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
MARCH 31, 1996 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:
(4,256,381 as of March 31, 1996)
HATHAWAY CORPORATION
--------------------
INDEX
-----
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements --------
Condensed Consolidated Statements of Operations
Three and nine months ended March 31, 1996
(Unaudited) and March 31, 1995 (Unaudited)........... 1
Condensed Consolidated Balance Sheets
March 31, 1996 (Unaudited) and June 30, 1995......... 2
Condensed Consolidated Statements of Cash Flows
Nine months ended March 31, 1996 (Unaudited) and
Nine months ended March 31, 1995 (Unaudited)......... 3
Condensed Consolidated Statement of Stockholders'
Investment
Nine months ended March 31, 1996 (Unaudited)......... 4
Notes to Condensed 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 4. Submission of matters to a vote of security holders... 9
Item 6. Exhibits and Reports on Form 8-K...................... 9
HATHAWAY CORPORATION
--------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------------- -----------------------------
1996 1995 1996 1995
----------- ----------- ------------ ------------
REVENUES $ 8,274,000 $ 9,405,000 $ 25,463,000 $ 29,231,000
OPERATING COSTS AND EXPENSES:
Cost of products sold 5,331,000 5,137,000 15,894,000 16,686,000
Selling 1,547,000 1,737,000 4,686,000 5,368,000
General and administrative 1,085,000 1,205,000 3,623,000 3,651,000
Engineering and development 960,000 968,000 2,769,000 2,736,000
Amortization of intangibles 45,000 61,000 169,000 185,000
---------- --------- ---------- ----------
Total operating costs and expenses 8,968,000 9,108,000 27,141,000 28,626,000
---------- --------- ---------- ----------
Operating income (loss) (694,000) 297,000 (1,678,000) 605,000
OTHER INCOME (EXPENSES), NET:
Gain on sale of contractual right (note 3) -- -- 165,000 --
Interest and dividend income 86,000 94,000 256,000 241,000
Interest expense (47,000) (55,000) (148,000) (148,000)
Other income (expenses), net 10,000 57,000 (113,000) 118,000
---------- --------- ---------- ----------
Total other income, net 49,000 96,000 160,000 211,000
---------- --------- ---------- ----------
Income (loss) before income taxes (645,000) 393,000 (1,518,000) 816,000
Benefit (provision) for income taxes 138,000 (148,000) 267,000 (293,000)
---------- --------- ---------- ----------
NET INCOME (LOSS) $ (507,000) $ 245,000 $(1,251,000) $ 523,000
========== ========= =========== ==========
PER SHARE AMOUNTS
Primary and fully diluted net income
(loss) per share $(0.12) $ 0.06 $(0.29) $0.12
========== ========= =========== ==========
Shares used in computing primary and fully
diluted per share amounts 4,261,000 4,339,000 4,274,000 4,467,000
========== ========= =========== ==========
The accompanying notes to condensed consolidated financial statements are
part of these statements.
-1-
HATHAWAY CORPORATION
--------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
MARCH 31, JUNE 30,
1996 1995
----------- -----------
(UNAUDITED)
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 5,874,000 $ 5,903,000
Marketable securities, current 201,000 1,029,000
Trade receivables, net 5,409,000 7,486,000
Inventories, net 4,844,000 4,469,000
Prepaid expenses and other 1,468,000 1,313,000
----------- -----------
Total current assets 17,796,000 20,200,000
Marketable securities, non-current -- 200,000
Property and equipment, net 1,789,000 1,798,000
Other 938,000 1,114,000
----------- -----------
Total assets $20,523,000 $23,312,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,379,000 $ 1,308,000
Accrued liabilities 2,399,000 2,721,000
Other current liabilities 721,000 1,266,000
----------- -----------
Total current liabilities 4,499,000 5,295,000
Long-term debt 1,965,000 2,144,000
----------- -----------
Total liabilities 6,464,000 7,439,000
STOCKHOLDERS' INVESTMENT:
Common stock 100,000 100,000
Additional paid-in capital 9,712,000 9,767,000
Loans receivable for stock (235,000) (235,000)
Retained earnings 8,009,000 9,686,000
Cumulative translation adjustments 157,000 218,000
Treasury stock (3,684,000) (3,663,000)
----------- -----------
Total stockholders' investment 14,059,000 15,873,000
----------- -----------
Total liabilities and stockholders'
investment $20,523,000 $23,312,000
=========== ===========
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
-2-
HATHAWAY CORPORATION
--------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(UNAUDITED)
Nine Months Ended
March 31,
-------------------------------
1996 1995
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,251,000) $ 523,000
Adjustments to reconcile net income (loss) to net cash from
operating activities:
Depreciation and amortization 698,000 745,000
Other (100,000) (122,000)
Changes in assets and liabilities:
(Increase) decrease in -
Trade receivables, net 2,092,000 386,000
Inventories, net (423,000) (48,000)
Prepaid expenses and other (179,000) 8,000
Increase (decrease) in -
Accounts payable 68,000 (43,000)
Accrued liabilities and other (661,000) 21,000
------------ ------------
Net cash from operating activities 244,000 1,470,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (564,000) (719,000)
Investment in joint ventures (70,000) (115,000)
Proceeds from sale of contractual right 165,000 --
Proceeds from maturities of marketable securities 1,000,000 --
------------ ------------
Net cash from investing activities 531,000 (834,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on line of credit and long-term debt (315,000) (358,000)
Borrowings on line of credit and long-term debt -- 287,000
Dividends paid to stockholders (426,000) (536,000)
Purchase of treasury stock (21,000) (1,103,000)
Proceeds from exercise of stock options -- 43,000
------------ ------------
Net cash from financing activities (762,000) (1,667,000)
------------ ------------
EFFECT OF FOREIGN EXCHANGE RATE
CHANGES ON CASH (42,000) 110,000
------------ ------------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (29,000) (921,000)
------------ ------------
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 5,903,000 7,547,000
------------ ------------
CASH AND CASH EQUIVALENTS
AT MARCH 31 $ 5,874,000 $ 6,626,000
============ ============
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
-3-
HATHAWAY CORPORATION
--------------------
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT
------------------------------------------------------------
FOR THE NINE MONTHS ENDED MARCH 31, 1996
(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 $(3,663,000)
Purchase of treasury
stock -- -- -- -- -- 9,202 (21,000)
Dividends paid to
stockholders ($.10
per share) -- -- -- -- (426,000) -- --
Long-term incentive
plan bonus (Note 6) -- -- (55,000) -- -- -- --
Net loss for the
nine months ended
March 31, 1996 -- -- -- -- (1,251,000) -- --
--------- -------- ---------- --------- ---------- --------- -----------
Balances,
March 31, 1996 5,307,143 $100,000 $9,712,000 $(235,000) $8,009,000 1,050,762 $(3,684,000)
========= ======== ========== ========= ========== ========= ===========
(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 condensed consolidated financial statements
are an integral part of these statements.
-4-
HATHAWAY CORPORATION
--------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(UNAUDITED)
1. Basis of Preparation and Presentation
-------------------------------------
The accompanying unaudited condensed consolidated financial statements
include the accounts of Hathaway Corporation, its wholly-owned subsidiaries and
investments in joint ventures (the Company). All significant intercompany
accounts and transactions have been eliminated in consolidation. Certain
reclassifications have been made to prior year balances in order to conform with
the current year's presentation.
The condensed consolidated financial statements included herein have been
prepared by the Company 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. 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. The financial data for the interim periods may not necessarily be
indicative of results to be expected for the year.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make certain estimates and
assumptions. Such estimates and assumptions affect the reported amounts of
assets and liabilities as well as disclosure of contingent assets and
liabilities at the date of the consolidated financial statements, and the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
It is suggested that the accompanying condensed interim financial statements
be read in conjunction with the Consolidated Financial Statements and related
Notes to such statements included in the June 30, 1995 Annual Report and Form
10-K previously filed by the Company.
2. Inventories
-----------
Inventories, valued at the lower of cost (first-in, first-out basis) or
market, are as follows:
March 31, June 30,
1996 1995
---------- ----------
Parts and raw materials, net $3,250,000 $2,898,000
Finished goods and work-in-process, net 1,594,000 1,571,000
---------- ----------
$4,844,000 $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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------------------
(UNAUDITED)
4. Loan Covenant Violation
-----------------------
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 did not meet the cash flow coverage covenant as of
September 30, 1995 and December 31, 1995, which constituted an event of default
under the Agreement. Pursuant to the Agreement, upon the happening of an event
of default, Midland could have declared any principal amounts outstanding, plus
interest and expenses, to be immediately due and payable; however, it did not.
In February, 1996 the Company received a waiver of compliance with the cash
flow coverage covenant requirement from September 30, 1995 through December 31,
1996. Accordingly, the balance of the long-term debt has been classified as
long-term at March 31, 1996. In connection with obtaining the aforementioned
waiver, the Company agreed to certain conditions, including limiting the assets
against which the Company may borrow to certain accounts receivable and
requiring the Company to maintain higher tangible net worth and achieve certain
operating results for the year ending June 30, 1996. Also, as long as the
Company is in violation of the cash flow coverage covenant, the Company may not,
without the prior written consent of Midland, pay cash dividends, purchase
treasury stock (except for up to $120,000 annually from employees), or make
investments in other than investment grade securities. To date, the Company has
complied with all conditions contained in the waiver.
There can be no assurance that the Company will not require additional
waivers in the future or, if required, that Midland will grant them.
Furthermore, in the event that management determines that, based on its
projections, it is probable that the Company will not be able to comply with any
covenant contained in the Agreement within twelve months after the balance sheet
date for which compliance with the covenant has been waived, the entire balance
of the long-term debt would be reclassified as short-term debt in accordance
with the provisions of Emerging Issues Task Force Issue No. 86-30,
"Classification of Obligations When a Violation is Waived by the Creditor."
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. Long-term Incentive Bonus
-------------------------
The Company's employment agreements with two of its executive officers
provide for a long-term incentive bonus to be paid to the officers based on the
achievement of specified returns on equity and growth in share price plus
dividends paid over a three year performance period (See Note 10 in the June 30,
1995 Annual Report). Net compensation expense of $55,000 related to the bonus
for the three year performance period ending June 30, 1996, classified as
General and administrative expense in the Statements of Operations, was
recognized in fiscal years 1994 and 1995 and was reflected as an adjustment to
Additional paid-in capital prior to March 31, 1996.
Based on current estimates, management believes that it is unlikely that the
current specified performance thresholds necessary for a payout of the long-term
incentive bonus will be met. Accordingly, the $55,000 of expense previously
recorded was reversed against Additional paid-in capital and General and
administrative expense in the third quarter of fiscal 1996.
-6-
HATHAWAY CORPORATION
--------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
OPERATING RESULTS AND FINANCIAL CONDITION
-----------------------------------------
Operating Results
- -----------------
For the third quarter ended March 31, 1996, the Company recognized a net loss
of $507,000 or $0.12 per share, compared to net income of $245,000, or $0.06 per
share, for the same period last year. Revenues decreased 12% in the third
quarter from $9,405,000 last year to $8,274,000 this year.
The Company recognized a net loss of $1,251,000 for the nine months ended
March 31, 1996, compared to net income of $523,000 for the nine months ended
March 31, 1995. Revenues for the first nine months decreased by 13% from
$29,231,000 in fiscal 1995 to $25,463,000 in fiscal 1996.
The 12% decrease in revenues in the third quarter is due to a 31% decrease in
revenues from our power and process instrumentation products, partially offset
by a 62 % increase in revenues from the Company's motion control products. The
13% decrease in revenues for the first nine months is due to a 27% decrease in
power and process revenues, partially offset by a 45% increase in motion control
revenues.
The decreases in power and process revenues are mainly attributable to the
continuing cost reduction efforts being made throughout the U.S. power industry
in response to the enactment of the Energy Policy Act of 1992, which facilitates
competition among utility companies, and similar initiatives in the Company's
foreign markets. The increases in motion control revenues reflect continued
growth in demand for the Company's motion control products.
In the third quarter, sales to international customers decreased 2% from
$3,154,000, or 34% of total sales, in fiscal 1995 to $3,104,000, or 38% of total
sales, in fiscal 1996. Of these foreign sales, $1,613,000 and $1,041,000 were
export sales from domestic operations for the third quarter of 1996 and 1995,
respectively. Domestic sales totaled $5,170,000 in the third quarter of fiscal
1996, compared to $6,251,000 in the third quarter of fiscal 1995.
For the first nine months, sales to international customers decreased 6% from
$10,248,000, or 35% of total sales, to $9,659,000, or 38% of total sales. Of
these foreign sales, $5,263,000 and $4,576,000 were export sales from domestic
operations for the first nine months of fiscal 1996 and 1995, respectively.
Sales to domestic customers were $15,804,000 in the first nine months of 1996,
compared to $18,984,000 in the first nine months of fiscal 1995.
Cost of products sold as a percentage of revenues increased from 55% in the
third quarter of fiscal year 1995 to 64% in the third quarter of fiscal year
1996. For the first nine months, the percentage increased from 57% in fiscal
1995 to 62 % in fiscal 1996. The increases reflect the shift in product mix, as
well as changes in pricing and expenses included in cost of products sold.
Selling, general and administrative, and engineering and development expenses
decreased by $318,000, or 8%, in the third quarter of fiscal 1996 and by
$677,000, or 6%, in the first nine months of fiscal 1996 as compared to the same
period last year. The decreases reflect cost reduction efforts being made by the
Company in response to the decrease in revenues.
-7-
HATHAWAY CORPORATION
--------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
OPERATING RESULTS AND FINANCIAL CONDITION (CONTINUED)
-----------------------------------------------------
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 $29,000 during
the first nine months to a balance of $5,874,000 at March 31, 1996. The
liquidity position as measured by cash and marketable securities decreased
$1,057,000 during the first nine months of fiscal 1996.
Operating activities generated $244,000 in the first nine months of fiscal
1996 compared to $1,470,000 generated in the same period of fiscal 1995. The
decrease in cash generated by operating activities is primarily the result of
$1,251,000 of operating losses incurred in the first nine months of fiscal 1996,
compared to $523,000 of net income generated in the first nine months of fiscal
1995.
Cash of $531,000 was generated by investing activities during the first nine
months ended March 31, 1996, compared to $834,000 used by investing activities
during the same period last year. The change in cash from investing activities
was due primarily to certain non-recurring transactions in fiscal 1996. A
$1,000,000 investment that had been included in Marketable securities in the
condensed consolidated balance sheets at June 30, 1995 matured in March of 1996
and was reclassified to Cash and cash equivalents. In addition, $165,000 was
generated in fiscal 1996 from a non-recurring sale of a contractual right.
Cash of $762,000 was used by financing activities during the first three
quarters of fiscal 1996, compared to $1,667,000 used by financing activities in
the same period last year. The decrease in cash used for financing activities is
due primarily to an additional $1,082,000 used in fiscal 1995 for the purchase
of treasury stock. The Board of Directors' decision to discontinue the public
stock repurchase program was the primary reason for the lower volume of stock
repurchase activity in fiscal 1996.
No major commitments for capital expenditures existed at March 31, 1996. The
Company's current capital needs can be supplied from cash and cash equivalents
and marketable securities scheduled to mature within the coming year. In
addition, $1,202,000 is available under the amended terms of the Company's line
of credit with Marine Midland Business Loans, Inc.
-8-
HATHAWAY CORPORATION
--------------------
PART II. OTHER INFORMATION
- -------- -----------------
Item 3. 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 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company held its annual stockholders' meeting on October 26, 1995.
The stockholders elected E.E. Prince, M.J. Fein, C.H. Clarridge, G.D.
Hubbard and G.J. Pilmanis to serve on the Board of Directors for the
coming year. In addition, a stockholder proposal that would have
requested the Board of Directors to seek potential buyers for the
Company was defeated. The vote tabulation was as follows:
1) Election of Directors
NUMBER OF VOTES
-----------------------
WITHHELD OR TOTAL SHARES % OF SHARES
NOMINEE FOR AGAINST OUTSTANDING VOTING FOR
-------------------------------------------------------------------
E.E. Prince 3,333,009 682,910 4,265,513 78%
M.J. Fein 3,433,937 581,982 4,265,513 81%
C.H. Clarridge 3,442,549 573,370 4,265,513 81%
G.D. Hubbard 3,390,868 625,051 4,265,513 80%
G.J. Pilmanis 3,390,645 625,274 4,265,513 80%
2) Stockholder proposal
TOTAL VOTES
FOR AGAINST COUNTED ABSTAINING
--------------------------------------------------
Number of votes 1,111,937 2,110,639 3,222,576 130,203
% of votes counted 34% 66% 100%
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
March 31, 1996.
-9-
HATHAWAY CORPORATION
--------------------
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 14, 1996 By: /s/ RICHARD D. SMITH
------------------------------ ---------------------------------
Executive Vice President,
Treasurer, Secretary and
Chief Financial and
Accounting Officer
-10-
5
3-MOS 9-MOS
JUN-30-1996 JUN-30-1996
JAN-01-1996 JUL-01-1995
MAR-31-1996 MAR-31-1996
5,874,000 5,874,000
201,000 201,000
5,762,,000 5,762,999
353,000 353,000
4,844,000 4,844,000
17,796,000 17,796,000
8,098,000 8,098,000
6,309,000 6,309,000
20,523,000 20,523,000
4,499,000 4,499,000
1,965,000 1,965,000
0 0
0 0
100,000 100,000
13,959,000 13,959,000
20,523,000 20,523,000
8,274,000 25,463,000
8,274,000 25,463,000
5,331,000 15,894,000
5,331,000 15,894,000
0 0
(10,000) 52,000
47,000 148,000
(645,000) (1,518,000)
138,000 267,000
(507,000) (1,251,000)
0 0
0 0
0 0
(507,000) (1,251,000)
(0.12) (0.29)
(0.12) (0.29)
PRESENTED GROSS
