================================================================================
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 NUMBER
SEPTEMBER 30, 1995 0-4041
(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:
(4,265,583 as of September 30, 1995)
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[THIS PAGE INTENTIONALLY LEFT BLANK]
HATHAWAY CORPORATION
--------------------
INDEX
-----
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations
Three months ended September 30, 1995
(Unaudited) and September 30, 1994 (Unaudited)........ 1
Consolidated Balance Sheets
September 30, 1995 (Unaudited) and June 30, 1995...... 2
Consolidated Statements of Cash Flows
Three months ended September 30, 1995 (Unaudited) and
Three months ended September 30, 1994 (Unaudited)..... 3
Consolidated Statement of Stockholders' Investment
Three months ended September 30, 1995 (Unaudited)..... 4
Notes to Consolidated Financial Statements (Unaudited).. 5
Item 2. Management's Discussion and Analysis of Operating
Results and Financial Position........................ 7
PART II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities....................... 9
Item 6. Exhibits and Reports on Form 8-K...................... 9
HATHAWAY CORPORATION
--------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
1995 1994
----------------------------------
REVENUES $ 7,511,000 $9,418,000
OPERATING COSTS AND EXPENSES:
Cost of products sold 4,898,000 5,387,000
Selling 1,494,000 1,772,000
General and administrative 1,221,000 1,250,000
Engineering and development 941,000 879,000
Amortization of intangibles 62,000 62,000
----------------------------------
Total operating costs and expenses 8,616,000 9,350,000
----------------------------------
Operating income (loss) (1,105,000) 68,000
OTHER INCOME (EXPENSES), NET:
Gain on sale of contractual right 165,000 --
(Note 3) 89,000 77,000
Interest and dividend income (51,000) (50,000)
Interest expense 3,000 43,000
Other income, net
----------------------------------
Total other income, net 206,000 70,000
----------------------------------
Income (loss) from continuing operations
before income taxes (899,000) 138,000
Benefit (provision) for income taxes 148,000 (48,000)
----------------------------------
NET INCOME (LOSS) $ (751,000) $ 90,000
==================================
PER SHARE AMOUNTS
Primary and fully diluted net income $(0.18) $0.02
(loss) per share
==================================
Shares used in computing primary per 4,287,000 4,604,000
share amounts
==================================
Shares used in computing fully diluted 4,287,000 4,609,000
per share amounts
==================================
The accompanying notes to consolidated financial statements are an integral
part of these statements.
-1-
HATHAWAY CORPORATION
--------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
September 30, June 30,
1995 1995
-------------------------------------
(Unaudited)
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 5,311,000 $ 5,903,000
Marketable securities, current 1,221,000 1,029,000
Trade receivables, net 5,911,000 7,486,000
Inventories, net 5,059,000 4,469,000
Prepaid expenses and other 1,568,000 1,313,000
-------------------------------------
Total current assets 19,070,000 20,200,000
Marketable securities, non-current -- 200,000
Property and equipment, net 1,801,000 1,798,000
Other 1,055,000 1,114,000
-------------------------------------
Total assets $21,926,000 $23,312,000
=====================================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------
CURRENT LIABILITIES:
Long-term debt classified as current
(Note 4) $ 2,082,000 $ --
Accounts payable 1,607,000 1,308,000
Accrued liabilities 2,452,000 2,721,000
Other current liabilities 1,081,000 1,266,000
-------------------------------------
Total current liabilities 7,222,000 5,295,000
Long-term debt -- 2,144,000
-------------------------------------
Total liabilities 7,222,000 7,439,000
STOCKHOLDERS' INVESTMENT:
Common stock 100,000 100,000
Additional paid-in capital 9,767,000 9,767,000
Loans receivable for stock (235,000) (235,000)
Retained earnings 8,509,000 9,686,000
Cumulative translation adjustments 226,000 218,000
Treasury stock (3,663,000) (3,663,000)
-------------------------------------
Total stockholders' investment 14,704,000 15,873,000
-------------------------------------
Total liabilities and stockholders'
investment $21,926,000 $23,312,000
=====================================
The accompanying notes to consolidated financial statements are an integral
part of these statements.
-2-
HATHAWAY CORPORATION
--------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
Three Months Ended
September 30,
----------------------------------
1995 1994
----------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ (751,000) $ 90,000
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 230,000 256,000
Other 19,000 16,000
Changes in assets and liabilities:
(Increase) decrease in -
Trade receivables, net 1,683,000 790,000
Inventories, net (604,000) (21,000)
Prepaid expenses and other (349,000) (129,000)
Increase (decrease) in -
Accounts payable 283,000 (23,000)
Accrued liabilities and other (377,000) (423,000)
----------------------------------
Net cash from operating activities 134,000 556,000
----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (181,000) (348,000)
Investment in joint ventures -- (33,000)
----------------------------------
Net cash from investing activities (181,000) (381,000)
----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on line of credit and
long-term debt (115,000) (73,000)
Borrowings on line of credit and
long-term debt -- 50,000
Dividends paid to stockholders (426,000) (536,000)
Purchase of treasury stock -- (999,000)
Proceeds from exercise of stock options -- 12,000
----------------------------------
Net cash from financing activities (541,000) (1,546,000)
----------------------------------
EFFECT OF FOREIGN EXCHANGE RATE
CHANGES ON CASH (4,000) 49,000
----------------------------------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (592,000) (1,322,000)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 5,903,000 7,547,000
----------------------------------
CASH AND CASH EQUIVALENTS
AT SEPTEMBER 30 $5,311,000 $ 6,225,000
==================================
The accompanying notes to consolidated financial statements are an integral
part of these statements.
-3-
HATHAWAY CORPORATION
--------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT
--------------------------------------------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
COMMON STOCK ADDITIONAL TREASURY STOCK
------------------------- PAID-IN LOANS RETAINED -------------------------
SHARES AMOUNT CAPITAL RECEIVABLE/(1)/ EARNINGS SHARES AMOUNT
-------------------------------------------------------------------------------------------------------
Balances,
June 30, 1995 5,307,143 $100,000 $9,767,000 $(235,000) $9,686,000 1,041,560 $(3,663,000)
Dividends paid to
stockholders ($.10
per share) --- --- --- --- (426,000) --- ---
Net loss for the
three months ended
September 30, 1995 --- --- --- --- (751,000) --- ---
-------------------------------------------------------------------------------------------------------
Balances,
September 30, 1995 5,307,143 $100,000 $9,767,000 $(235,000) $8,509,000 1,041,560 $(3,663,000)
=======================================================================================================
(1) Loans receivable are from the Company's Leveraged Employee Stock Ownership
Plan and Trust for $102,000 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.
-4-
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, 1995 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, 1995
Annual Report and Form 10-K, be read in conjunction with the Consolidated
Financial Statements as of September 30, 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. Inventories
-----------
Inventories, valued at the lower of cost (first-in, first-out basis) or
market, are as follows:
September 30, June 30,
1995 1995
----------------------------
Parts and raw materials, net $3,309,000 $2,898,000
Finished goods and work-in-process, net 1,750,000 1,571,000
----------------------------
$5,059,000 $4,469,000
============================
3. Gain on Sale of Contractual Right
---------------------------------
In July, 1995 the Company consummated an agreement with Global Software, Inc.
(Global) and management of Global. Under the terms of the agreement, the
Company received $165,000 in exchange for consenting to Global's proposed
disposition of certain assets (See Note 3 in the June 30, 1995 Annual Report).
In addition, the Company agreed to acknowledge that the disposition would not
violate the terms of the original sale agreement, thereby giving up the
contractual right to challenge the proposed disposition. The gain realized on
the transaction was recorded in the first quarter of fiscal 1996.
-5-
HATHAWAY CORPORATION
--------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
(UNAUDITED)
4. Default on Long-Term Debt
-------------------------
The Company's long-term financing agreement (Agreement) with Marine Midland
Business Loans, Inc. (Midland) requires that the Company maintain monthly
compliance with certain covenants related to tangible net worth, cash flow
coverage and current ratios. (See Note 4 in the June 30, 1995 Annual Report).
The Company failed to meet one of these covenants as of September 30, 1995. The
Company's failure to meet the specified debt covenant constitutes an event of
default under the Agreement. Pursuant to the Agreement, upon the happening of
an event of default, Midland may declare any principal outstanding to be
immediately due and payable, together with all interest thereon and applicable
costs and expenses. Accordingly, the balance of the long-term debt has been
classified as current as of September 30, 1995. To date, however, Midland has
not declared the Company's indebtedness immediately due and payable. In
addition, the Company is negotiating with Midland for a waiver of the covenant
non-compliance, which would allow the Company to comply with the aforementioned
debt covenant.
5. Dividend
--------
On September 15, 1995 the Company paid a cash dividend of $.10 per common
share, or $426,000, to stockholders of record on August 15, 1995.
-6-
HATHAWAY CORPORATION
--------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
OPERATING RESULTS AND FINANCIAL CONDITION
-----------------------------------------
Operating Results
- -----------------
For the first quarter ended September 30, 1995, the Company recognized a net
loss of $751,000 or $.18 per share, compared to net income of $90,000, or $.02
per share, for the same period last year. Revenues decreased 20% in the first
quarter from $9,418,000 last year to $7,511,000 this year.
The 20% decrease in revenues is due to a 31% decrease in revenues from our
power and process instrumentation products, partially offset by a 26% increase
in revenues from our motion control products. Sales of power and process
instrumentation products decreased from $7,582,000, or 81% of total sales, in
the first quarter of 1995 to $5,202,000, or 69% of total sales, in the first
quarter of 1996. Sales of motion control products increased from $1,836,000, or
19% of total sales, in the first quarter of 1995 to $2,309,000, or 31% of total
sales, in the first quarter of 1996.
The decrease in sales of power and process instrumentation products is mainly
attributable to the continuing cost reduction efforts being made throughout the
power industry in response to the enactment of the Energy Policy Act of 1992,
which facilitates competition among utility companies. The increase in sales of
motion control products reflects continued growth of this market and increasing
demand for this type of product.
Sales to international customers decreased to $2,955,000, or 39% of total
sales, in the first quarter of fiscal 1996 compared to $3,015,000, or 32% of
total sales, in the same quarter of fiscal 1995. Of these foreign sales,
$1,697,000 and $1,290,000 were export sales from domestic operations for the
first quarter of 1996 and 1995, respectively. Domestic sales totaled $4,556,000
in the first quarter of fiscal 1996, compared to $6,403,000 in the first quarter
of fiscal 1995.
Cost of products sold as a percentage of revenues increased to 65 % for the
first quarter of fiscal year 1996, compared to 57% for the same period last
year. The increase is the result of a decrease in revenues due to changes in
volume and pricing.
Selling, general and administrative, and engineering and development expenses
decreased 6% for the first quarter from $3,901,000 last year to $3,656,000 in
the current year. The decrease reflects cost reduction efforts being made by
the Company in response to the decrease in revenues.
In July, 1995 the Company consummated an agreement with Global Software, Inc.
(Global) and management of Global. Under the terms of this agreement, the
Company received $165,000 in exchange for consenting to Global's proposed
disposition of certain assets. In addition, the Company agreed to acknowledge
that the disposition would not violate the terms of the original sale agreement,
thereby giving up the contractual right to challenge the proposed disposition.
A gain of $165,000 was recorded in the first quarter of fiscal 1996 to account
for the transaction.
Liquidity and Capital Resources
-------------------------------
The Company's liquidity position as measured by cash decreased $592,000 during
the quarter to a balance of $5,311,000 at September 30, 1995. Operating
activities generated $134,000 in the first quarter of fiscal 1996 compared to
$556,000 in the first quarter of fiscal 1995. The decrease in cash generated by
operating activities is primarily the result of less cash received from
customers during the quarter. Cash of $181,000 and $381,000 was used by
investing activities during the quarters ended September 30, 1995 and
-7-
HATHAWAY CORPORATION
--------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
OPERATING RESULTS AND FINANCIAL CONDITION (CONTINUED)
-----------------------------------------------------
1994, respectively, primarily for the purchase of property and equipment. Cash
of $541,000 was used in financing activities during the quarter, compared to
$1,546,000 used for financing activities in the first quarter of last year. The
decrease in cash used for financing activities is due primarily to $999,000 used
for the purchase of treasury stock in the first quarter of fiscal 1995, whereas
no cash was used for the repurchase of stock in the first quarter of fiscal
1996. The Board of Directors' decision to discontinue the public stock
repurchase program was the primary reason for there being no stock repurchase
activity in the first quarter of fiscal 1996.
The Company's non-compliance with one debt covenant as of September 30, 1995
represents a major possible commitment for use of funds at September 30, 1995.
The debt balance of $2,082,000 at September 30, 1995 has been classified as
current in order to reflect the possibility that Midland could declare the
entire balance immediately due and payable. If Midland does declare the balance
immediately due and payable, the Company's cash and cash equivalents of
$5,311,000 at September 30, 1995 could be used to satisfy the obligation.
However, the company is negotiating with Midland for a waiver which would allow
the Company to comply with the specified debt covenant and, therefore, to
maintain the scheduled debt maturities.
The Company's other current capital needs can be supplied from operations, cash
and cash equivalents, and $1,221,000 in marketable securities scheduled to
mature within the coming year. If the waiver mentioned above is obtained from
Midland, $1,786,000 would be available under the Company's line of credit with
Midland.
-8-
HATHAWAY CORPORATION
--------------------
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Defaults Upon Senior Securities
-------------------------------
(a) The information required by this item is set forth in Note 4 to
Consolidated Financial Statements contained in this Form and is
incorporated herein by reference.
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, 1995 Annual Report to Stockholders.
(b) Reports on Form 8-K
(1) There were no reports on Form 8-K filed for the three months ended
September 30, 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: November 13, 1995 By: /s/ Richard D. Smith
------------------------------ -----------------------------
Executive Vice President, Treasurer,
Secretary and Chief Financial
and Accounting Officer
-9-
5
3-MOS
JUN-30-1995
JUL-01-1995
SEP-30-1995
5,311,000
1,221,000
6,224,000
313,000
5,059,000
19,070,000
7,759,000
5,958,000
21,926,000
7,222,000
0
100,000
0
0
14,604,000
21,926,000
7,511,000
7,511,000
4,898,000
4,898,000
0
8,000
51,000
(899,000)
148,000
(751,000)
0
0
0
(751,000)
(.18)
(.18)
Presented gross.
