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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
December 31, 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:
(4,264,046 as of December 31, 1995)
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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 and six months ended December 31, 1995
(Unaudited) and December 31, 1994 (Unaudited)........ 1
Consolidated Balance Sheets
December 31, 1995 (Unaudited) and June 30, 1995...... 2
Consolidated Statements of Cash Flows
Six months ended December 31, 1995 (Unaudited) and
Six months ended December 31, 1994 (Unaudited)....... 3
Consolidated Statement of Stockholders' Investment
Six months ended December 31, 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 4. Submission of matters to a vote of security holders..... 9
Item 6. Exhibits and Reports on Form 8-K........................ 9
HATHAWAY CORPORATION
--------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------- -------------------------------
1995 1994 1995 1994
---------- ----------- ----------- -----------
REVENUES $9,678,000 $10,408,000 $17,189,000 $19,826,000
OPERATING COSTS AND EXPENSES:
Cost of products sold 5,665,000 6,162,000 10,563,000 11,549,000
Selling 1,645,000 1,859,000 3,139,000 3,631,000
General and administrative 1,317,000 1,196,000 2,538,000 2,446,000
Engineering and development 868,000 889,000 1,809,000 1,768,000
Amortization of intangibles 62,000 62,000 124,000 124,000
---------- ----------- ----------- -----------
Total operating costs and expenses 9,557,000 10,168,000 18,173,000 19,518,000
---------- ----------- ----------- -----------
Operating income (loss) 121,000 240,000 (984,000) 308,000
OTHER INCOME (EXPENSES), NET:
Gain on sale of contractual right (Note 3) -- -- 165,000 --
Interest and dividend income 81,000 70,000 170,000 147,000
Interest expense (50,000) (43,000) (101,000) (93,000)
Other income (expenses), net (126,000) 18,000 (123,000) 61,000
---------- ----------- ----------- -----------
Total other income (expenses), net (95,000) 45,000 111,000 115,000
---------- ----------- ----------- -----------
Income (loss) before income taxes 26,000 285,000 (873,000) 423,000
Benefit (provision) for income taxes (19,000) (97,000) 129,000 (145,000)
---------- ----------- ----------- -----------
NET INCOME (LOSS) $ 7,000 $ 188,000 $ (744,000) $ 278,000
========== =========== =========== ===========
PER SHARE AMOUNTS
Primary and fully diluted net income
(loss) per share $ 0.00 $ 0.04 $ (0.17) $ 0.06
========== =========== =========== ===========
Shares used in computing primary per
share amounts 4,268,000 4,390,000 4,278,000 4,506,000
========== =========== =========== ===========
Shares used in computing fully diluted
per share amounts 4,268,000 4,394,000 4,278,000 4,515,000
========== =========== =========== ===========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
-1-
HATHAWAY CORPORATION
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CONSOLIDATED BALANCE SHEETS
---------------------------
December 31, June 30,
1995 1995
------------ ------------
(Unaudited)
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 4,566,000 $ 5,903,000
Marketable securities, current 1,209,000 1,029,000
Trade receivables, net 6,627,000 7,486,000
Inventories, net 4,668,000 4,469,000
Prepaid expenses and other 1,523,000 1,313,000
------------ ------------
Total current assets 18,593,000 20,200,000
Marketable securities, non-current -- 200,000
Property and equipment, net 1,820,000 1,798,000
Other 988,000 1,114,000
------------ ------------
Total assets $ 21,401,000 $ 23,312,000
============ ============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,051,000 $ 1,308,000
Accrued liabilities 2,539,000 2,721,000
Other current liabilities 1,016,000 1,266,000
------------ ------------
Total current liabilities 4,606,000 5,295,000
Long-term debt 2,123,000 2,144,000
------------ ------------
Total liabilities 6,729,000 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 8,516,000 9,686,000
Cumulative translation adjustments 191,000 218,000
Treasury stock (3,667,000) (3,663,000)
------------ ------------
Total stockholders' investment 14,672,000 15,873,000
------------ ------------
Total liabilities and stockholders' investment $ 21,401,000 $ 23,312,000
============ ============
The accompanying notes to consolidated financial statements are an
integral part of these statements.
-2-
HATHAWAY CORPROATION
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CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
Six Months Ended
December 31,
--------------------------
1995 1994
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (744,000) $ 278,000
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 449,000 485,000
Other (87,000) (1,000)
Changes in assets and liabilities:
(Increase) decrease in -
Trade receivables, net 887,000 (561,000)
Inventories, net (240,000) 612,000
Prepaid expenses and other (312,000) 26,000
Increase (decrease) in -
Accounts payable (253,000) (210,000)
Accrued liabilities and other (163,000) (47,000)
----------- -----------
Net cash from operating activities (463,000) 582,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (383,000) (473,000)
Investment in joint ventures (70,000) (115,000)
Proceeds from sale of contractual right 165,000 --
----------- -----------
Net cash from investing activities (288,000) (588,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on line of credit and long-term debt (115,000) (260,000)
Borrowings on line of credit and long-term debt -- 287,000
Dividends paid to stockholders (426,000) (536,000)
Purchase of treasury stock (4,000) (1,048,000)
Proceeds from exercise of stock options -- 33,000
----------- -----------
Net cash from financing activities (545,000) (1,524,000)
----------- -----------
EFFECT OF FOREIGN EXCHANGE RATE
CHANGES ON CASH (41,000) 22,000
----------- -----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (1,337,000) (1,508,000)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 5,903,000 7,547,000
----------- -----------
CASH AND CASH EQUIVALENTS
AT DECEMBER 31 $ 4,566,000 $ 6,039,000
=========== ===========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
-3-
HATHAWAY CORPORATION
---------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT
--------------------------------------------------
For the six months ended December 31, 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 $(3,663,000)
Purchase of treasury
stock --- --- --- --- --- 1,537 (4,000)
Dividends paid to
stockholders ($.10
per share) --- --- --- --- (426,000) --- ---
Net loss for the
six months ended
December 31, 1995 --- --- --- --- (744,000) --- ---
--------- -------- ---------- --------- ---------- --------- -----------
Balances,
December 31, 1995 5,307,143 $100,000 $9,767,000 $(235,000) $8,516,000 1,043,097 $(3,667,000)
========= ======== ========== ========= ========== ========= ===========
(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 December 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. Inventories
-----------
Inventories, valued at the lower of cost (first-in, first-out basis) or
market, are as follows:
December 31, June 30,
1995 1995
------------ -----------
Parts and raw materials, net $ 3,103,000 $ 2,898,000
Finished goods and work-in-process, net 1,565,000 1,571,000
------------- -----------
$ 4,668,000 $ 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
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NOTES TO 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 December 31, 1995. In connection with obtaining the aforementioned
waiver, the Company agreed to certain conditions, including limiting the assets
against which the Company may borrow to 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.
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-
HATHAWAY CORPORATION
--------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
OPERATING RESULTS AND FINANCIAL CONDITION
-----------------------------------------
Operating Results
- -----------------
For the second quarter ended December 31, 1995, the Company achieved net
income of $7,000 or $.00 per share, compared to net income of $188,000, or $.04
per share, for the same period last year. Revenues decreased 7% in the second
quarter from $10,408,000 last year to $9,678,000 this year.
The Company recognized a net loss of $744,000 for the six months ended
December 31, 1995, compared to net income of $278,000 for the six months ended
December 31, 1994. Revenues for the first six months decreased by 13% from
$19,826,000 in fiscal 1995 to $17,189,000 in fiscal 1996.
The 7% decrease in revenues in the second quarter is due to a 19% decrease
in revenues from our power and process instrumentation products, partially
offset by a 48% increase in revenues from our motion control products. The 13%
decrease in revenues for the first six months is due to a 25% decrease in power
and process revenues, partially offset by a 37% 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 power industry in
response to the enactment of the Energy Policy Act of 1992, which facilitates
competition among utility companies. The increases in motion control revenues
reflect continued growth of this market and increasing demand for this type of
product.
In the second quarter, sales to international customers decreased 12% from
$4,078,000 in fiscal 1995 to $3,600,000 in fiscal 1996. For the first six
months, sales to international customers decreased 4% from $6,847,000 to
$6,555,000. Foreign sales represented 38% and 35% of total sales for the six
months ended December 31, 1995 and 1994, respectively, and 37% and 39%,
respectively, of total sales for the second quarter.
Cost of products sold as a percentage of revenues remained consistent at 59%
for the second quarter of fiscal year 1996 and 1995. For the first six months,
the percentage increased from 58% in fiscal 1995 to 61% in fiscal 1996 because
of a decrease in revenues due to changes in volume and pricing.
Selling, general and administrative, and engineering and development
expenses decreased 3% in the second quarter and 5% for the first six months. The
decreases reflect 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 $1,337,000
during the first six months to a balance of $4,566,000 at December 31, 1995.
Operating activities used $463,000 in the first six months of fiscal 1996
compared to $582,000 generated in the same period of fiscal 1995. The decrease
in cash generated by operating activities is primarily the result of less cash
received from customers during the quarter, partially offset by less
disbursements made because of lower costs and expenses.
-7-
HATHAWAY CORPORATION
--------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
OPERATING RESULTS AND FINANCIAL CONDITION (CONTINUED)
-----------------------------------------------------
Cash of $288,000 and $588,000 was used by investing activities during the
six months ended December 31, 1995 and 1994, respectively, primarily for the
purchase of property and equipment. The decrease in cash used by investing
activities occurred primarily because of $165,000 generated in fiscal 1996 from
a non-recurring sale of a contractual right.
Cash of $545,000 was used by financing activities during the first two
quarters of fiscal 1996, compared to $1,524,000 used by financing activities in
the same period last year. The decrease in cash used for financing activities is
due primarily to an additional $1,044,000 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 low volume of stock
repurchase activity in fiscal 1996.
The Company's non-compliance with one debt covenant as of September 30, 1995
represented a major possible commitment for use of funds at September 30, 1995.
The debt balance of $2,082,000 at September 30, 1995 had been classified as
current in order to reflect the possibility that Midland could declare the
entire balance immediately due and payable. However, In February, 1996 the
Company received a waiver of compliance with the 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 December 31, 1995.
The Company's current capital needs can be supplied from cash and cash
equivalents and $1,209,000 in marketable securities scheduled to mature within
the coming year. In addition, $1,374,000 is available under the Company's line
of credit with Midland.
-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
December 31, 1995.
-9-
HATHAWAY CORPORATION
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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: February 14, 1996 By: /s/ Richard D. Smith
------------------------------ -------------------------------
Executive Vice President,
Treasurer, Secretary and
Chief Financial and
Accounting Officer
-10-
5
3-MOS 6-MOS
JUN-30-1996 JUN-30-1996
OCT-01-1995 JUL-01-1995
DEC-31-1995 DEC-31-1995
4,566,000 4,566,000
1,209,000 1,209,000
6,994,000 6,994,000
367,000 367,000
4,668,000 4,668,000
18,593,000 18,593,000
7,925,000 7,925,000
6,105,000 6,105,000
21,401,000 21,401,000
4,606,000 4,606,000
2,123,000 2,123,000
100,000 100,000
0 0
0 0
14,572,000 14,572,000
21,401,000 21,401,000
9,678,000 17,189,000
9,678,000 17,189,000
5,665,000 10,563,000
5,665,000 10,563,000
0 0
54,000 62,000
50,000 101,000
26,000 (873,000)
(19,000) 129,000
7,000 (744,000)
0 0
0 0
0 0
7,000 (744,000)
0.00 (0.17)
0.00 (0.17)
PRESENTED GROSS
