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, 1998 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:
(4,283,000 as of September 30, 1998)
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1998 and June 30, 1998 (Unaudited)............ 1
Condensed Consolidated Statements of Operations
Three months ended September 30, 1998 and 1997 (Unaudited).. 2
Condensed Consolidated Statements of Cash Flows
Three months ended September 30, 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............................. 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................. 8
HATHAWAY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
SEPTEMBER 30, JUNE 30,
1998 1998
- -------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,741 $ 3,443
Restricted cash 581 480
Trade receivables, net 6,193 6,400
Inventories, net 3,571 3,649
Other 1,747 1,463
- -------------------------------------------------------------------------------------------------------------
Total current assets 13,833 15,435
Property and equipment, net 1,789 1,730
Cost in excess of net assets acquired, net 504 374
Other long-term assets 168 281
- -------------------------------------------------------------------------------------------------------------
Total Assets $16,294 $17,820
=============================================================================================================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable $ 1,702 $ 2,027
Accrued and other current liabilities 3,034 2,975
Income taxes payable 563 497
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 5,299 5,499
Line of credit 1,138 1,245
- -------------------------------------------------------------------------------------------------------------
Total Liabilities 6,437 6,744
- -------------------------------------------------------------------------------------------------------------
Stockholders' Investment:
Common stock 100 100
Additional paid-in capital 9,954 9,954
Loans receivable for stock (235) (235)
Retained earnings 3,534 4,841
Cumulative translation adjustments 477 389
Treasury stock (3,973) (3,973)
- -------------------------------------------------------------------------------------------------------------
Total Stockholders' Investment 9,857 11,076
- -------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Investment $16,294 $17,820
=============================================================================================================
1
HATHAWAY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
For the three months ended
September 30,
1998 1997
- -------------------------------------------------------------------------------------------------------------
Revenues $ 9,118 $ 9,539
Operating costs and expenses:
Cost of products sold 6,214 6,325
Selling 1,733 2,090
General and administrative 1,154 1,024
Engineering and development 1,123 913
Amortization of intangibles 59 61
- -------------------------------------------------------------------------------------------------------------
Total operating costs and expenses 10,283 10,413
- -------------------------------------------------------------------------------------------------------------
Operating loss (1,165) (874)
Other income (expenses), net:
Interest and dividend income 36 61
Interest expense (38) (42)
Other income (expenses), net (135) 2
- -------------------------------------------------------------------------------------------------------------
Total other income (expense), net (137) 21
- -------------------------------------------------------------------------------------------------------------
Loss before income taxes (1,302) (853)
Benefit (provision) for income taxes (5) 264
- -------------------------------------------------------------------------------------------------------------
Net loss $(1,307) $ (589)
=============================================================================================================
$(0.31) $(0.14)
Basic and diluted net loss per share
=============================================================================================================
Basic and diluted weighted average shares outstanding 4,283 4,284
=============================================================================================================
2
HATHAWAY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
For the three months ended September
30,
1998 1997
- -------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net loss $(1,307) $ (589)
Adjustments to reconcile net loss to net cash from operating
activities:
Depreciation and amortization 261 252
Other 137 (40)
Changes in assets and liabilities, net of effect of purchase of
Ashurst Logistic Electronics Limited (Note 3):
(Increase) decrease in -
Restricted cash (101) 31
Receivables 335 1,130
Inventories 78 (421)
Prepaid expenses and other (290) 178
Increase (decrease) in -
Accounts payable (370) 516
Accrued liabilities and other 38 (218)
- -------------------------------------------------------------------------------------------------------------
Net cash from operating activities (1,219) 839
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (250) (182)
Dividend from joint venture investment 120 --
Purchase of Ashurst Logistic Electronics Limited, net of cash (258) --
acquired (Note 3)
- -------------------------------------------------------------------------------------------------------------
Net cash from investing activities (388) (182)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on line of credit (150) (51)
Borrowings on line of credit 43 --
- -------------------------------------------------------------------------------------------------------------
Net cash from financing activities (107) (51)
12 (16)
- -------------------------------------------------------------------------------------------------------------
Effect of foreign exchange rate changes on cash
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,702) 590
Cash and cash equivalents at beginning of year 3,443 3,431
- -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at September 30 $ 1,741 $4,021
=============================================================================================================
3
HATHAWAY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL CONDITION
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 inter-
company 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,
1998 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,
1998 1998
--------------------------------------
Parts and raw materials, net $2,432 $2,210
Finished goods and work-in process, net 1,139 1,439
--------------------------------------
$3,571 $3,649
======================================
3. BUSINESS ACQUISITION
--------------------
Effective July 1, 1998, a wholly-owned subsidiary of the Company acquired
all the outstanding shares of Ashurst Logistic Electronics Limited of
Bournemouth, England (Ashurst) for $294,000 in cash. Ashurst manufactures
drive electronics and position controllers for a variety of motor
technologies as well as a family of static frequency converters for
military and aerospace applications and has extensive experience in power
electronics design and software development required for the application of
specialized drive electronics technology. For calendar year ended December
31, 1997, Ashurst reported revenues of $353,000. The acquired company was
renamed Emoteq UK Limited.
4
HATHAWAY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL CONDITION
3. BUSINESS ACQUISITION (CONTINUED)
--------------------------------
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 preliminary net purchase price allocation is
as follows (in thousands):
Cash $ 36
Trade receivables, net 190
Prepaid expenses 2
Property and equipment, net 25
Cost in excess of net assets acquired 172
Accounts payable 43
Accrued liabilities and other 88
----------
Net purchase price $ 294
==========
4. EARNINGS PER SHARE
------------------
In accordance with Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share" (EPS), Basic and Diluted EPS have been computed
as follows (in thousands, except per share data):
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
---------------------------------------
Numerator:
Net loss $ (1,307) $ (589)
Denominator:
Weighted average outstanding shares 4,283 4,284
Basic and Diluted net loss per share $ (0.31) $ (0.14)
=======================================
Options to purchase stock were outstanding during the three months ended
September 30,1998 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
SEPTEMBER 30,
1998 1997
--------------------------------------
Weighted average outstanding options 749,000 709,000
Weighted average exercise price $ 3.16 $ 3.45
At September 30, 1998 outstanding options to purchase 838,000 shares at a
weighted average exercise price of $3.02 may have a dilutive effect on
future EPS.
5. SEGMENT INFORMATION
-------------------
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131). SFAS 131 requires disclosure of operating
segments, which as defined, are components of an enterprise about which
separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources
and in assessing performance.
The Company operates in two different segments: Power and Process Business
(Power and Process) and Motion Control Business (Motion Control).
Management has chosen to organize the Company around these segments based
on differences in products and services.
5
HATHAWAY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL CONDITION
5. SEGMENT INFORMATION (CONTINUED)
-------------------------------
The following provide information on the Company's segments (in thousands):
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------
1998 1997
------------------------------- -------------------------------
POWER AND MOTION POWER AND MOTION
PROCESS CONTROL PROCESS CONTROL
------------------------------- -------------------------------
Revenues from external customers $ 6,062 $3,056 $ 6,224 $3,315
Income (loss) before income taxes (1,151) (94) (1,280) 306
AS OF SEPTEMBER 30, 1998 AS OF JUNE 30, 1998
POWER AND MOTION POWER AND MOTION
PROCESS CONTROL PROCESS CONTROL
-------------------------------- ------------------------------
Identifiable assets $9,870 $4,695 $9,985 $3,969
The following is a reconciliation of segment information to consolidated
information:
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
---------------------------------------
Segments' loss before income taxes $(1,245) $ (974)
Corporate activities (57) 121
---------------------------------------
Consolidated loss before income taxes $(1,302) $ (853)
=======================================
AS OF As of
SEPTEMBER 30, JUNE 30,
1998 1998
Segments' identifiable assets $14,565 $13,954
Corporate assets and eliminations 1,729 3,866
---------------------------------------
Consolidated total assets $16,294 $17,820
=======================================
6. COMPREHENSIVE LOSS
------------------
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," (SFAS 130). SFAS 130 establishes standards for reporting and
displaying comprehensive income and its components. Comprehensive income
is defined as the change in equity of a business enterprise during a period
from transactions and other events and circumstances from non-owner
sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners.
The Company adopted SFAS 130 as of July 1, 1998. In addition to net loss,
the cumulative translation adjustment is the only additional item
considered as part of the Company's comprehensive loss. Comprehensive loss
is computed as follows (in thousands):
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
-----------------------------------
Net loss $(1,307) $(589)
Translation adjustment 88 (86)
-----------------------------------
Comprehensive loss (1,219) (675)
===================================
6
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 first quarter ended September 30, 1998, the Company recognized a net
loss of $1,307,000 or $.31 per share, compared to a net loss of $589,000 or $.14
per share, for the same period last year. Revenues decreased 4% in the first
quarter from $9,539,000 last year to $9,118,000 this year.
The increase in the net loss for the quarter ended September 30, 1998 as
compared to 1997 resulted from the operating results of the Motion Control
segment (Motion Control) declining from a pretax profit of $306,000 for the
first quarter of last fiscal year to a pretax loss of $94,000 for the first
quarter ended September 30, 1998, partially offset by an improvement in the
operating results of the Power and Process segment (Power and Process) from a
pretax loss of $1,280,000 last year to a pretax loss of $1,151,000 for the first
quarter of the current fiscal year.
The 4% decrease in revenues was due to a 3% decrease in revenues from Power and
Process and an 8% decrease in revenues from Motion Control. The decrease in
Power and Process revenues was due to a 27% decrease in sales from the process
instrumentation products group, offset by an 11% increase in revenues generated
by power instrumentation and systems automation products. The decrease in
process instrumentation product sales was caused primarily by the delay in the
shipment of an order for a new product. The increase in sales of power
instrumentation products was due to timing of orders received and shipments.
The decrease in Motion Control revenues was primarily due to decreased orders
resulting from the Asian economic crisis and the slow down in the semi-conductor
industry. Sales to international customers increased from 31% of total sales in
the first fiscal quarter of last year to 36% in the first fiscal quarter of this
year. The increase was due to the acquisition of Ashurst Logistic Electronics
Limited (Ashurst) of Bournemouth, England on July 1, 1998, as well as increased
international sales from Motion Control.
Cost of products sold increased from 66% in the first quarter of fiscal 1998 to
68% in fiscal 1999 primarily because of a decrease in revenues without a
proportionate decrease in fixed costs. Selling, general and administrative, and
engineering and development expenses decreased slightly from $4,088,000 in the
first quarter of last fiscal year to $4,069,000 in the first quarter of this
fiscal year.
In the quarter ended September 30, 1998, the Company recognized a $5,000
provision for income taxes compared to a benefit for income taxes of $264,000
recognized last year. The decrease is primarily due to an increase in the
valuation allowance for the net deferred tax assets of the Company.
7
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 $1,702,000 during the first quarter of
fiscal 1999 to a balance of $1,741,000 at September 30, 1998, compared to
$590,000 generated in the first quarter of fiscal 1998. Operating activities
used $1,219,000 in the current fiscal year, compared to $839,000 generated in
the first quarter of fiscal 1998. The increased use of cash was primarily due
to an increased net loss, as well as fluctuations in working capital balances.
The Company expects the usage of cash to decrease during the balance of the year
in line with the expected improvement in the operating results.
Cash of $388,000 was used by investing activities in the first quarter of fiscal
1999, compared to $182,000 used in investing activities last year. The variance
was due to cash used for the purchase of Ashurst, as well as an increase in
property and equipment purchases, offset by a dividend received from a joint
venture investment during the first quarter of fiscal 1999.
Cash used for financing activities increased from $51,000 in the first quarter
of fiscal 1998 to $107,000 in fiscal 1999, due to increased repayments on the
line of credit.
The Company's remaining fiscal 1999 working capital, capital expenditure and
debt service requirements are expected to be funded from the existing cash
balance of $1,741,000 and the $1,002,000 available under the long-term
financing agreement. The Company believes that such amounts are sufficient to
fund operations and working capital needs for at least the next twelve months.
YEAR 2000 COMPLIANCE
- --------------------
Some computers and computer-based systems use only the last two digits to
identify a year in the date field and cannot distinguish the year 2000 from the
year 1900. The Company recognizes that the Year 2000 poses a challenge to the
proper functioning of computer systems included in its products, items purchased
from its suppliers and software systems used in its business. The Company is
taking what it believes to be appropriate steps necessary in preparation for
Year 2000 issues. The Company has assessed its products and application
software systems and has concluded that no major changes or updates are
required. Minor modifications and updates are being made as needed. An
assessment of its suppliers and service providers is ongoing and is expected to
be completed by June 30, 1999. The Company does not anticipate that the overall
costs of adaptation of its products and systems will be material, however the
Company will continue to review on an ongoing basis whether it needs to further
address any anticipated costs, problems and uncertainties associated with Year
2000 consequences.
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, 1998 Annual Report to Stockholders.
27. Financial Data Schedule.
*This document was filed with the Securities and Exchange Commission
and is incorporated herein by reference.
(b) Reports on Form 8-K
A report on Form 8-K was filed on August 24, 1998 to announce the
appointment of Richard D. Smith as President and CEO of the Company. Mr.
Smith succeeded Eugene E. Prince who retired from his employment with
the Company effective August 31, 1998.
8
HATHAWAY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL CONDITION
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 12, 1998 By: /s/ Richard D. Smith
----------------------- ---------------------------------------
President, Chief Executive Officer and
Chief Financial Officer
9
5
1,000
3-MOS
JUN-30-1999
JUL-01-1998
SEP-30-1999
1,741
0
6,745
594
3,571
13,833
9,532
7,750
16,294
5,299
0
0
0
100
9,757
16,294
9,118
9,118
6,214
6,214
0
9
38
(137)
0
(137)
0
0
0
(137)
(0.31)
(0.31)
Presented gross
