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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 NUMBER
SEPTEMBER 30, 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:
(4,244,817 as of September 30, 1996)
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HATHAWAY CORPORATION
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INDEX
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Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations
Three months ended September 30, 1996
(Unaudited) and September 30, 1995 (Unaudited)............. 1
Consolidated Balance Sheets
September 30, 1996 (Unaudited) and June 30, 1996........... 2
Consolidated Statements of Cash Flows
Three months ended September 30, 1996
(Unaudited) and September 30, 1995 (Unaudited)............. 3
Consolidated Statement of Stockholders' Investment
Three months ended September 30, 1996 (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 6. Exhibits and Reports on Form 8-K............................ 9
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
September 30,
-----------------------------------
1996 1995
--------------- -----------------
REVENUES $ 8,818 $ 7,511
OPERATING COSTS AND EXPENSES:
Cost of products sold 5,537 4,898
Selling 1,802 1,494
General and administrative 1,088 1,221
Engineering and development 885 941
Amortization of intangibles 46 62
--------------- -----------------
Total operating costs and expenses 9,358 8,616
--------------- -----------------
Operating income (loss) (540) (1,105)
OTHER INCOME (EXPENSES), NET:
Interest and dividend income 72 89
Interest expense (42) (51)
Other income, net (22) 168
--------------- -----------------
Total other income, net 8 206
--------------- -----------------
Income (loss) from continuing operations
before income taxes (532) (899)
Benefit (provision) for income taxes 157 148
--------------- -----------------
NET INCOME (LOSS) $ (375) $ (751)
=============== =================
PER SHARE AMOUNTS
Primary and fully diluted net income (loss) per share $ (0.09) $ (0.18)
=============== =================
Shares used in computing primary per share amounts 4,264 4,287
=============== =================
Shares used in computing fully diluted per share amounts 4,264 4,287
=============== =================
The accompanying notes to consolidated financial statements are an integral part
of the statements.
-1-
HATHAWAY CORPORATION
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CONSOLIDATED BALANCE SHEETS
---------------------------
(IN THOUSANDS)
September 30, June 30,
1996 1996
------------- ---------
(Unaudited)
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 4,684 $ 5,237
Marketable securities, current -- 201
Trade receivables, net 7,480 6,293
Inventories, net 6,273 4,972
Prepaid expenses and other 1,846 1,750
------------- ---------
Total current assets 20,283 18,453
Property and equipment, net 1,697 1,727
Other 886 959
------------- ---------
Total assets $22,866 $21,139
============= =========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,816 $ 1,309
Accrued and other current liabilities 4,130 3,771
Accrued acquisition purchase price 1,301 --
------------- ---------
Total current liabilities 7,247 5,080
Long-term debt 1,733 1,777
------------- ---------
Total liabilities 8,980 6,857
STOCKHOLDERS' INVESTMENT:
Common stock 100 100
Additional paid-in capital 9,749 9,712
Loans receivable for stock (235) (235)
Retained earnings 7,872 8,247
Cumulative translation adjustments 187 163
Treasury stock (3,787) (3,705)
------------- ---------
Total stockholders' investment 13,886 14,282
------------- ---------
Total liabilities and stockholders' investment $22,866 $21,139
============= =========
The accompanying notes to consolidated financial statements are an integral part
of the statements.
-2-
HATHAWAY CORPORATION
--------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
September 30,
--------------------------------
1996 1995
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES: $ (375) $ (751)
Net income (loss)
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 254 230
Other
Changes in assets and liabilities:
(Increase) decrease in -
Trade receivables, net (265) 1,683
Inventories, net 194 (604)
Prepaid expenses and other (96) (349)
Increase (decrease) in -
Accounts payable 41 283
Accrued liabilities and other (291) (377)
-------------- -------------
Net cash from operating activities (574) 134
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (95) (181)
Proceeds from maturity of long-term investment 198 --
-------------- -------------
Net cash from investing activities 103 (181)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on line of credit and long-term debt (44) (115)
Dividends paid to stockholders -- (426)
Purchase of treasury stock (82) --
Proceeds from exercise of stock options 37 --
-------------- -------------
Net cash from financing activities (89) (541)
-------------- -------------
EFFECT OF FOREIGN EXCHANGE RATE
CHANGES ON CASH 7 (4)
-------------- -------------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (553) (592)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 5,237 5,903
-------------- -------------
CASH AND CASH EQUIVALENTS
AT SEPTEMBER 30 $ 4,684 $ 5,311
============== =============
The accompanying notes to consolidated financial statements are an integral part
of the statements.
-3-
HATHAWAY CORPORATION
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CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT
--------------------------------------------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
COMMON STOCK TREASURY STOCK
--------------------- -------------------------
ADDITIONAL LOANS
SHARES AMOUNT PAID-IN RECEIVABLE RETAINED SHARES AMOUNT
CAPITAL (1) EARNINGS
---------------------------------------------------------------------------------------
Balances,
June 30, 1996 5,307,143 $ 100 $ 9,712 $ (235) $ 8,247 1,058,046 $ (3,705)
Purchase of treasury
stock --- --- --- --- --- --- ---
Exercise of stock
options 15,500 37
Net loss for the
three months ended
September 30, 1996 --- --- --- --- --- --- ---
---------------------------------------------------------------------------------------
Balances,
September 30, 1996 5,322,643 $ 100 $ 9,749 $ (235) $ 7,872 1,077,826 $ (3,787)
=======================================================================================
(1) Loans receivable are from the Company's Leveraged Employee Stock Ownership
Plan and Trust for $102 and from an officer of the Company for stock
purchases totaling $133.
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 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, 1996 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 (in thousands):
September 30, June 30,
1996 1996
--------------- --------------
Parts and raw materials, net $ 2,818 $ 2,689
Finished goods and work-in-process, net 3,455 2,283
--------------- --------------
$ 6,273 $ 4,972
=============== ==============
3. Business Acquisition
--------------------
Effective September 30, 1996, the Company acquired a 100% partnership
interest in Tate Integrated Systems, L.P. and 100% of the stock of its sole
general partner, Tate Integrated Systems, Inc. (collectively referred to as
"TIS"). The ownership interests were acquired for a negotiated price of
$1,301,000, of which $718,000 was paid in cash at closing on October 10, 1996,
$400,000 payable in a 10% note due June 30, 1997 and $183,000 payable when
certain accounts receivable of TIS are collected. Hathaway purchased the stock
and partnership interest from Tate Engineering Services Corporation and its
affiliate, Tate Engineering Services, Inc., both divisions of Tate Industries, a
privately held company.
-5-
HATHAWAY CORPORATION
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
(UNAUDITED)
TIS, located in Baltimore, Maryland, is a full service supplier of process
automation systems for industrial applications. TIS has developed a
state-of-the-art software system for Supervisory Control and Data Acquisition
(SCADA) and Distributed Control Systems (DCS). The TIS system has been used to
fully automate such industrial applications as water and waste water treatment
plants, glass making plants, oil and gas terminals and transport facilities and
tank farm facilities. TIS, which will operate under the name Hathaway Industrial
Automation, will continue its expansion into its traditional process markets. In
addition, the TIS system will be marketed to the power utility industry and will
be teamed with certain existing Hathaway products and targeted at the automation
and integration of equipment in both transmission and distribution substations
and power plants.
The acquisition has been accounted for using the purchase method of
accounting, and, accordingly, the purchase price has been allocated to the
assets purchased and the liabilities assumed based upon the fair values at the
date of acquisition.
The net purchase price was allocated as follows (in thousands):
Accounts receivable $ 922
Inventory 1,495
Accounts payable (466)
Current liabilities and other (650)
--------------
Net purchase price $ 1,301
==============
The above amounts have been included in the September 30, 1996 balances in
the accompanying balance sheets. The results of operations of TIS will be
included in the Company's consolidated statements of operations starting on
October 1, 1996.
The following unaudited pro forma summary (in thousands, except per share
data) combines Three months ended the consolidated results of operations of the
Company and TIS as if the acquisition had occurred at the beginning of fiscal
years 1997 and 1996 after giving effect to certain pro forma adjustments. The
pro forma results are shown for illustrative purposes only, and do not purport
to be indicative of the actual results which would have occurred had the
transaction been consummated as of those earlier dates, nor are they indicative
of results of operations which may occur in the future.
Three months ended
September 30, September 30,
1996 1995
--------------- ---------------
Revenue $ 9,818 $ 8,348
=============== ===============
Net loss $ (349) $ (825)
=============== ===============
Primary net loss per share $ (0.08) $ (0.19)
=============== ===============
-6-
HATHAWAY CORPORATION
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
OPERATING RESULTS AND FINANCIAL CONDITION
-----------------------------------------
Operating Results
- -----------------
For the first quarter ended September 30, 1996, the Company recognized a
net loss of $375,000 or $.09 per share, compared to a net loss of $751,000, or
$.18 per share, for the same period last year. Revenues increased 17% in the
first quarter from $7,511,000 last year to $8,818,000 this year.
The 17% increase in revenues is due to a 14% increase in revenues from the
Company's power and process instrumentation products and a 24% increase in
revenues from the Company's motion control products. Sales of power and process
instrumentation products decreased from 69% of total sales in the first quarter
of 1996 to 67% of total sales in the first quarter of 1997. Sales of motion
control products increased from 31% of total sales in the first quarter of 1996
to 33% of total sales in the first quarter of 1997.
The increase in sales of power and process instrumentation products was due
primarily to revenues generated from newly introduced products sold to power
customers. The increase in sales of motion control products reflects
continually rising customer demand. Sales to international customers remained
constant at 39% of total sales.
Gross margin increased from 35% in the first quarter of fiscal 1996 to 37%
in fiscal 1997 due to changes in volume, product mix and pricing. Selling,
general and administrative, and engineering and development expenses increased
3% in the first quarter from $3,718,000 last year to $3,821,000 in the current
year, primarily due to an increase in selling expenses.
Other income decreased from $206,000 in fiscal 1996 to $8,000 in fiscal
1997 primarily due to a one-time gain on the sale of a contractual right which
was recorded in the first quarter of fiscal 1996.
In connection with the Company's continuing effort to reorganize the
operations of its power and process products groups, the Company decided in the
first quarter of fiscal 1997 to consolidate all manufacturing for the power
group into the Company's manufacturing facilities located in Seattle, Washington
and Belfast, Northern Ireland, and, accordingly, to close the Company's Denver
manufacturing facility. The Company recorded a $338,000 restructuring charge in
the fourth quarter of fiscal 1996 in connection with the reorganization plans as
a result of decisions made in fiscal 1996. The effect of the additional
reorganization efforts initiated in the first quarter of fiscal 1997 did not
have a material effect on the Company's financial condition or results of
operations. The intent of the reorganization has been to reduce costs and
enhance productivity and efficiency in the power and process products groups.
Liquidity and Capital Resources
-------------------------------
Effective September 30, 1996, the Company acquired a 100% partnership
interest in Tate Integrated Systems, L.P. and 100% of the stock of its sole
general partner, Tate Integrated Systems, Inc. (collectively referred to as
"TIS"). The ownership interests were acquired for a negotiated price of
$1,301,000, of which $718,000 was paid in cash at closing on October 10, 1996,
$400,000 payable in a 10% note due June 30, 1997 and $183,000 payable when
certain accounts receivable of TIS are collected.
TIS, located in Baltimore, Maryland, is a full service supplier of
process automation systems for industrial applications. The TIS system has been
used to fully automate such industrial applications as water and waste water
treatment plants, glass making plants, oil and gas terminals and transport
facilities and tank farm facilities. TIS, which will operate under the name
Hathaway Industrial Automation, will continue its expansion into its traditional
process markets. In addition, the TIS system will be marketed to the power
utility industry and will be teamed with certain existing Hathaway products and
targeted at the automation and integration of equipment in both transmission and
distribution substations and power plants.
-7-
HATHAWAY CORPORATION
--------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
OPERATING RESULTS AND FINANCIAL CONDITION
-----------------------------------------
The acquisition has been accounted for using the purchase method of
accounting, and, accordingly, the purchase price has been allocated to the
assets purchased and the liabilities assumed based upon the fair values at the
date of acquisition. The TIS assets acquired and liabilities assumed have been
included in the September 30, 1996 balances in the accompanying balance sheets.
The Company's liquidity position as measured by cash decreased $553,000
during the first quarter of fiscal 1997 to a balance of $4,684,000 at September
30, 1996, compared to $592,000 used in the first quarter in fiscal 1996.
Operating activities used $574,000 in the first quarter of fiscal 1997 compared
to $134,000 generated in the first quarter of fiscal 1996. The decrease in cash
from operating activities was primarily due to fluctuations in working capital
balances.
Cash of $103,000 was generated by investing activities in the first quarter
of 1997, compared to $181,000 used by investing activities last year, primarily
due to the maturity of a long-term investment which was converted into cash.
Cash of $89,000 and $541,000 was used in financing activities during the
first quarter of 1997 and 1996, respectively. The decrease in cash used for
financing activities was due primarily to dividends of $426,000 paid to
stockholders last year, whereas no dividends were paid to stockholders in the
first quarter of fiscal 1997. The Board of Directors did not declare an annual
dividend in the first quarter of fiscal 1997 due to the fiscal 1996 loss and
because the Company's loan agreement does not allow the Company to pay dividends
until a certain loan covenant is met.
The Company's current capital needs can be supplied from operations, cash
and cash equivalents and $1,622,000 available under the Company's line of credit
with Marine Midland Business Loans, Inc.
-8-
HATHAWAY CORPORATION
--------------------
PART II. OTHER INFORMATION
- -------- -----------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
2. Purchase Agreement dated October 10, 1996. Incorporated by
reference to Exhibit 2 to the company's Form 8-K dated October
10, 1996.
13. Annual Report containing Notes to Consolidated Financial
Statements in the Registrant's June 30, 1996 Annual Report to
Stockholders.
27. Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed in the three months ended
September 30, 1996.
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 14, 1996 By: /s/ Richard D. Smith
---------------------- --------------------------------
Executive Vice President,
Treasurer, and
Chief Financial and Accounting
Officer
-9-
5
1,000
3-MOS
JUN-30-1996
JUL-01-1996
SEP-30-1996
4,684
0
7,808
328
6,273
20,283
7,957
6,260
22,866
7,247
1,733
0
0
100
13,786
22,866
8,818
8,818
5,537
5,537
0
7
42
(532)
(157)
(375)
0
0
0
(375)
(0.09)
(0.09)
Presented Gross
