balances,
March 31, 1995 5,307,143 $100,000 $9,836,000 $(290,000) $9,367,000 1,004,596 $(3,556,000)
========= ======== ========== ========= ========== ========= ===========
(1) Loans receivable are from the Company's Leveraged Employee Stock Ownership
Plan and Trust for $157,000 and from an officer of the Company for stock
purchases totaling $133,000.
The accompanying notes to consolidated financial statements are an
integral part of these statements.
7
HATHAWAY CORPORATION
--------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
1. Basis of Preparation and Presentation
-------------------------------------
The accompanying unaudited consolidated financial statements have been
prepared by Hathaway Corporation pursuant to the rules and regulations of the
Securities and Exchange Commission and include all adjustments which are, in the
opinion of management, necessary for a fair presentation. The consolidated
financial statements include the accounts of the Company, its wholly-owned
subsidiaries and investments in joint ventures (the Company).
Certain information and footnote disclosures normally included in financial
statements which are prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes that the disclosures herein are adequate to
make the information presented not misleading.
Reference is made to the Notes to Consolidated Financial Statements in the
Registrant's June 30, 1994 Annual Report, which is attached hereto, and Form
10-K which was previously filed. It is suggested that the Consolidated Financial
Statements and related Notes to such statements, included in the June 30, 1994
Annual Report and Form 10-K, be read in conjunction with the Consolidated
Financial Statements as of March 31, 1995, for which certain information and
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
The financial data for the interim periods may not necessarily be
indicative of results to be expected for the year.
Certain reclassifications have been made to prior year balances in order to
conform with the current year's presentation.
2. Summary of Significant Accounting Policies
------------------------------------------
INVENTORIES
Inventories, valued at the lower of cost (first-in, first-out basis) or
market, are as follows:
MARCH 31, JUNE 30,
1995 1994
---------- ----------
Parts and raw materials, net $2,516,000 $2,589,000
Finished goods and work-in-
process, net (including material,
labor and manufacturing
overhead costs) 2,239,000 2,084,000
---------- ----------
$4,755,000 $4,673,000
========== ==========
Reserves established for anticipated losses on excess or obsolete
inventories were approximately $1,045,000 and $802,000 at March 31, 1995 and
June 30, 1994, respectively.
8
HATHAWAY CORPORATION
--------------------
PROPERTY AND EQUIPMENT
Property and equipment, at cost, is classified as follows:
USEFUL MARCH 31, JUNE 30,
LIVES 1995 1994
-------------- -------------- --------------
Machinery, equipment, tools
and dies 2-8 years $ 5,901,000 $ 5,775,000
Furniture, fixtures and other 3-10 years 1,808,000 1,527,000
-------------- --------------
7,709,000 7,302,000
Less accumulated depreciation and
amortization (5,961,000) (5,725,000)
-------------- --------------
$ 1,748,000 $ 1,577,000
============== ==============
Depreciation and amortization are provided using the straight-line method over
the estimated useful life of the assets. Maintenance and repair costs are
charged to operations as incurred. Major additions and improvements are
capitalized. The cost and related accumulated depreciation of retired or sold
property are removed from the accounts and any resulting gain or loss is
reflected in earnings.
INCOME TAXES
Effective July 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109) which requires an
asset and liability approach to financial accounting and reporting for income
taxes. The difference between the financial statement and tax bases of assets,
liabilities and carryforwards is determined annually. Deferred income tax assets
and liabilities are computed for those differences that have future tax
consequences using the currently enacted tax laws and rates in effect for the
year in which the differences are expected to reverse. Valuation allowances are
established, if necessary, to reduce the deferred tax asset to the amount that
will more likely than not be realized. The provision for income taxes is the
current tax payable or refundable for the period plus or minus the net change in
deferred tax assets and liabilities.
STATEMENT OF CASH FLOWS
For purposes of the Consolidated Statements of Cash Flows, cash and temporary
cash investments include amounts which are readily convertible into cash
(maturities of three months or less) and which are not subject to significant
risk or changes in interest rates. Cash flows from the divested segment (Note 3)
have been segregated. Cash flows in foreign currencies are translated using an
average rate.
FOREIGN CURRENCY TRANSLATION
In accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation", the assets and liabilities of the Company's
foreign subsidiaries are translated into U. S. dollars using current exchange
rates. Revenues and expenses are translated at average rates prevailing during
the period. The resulting translation adjustments are recorded in the Cumulative
Translation Adjustments component of Stockholders' Investment in the
accompanying Consolidated Balance Sheets.
9
HATHAWAY CORPORATION
Changes in Cumulative Translation Adjustments included in the Stockholders'
Investment section of the accompanying Consolidated Balance Sheets are as
follows:
MARCH 31, MARCH 31,
1995 1994
-------- --------
Cumulative Translation Adjustments,
beginning of period $156,000 $174,000
Translation adjustments 6,000 (72,000)
-------- --------
Cumulative Translation Adjustments,
end of period $162,000 $102,000
======== ========
Foreign currency transaction gains and losses and translation gains and
losses on intercompany balances with foreign subsidiaries are included in Other
Income (Expenses) in the accompanying Consolidated Statements of Operations as
follows:
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------- ---------------------
1995 1994 1995 1994
------- ------- -------- --------
Unrealized foreign exchange
gains (losses) $80,000 $28,000 $103,000 $(21,000)
Realized foreign exchange
gains (losses) (5,000) 5,000 (60,000) 14,000
------- ------- -------- --------
Foreign exchange gains (losses) $75,000 $33,000 $ 43,000 $ (7,000)
======= ======= ======== ========
3. Sale of Application Software Segment
------------------------------------
Effective January 31, 1994, the Company sold its Application Software
Segment, Global Software, Inc. (Global), to the senior management of Global. The
sale resulted in a net after tax gain of $4,023,000. The Company received a cash
payment of $6,803,000, of which a portion was used to repay $3,000,000 of the
Company's long-term debt and to pay a special $.10 per share dividend to
shareholders totaling $495,000. The remaining proceeds were used to pay the
expenses and income taxes which resulted from the sale and for other general
operating activities.
Global achieved a net profit of $337,000 and $885,000, respectively for the
month and seven months ended January 31, 1994. Revenues for the same periods
totaled $1,741,000 and $14,053,000, respectively.
4. Dividends
---------
On September 16, 1994, the Company paid a cash dividend of $.12 per common
share, or $536,000, to stockholders of record on August 26, 1994.
10
HATHAWAY CORPORATION
5. Commitments and Contingencies
-----------------------------
SEVERANCE BENEFIT AGREEMENTS
During 1989, the Company entered into annually-renewable employment and
severance benefit agreements with certain key employees which, among other
things, provide inducement to the employees to continue to work for the Company
during and after any period of threatened takeover. The agreements provide the
employees with specified benefits upon the subsequent severance of employment in
the event of a change in control of the Company and are effective for 24 months
thereafter. The maximum amount that could be required to be paid under these
contracts, if such events occur, currently aggregates approximately $1,162,000.
LITIGATION
The Company has been named as a defendant in certain actions that have
arisen out of the ordinary course of business. Based upon the advice of the
Company's legal counsel, management believes the actions are without merit and
will not significantly affect the Company's consolidated financial position.
SHAREHOLDER RIGHTS PLAN
During fiscal year 1989, the Company adopted a shareholder rights plan
under which preferred stock purchase rights were distributed, one right for each
share of common stock outstanding. Each right will entitle holders of the
Company's common stock to buy one one-hundredth of a newly issued share of
Series A Junior Participating Preferred Stock at an exercise price of $17.50,
following certain change of control events including a tender offer for, or
acquisition by, any entity of 20% or more of the Company's common stock.
At any time up to ten business days following the public announcement of
certain change of control events, the Company can redeem the rights at $.001 per
right. If certain subsequent triggering events occur, the rights will give
shareholders the ability to acquire, upon payment of the then-current exercise
price, the Company's common stock or the common stock of an acquiror having a
value equal to twice the right's exercise price. The rights will expire June 25,
1999.
EMPLOYMENT AGREEMENTS
Effective July 1, 1993, the Company entered into five year employment
agreements with two of its executive officers. The agreements provide for 1) an
annual incentive bonus to be paid based on the achievement of specified returns
on equity and growth in share price plus dividends paid for each fiscal year, 2)
a long-term incentive bonus to be paid based on the achievement of specified
returns on equity and share price growth plus dividends over a three year
performance period and 3) specified benefits upon termination of employment (for
reasons other than cause or change in control) which are effective for one year
thereafter. As of March 31, 1995, the maximum amount that could be required to
be paid under the termination clause of these agreements was approximately
$807,000.
The annual bonus is payable in cash following each fiscal year-end. The
long-term incentive plan is payable in Company common stock following the end of
the three year performance period. At the employee's election, such payout may
be taken in cash up to 40% of the fair market value of the total shares to be
issued. The total number of shares potentially issuable under the long-term
incentive plan ranges from zero to 210,000. For the first nine months of fiscal
1995, the Company recognized $76,000 of compensation expense related to the
long-term incentive plan which is reflected as an increase to Additional Paid-in
Capital.
STOCK REPURCHASE PROGRAM
During fiscal 1994, the Board of Directors approved a public stock
repurchase program whereby the Company may use up to $500,000 to repurchase its
common stock from stock available on the NASDAQ National Market System. Such
repurchased stock is being retained by the Company in its treasury. As of March
31, 1995, 31,400 shares had been repurchased under this program for
approximately $99,000.
11
HATHAWAY CORPORATION
In addition to the public stock repurchase program, the Board of Directors
approved an employee stock repurchase program whereby the Company may use up to
$1,000,000 to repurchase its common stock from its employees at the current
market value. As of March 31, 1995, the Company had repurchased 236,034 shares
for approximately $787,000, including 90,000 shares purchased from an officer of
the Company, the proceeds of which were primarily used to repay a loan from the
Company. Seventeen thousand, eight hundred and sixty seven (17,867) of these
shares were purchased during fiscal year 1995 for approximately $60,000.
During the first quarter, the Board of Directors approved two special stock
repurchases. The Company purchased 141,000 shares of the Company's common stock
from a significant non-affiliated shareholder at a price equal to the then fair
market value, which totaled $441,000. The Company also repurchased 132,000
shares from a non-employee director of the Company at a price equal to the then
fair market value which totaled $478,000. All repurchased stock is being
retained by the Company in its treasury.
Combined with previous purchases, the Company held treasury stock with a
total cost of $3,556,000 as of March 31, 1995.
The warrants to purchase 300,000 shares of the Company's common stock at a
current price of $6.35 per share (subject to adjustments up to $6.46 per share)
which were issued to Household Commercial Financial Services, Inc. and Ford
Motor Credit Company under the previous long-term financing agreement remain
outstanding and are exercisable through June 1997.
6. Related Party Transactions
--------------------------
During the second quarter, the Board of Directors approved a loan of up to
$35,000 to be made by the Company after November 30, 1994 to a non-employee
member of the Board of Directors. The loan will be made for the purpose of
purchasing Hathaway common stock from stock available on the NASDAQ National
Market System.
12
HATHAWAY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL CONDITION
Operating Results
- - - - - - -----------------
For the third quarter ended March 31, 1995, the Company achieved net income
from continuing operations of $245,000, compared with net income from continuing
operations of $127,000 for the same period last year. The Company achieved a net
profit from continuing operations of $523,000 for the first nine months of
fiscal year 1995, as compared to $454,000 for the first nine months of last
year.
Hathaway achieved net income from total operations of $245,000 and
$4,487,000 for the quarters ended March 31, 1995 and 1994, respectively. For the
first nine months of fiscal years 1995 and 1994, the Company generated net
income from total operations of $523,000 and $5,362,000, respectively. Last
year's third quarter and nine months results included $4,360,000 and $4,908,000,
respectively, from the results of the divested operations and the net gain from
the sale of the Company's software segment that was sold during the third
quarter of last fiscal year.
Revenues from continuing operations for the third quarter of fiscal 1995
decreased to $9,405,000 from $10,930,000 in the third quarter of fiscal 1994.
Revenues for the first nine months of the year decreased 9% from $31,972,000 in
fiscal 1994 to $29,231,000 in fiscal 1995. Motion control product sales
increased by 10% over the first nine months of last year due to excellent growth
in sales to both domestic and foreign customers. Operating profit for this group
increased 77% for the nine months over the same period last year. Power and
process instrumentation product sales, however, decreased 12% from the first
nine months of last year. This decrease was mainly attributable to the
continuing cost reduction efforts being made throughout the power industry in
response to the impending deregulation of the United States power industry
pursuant to the Energy Policy Act of 1992 and privatization of the power
industry in the United Kingdom. In the United States, the Energy Policy Act
facilitates competition among utility companies. In the United Kingdom, the
government owned utility company was divided into twenty different companies,
causing increased competition and cost reductions among the utility companies in
Hathaway's major foreign market. The Company's power customers in both the
United States and United Kingdom are purchasing less instrumentation as part of
their cost cutting efforts and the instrumentation which they are buying is more
price competitive. They are also purchasing less instrumentation as a result of
the turmoil within their organizations which has been created by significant
downsizings. Power companies will continue to become more efficient through
downsizing, until they are competitive within the industry. It is uncertain how
long this trend will continue, but power companies will have to ultimately
increase their purchases of instrumentation that protect and monitor their power
systems in order to maintain the high quality of power provided to the consumer.
Hathaway's response to this competitive market has been the development of
new products which will help power companies achieve lower costs and improve the
reliability of their power. The Company is also looking for products and
companies that could be acquired that fit in with the industries on which it is
currently focused. The Company has also responded by reducing costs and
expenses. Selling, general and administrative, and engineering and development
expenses decreased 12% for the third quarter from $4,449,000 last year to
$3,910,000 in the current year. These expenses decreased 10% for the first nine
months of the current year from $13,113,000 to $11,755,000.
Sales to international customers totaled to $3,154,000, or 34% of sales, in
the third quarter of fiscal 1995, compared to $4,230,000, or 39% of sales from
continuing operations, in the same quarter of fiscal 1994. Of these foreign
sales, $1,041,000 and $2,578,000 were export sales from domestic operations for
the third quarter of 1995 and 1994, respectively. Domestic sales from continuing
operations totaled $6,251,000 in the third quarter of fiscal 1995, compared to
$6,699,000 in the third quarter of fiscal 1994.
13
HATHAWAY CORPORATION
--------------------
Sales to foreign customers decreased to $10,248,000 or 35% of total revenues
for the first nine months of fiscal 1995, as compared to $11,203,000 or 35% of
sales during the same period last year. Of these foreign sales, $4,576,000 and
$5,750,000 were export sales from domestic operations for the first nine months
of fiscal 1995 and 1994, respectively. Sales to domestic customers were 65% of
total sales for the first nine months of fiscal years 1995 and 1994.
Cost of products sold as a percentage of revenues decreased to 55% for the
third quarter of 1995, compared with 58% for the same period last year. These
costs increased from 56% to 57% of revenues for the nine months of fiscal years
1994 and 1995, respectively.
Total interest expense incurred by the Company was $148,000 and $337,000 for
the nine months ended March 31, 1995 and 1994, respectively. Of the total
interest incurred in the first nine months of fiscal 1994, $109,000 was
allocated to discontinued operations as a result of the terms of the Company's
long-term financing agreements. Interest expense from continuing operations
decreased $7,000 for the quarter and $80,000 for the nine months ended March 31,
1995 from the same periods last year. The 11% and 35% decreases for the quarter
and nine months, respectively, reflect interest savings from lower debt
outstanding.
Foreign currency translation gains and losses on intercompany balances with
the Company's foreign subsidiaries and foreign currency transaction gains and
losses resulting from fluctuations in foreign currency rates are recognized as
foreign exchange gains and losses. The Company recognized foreign exchange gains
of $75,000 and $33,000 for the quarters ended March 31, 1995 and 1994,
respectively. Foreign exchange gains of $43,000 and foreign exchange losses of
7,000, respectively, were recognized for the nine months ended March 31, 1995
and 1994.
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", on a prospective basis during the first quarter
of fiscal 1994. The cumulative effect of adoption was not material.
Divested Segment
----------------
Effective January 31, 1994 the Company sold its application software segment,
Global Software, Inc. (Global), to the senior management of Global. The sale
resulted in a net after tax gain of $4,023,000.
The net income generated by Global for the month and seven months ended
January 31, 1994 was $337,000 and $885,000, respectively. Global generated
revenues of $1,741,000 and $14,053,000 for the same periods.
Liquidity and Capital Resources
-------------------------------
The Company's liquidity position as measured by cash related to continuing
operations decreased $921,000 during the nine months to a balance of $6,626,000
at March 31, 1995. Operating activities generated $1,470,000 in the first nine
months of fiscal 1995 compared to $465,000 generated in the prior year. The
increase in cash generated by operating activities is primarily the result of
less cash paid to suppliers and employees as well as reduced interest and income
taxes paid during the nine months partially offset by less cash received from
customers. Cash of $834,000 was used by investing activities during the nine
months this year as compared to $4,486,000 generated last year. The cash
generated by investing activities last year includes cash provided by the sale
of Global. Cash of $1,667,000 was used in financing activities during the first
nine months of the year, compared to $6,423,000 used for financing activities
last year. In fiscal year 1995, approximately $1,103,000 of the $1,667,000 was
used to repurchase common stock of the Company (discussed below) and $536,000
was paid as a dividend to stockholders (discussed below). In the prior year,
$710,000 was used for treasury stock repurchases, $992,000 for dividends to
stockholders and approximately $4,000,000 for debt repayment in excess of
borrowings.
No major commitments for capital expenditures existed at March 31, 1995. The
Company's current capital needs can be supplied from operations and from its
cash and temporary cash investments of $6,626,000.
On September 16, 1994, the Company paid a $.12 per common share cash dividend
to stockholders of record on August 26, 1994.
14
HATHAWAY CORPORATION
--------------------
During fiscal 1994, the Company's Board of Directors approved a public stock
repurchase program whereby the Company may use up to $500,000 to repurchase its
common stock from stock available on the NASDAQ National Market System. Such
repurchased stock is being retained by the Company in its treasury. As of March
31, 1995, 31,400 shares had been repurchased under this program for
approximately $99,000.
In addition to the public stock repurchase program, the Board of Directors
approved an employee stock repurchase program whereby the Company may use up to
$1,000,000 to repurchase its common stock from its employees at the current
market value. During fiscal 1995, the Company repurchased 17,867 shares for
approximately $60,000. As of March 31, 1995, the Company had repurchased 236,034
shares for approximately $787,000, including 90,000 shares purchased from an
officer of the Company, the proceeds of which were primarily used to repay a
loan from the Company.
During the first quarter, the Board of Directors approved two special stock
repurchases. The Company purchased 141,000 shares of the Company's common stock
from a significant non-affiliated shareholder at a price equal to the then fair
market value totaling $441,000. The Company also repurchased 132,000 shares from
a non-employee director of the Company at a price equal to the then fair market
value which totaled $478,000. All repurchased stock is being retained by the
Company in its treasury.
Combined with previous purchases, the Company held treasury stock with a total
cost of $3,556,000 as of March 31, 1995.
During the second quarter, the Board of Directors approved a loan of up to
$35,000 to be made by the Company after November 30, 1994 to a non-employee
member of the Board of Directors. The loan will be made for the purpose of
purchasing Hathaway common stock available on the NASDAQ National Market
System.
Price Levels and the Impact of Inflation
----------------------------------------
Prices of the Company's products have not increased significantly as a result
of inflation during the past several years, primarily due to its competition.
The effect of inflation on the Company's costs of production has been minimized
through production efficiencies and lower costs of materials. The Company
anticipates that these factors will continue to minimize the effects of any
foreseeable inflation and other price pressures from the industries in which it
operates. As the Company's manufacturing activities mainly utilize semi-skilled
labor, which is relatively plentiful in the areas surrounding the Company's
production facilities, the Company does not anticipate substantial inflation-
related increases in the wages of the majority of its employees.
15
HATHAWAY CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Procedures
----------------
(a) Reference is made to Note 5 in the Form 10-Q Quarterly Report for the
quarter ended March 31, 1995 and Note 12 in the Registrant's Annual
Report to Stockholders for the period ended June 30, 1994, herein
incorporated by reference to this report.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
(1) Annual Report containing Notes to Consolidated Financial Statements
in the Registrant's June 30, 1994 Annual Report to Stockholders.
(b) Reports on Form 8-K
(1) There were no reports on Form 8-K filed for the nine months ended
March 31, 1995.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HATHAWAY CORPORATION
-----------------------------
DATE: May 12, 1995 By: /s/ Richard D. Smith
------------ -----------------------------
Executive Vice President,
Treasurer, Secretary and Chief
Financial and Accounting Officer
16
5
1
9-MOS
JUN-30-1994
JUL-01-1994
MAR-31-1995
6,626,000
0
6,867,000
325,000
4,755,000
19,311,000
7,709,000
5,961,000
23,481,000
5,624,000
2,238,000
100,000
0
0
15,519,000
23,481,000
29,231,000
29,231,000
16,686,000
16,686,000
0
0
148,000
816,000
293,000
523,000
0
0
0
523,000
4,467,000
4,478,000
