================================================================================
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, 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:
(4,245,227 as of December 31, 1996)
================================================================================
HATHAWAY CORPORATION
--------------------
INDEX
-----
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations
Three and six months ended December 31, 1996 and 1995 (Unaudited)............. 1
Consolidated Balance Sheets
December 31, 1996 (Unaudited) and June 30, 1996.............................. 2
Consolidated Statements of Cash Flows
Six months ended December 31, 1996 and 1995 (Unaudited)...................... 3
Consolidated Statement of Stockholders' Investment
Six months ended December 31, 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 4. Submission of matters to a vote of security holders............................ 8
Item 6. Exhibits and Reports on Form 8-K............................................... 9
HATHAWAY CORPORATION
--------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(In Thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------------------ ----------------------------------------
1996 1995 1996 1995
------------------- ----------------- ---------------- -----------------
REVENUES $ 10,368 $ 9,678 $ 19,186 $ 17,189
OPERATING COSTS AND EXPENSES:
Cost of products sold 6,739 5,665 12,276 10,563
Selling 1,980 1,645 3,782 3,139
General and administrative 1,190 1,317 2,278 2,538
Engineering and development 838 868 1,723 1,809
Amortization of intangibles 46 62 92 124
------------------- ----------------- ---------------- -----------------
Total operating costs and expenses 10,793 9,557 20,151 18,173
------------------- ----------------- ---------------- -----------------
Operating income (loss) (425) 121 (965) (984)
OTHER INCOME (EXPENSES), NET:
Interest and dividend income 42 81 114 170
Interest expense (41) (50) (83) (101)
Other income (expenses), net 63 (126) 41 42
------------------- ----------------- ---------------- -----------------
Total other income (expenses), net 64 (95) 72 111
------------------- ----------------- ---------------- -----------------
Income (loss) before income taxes (361) 26 (893) (873)
Benefit (provision) for income taxes 135 (19) 292 129
------------------- ----------------- ---------------- -----------------
NET INCOME (LOSS) $ (226) $ 7 $ (601) $ (744)
=================== ================= ================ =================
PER SHARE AMOUNTS
Primary and fully diluted net income
(loss) per share $ (0.05) $ 0.00 $ (0.14) $ (0.17)
=================== ================= ================ =================
Shares used in computing primary per
share amounts 4,378 4,268 4,329 4,278
=================== ================= ================ =================
Shares used in computing fully diluted
per share amounts 4,378 4,268 4,333 4,278
=================== ================= ================ =================
The accompanying notes to consolidated financial statements
are an integral part of these statements.
-1-
HATHAWAY CORPORATION
--------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(In Thousands)
December 31, June 30,
1996 1996
-------------------- -------------------
(Unaudited)
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 3,594 $ 5,237
Marketable securities, current -- 201
Trade receivables, net 7,665 6,293
Inventories, net 5,394 4,972
Prepaid expenses and other 1,612 1,750
-------------------- -------------------
Total current assets 18,265 18,453
Property and equipment, net 1,794 1,727
Other 991 959
-------------------- -------------------
Total assets $ 21,050 $ 21,139
==================== ===================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,387 $ 1,309
Accrued liabilities and other 3,950 3,771
-------------------- -------------------
Total current liabilities 5,337 5,080
Long-term debt 1,775 1,777
-------------------- -------------------
Total liabilities 7,112 6,857
STOCKHOLDERS' INVESTMENT:
Common stock 100 100
Additional paid-in capital 9,751 9,712
Loans receivable for stock (235) (235)
Retained earnings 7,646 8,247
Cumulative translation adjustments 465 163
Treasury stock (3,789) (3,705)
-------------------- -------------------
Total stockholders' investment 13,938 14,282
-------------------- -------------------
Total liabilities and stockholders' investment $ 21,050 $ 21,139
==================== ===================
The accompanying notes to consolidated financial statements
are an integral part of these statements.
-2-
HATHAWAY CORPORATION
--------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In Thousands)
(Unaudited)
Six Months Ended
December 31,
----------------------------------------------------
1996 1995
-------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (601) $ (744)
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 483 449
Other 187 78
Changes in assets and liabilities; net of effect of
purchase of subsidiary (Note 3):
(Increase) decrease in -
Trade receivables, net (550) 887
Inventories, net 894 (240)
Prepaid expenses and other 142 (312)
Increase (decrease) in -
Accounts payable (502) (253)
Accrued liabilities and other (988) (257)
------------ -----------
Net cash from operating activities (935) (392)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (192) (383)
Investment in joint ventures -- (70)
Proceeds from maturity of long-term investment 198 --
Purchase of interest in Tate Integrated Systems (718) --
------------ -----------
Net cash from investing activities (712) (453)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on line of credit and long-term debt, net (2) (21)
Dividends paid to stockholders -- (426)
Purchase of treasury stock (84) (4)
Proceeds from exercise of stock options 39 --
------------ -----------
Net cash from financing activities (47) (451)
------------ -----------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH 51 (41)
------------ -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,643) (1,337)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,237 5,903
------------ -----------
CASH AND CASH EQUIVALENTS AT DECEMBER 31 $ 3,594 $ 4,566
============ ===========
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, 1996
(In Thousands, except share data)
(Unaudited)
COMMON STOCK ADDITIONAL
------------------------------ PAID-IN LOANS RETAINED
SHARES AMOUNT CAPITAL RECEIVABLE/(1)/ EARNINGS
------------ ------------- ---------------- ------------------ --------------
Balances,
June 30, 1996 5,307,143 $ 100 $ 9,712 $ (235) $ 8,247
Purchase of treasury
stock --- --- --- --- ---
Exercise of stock
options 16,500 --- 39 --- ---
Net loss for the
six months ended
December 31, 1996 --- --- --- --- (601)
------------ ------------- ---------------- ------------------ --------------
Balances,
December 31, 1996 5,323,643 $ 100 $ 9,751 $ (235) $ 7,646
============ ============= ================ ================== ==============
TREASURY STOCK
-------------------------------
SHARES AMOUNT
------------ --------------
Balances,
June 30, 1996 1,058,046 $ (3,705)
Purchase of treasury
stock 20,370 (84)
Exercise of stock
options --- ---
Net loss for the
six months ended
December 31, 1996 --- ---
------------ -----------
Balances,
December 31, 1996 1,078,416 $ (3,789)
============ ===========
(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):
December 31, June 30,
1996 1996
------------------ --------------------
Parts and raw materials, net $ 2,759 $ 2,689
Finished goods and work-in-process, net 2,635 2,283
------------------ --------------------
$ 5,394 $ 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
--------------------
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 (HIA), 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 has been allocated as follows (in thousands):
Trade receivables, net $ 860
Inventories, net 1,317
Property and equipment, net 123
Other non-current assets 165
Accounts payable (580)
Accrued liabilities and other (584)
-----------------------
Net purchase price $ 1,301
=======================
The results of operations of TIS have been 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 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 Six months ended
December 31, December 31,
1996 1995 1996 1995
------------------ ----------------- ------------------ ------------------
Revenue $ 10,368 $ 11,010 $ 20,186 $ 19,358
================== ================= ================== ==================
Net income (loss) $ (226) $ 53 $ (575) $ (772)
================== ================= ================== ==================
Primary net income (loss)
per share $ (0.05) $ 0.01 $ (0.13) $ (0.18)
================== ================= ================== ==================
-6-
HATHAWAY CORPORATION
--------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
OPERATING RESULTS AND FINANCIAL CONDITION
-----------------------------------------
Operating Results
-----------------
For the second quarter ended December 31, 1996, the Company recognized a
net loss of $226,000 or $.05 per share, compared to net income of $7,000, or
$.00 per share, for the same period last year. Revenues increased 7% in the
second quarter from $9,678,000 last year to $10,368,000 this year.
The Company recognized a net loss of $601,000 for the six months ended
December 31, 1996, compared to a net loss of $744,000 for the six months ended
December 31, 1995. Revenues for the first six months increased by 12% from
$17,189,000 in fiscal 1996 to $19,186,000 in fiscal 1997.
The 7% increase in revenues in the second quarter was due to a 5% increase
in revenues from the Company's power and process instrumentation products and a
12% increase in revenues from the Company's motion control products. The 12%
increase in revenues for the first six months was due to a 9% increase in power
and process revenues and a 17% increase in motion control revenues. Increases in
power and process revenues were due primarily to revenues generated by HIA,
acquired by the Company effective September 30, 1996.
The net operating results in the second quarter and in the first six months
did not improve significantly from comparable prior year periods despite
increases in revenues, primarily due to increases in cost of products sold as a
percentage of revenues. Cost of products sold as a percentage of revenues
increased from 59% in the second quarter of fiscal 1996 to 65% in the same
quarter of fiscal 1997. For the first six months, the percentage increased from
61% in fiscal 1996 to 64% in fiscal 1997. The fluctuations in cost of product
sold as a percentage of revenues were due to changes in competitive pricing and
mix of products sold. In addition, HIA's cost of products sold represented a
higher percentage of revenues than that of the Company's existing product lines,
which is consistent with HIA's services business.
In the second quarter, sales to international customers decreased 2% from
$3,600,000 in fiscal 1996 to $3,520,000 in fiscal 1997. For the first six
months, sales to international customers increased 6% from $6,555,000 to
$6,949,000. Foreign sales represented 36% and 38% of total sales for the six
months ended December 31, 1996 and 1995, respectively, and 34% and 37%,
respectively, of total sales for the second quarter.
Selling, general and administrative, and engineering and development
expenses increased 4% in the second quarter and 3% for the first six months,
primarily as a result of such costs incurred by HIA, which was acquired by the
Company effective September 30, 1996. Excluding HIA, these expenses decreased 5%
in the second quarter and 1% in the first six months.
Liquidity and Capital Resources
-------------------------------
The Company's liquidity position as measured by cash decreased $1,643,000
during the first six months to a balance of $3,594,000 at December 31, 1996.
Operating activities used $935,000 in the first six months of fiscal 1997
compared to $392,000 used in the same period of fiscal 1996. The increase in
cash used by operating activities was primarily the result of fluctuations
in working capital balances and $597,000 used by HIA.
Cash of $712,000 and $453,000 was used by investing activities during the
six months ended December 31, 1996 and 1995, respectively. The increase in cash
used by investing activities was primarily due to $718,000 paid to Tate
Engineering Services in fiscal 1997 for the purchase of the ownership interest
in TIS.
Cash of $47,000 was used by financing activities during the first two
quarters of fiscal 1997, compared to $451,000 used by financing activities in
the same period last year. The decrease in cash used for financing activities
was due primarily to the $426,000 in dividends paid to stockholders in fiscal
1996, whereas there were no dividend payments in fiscal 1997.
The Company's current capital needs can be supplied from cash and cash
equivalents and $1,411,000 available under the Company's line of credit with
Marine Midland Business Loans, Inc.
-7-
HATHAWAY CORPORATION
--------------------
PART II. OTHER INFORMATION
- ------- -----------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company held its annual stockholders' meeting on October 24,
1996. The stockholders elected E.E. Prince, R.D. Smith, C.H.
Clarridge, G.D. Hubbard and G.J. Pilmanis to serve on the Board of
Directors for the coming year. The shareholders also approved a
proposal to amend the Company's 1991 Incentive and Nonstatutory Stock
Option Plan to increase the number of shares of the Company's common
stock that may be issued under the plan by 200,000 and to designate
such shares as available only for key employees of any company
acquired after August 15, 1996. In addition, the shareholders
defeated a stockholder proposal requesting the sale of the Company
and the elimination of the shareholders' rights plan and employee
severance agreements. 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 3,326,019 748,178 4,235,817 79%
R.D. Smith 3,372,014 702,183 4,235,817 80%
C.H. Clarridge 3,371,723 702,474 4,235,817 80%
G.D. Hubbard 3,371,198 702,999 4,235,817 80%
G.J. Pilmanis 3,328,051 746,146 4,235,817 79%
2) Stock Option Plan Amendment
Total Votes
For Against Counted Abstaining
-------------------------------------------------------------------------------------
Number of votes 2,822,724 1,051,610 3,874,334 73,038
% of votes counted 73% 27% 100%
3) Shareholder proposal requesting sale of the Company and elimination of
the shareholders' rights plan and employee severance agreements.
Total Votes
For Against Counted Abstaining
------------------------------------------------------------------------------------
Number of votes 962,461 2,288,148 3,250,609 77,389
% of votes counted 30% 70% 100%
Two other shareholder proposals were not properly presented for action at the
meeting by the proponent shareholder or a duly authorized representative.
Therefore, those proposals were not considered for vote at the meeting.
-8-
HATHAWAY CORPORATION
--------------------
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, 1996 Annual Report
to Stockholders.
(b) Reports on Form 8-K
(1) On October 10, 1996, the Company filed a Current Report on
Form 8-K regarding the purchase of interest in Tate Integrated
Systems.
(2) On December 20, 1996, the Company filed Amendment No. 1 to
the Current Report on Form 8-K dated October 10, 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: February 14, 1996 By: /s/ Richard D. Smith
---------------------- --------------------------------------
Executive Vice President, Treasurer,
and Chief Financial and Accounting Officer
-9-
5
1,000
3-MOS 6-MOS
JUN-30-1997 JUN-30-1997
OCT-01-1996 JUL-01-1996
DEC-31-1996 DEC-31-1996
3,594 3,594
0 0
8,122 8,122
457 457
5,394 5,394
18,265 18,265
8,222 8,222
6,428 6,428
21,050 21,050
5,337 5,337
1,775 1,775
0 0
0 0
100 100
13,838 13,838
21,050 21,050
10,368 19,186
10,368 19,186
6,739 12,276
6,739 12,276
0 0
10 17
41 83
(361) (893)
135 292
(226) (601)
0 0
0 0
0 0
(226) (601)
(0.05) (0.14)
(0.05) (0.14)
Presented gross
