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
MARCH 31, 2001 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:
(4,486,000 as of April 30, 2001)
HATHAWAY CORPORATION
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 2001 and June 30, 2000 (Unaudited)........................... 1
Condensed Consolidated Statements of Operations
Three and nine months ended March 31, 2001 and 2000 (Unaudited)........ 2
Condensed Consolidated Statements of Cash Flows
Nine months ended March 31, 2001 and 2000 (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.......................................... 10
HATHAWAY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
MARCH 31, JUNE 30,
2001 2000
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,784 $ 2,928
Restricted cash 320 270
Trade receivables, net 8,071 7,976
Inventories, net 5,620 4,550
Other current assets 1,128 962
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 16,923 16,686
Property and equipment, net 1,788 1,707
Investment in joint ventures, net 2,059 1,482
Cost in excess of net assets acquired, net 19 59
Other long-term assets 177 3
- ----------------------------------------------------------------------------------------------------------------------
Total Assets $ 20,966 $ 19,937
======================================================================================================================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Line of credit $ 532 $ 1,546
Accounts payable 1,919 1,879
Accrued liabilities and other 6,495 5,205
- ----------------------------------------------------------------------------------------------------------------------
Total Liabilities 8,946 8,630
- ----------------------------------------------------------------------------------------------------------------------
Stockholders' Investment:
Common stock 100 100
Additional paid-in capital 11,228 10,594
Loans receivable for stock (659) (235)
Retained earnings 5,469 4,791
Cumulative translation adjustment (141) 34
Treasury stock (3,977) (3,977)
- ----------------------------------------------------------------------------------------------------------------------
Total Stockholders' Investment 12,020 11,307
- ----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Investment $ 20,966 $ 19,937
======================================================================================================================
1
HATHAWAY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31, MARCH 31,
2001 2000 2001 2000
- ----------------------------------------------------------------------------------------------------------------------
Revenues $ 11,313 $ 11,767 $ 35,812 $ 31,823
Cost of products sold 7,218 7,607 22,374 20,106
- ----------------------------------------------------------------------------------------------------------------------
Gross margin 4,095 4,160 13,438 11,717
Operating costs and expenses:
Selling 1,504 1,741 4,725 4,703
General and administrative 1,318 1,179 4,005 3,763
Engineering and development 1,189 1,080 3,452 3,307
Restructuring charge 85 -- 526 --
Amortization of intangibles and other 15 21 46 66
- ----------------------------------------------------------------------------------------------------------------------
Total operating costs and expenses 4,111 4,021 12,754 11,839
- ----------------------------------------------------------------------------------------------------------------------
Operating income (loss) (16) 139 684 (122)
Other income (expenses), net:
Equity income from investment in joint ventures 421 100 771 300
Interest and dividend income 23 18 69 50
Interest expense (13) (40) (67) (111)
Other income (expenses), net (97) (21) (150) 11
- ----------------------------------------------------------------------------------------------------------------------
Total other income, net 334 57 623 250
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes 318 196 1,307 128
Benefit (provision) for income taxes (58) 29 (267) (7)
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 260 $ 225 $ 1,040 $ 121
======================================================================================================================
Basic net income per share $ 0.06 $ 0.05 $ 0.23 $ 0.03
======================================================================================================================
Diluted net income per share $ 0.05 $ 0.05 $ 0.21 $ 0.03
======================================================================================================================
Basic weighted average shares outstanding 4,484 4,340 4,476 4,302
======================================================================================================================
Diluted weighted average shares outstanding 4,769 4,917 4,844 4,749
======================================================================================================================
2
HATHAWAY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE NINE MONTHS ENDED
MARCH 31,
2001 2000
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,040 $ 121
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 704 642
Equity income from investment in joint venture (771) (300)
Gain on partial sale of investment in joint venture -- (126)
Other 123 141
Changes in assets and liabilities:
(Increase) decrease in -
Restricted cash (69) 404
Trade receivables (221) (855)
Inventories (1,179) (1,243)
Other current assets (344) 134
Increase (decrease) in -
Accounts payable 66 858
Accrued liabilities and other 1,066 (53)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 415 (277)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (806) (549)
Investment in joint venture -- (425)
Proceeds from partial sale of investment in joint venture -- 143
Dividend from joint venture 193 139
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (613) (692)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on line of credit (1,124) (65)
Borrowings on line of credit 110 251
Repayment on loan to employee stock ownership plan 74 --
Proceeds from exercise of stock options 48 567
Purchase of treasury stock -- (4)
- ----------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (892) 749
Effect of foreign exchange rate changes on cash (54) 4
- ----------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (1,144) (216)
Cash and cash equivalents at beginning of year 2,928 2,416
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at March 31 $ 1,784 $ 2,200
======================================================================================================================
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 and its wholly-owned
subsidiaries (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
accounting principles generally accepted in the United States 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 accounting
principles generally accepted in the United States 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, 2000 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,
2000 2000
----------------- ------------------
Parts and raw materials, net $ 3,260 $ 2,827
Finished goods and work-in process, net 2,360 1,723
----------------- ------------------
$ 5,620 $ 4,550
================= ==================
3. BASIC AND DILUTED EARNINGS PER SHARE
For the three and nine months ended March 31, 2001, stock options to
purchase 284,938 and 367,805 shares of common stock, respectively, were
included in the calculation of diluted earnings per share. For the
three and nine months ended March 31, 2000, stock options to purchase
576,263 and 447,308 shares of common stock, respectively, were included
in the calculation of diluted earnings per share.
4. SEGMENT INFORMATION SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," 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 markets, products and services.
4
HATHAWAY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. SEGMENT INFORMATION (CONTINUED) The following tables provide
information on the Company's segments (in thousands):
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31, MARCH 31,
2001 2000 2001 2000
-------------------- -------------------- -------------------- --------------------
POWER POWER POWER POWER
AND MOTION AND MOTION AND MOTION AND MOTION
PROCESS CONTROL PROCESS CONTROL PROCESS CONTROL PROCESS CONTROL
-------------------- ----------------------------------------- --------------------
Revenues from
external customers $ 5,481 $ 5,832 $ 6,983 $ 4,784 $ 18,676 $ 17,136 $ 18,461 $ 13,362
Income (loss) before
income taxes (1,091) 1,046 (970) 746 (2,596) 3,206 (2,297) 2,092
AS OF MARCH 31, 2001 AS OF JUNE 30, 2000
POWER AND MOTION POWER AND MOTION
PROCESS CONTROL PROCESS CONTROL
--------------- ------------- -------------- -------------
Identifiable assets $ 11,988 $ 7,971 $ 10,620 $ 7,134
The following is a reconciliation of segment information to
consolidated information:
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31, MARCH 31,
2001 2000 2001 2000
-----------------------------------------------------------------------------
Segments' income (loss) before
income taxes $ (45) $ (224) $ 590 $ (205)
Corporate activities 363 420 717 333
-----------------------------------------------------------------------------
Consolidated income before
income taxes $ 318 $ 196 $ 1,307 $ 128
=============================================================================
AS OF AS OF
MARCH 31, JUNE 30,
2001 2000
-----------------------------------
Segments' identifiable assets $ 19,959 $ 17,754
Corporate assets and eliminations 1,007 2,183
-----------------------------------
Consolidated total assets $ 20,966 $ 19,937
===================================
5. COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income," 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.
5
HATHAWAY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. COMPREHENSIVE INCOME (CONTINUED)
Comprehensive income is computed as follows (in thousands):
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
MARCH 31, MARCH 31,
2001 2000 2001 2000
--------------- --------------- --------------- --------------
Net income $ 260 $ 225 $ 1,040 $ 121
Translation adjustment (138) (46) (175) 30
--------------- --------------- --------------- --------------
Comprehensive income $ 122 $ 179 $ 865 $ 151
=============== =============== =============== ==============
6. RESTRUCTURING CHARGE
As a result of changing business conditions in the process
instrumentation business, the Company restructured its process
instrumentation operations in Dallas. The restructuring consisted of
retaining a portion of the business in Dallas, moving the manufacturing
of two product lines to its power instrumentation manufacturing
facilities in Seattle and selling the remaining two product lines.
The costs associated with the restructuring were $85,000 and $526,000
for the three and nine months ended March 31, 2001, respectively. The
total of $526,000 includes $282,000 of employee termination expenses
related to 15 employees, and closure, moving and re-training costs of
$244,000. The restructuring charge has been included in operating costs
and expenses in the condensed consolidated statement of operations.
During the first nine months of fiscal 2001, $417,000 of the expenses
were paid resulting in a remaining restructuring reserve of $109,000 as
of March 31, 2001. The Company believes all restructuring costs will be
incurred by June 30, 2001.
7. RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133, "Derivative
Instruments and Hedging Activities," ("SFAS 133") establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
and for hedging activities. SFAS 133 requires that an entity recognize
all derivatives as either assets or liabilities and measure those
instruments at fair value. It also specifies the accounting for changes
in the fair value of a derivative instrument depending on the intended
use of the instrument and whether (and how) it is designated as a
hedge. SFAS 133 was effective for all fiscal years beginning after June
15, 1999. During 1999, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 137,
"Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of SFAS 133," ("SFAS 137") which delayed
the effective date of SFAS 133 until all fiscal years beginning after
June 15, 2000. Through March 31, 2001, the Company had not entered into
any transactions involving derivative financial instruments and,
therefore, the adoption of SFAS 133 has had no financial statement
impact.
In December 1999, the SEC staff released Staff Accounting Bulletin No.
101, "Revenue Recognition," ("SAB 101") to provide guidance on the
recognition, presentation and disclosure of revenue in financial
statements. In order to recognize revenue, there must be persuasive
evidence that an arrangement exists, delivery must have occurred or
services must have been rendered, the selling price must be fixed or
determinable, and collectibility must be reasonably assured. The
accounting and disclosures described in SAB 101 must be applied no
later than the fourth fiscal quarter of the Company's current fiscal
year retroactive to July 1, 2000. The Company believes that adoption of
SAB 101 will not materially impact its financial statements. However,
implementation guidelines for this bulletin, as well as potential new
bulletins, could result in unanticipated changes to the Company's
current revenue recognition policies. These changes could affect the
timing of the Company's future revenue recognition and results of
operations.
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. FORWARD-LOOKING STATEMENTS INCLUDE,
WITHOUT LIMITATION, ANY STATEMENT THAT MAY PREDICT, FORECAST, INDICATE, OR IMPLY
FUTURE RESULTS, PERFORMANCE, OR ACHIEVEMENTS, AND MAY CONTAIN THE WORD
"BELIEVE," "ANTICIPATE," "EXPECT," "PROJECT," "INTEND," "WILL CONTINUE," "WILL
LIKELY RESULT," "SHOULD" OR WORDS OR PHRASES OF SIMILAR MEANING. FORWARD-LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS
WHICH MAY CAUSE THE ACTUAL RESULTS OF THE COMPANY TO DIFFER MATERIALLY FROM THE
FORWARD-LOOKING STATEMENTS. THE RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHERS,
THE FOLLOWING: INTERNATIONAL, NATIONAL AND LOCAL GENERAL BUSINESS AND ECONOMIC
CONDITIONS; THE WORLDWIDE POWER AND PROCESS PRODUCT MARKET, INCLUDING A MOVEMENT
FROM SINGLE PURPOSE PRODUCTS TO THOSE WITH MULTIPLE USES; THE MOTION CONTROL
PRODUCT MARKET; THE ABILITY OF THE COMPANY TO SUSTAIN, MANAGE OR FORECAST ITS
GROWTH AND PRODUCT ACCEPTANCE; NEW PRODUCT DEVELOPMENT AND INTRODUCTION;
INCREASED COMPETITION AND CHANGES IN COMPETITOR RESPONSES TO THE COMPANY'S
PRODUCTS AND SERVICES; THE CONTINUED SUCCESS OF THE COMPANY'S CUSTOMERS TO ALLOW
THE COMPANY TO REALIZE REVENUES FROM ITS ORDER BACKLOG AND TO SUPPORT THE
COMPANY'S EXPECTED DELIVERY SCHEDULES; THE ABILITY TO PROTECT THE COMPANY'S
INTELLECTUAL PROPERTY; BUSINESS DISRUPTION; CHANGES IN GOVERNMENT REGULATIONS;
CONTINUED UNCERTAINTY ABOUT THE IMPACT OF DEREGULATION OF THE POWER BUSINESS ON
THE COMPANY'S PRODUCTS; THE ABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL;
AVAILABILITY OF FINANCING; AND OTHER FACTORS REFERENCED OR INCORPORATED HEREIN.
THE COMPANY OPERATES IN A VERY COMPETITIVE ENVIRONMENT. NEW RISK FACTORS EMERGE
FROM TIME TO TIME AND IT IS NOT POSSIBLE FOR MANAGEMENT TO PREDICT ALL SUCH RISK
FACTORS, NOR CAN IT ASSESS THE IMPACT OF ALL SUCH RISK FACTORS ON ITS BUSINESS
OR THE EXTENT TO WHICH ANY FACTOR, OR COMBINATION OF FACTORS, MAY CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN ANY FORWARD-LOOKING
STATEMENTS. THE COMPANY'S EXPECTATIONS, BELIEFS AND PROJECTIONS ARE EXPRESSED IN
GOOD FAITH AND ARE BELIEVED TO HAVE A REASONABLE BASIS; HOWEVER, THE COMPANY
MAKES NO ASSURANCE THAT EXPECTATIONS, BELIEFS OR PROJECTIONS WILL BE ACHIEVED.
BECAUSE OF THE RISKS AND UNCERTAINTIES, INVESTORS SHOULD NOT PLACE UNDUE
RELIANCE ON FORWARD-LOOKING STATEMENTS AS A PREDICTION OF ACTUAL RESULTS. THE
COMPANY HAS NO OBLIGATION OR INTENT TO RELEASE PUBLICLY ANY REVISIONS TO ANY
FORWARD LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS, OR OTHERWISE.
OPERATING RESULTS
For the third quarter ended March 31, 2001, the Company recognized net income of
$260,000, or $.05 per fully diluted share, compared to a net income of $225,000,
or $.05 per fully diluted share, for the same period last year. This year's
third quarter results include a pretax restructuring charge of $85,000.
Excluding the restructuring charge, net income for the third quarter was
$304,000 or $.06 per fully diluted share. Revenues decreased 4% in the third
quarter to $11,313,000 this year from $11,767,000 last year. The 4% decrease was
due to a 22% increase in revenues from the Company's motion control products
offset by a 22% decrease in revenue from the Company's power and process systems
and instrumentation products as discussed below.
The Company recognized net income of $1,040,000, or $.21 per fully diluted
share, for the nine months ended March 31, 2001, compared to net income of
$121,000, or $.03 per fully diluted share, for the nine months ended March 31,
2000. This year's nine months results include a pretax restructuring charge of
$526,000. Excluding the restructuring charge, net income for the nine months was
$1,416,000 or $.29 per fully diluted share. Revenues for the first nine months
increased by 12% to $35,812,000 in fiscal 2001 from $31,823,000 in fiscal 2000.
The 12% increase was due to a 28% increase in revenues from the Company's motion
control products and a 1% increase in revenues from the Company's power and
process systems and instrumentation products.
Revenues from Motion Control for the third quarter increased 22% to $5,832,000
for the third quarter this year from $4,784,000 for the third quarter last year.
Revenues for the nine months increased 28% to $17,136,000 for the current
nine-month period from $13,362,000 for the nine months last year. Pretax profit
for Motion Control for the third quarter was $1,046,000 compared to $746,000
last year and, for the nine months, pretax profit was $3,206,000 compared to
$2,092,000 last year. At March 31, 2001, backlog for Motion Control orders was
21% higher than at the end of the third quarter last year. Orders received
during the three and nine months ended March 31, 2001 were 16% lower and 7%
higher than the same
7
HATHAWAY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL CONDITION
periods last year respectively. The decrease in orders for the quarter is due
to a slowing in orders from some of our industry sectors that have been
affected by the general economic slowdown.
Power and Process revenues decreased to $5,481,000 for the third quarter this
year from $6,983,000 for the third quarter last year, a 22% decrease. The
decrease results primarily from a delay in receiving final acceptance of a
significant power systems project which was subsequently received in the fourth
quarter. The decrease is also due to a 24% decrease in revenues from process
instrumentation products caused by the sale of two product lines in November
2000 and by production problems resulting from restructuring the business which
should be resolved in the fourth quarter. For the first nine months, Power and
Process revenues increased to $18,676,000 this year from $18,461,000 last year,
a 1% increase. The increase reflects a 12% increase in sales of power
instrumentation and systems automation products partially offset by a 31%
decrease in sales of process instrumentation products. Power and Process
realized a pretax loss before restructuring costs of $979,000 for the third
quarter this year compared to a loss of $970,000 last year. For the nine months,
Power and Process had a pretax loss before restructuring costs of $2,042,000
compared to a loss of $2,297,000 last year. The segment's nine-month results
ended March 31, 2001 contain a pretax charge of $526,000 for restructuring the
process instrumentation business. Sales order backlog for Power and Process at
March 31, 2001 was $10,692,000 which is 6% lower than at the same time last
year. Recently the systems automation business has been primarily focused on
power industry projects which are typically delivered over a shorter time frame
than the industrial automation products. Shifting focus to power projects has
resulted in the decrease in backlog in the systems automation business and the
continued growth in revenues for this business is highly dependent on the
continued growth in the power applications side of the business.
As a result of changing business conditions in the process instrumentation
business, the Company restructured its process instrumentation operations in
Dallas. The restructuring, which has been substantially completed, consisted of
retaining a portion of the business in Dallas, moving the manufacturing of two
product lines to its power instrumentation manufacturing facilities in Seattle
and selling the remaining two product lines.
Sales to international customers increased to $3,476,000 in the third quarter of
the current year from $2,632,000 in the third quarter of the prior year. In the
first nine months, sales to international customers increased to $11,423,000 in
fiscal year 2001 from $9,185,000 in fiscal year 2000. Foreign sales represented
30% of total sales in the quarter ended March 31, 2001 compared to 22% for the
same quarter in fiscal year 2000 and 32% and 29% of total sales were foreign
sales for the nine months ended March 31, 2001 and 2000, respectively.
Gross product margin for the third quarter of fiscal 2001 increased slightly to
36% from 35% for the same quarter last year and for the first nine months
increased slightly to 38% from 37% last year.
Selling expenses decreased 14% for the three months ended March 31, 2001, and
increased less than 1% for the nine months ended March 31, 2001. General and
administrative, engineering and development expenses and amortization of
intangibles increased 11% in the third quarter and 5% in the first nine months,
as compared to the same periods last year, primarily in continued support of new
product development efforts.
During the first nine months of fiscal year 2001, the Company recognized a
portion of its share of equity income from its Chinese joint ventures. The
amounts recognized were $421,000 and $771,000 in the quarter and nine months
ended March 31, 2001, respectively, as compared to $100,000 and $300,000 in the
same periods last year. The increase reflects the continued improvement in
revenues and profits being experienced by the Hathaway Si Fang joint venture.
For the quarter ended March 31, 2000, the Company recognized a $58,000 provision
for income taxes compared to a $29,000 benefit for the same period last year.
For the first nine months this year, a provision of $267,000 was recognized
compared to $7,000 for the first nine months last year. The amounts are based on
projected taxable income and differ from statutory amounts primarily due to the
mix of income and losses in domestic and foreign jurisdictions.
8
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 $1,144,000 during the first nine months of
fiscal 2001 to a balance of $1,784,000 at March 31, 2001, compared to a decrease
of $216,000 in the first nine months of fiscal 2000. During the nine months
ended March 31, 2001 net repayments made on the Company's line of credit totaled
$1,014,000 compared to net borrowings of $186,000 in the same period last year.
Excluding the changes in the line of credit, cash used in the first nine months
of fiscal 2001 and 2000 was $130,000 and $402,000, respectively.
In the first nine months of fiscal 2001, $415,000 was provided by operating
activities, compared to $277,000 used in operations for the same period last
fiscal year. The increase in cash provided by operating activities was due to
the increase in net income and fluctuations in working capital balances.
Cash of $613,000 was used in investing activities in the first nine months of
fiscal 2001, compared to $692,000 used by investing activities last year. The
variance was primarily due to the additional investment in the Company's Si Fang
joint venture in fiscal 2000 offset by additional property and equipment
purchased during the current nine months.
Financing activities used $892,000 in the first nine months of fiscal 2001
compared to $749,000 provided in fiscal 2000. The increased use of cash was due
to an increase in repayments on the line of credit during the first nine months
as explained above.
The Company's remaining fiscal 2001 working capital, capital expenditure and
debt service requirements are expected to be funded from future cash flows from
operations, the existing cash balance of $1,784,000 and the $2,468,000 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. The Company's long-term financing agreement with Silicon
Valley Bank was set to mature on May 7, 2001 but neither party gave notice of
termination at least sixty days before the maturity date, and therefore the
agreement will continue for an additional term of one year.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133, "Derivative Instruments and
Hedging Activities," ("SFAS 133") establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities and measure those
instruments at fair value. It also specifies the accounting for changes in the
fair value of a derivative instrument depending on the intended use of the
instrument and whether (and how) it is designated as a hedge. SFAS 133 was
effective for all fiscal years beginning after June 15, 1999. During 1999, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of SFAS 133," ("SFAS 137") which
delayed the effective date of SFAS 133 until all fiscal years beginning after
June 15, 2000. Through March 31, 2001, the Company had not entered into any
transactions involving derivative financial instruments and, therefore, the
adoption of SFAS 133 has had no financial statement impact.
In December 1999, the SEC staff released Staff Accounting Bulleting No. 101,
"Revenue Recognition," ("SAB 101") to provide guidance on the recognition,
presentation and disclosure of revenue in financial statements. In order to
recognize revenue, there must be persuasive evidence that an arrangement exists,
delivery must have occurred or services must have been rendered, the selling
price must be fixed or determinable, and collectibility must be reasonably
assured. The accounting and disclosures described in SAB 101 must be applied no
later than the fourth fiscal quarter of the Company's current fiscal year
retroactive to July 1, 2000. The Company believes that adoption of SAB 101 will
not materially impact its financial statements. However, implementation
guidelines for this bulletin, as well as potential new bulletins, could result
in unanticipated changes to the Company's current revenue recognition policies.
These changes could affect the timing of the Company's future revenue
recognition and results of operations.
9
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, 2000 Annual Report to
Stockholders. *
* This document was filed with the Securities and Exchange
Commission and is incorporated herein by reference.
(b) Reports on Form 8-K There were no reports on Form 8-K filed in the
three months ended March 31, 2001.
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: May 15, 2001 By: /s/ Richard D. Smith
--------------------------------------
President, Chief Executive Officer
and Chief Financial Officer
10
