UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(b) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________.
Commission file number: 0-4041
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:
(4,283,000 as of March 31, 1998)
HATHAWAY CORPORATION
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1998 (Unaudited) and June 30, 1997............ 1
Condensed Consolidated Statements of Operations
Three and nine months ended March 31, 1998 and 1997
(Unaudited)............................................. 2
Condensed Consolidated Statements of Cash Flows
Nine months ended March 31, 1998 and 1997 (Unaudited)... 3
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................... 4
Item 2. Management's Discussion and Analysis of Operating
Results and Financial Condition.......................... 6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................... 8
HATHAWAY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, JUNE 30,
1998 1997
- -------------------------------------------------------------------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 3,075 $ 3,431
Restricted cash 480 253
Trade receivables, net 6,975 6,910
Inventories, net 4,037 4,907
Other 1,459 2,034
- -------------------------------------------------------------------
Total current assets 16,026 17,535
Property and equipment, net 1,782 1,841
Cost in excess of net assets acquired, net 869 591
- -------------------------------------------------------------------
Total Assets $18,677 $19,967
===================================================================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Long-term debt classified as current $ 1,207 $ 1,769
Accounts payable 2,338 1,843
Accrued and other current liabilities 3,523 3,329
- -------------------------------------------------------------------
Total current liabilities 7,068 6,941
Stockholders' Investment:
Common stock 100 100
Additional paid-in capital 9,954 9,954
Retained earnings 5,382 6,818
Treasury stock (3,973) (3,971)
Other 146 125
- -------------------------------------------------------------------
Total Stockholders' Investment 11,609 13,026
- -------------------------------------------------------------------
Total Liabilities and Stockholders' Investment $18,677 $19,967
===================================================================
1
HATHAWAY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31, MARCH 31,
1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------
Revenues $ 9,804 $ 9,443 $30,480 $28,629
Operating costs and expenses:
Cost of products sold 6,245 6,342 19,701 18,618
Selling 1,911 1,928 5,955 5,710
General and administrative 1,043 1,234 3,076 3,512
Engineering and development 1,146 1,046 3,094 2,769
Amortization of intangibles and other 89 79 237 171
- -------------------------------------------------------------------------------------------------
Total operating costs and expenses 10,434 10,629 32,063 30,780
- -------------------------------------------------------------------------------------------------
Operating loss (630) (1,186) (1,583) (2,151)
Other income (expenses), net:
Interest and dividend income 39 57 155 171
Interest expense (38) (40) (124) (123)
Other income (expenses), net (61) (180) (183) (139)
- -------------------------------------------------------------------------------------------------
Total other income (expenses), net (60) (163) (152) (91)
- -------------------------------------------------------------------------------------------------
Loss before income taxes (690) (1,349) (1,735) (2,242)
Benefit for income taxes -- 413 299 705
- -------------------------------------------------------------------------------------------------
Net loss $ (690) $ (936) $(1,436) $(1,537)
=================================================================================================
Basic and diluted net loss per share
(Note 4) $ (0.16) $ (0.22) $ (0.33) $ (0.36)
=================================================================================================
2
HATHAWAY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE NINE MONTHS ENDED
MARCH 31,
1998 1997
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,436) $(1,537)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization 694 744
Other 101 77
Changes in assets and liabilities, net of effect of purchase of Tate
Integrated Systems (Note 3):
(Increase) decrease in -
Restricted cash (227) (89)
Receivables (130) 297
Inventories 454 899
Prepaid expenses and other 575 (289)
Increase (decrease) in -
Accounts payable 495 (109)
Accrued liabilities and other 194 (915)
- ---------------------------------------------------------------------------------------------------------
Net cash from operating activities 720 (922)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (514) (380)
Proceeds from maturity of marketable securities -- 198
Purchase of interest in Tate Integrated Systems (Note 3) -- (788)
- ---------------------------------------------------------------------------------------------------------
Net cash from investing activities (514) (970)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on line of credit and long-term debt (562) (52)
Proceeds from exercise of employee stock options -- 74
Purchase of treasury stock (2) (101)
- ---------------------------------------------------------------------------------------------------------
Net cash from financing activities (564) (79)
Effect of foreign exchange rate changes on cash 2 33
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (356) (1,938)
Cash and cash equivalents at beginning of year 3,431 4,925
- ---------------------------------------------------------------------------------------------------------
Cash and cash equivalents at March 31 $ 3,075 $ 2,987
=========================================================================================================
3
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 to 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 that 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,
1997 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):
MARCH 31, JUNE 30,
1998 1997
-----------------------------
Parts and raw materials, net $ 2,591 $ 2,141
Finished goods and work-in process, net 1,446 2,766
-----------------------------
$ 4,037 $ 4,907
-----------------------------
3. BUSINESS ACQUISITION
--------------------
Effective September 30, 1996, the Company acquired a 100% partnership
interest in Tate Integrated Systems (TIS), which has since operated as
Hathaway Industrial Automation (HIA).
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 final net purchase price allocation was as
follows (in thousands):
Trade receivables, net $ 485
Inventories, net 649
Property and equipment, net 123
Cost in excess of net assets acquired 624
Accounts payable (580)
Accrued liabilities and other (209)
-------------
Net purchase price $ 1,092
-------------
4
HATHAWAY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. EARNINGS PER SHARE
------------------
In December, 1997 the Company adopted Financial Accounting Standards Board
Statement No. 128, "Earnings Per Share" (EPS). In accordance with the
requirements of the Statement, Primary and Fully Diluted EPS has been
replaced with Basic and Diluted EPS in all periods for which a Statement of
Operations is presented.
Basic and Diluted earnings per share have been computed as follows (in
thousands, except per share data):
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31, MARCH 31,
1998 1997 1998 1997
--------------------------------------------------------------------------------
Numerator:
Net loss $ (690) $ (936) $ (1,436) $ (1,537)
Denominator:
Weighted average outstanding shares 4,284 4,269 4,283 4,251
--------------------------------------------------------------------------------
Basic and Diluted net loss per share $ (0.16) $ (0.22) $ (0.33) $ (0.36)
Options to purchase stock were outstanding during the three and nine months
ended March 31, 1997 and 1998 but were not included in the computation of
diluted EPS due to their anti-dilutive effect on EPS. These outstanding
options are summarized as follows:
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31, MARCH 31,
1998 1997 1998 1997
-------------------------------------------------------------------
Weighted average outstanding options 705,771 711,637 707,740 704,515
Weighted average exercise price $3.45 $ 3.42 $3.45 $3.34
At March 31, 1998 outstanding options to purchase 702,704 shares at a
weighted average exercise price of $3.45 may have a dilutive effect on
future EPS.
5
HATHAWAY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL CONDITION
All statements contained herein that are not statements of historical fact
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that could
cause the actual results of the Company to be materially different from the
historical results or from any future results expressed or implied by such
forward-looking statements. Among the factors that could cause actual results
to differ materially are the following: the unavailability of sufficient capital
on satisfactory terms to finance the Company's business plan, increased
competition, the introduction of new technologies and competitors into the
systems and instrumentation markets where the Company competes, adverse changes
in the regulatory environment, and general business and economic conditions. In
addition to statements that explicitly describe such risks and uncertainties,
readers are urged to consider statements labeled with the terms "believes,"
"expects," "plans," "anticipates," or "intends" to be uncertain and forward-
looking. All cautionary statements made herein should be read as being
applicable to all related forward-looking statements wherever they appear. In
this connection, investors should consider the risks described herein.
OPERATING RESULTS
- -----------------
For the third quarter ended March 31, 1998, the Company recognized a net loss of
$690,000 or $.16 per share, compared to a net loss of $936,000 or $.22 per
share, for the same period last year. Included in these results are net losses
of $419,000 and $503,000 for the quarters ended March 31, 1998 and 1997,
respectively, incurred by Hathaway Industrial Automation (HIA), which was
acquired by the Company effective September 30, 1996. Excluding the results of
HIA, the Company recognized net losses of $271,000 and $433,000 for the quarters
ended March 31, 1998 and 1997, respectively. Revenues increased 4% in the third
quarter from $9,443,000 last year to $9,804,000 this year.
The Company recognized a net loss of $1,436,000, or $.33 per share, for the nine
months ended March 31, 1998, compared to a net loss of $1,537,000, or $.36 per
share, for the nine months ended March 31, 1997. Included in these results are
HIA's net losses of $1,362,000 and $609,000 for the nine months ended March 31,
1998 and 1997, respectively. Excluding HIA, the Company recognized net losses of
$74,000 and $928,000 for the nine months ended March 31, 1998 and 1997,
respectively. Revenues for the first nine months increased 6% from $28,629,000
in fiscal 1997 to $30,480,000 in fiscal 1998.
The 4% increase in revenues in the third quarter was due to a 1% increase in
revenues from the Company's motion control products and a 5% increase in
revenues from the Company's power and process instrumentation products. The 6%
increase in revenues for the first nine months was due to a 10% increase in
revenues from the Company's motion control products and a 5% increase in
revenues from the Company's power and process products. For the first nine
months, the 5% increase in power and process revenues was due to revenues being
generated by HIA during all three quarters of 1998 compared to only two quarters
during 1997, partially offset by a 2% decrease in traditional power and process
revenues.
In the third quarter, sales to international customers increased from $3,461,000
in fiscal 1997 to $3,719,000 in fiscal 1998. In the first nine months, sales to
international customers decreased from $10,410,000 to $10,246,000. Foreign
sales represented 38% and 37% of total sales in the quarter ended March 31, 1998
and 1997, respectively, and 34% and 36% of total sales in the nine months ended
March 31, 1998 and 1997, respectively.
Cost of products sold as a percentage of revenues in the third quarter and the
first nine months ended March 31, 1998 remained reasonably consistent with the
prior year, decreasing from 67% to 64% in the third quarter and remaining at 65%
in the first nine months. Fluctuations in cost of products sold as a percentage
of revenues are due to changes in the mix of products sold, price changes
implemented in response to market conditions, and other factors.
Selling, general and administrative, and engineering and development expenses
decreased 2% in the third quarter and increased 2% in the first nine months, as
compared to the same periods last year. Excluding HIA's selling, general and
administrative, and engineering and development expenses incurred in the first
quarter of 1998, these expenses decreased 3% in the first nine months of 1998,
as compared to the same period last year.
6
HATHAWAY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's liquidity position as measured by cash and cash equivalents
(excluding restricted cash) decreased by $356,000 during the first nine months
of fiscal 1998 to a balance of $3,075,000 at March 31, 1998, compared to
$1,938,000 used in the first nine months of fiscal 1997. Operating activities
generated $720,000 in fiscal 1998 compared to $922,000 used in fiscal 1997. The
improved cash from operating activities was primarily due to fluctuations in
working capital balances.
Cash of $514,000 was used by investing activities during the first nine months
of 1998, compared to $970,000 used by investing activities last year. The
variance was primarily due to $788,000 used in fiscal 1997 for the purchase of
the interest in Tate Integrated Systems, partially offset by the maturity of a
long-term investment which was converted into cash during the first nine months
of fiscal 1997. Financing activities used $564,000 in fiscal 1998 compared to
$79,000 used in fiscal 1997, primarily due to increased line of credit
repayments.
The Company's remaining fiscal 1998 working capital, capital expenditure and
debt service requirements, including repayment of the entire balance of the
Midland loan, if necessary, are expected to be funded from the existing cash
balance of $3,075,000 at March 31, 1998. In addition, the Company is seeking
additional debt financing in order to supplement its long-term financial
resources.
7
HATHAWAY CORPORATION
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
13. Annual Report containing Notes to Consolidated Financial
Statements in the Registrant's June 30, 1997 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
March 31, 1998.
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: April 30, 1998 By: /s/ Richard D. Smith
--------------------------- ------------------------------------
Executive Vice President, Treasurer,
and Chief Financial and Accounting
Officer
8
5
1,000
3-MOS 9-MOS
JUN-30-1998 JUN-30-1998
JAN-01-1998 JUL-01-1997
MAR-31-1998 MAR-31-1998
3,075 3,075
0 0
7,498 7,498
523 523
4,037 4,037
16,026 16,026
9,288 9,288
7,506 7,506
18,677 18,677
7,068 7,068
1,207 1,207
0 0
0 0
100 100
11,509 11,509
18,677 18,677
9,804 30,480
9,804 30,480
6,245 19,701
6,245 19,701
0 0
20 65
38 124
(690) (1,735)
0 (299)
(690) (1,436)
0 0
0 0
0 0
(690) (1,436)
(0.16) (0.33)
(0.16) (0.33)
Presented gross
