UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2001
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
(Exact name of registrant as specified in its charter)
COLORADO 84-0518115
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8228 PARK MEADOWS DRIVE
LITTLETON, COLORADO 80124
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 799-8200
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
no par value
-------------------------------
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 90 DAYS. YES [X] NO [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [ ]
As of September 6, 2001, the aggregate market value of voting stock held by
non-affiliates of the Registrant, computed by reference to the average bid and
asked prices of such stock approximated $11,232,000.
-------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement dated September 21,
2001 are incorporated by reference in Part III of this Report.
-------------------------------
TABLE OF CONTENTS
PART I. PAGE
Item 1. Business.............................................................. 1
Item 2. Properties............................................................ 4
Item 3. Legal Proceedings..................................................... 4
Item 4. Submission of Matters to a Vote of Security Holders................... 4
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters............................................................... 4
Item 6. Selected Financial Data............................................... 5
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 5
Item 8. Financial Statements and Supplementary Data........................... 10
Report of Independent Public Accountants.............................. 11
Item 9. Disagreements on Accounting and Financial Disclosure.................. 30
PART III.
Item 10. Directors and Executive Officers of the Registrant.................... 30
Item 11. Executive Compensation................................................ 30
Item 12. Security Ownership of Certain Beneficial Owners and Management........ 30
Item 13. Certain Relationships and Related Transactions........................ 30
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....... 30
Consent of Independent Public Accountants............................. 33
Signatures............................................................ 34
Financial Statement Schedule ......................................... 35
Officers and Directors / Investor Information......................... 37
PART I
ITEM 1. BUSINESS.
Hathaway Corporation (the Company) was organized under the laws of Colorado
in 1962. The Company is engaged in the business of designing, manufacturing
and selling advanced systems and instrumentation to the worldwide power and
process industries, as well as motion control products to a broad spectrum
of customers throughout the world. The Company operates primarily in the
United States and the United Kingdom and has joint venture investments in
China.
POWER AND PROCESS BUSINESS
POWER INSTRUMENTATION
Hathaway's power instrumentation products help ensure that electric
utilities provide high quality service to consumers of electricity. With
manufacturing facilities in Seattle and Belfast, Northern Ireland, and
sales and engineering functions in Seattle, Belfast and Denver, the power
products group produces a comprehensive and cost-effective range of
products designed exclusively for the power industry worldwide. Hathaway's
equipment assists the electric power system operators in operating and
maintaining proper system performance. The products, which are used to
monitor and control the power generation, transmission and distribution
processes, include fault recording products, fault location products,
condition monitoring (circuit breaker) products and remote terminal units
for Supervisory Control and Data Acquisition (SCADA) systems.
Through July 5, 2001, the Company had three joint venture investments in
China - a 20% interest in Hathaway Si Fang Protection and Control Company,
Ltd. (Si Fang), a 25% interest in Zibo Kehui Electric Company Ltd. (Kehui)
and a 40% interest in Hathaway Power Monitoring Systems Company, Ltd.
(HPMS). Si Fang designs, manufactures and sells a new generation of digital
protective relays, control equipment and instrumentation products for
substations in power transmission and distribution systems in China and is
one of the largest Chinese supplier of digital relays in China. The Company
sold its interest in Si Fang effective July 5, 2001. Kehui designs,
manufactures and sells cable and overhead fault location products,
Supervisory Control and Data Acquisition (SCADA) systems and other test
instruments within the China market and the Company may sell these products
outside of China. HPMS manufactures and sells, under a license from the
Company, instrumentation products designed by the Company to electric power
companies in China.
SYSTEMS AUTOMATION
Effective September 30, 1996, the Company acquired Tate Integrated Systems
which has since operated under the name of Hathaway Industrial Automation
(HIA), a wholly-owned subsidiary of the Company. HIA is located near
Baltimore, Maryland and is a full service supplier of process automation
systems for industrial applications. HIA has developed a state-of-the-art
software system for SCADA and Distributed Control Systems (DCS). The HIA
system has been used to fully automate such industrial applications as
water and wastewater treatment plants, glass manufacturing plants, oil and
gas terminals and tank farm facilities. The focus of the systems business
has shifted from industrial automation applications to the power generation
and transmission industry. The Company has been successful at integrating
the HIA system with certain other Hathaway products and targeting the
integrated product at substation automation applications used in the
electric power industry. The automation system provides the user the
ability to securely send and receive information to and from intelligent
electronic devices in transmission and distribution substations to help
monitor and control the delivery of electricity. In addition, the
automation system is used by organizations responsible for operating the
transmission grid and ensuring the reliable delivery of electricity. It is
used to communicate with and control the output of power generators and to
securely communicate metering information from such generators to ensure
the proper billing for such electricity.
PROCESS INSTRUMENTATION
The process instrumentation products group manufactures and markets
products for industrial applications including monitoring systems and
calibration equipment. The monitoring systems, called visual annunciators
and sequential event recorders, provide both visual and audible alarms and
are used to control processes in various plants, including electrical
generating plants, chemical, petroleum, food and beverage, pulp and paper,
and textiles. Calibration equipment is used to test and adjust
instrumentation for proper and accurate operation in measuring electricity,
temperatures and pressure within the process industry.
1
MOTION CONTROL BUSINESS
The motion control group offers quality, cost-effective products that suit
a wide range of applications in the telecommunications, semi-conductor
processing, industrial, medical, military and aerospace industries, as well
as in the manufacturing of analytical instruments and computer peripherals.
End products using Hathaway technology include tuneable lasers, wavelength
meters and spectrum analyzers for the fiber optic industry, robotic systems
for the semiconductor industry, anti-lock braking transducers, satellite
tracking systems, MRI scanners and high definition printers.
The motion control group is organized into one division and two
subsidiaries, respectively, of Hathaway Motion Control Corporation, a
wholly-owned subsidiary of the Company: Motors and Instruments Division
(MI - Tulsa), Emoteq Corporation (Emoteq - Tulsa) and Computer Optical
Products, Inc. (COPI - Chatsworth, CA).
The MI division manufactures precision direct-current fractional horsepower
motors and certain motor components. Industrial equipment and military
products are the major application for the motors. This division also
supplies spare parts and replacement equipment for general-purpose
instrumentation products.
Emoteq-Tulsa designs, manufactures and markets direct current brushless
motors, related components, and drive and control electronics. Markets
served include semiconductor manufacturing, industrial automation, medical
equipment, and military and aerospace. Effective July 1, 1998, Emoteq
Corporation acquired all of the outstanding shares of Ashurst Logistic
Electronics Limited of Bournemouth, England (Ashurst) for $317,000. 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. The acquired company was renamed
Emoteq UK Limited.
Optical encoders are manufactured by COPI. They are used to measure
rotational and linear movements of parts in diverse applications such as
tuneable lasers, spectrum analyzers, machine tools, robots, printers and
medical equipment. The primary markets for the optical encoders are in the
telecommunications, computer peripheral manufacturing, industrial and
medical sectors. COPI also designs, manufactures and markets fiber
optic-based encoders with special characteristics, such as immunity to
radio frequency interference and high temperature tolerance, suited for
industrial, aerospace and military environments. Applications include
airborne navigational systems, anti-lock braking transducers, missile
flight surface controls and high temperature process control equipment.
PRODUCT DISTRIBUTION AND PRINCIPAL MARKETS
The Company maintains a direct sales force. In addition to its own
marketing and sales force, the Company has developed a worldwide network of
independent sales representatives and agents to market its various product
lines.
The Company faces competition in all of its markets, although the number of
competitors varies depending upon the product. The Company believes there
are only a small number of competitors in the power and process markets,
but there are numerous competitors in the motion control market. No clear
market share data is available for the Company's other product areas.
Competition involves primarily product performance and price, although
service and warranty are also important.
FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS
The information required by this item is set forth in Note 10 of the Notes
to Consolidated Financial Statements on page 27 herein.
AVAILABILITY OF RAW MATERIALS
All parts and materials used by the Company are in adequate supply. No
significant parts or materials are acquired from a single source.
PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS
The Company holds several patents and trademarks regarding components used
by the various subsidiaries; however, none of these patents and trademarks
are considered to be of major significance.
2
SEASONALITY OF THE BUSINESS
The Company's business is not of a seasonal nature; however, revenues
derived from the power market may be influenced by customers' fiscal year
ends and holiday seasons.
WORKING CAPITAL ITEMS
The Company currently maintains inventory levels adequate for its
short-term needs based upon present levels of production. The Company
considers the component parts of its different product lines to be readily
available and current suppliers to be reliable and capable of satisfying
anticipated needs.
SALES TO LARGE CUSTOMERS
During fiscal 2001, 2000 and 1999, no single customer accounted for more
than 10% of the Company's consolidated revenue from continuing operations.
SALES BACKLOG
The Company's backlog at June 30, 2001 consisted of sales orders totaling
approximately $21,713,000. The Company expects to ship goods filling
$19,140,000 of those purchase orders within fiscal 2002. This compares to a
backlog of $23,827,000 at June 30, 2000, of which $20,912,000 was scheduled
for shipment in fiscal 2001.
GOVERNMENT SALES
Approximately $462,000 of the Company's backlog as of June 30, 2001
consisted of contracts with the United States Government. The Company's
contracts with the government contain a provision generally found in
government contracts which permits the government to terminate the contract
at its option. When the termination is attributable to no fault of the
Company, the government would, in general, have to pay the Company certain
allowable costs up to the time of termination, but there is no compensation
for loss of profits.
ENGINEERING AND DEVELOPMENT ACTIVITIES
The Company's expenditures on engineering and development were $4,806,000
in fiscal 2001, $4,274,000 in fiscal 2000 and $4,466,000 in fiscal 1999. Of
these expenditures, no material amounts were charged directly to customers.
ENVIRONMENTAL ISSUES
No significant pollution or other types of emission result from the
Company's operations and it is not anticipated that the Company's proposed
operations will be affected by Federal, State or local provisions
concerning environmental controls. However, there can be no assurance that
any future regulations will not affect the Company's operations.
The Company, with other parties, has been named as a defendant in an
environmental contamination lawsuit. The Company is investigating the
nature of the claims but believes the claims are without merit.
FOREIGN OPERATIONS
The information required by this item is set forth in Note 10 of the Notes
to Consolidated Financial Statements on page 28 herein.
EMPLOYEES
As of the end of fiscal 2001, the Company had approximately 352 full-time
employees.
3
ITEM 2. PROPERTIES.
The Company leases its administrative offices and manufacturing facilities as
follows:
DESCRIPTION / USE LOCATION APPROXIMATE SQUARE FOOTAGE
-------------------------------------------------------- ------------------------- --------------------------
Corporate headquarters and sales and engineering offices Littleton, Colorado 14,000
Engineering and development facility Evergreen, Colorado 3,000
Office and manufacturing facility Farmers Branch, Texas 8,000
Office and manufacturing facility Auburn, Washington 33,000
Engineering, development and administrative office Hunt Valley, Maryland 14,000
Office and manufacturing facility Tulsa, Oklahoma 20,000
Office and manufacturing facility Chatsworth, California 22,000
Office and manufacturing facility Tulsa, Oklahoma 10,000
Office facility Hoddesdon, England 3,000
Office and manufacturing facility Belfast, Northern Ireland 17,000
Office and manufacturing facility Bournemouth, England 2,000
The Company's management believes the above-described facilities are adequate to
meet the Company's current and foreseeable needs. All facilities described above
are operating at or near full capacity.
ITEM 3. LEGAL PROCEEDINGS.
The Company, with other parties, has been named as a defendant in an
environmental contamination lawsuit. The Company is investigating the nature of
the claims but believes the claims are without merit.
The Company is also involved in certain actions that have arisen out of the
ordinary course of business. Management believes that resolution of the actions
will not have a significant adverse affect on the Company's consolidated
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of the security holders of the Company in the
fourth quarter of fiscal year 2001.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Hathaway Corporation's common stock is traded on the Nasdaq Small Cap Market
System and trades under the symbol HATH. The number of holders of record of the
Company's common stock as of the close of business on September 6, 2001 was 543.
The Company did not pay or declare any dividends during fiscal years 2001 and
2000 as the Company's long-term financing agreement prohibits the Company from
doing so without prior approval.
The following table sets forth, for the periods indicated, the high and low
prices of the Company's common stock on the Nasdaq Small Cap Market System, as
reported by Nasdaq.
PRICE RANGE
HIGH LOW
--------- --------
FISCAL 2000
First Quarter $ 3.13 $ 1.63
Second Quarter 2.56 0.88
Third Quarter 19.75 1.38
Fourth Quarter 9.25 3.00
FISCAL 2001
First Quarter $ 9.88 $ 5.06
Second Quarter 7.38 2.25
Third Quarter 6.94 2.94
Fourth Quarter 4.84 3.10
4
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes data from the Company's annual financial
statements for the fiscal years 1997 through 2001 and notes thereto; the
Company's complete annual financial statements and notes thereto for the current
fiscal year appear in Item 8 beginning on page 10 herein. See Item 1 in the
Business section of this report on Page 2 and Note 2 to Consolidated Financial
Statements on page 20 for discussion of a business acquisition completed in
fiscal year 1999.
FOR THE FISCAL YEARS ENDED JUNE 30,
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
IN THOUSANDS (EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:
Net revenues $ 48,386 $ 45,133 $ 41,691 $ 41,317 $ 39,946
======== ======== ======== ======== ========
Income (loss) before income taxes $ 2,572 $ 1,604 $ (1,317) $ (2,161) $ (2,192)
(Provision) benefit for income taxes (576) (129) (208) 184 763
-------- -------- -------- -------- --------
Net income (loss) $ 1,996 $ 1,475 $ (1,525) $ (1,977) $ (1,429)
======== ======== ======== ======== ========
Diluted net income (loss) per share $ 0.41 $ 0.31 $ (0.36) $ (0.46) $ (0.34)
======== ======== ======== ======== ========
Cash dividends:
Per share $ -- $ -- $ -- $ -- $ --
Total amount paid $ -- $ -- $ -- $ -- $ --
BALANCE SHEET DATA:
Total assets at June 30 $ 20,203 $ 19,937 $ 16,398 $ 17,820 $ 20,477
Total current and long-term debt
at June 30 $ 553 $ 1,546 $ 1,308 $ 1,245 $ 1,769
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
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 THAT
MAY CAUSE THE ACTUAL RESULTS OF THE COMPANY TO DIFFER MATERIALLY FROM THE
FORWARD-LOOKING STATEMENTS. THESE RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHERS,
THE FOLLOWING: INTERNATIONAL, NATIONAL AND LOCAL GENERAL BUSINESS AND ECONOMIC
CONDITIONS IN THE COMPANY'S MOTION CONTROL, PROCESS AND POWER MARKETS,
INTRODUCTION OF NEW TECHNOLOGIES, PRODUCTS AND COMPETITORS, THE ABILITY TO
PROTECT THE COMPANY'S INTELLECTUAL PROPERTY, THE ABILITY OF THE COMPANY TO
SUSTAIN, MANAGE OR FORECAST ITS GROWTH AND PRODUCT ACCEPTANCE, THE ABILITY OF
THE COMPANY TO MEET THE TECHNICAL SPECIFICATIONS OF ITS CUSTOMERS, THE CONTINUED
AVAILABILITY OF PARTS AND COMPONENTS, INCREASED COMPETITION AND CHANGES IN
COMPETITOR RESPONSES TO THE COMPANY'S PRODUCTS AND SERVICES, CHANGES IN
GOVERNMENT REGULATIONS, AVAILABILITY OF FINANCING AND THE ABILITY TO ATTRACT AND
RETAIN QUALIFIED PERSONNEL. THE COMPANY'S ABILITY TO COMPETE IN ITS MARKETS
DEPENDS UPON ITS CAPACITY TO ANTICIPATE THE NEED FOR NEW PRODUCTS, AND TO
CONTINUE TO DESIGN AND MARKET THOSE PRODUCTS TO MEET CUSTOMERS' NEEDS IN A
COMPETITIVE WORLD.
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.
5
OPERATING RESULTS
FISCAL YEAR 2001 COMPARED TO FISCAL YEAR 2000
The Company achieved a 67% increase in net income before a restructuring charge
for its fiscal year ended June 30, 2001 compared to fiscal year ended June 30,
2000. Net income before the restructuring charge was $2,465,000 in fiscal year
2001, compared to net income of $1,475,000 in fiscal 2000. Net income for fiscal
2001 after the restructuring charge was $1,996,000, a 35% increase over last
year. As a result of changing business conditions in the process instrumentation
business, the Company restructured the process instrumentation portion of its
Power and Process segment. The restructuring, which was successfully completed
during fiscal 2001, consisted of retaining a portion of the business in Dallas,
moving manufacturing of two product lines to the Company's power instrumentation
manufacturing facility in Seattle and selling the remaining two product lines. A
pretax charge of $587,000 was recorded related to this restructuring. Revenues
increased 7% to $48,386,000 in fiscal 2001 from $45,133,000 in fiscal 2000,
representing increases in both the Motion Control and the Power and Process
segments.
Revenues from the Motion Control segment for the year ended June 30, 2001
increased 14% to $21,188,000 from $18,591,000 for the year ended June 30, 2000.
Pretax profit for Motion Control for fiscal 2001 was $3,584,000 compared to
$3,139,000 for fiscal 2000, a 14% increase. At June 30, 2001 backlog for Motion
Control orders was in excess of $13 million, 6% higher than at June 30, 2000.
Although the segment's backlog remains strong, there is some slowing in orders
and in delivery rates of the OEM programs due to the general economic slowdown.
The duration of the slowing in the industry sectors is uncertain but the Company
continues to develop applications for its products for new markets and broader
segments of already existing markets.
The Power and Process segment reported revenues for fiscal 2001 of $27,198,000
compared to revenues of $26,542,000 in fiscal 2000, a 2% increase. The segment
recorded a $952,000 pretax loss before the restructuring charge compared to a
pretax loss of $1,643,000 in fiscal 2000, a 42% improvement. Sales order backlog
for Power and Process orders was $8,669,000 at June 30, 2001 which is down 25%
from June 30, 2000 - primarily reflecting a decline in backlog of large process
systems projects partially offset by an increase in power instrumentation and
systems backlog reflecting the Company's shift of focus to automation and
communications products for the power industry and away from large process
system projects.
Sales to international customers increased 32% to $15,282,000, or 32% of sales,
in fiscal 2001, from $11,577,000 or 26% of sales, in fiscal 2000 due to an
increase in sales of motion control products in foreign markets.
Sales order backlog decreased 9% to $21,713,000 at June 30, 2001 from
$23,827,000 at June 30, 2000. Gross margin for fiscal 2001 increased to 39% from
38% in fiscal 2000 due to increased sales volume and changes in the mix of
products sold.
Selling expenses decreased 4% to $6,174,000 in fiscal 2001 from $6,433,000 in
fiscal 2000 resulting from savings from continued cost reduction efforts by the
Company. General and administrative expenses increased 7% to $5,551,000 in
fiscal 2001 from $5,194,000 in fiscal 2000 primarily due to increased employee
and insurance costs. Engineering and development expenses increased 12% to
$4,806,000 in fiscal 2001 from $4,274,000 in fiscal 2000, primarily due to
one-time costs incurred to develop a configuration tool kit for the Company's
remote terminal units (RTUs) used by the power industry.
Equity income from investments in joint ventures increased to $1,170,000 in
fiscal 2001 from $698,000 in fiscal 2000. This increase is due to the continued
success of the Si Fang joint venture which supplies digital relays in China.
On July 5, 2001, the Company sold its 20% equity interest in Si Fang for
$3,020,000 in cash. The Company will record a pretax gain on the sale of
approximately $650,000 which will be recorded in the first quarter of the fiscal
year ending June 30, 2002. During fiscal years 2001 and 2000, the Company
recognized equity income from Si Fang of $1,116,000 and $670,000 respectively.
In fiscal year 2001, the Company recognized a provision for income taxes of
$576,000 compared to $129,000 in fiscal year 2000. The effective tax rate as a
percentage of the income before income taxes was 22% in fiscal 2001 and 8% in
fiscal 2000. The difference in the effective tax rate between periods is
primarily due to changes in the valuation allowance recorded against the
deferred tax assets as well as adjustments related to the resolution of various
income tax related issues. The reduction in the valuation allowance decreased in
2001 compared to 2000
6
due to larger utilization of net operating loss carryforwards in 2000. The
impact of changes in the Company's recorded valuation allowance has different
impacts on the Company's effective tax rate due to differing amounts of pretax
income in each respective period.
FISCAL YEAR 2000 COMPARED TO FISCAL YEAR 1999
The Company recorded net income of $1,475,000 in fiscal year 2000, compared to a
net loss of $1,525,000 in fiscal 1999. Revenues increased 8% from $41,691,000,
in fiscal 1999 to $45,133,000 in fiscal 2000. The increase in revenues was due
to a 43% increase in revenues from the Company's motion control products,
partially offset by a 8% decrease in revenues from the Company's power and
process systems and instrumentation products.
The increase in Motion Control revenues in fiscal 2000 was primarily due to
expansion into new high growth applications such as test instrumentation for the
fiberoptic telecommunications industry as well as the expansion of existing
applications. At June 30, 2000, backlog for Motion Control orders was in excess
of $12 million, 69% higher than at June 30, 1999. This is a reflection of Motion
Control's continued expansion into new markets and broader segments of its
existing markets.
The decrease in Power and Process revenues was due to a decline in orders and
sales from the process instrumentation business partially as a result of the
Company's delay in releasing a new calibration product line which was completed
and shipments started in May 2000. In addition, the decline was partially due to
higher sales being achieved in fiscal year 1999 from customers purchasing
upgrade products to comply with Year 2000 requirements which reduced their funds
available for projects in our fiscal year 2000. At June 30, 2000, backlog for
Power and Process orders was $11,522,000 which was 5% higher than at the end of
the previous year. This reflects higher backlog for power instrumentation and
systems automation products partially offset by a decreased backlog for process
instrumentation products.
Sales to international customers decreased 9% from $12,902,000, or 31% of sales,
in fiscal 1999, to $11,779,000 or 26% of sales, in fiscal 2000 due to a decrease
in sales of fault recording and maintenance products in foreign markets.
Sales order backlog increased 30% from $18,260,000 at June 30, 1999 to
$23,827,000 at June 30, 2000. Gross margin for fiscal 2000 increased to 38% from
36% in fiscal 1999 due to increased sales volume and changes in the mix of
products sold.
Selling expenses decreased 6% from $6,852,000 in fiscal 1999 to $6,433,000 in
fiscal 2000 resulting from savings due to the continued overall cost reduction
efforts of the Company. General and administrative expenses increased 5% from
$4,958,000 in fiscal 1999 to $5,194,000 in fiscal 2000 primarily due to bonuses
paid to the management of profitable operations. Engineering and development
expenses decreased 4% from $4,466,000 in 1999 to $4,274,000 in 2000.
Amortization of intangibles and other assets decreased from $481,000 in 1999 to
$83,000 in 2000. The decrease was primarily due to the $125,000 of amortization
and $249,000 write-off in fiscal 1999 of the goodwill from the 1991 acquisition
of Hathaway Systems Limited (HSL). This goodwill was fully written off in fiscal
1999.
Equity income from investments in joint ventures increased to $698,000 in fiscal
2000 from $329,000 in fiscal 1999 due to the success of the joint ventures.
In fiscal year 2000, the Company recognized a provision for income taxes of
$129,000 compared to $208,000 in fiscal year 1999. The effective tax rate as a
percentage of the income or loss before income taxes was a provision of 8% in
fiscal 2000 and 16% in fiscal 1999. The difference is primarily due to the
changes in the valuation allowance recorded against deferred tax assets. In
fiscal 2000, the valuation allowance was decreased due to the utilization of net
operating loss carryforwards, whereas in fiscal year 1999, the valuation
allowance was increased due to the increase in net operating losses being
carried forward. The reduction in the effective tax rate is also due to a
decrease in nondeductible expenses and goodwill amortization.
7
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity position as measured by cash and cash equivalents
(excluding restricted cash) decreased $1,017,000 during the year to a balance of
$1,911,000 at June 30, 2001. Operating activities generated $720,000, $817,000
and $40,000 in fiscals 2001, 2000 and 1999, respectively.
Cash of $715,000, $970,000 and $987,000 was used by investing activities in
fiscal 2001, 2000 and 1999, respectively. The 1999 cash used for investing
activities includes $281,000 net cash paid for the interest acquired in Ashurst.
Financing activities used $768,000 in fiscal 2001 and generated $809,000 and
$63,000 in fiscal years 2000 and 1999, respectively. During fiscal 2001,
$1,124,000 in cash was used to pay down the line-of-credit. In fiscal 2000, cash
was generated due to proceeds from the exercise of employee stock options, as
well as increased net borrowings on the line-of-credit.
At June 30, 2001, the Company had $553,000 of bank debt, compared with
$1,546,000 at June 30, 2000, a decrease of $993,000. The debt at June 30, 2001
represents borrowings on the Company's current long-term financing agreement
(Agreement) with Silicon Valley Bank (Silicon). The Agreement matures on May 7,
2002 and, accordingly, the $553,000 balance has been classified as a current
liability as of June 30, 2001. The Agreement is subject to automatic and
continuous annual renewal for successive additional terms of one year each
unless either party notifies the other of its intention to terminate the
Agreement at least sixty days before the next maturity date. Borrowings on the
loan are restricted to the lesser of $3,000,000 or 85% of the Company's eligible
receivables (Maximum Credit Limit). As of June 30, 2001, 85% of the Company's
eligible receivables exceeded the maximum loan amount, therefore, the Company
could borrow an additional $2,447,000 up to the Maximum Credit Limit of
$3,000,000. Subsequent to June 30, 2001, the amount outstanding under the
line-of-credit was repaid allowing the Company access to the full $3,000,000
Maximum Credit Limit as of July 31, 2001.
The line-of-credit bears interest at Silicon's prime borrowing rate (prime rate,
6.75% at June 30, 2001) plus 1.5%. The interest rate is adjustable on a
quarterly basis to prime rate plus 2% if the Company incurs a net loss greater
than $750,000 in each previous twelve-month rolling period. In addition to
interest, the loan bears a monthly unused line fee at 0.0625% of the Maximum
Credit Limit less the average daily balance of the outstanding loan during a
month. The unused line fee is also adjustable on a quarterly basis to 0.125% if
the Company incurs a net loss greater than $750,000 in each previous
twelve-month rolling period.
The line-of-credit is secured by all assets of the Company. The Agreement
prohibits the Company from paying dividends without prior approval and requires
that the Company maintain compliance with certain covenants related to tangible
net worth. At June 30, 2001, the Company was in compliance with such covenants.
As in the three-year period ended June 30, 2001, the Company's fiscal 2002
working capital, capital expenditure and debt service requirements are expected
to be funded from cash provided by operations, the existing cash balance of
$1,911,000 and the $2,447,000 available under the long-term financing agreement
at June 30, 2001. The Company believes that such amounts are sufficient to fund
operations and working capital needs for at least the next twelve months. As
explained above, the Company's Agreement with Silicon matures on May 7, 2002 but
will continue for successive additional terms of one year each unless either
party gives notice of termination at least sixty days before the maturity date.
The Company has not received notice of termination and does not anticipate
receiving or giving such notice.
PRICE LEVELS AND THE IMPACT OF INFLATION
Prices of the Company's products have not increased significantly as a result of
inflation during the past several years, primarily due to competition. The
effect of inflation on the Company's costs of production has been minimized
through production efficiencies and lower costs of materials. The Company
anticipates that these factors will continue to minimize the effects of any
foreseeable inflation and other price pressures from the industries in which it
operates. As the Company's manufacturing activities mainly utilize semi-skilled
labor, which is relatively plentiful in the areas surrounding the Company's
production facilities, the Company does not anticipate substantial
inflation-related increases in the wages of the majority of its employees.
8
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact the financial position,
results of operations or cash flows of the Company due to adverse changes in
financial and commodity market prices and rates. The Company is exposed to
market risk in the areas of changes in United States interest rates and changes
in foreign currency exchange rates as measured against the United States dollar.
These exposures are directly related to its normal operating and funding
activities. Historically, and as of June 30, 2001, the Company has not used
derivative instruments or engaged in hedging activities.
INTEREST RATE RISK
The interest payable on the Company's line-of-credit is variable based on the
prime rate, and, therefore, affected by changes in market interest rates. The
line-of-credit matures in May 2002 and is subject to automatic and continuous
annual renewal for successive annual terms of one year each unless either party
notifies the other of its intention to terminate the Agreement at least sixty
days before the next maturity date. The Company manages interest rate risk by
investing excess funds in cash equivalents bearing variable interest rates that
are tied to various market indices. Additionally, the Company monitors interest
rates frequently and has sufficient cash balances to pay off the line-of-credit
should interest rates increase significantly. As a result, the Company does not
believe that reasonably possible near-term changes in interest rates will result
in a material effect on future earnings, fair values or cash flows of the
Company.
FOREIGN CURRENCY RISK
The Company has wholly-owned subsidiaries located in Northern Ireland and
England. Sales from these operations are typically denominated in British
Pounds, thereby creating exposures to changes in exchange rates. The changes in
the British/U.S. exchange rate may positively or negatively affect the Company's
sales, gross margins, net income and retained earnings. The Company does not
believe that reasonably possible near-term changes in exchange rates will result
in a material effect on future earnings, fair values or cash flows of the
Company, and therefore, has chosen not to enter into foreign currency hedging
instruments. There can be no assurance that such an approach will be successful,
especially in the event of a significant and sudden decline in the value of the
British Pound.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 133, "Derivative
Instruments and Hedging Activities," establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 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
No. 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 No. 133," which
delayed the effective date of SFAS No. 133 until all fiscal years beginning
after June 15, 2000. Through June 30, 2001, the Company had not entered into any
transactions involving derivative financial instruments included in the scope of
SFAS No. 133, as amended, and, therefore, the adoption of SFAS No. 133 has had
no financial statement impact.
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition," to provide guidance on
the recognition, presentation and disclosure of revenue in financial statements.
The accounting and disclosures described in SAB No. 101 must be applied no later
than the fourth fiscal quarter of the Company's fiscal year ending June 30,
2001, retroactive to July 1, 2000. The adoption of SAB No. 101 has had no
material impact on the Company's financial statements. However, implementation
guidelines for this bulletin, as well as potential new pronouncements regarding
revenue recognition, 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.
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, "Business Combinations." SFAS No. 141 requires that all business
combinations be accounted for using the purchase method of accounting. The use
of the pooling-of-interest method of accounting for business combinations is
prohibited. The provisions of SFAS No. 141 apply to all business combinations
initiated after June 30, 2001. The Company will account for any future business
combinations in accordance with SFAS No. 141.
9
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 changes the accounting for goodwill and intangible assets
and requires that goodwill no longer be amortized but be tested for impairment
at least annually at the reporting unit level in accordance with SFAS No. 142.
Goodwill must also be reviewed for impairment when certain events indicate that
the goodwill may be impaired. Recognized intangible assets should, generally, be
amortized over their useful life and reviewed for impairment in accordance with
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." Because the Company is a noncalendar
year-end company, the FASB has allowed adoption of SFAS No. 142 either in fiscal
year 2002 or fiscal year 2003, except for provisions related to the
nonamortization and amortization of goodwill and intangible assets acquired
after June 30, 2001, which will be subject immediately to the provisions of SFAS
No. 142. The Company will adopt SFAS No. 142 on July 1, 2002. The Company has
not yet quantified the effects of adopting SFAS No. 142 on its financial
position or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
10
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hathaway Corporation:
We have audited the accompanying consolidated balance sheets of HATHAWAY
CORPORATION (a Colorado corporation) AND SUBSIDIARIES as of June 30, 2001 and
2000, and the related consolidated statements of operations, cash flows and
stockholders' investment for each of the three fiscal years in the period ended
June 30, 2001. These financial statements and the schedule referred to below are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hathaway Corporation and
subsidiaries as of June 30, 2001 and 2000, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended June
30, 2001 in conformity with accounting principles generally accepted in the
United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental Schedule II is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Denver, Colorado,
July 27, 2001.
11
HATHAWAY CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2001 JUNE 30, 2000
------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,911 $ 2,928
Restricted cash 346 270
Trade receivables, net of allowance for doubtful accounts
of $496 and $530 at June 30, 2001 and 2000, respectively 7,708 7,976
Inventories, net 4,931 4,550
Deferred income taxes 229 601
Income tax refunds receivable, prepaid expenses and other 486 361
-------- --------
Total Current Assets 15,611 16,686
Property and equipment, net 1,781 1,707
Investment in joint ventures, net (Notes 3 and 11) 2,459 1,482
Other 352 62
-------- --------
Total Assets $ 20,203 $ 19,937
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Line-of-credit (Note 4) $ 553 $ 1,546
Accounts payable 1,583 1,879
Accrued liabilities and other 3,345 3,854
Income taxes payable 380 538
Product warranty reserve 514 813
-------- --------
Total Current Liabilities 6,375 8,630
Commitments and Contingencies
Stockholders' Investment:
Preferred stock, par value $1.00 per share, authorized
5,000 shares; no shares outstanding -- --
Common stock, at aggregate stated value, authorized
50,000 shares; 5,719 and 5,582 shares issued at
June 30, 2001 and 2000, respectively 100 100
Additional paid-in capital 11,230 10,594
Loans receivable for stock (Note 7) (160) (235)
Retained earnings 6,787 4,791
Cumulative translation adjustments (152) 34
Treasury stock, at cost; 1,122 shares (3,977) (3,977)
-------- --------
Total Stockholders' Investment 13,828 11,307
-------- --------
Total Liabilities and Stockholders' Investment $ 20,203 $ 19,937
======== ========
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
12
HATHAWAY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE FISCAL YEARS ENDED JUNE 30,
2001 2000 1999
-------- -------- --------
Revenues $ 48,386 $ 45,133 $ 41,691
Cost of products sold 29,734 28,175 26,475
-------- -------- --------
Gross margin 18,652 16,958 15,216
Operating costs and expenses:
Selling 6,174 6,433 6,852
General and administrative 5,551 5,194 4,958
Engineering and development 4,806 4,274 4,466
Restructuring charge (Note 9) 587 -- --
Amortization and other 57 83 481
-------- -------- --------
Total operating costs and expenses 17,175 15,984 16,757
-------- -------- --------
Operating income (loss) 1,477 974 (1,541)
Other income (expense), net:
Equity income from investments in joint
ventures (Notes 3 and 11) 1,170 698 329
Interest and dividend income 90 69 111
Interest expense (82) (154) (146)
Other (expense) income, net (83) 17 (70)
-------- -------- --------
Total other income, net 1,095 630 224
-------- -------- --------
Income (loss) before income taxes 2,572 1,604 (1,317)
Provision for income taxes (Note 5) (576) (129) (208)
-------- -------- --------
Net income (loss) $ 1,996 $ 1,475 $ (1,525)
======== ======== ========
Basic net income (loss) per share (Note 1) $ 0.44 $ 0.34 $ (0.36)
======== ======== ========
Diluted net income (loss) per share (Note 1) $ 0.41 $ 0.31 $ (0.36)
======== ======== ========
Basic weighted average shares outstanding (Note 1) 4,493 4,341 4,283
======== ======== ========
Diluted weighted average shares outstanding (Note 1) 4,834 4,785 4,283
======== ======== ========
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
13
HATHAWAY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE FISCAL YEARS ENDED JUNE 30,
2001 2000 1999
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,996 $ 1,475 $(1,525)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 831 890 1,220
Provision for doubtful accounts 150 150 14
Equity income, net of dividends, from investments
in joint ventures (Notes 3 and 11) (977) (559) (208)
Deferred income tax provision 372 31 147
Other 255 (144) (195)
Changes in assets and liabilities, net of effect
in 1999 of purchase of Ashurst (Note 2):
(Increase) decrease in -
Restricted cash (95) 377 (166)
Trade receivables 12 (1,661) 87
Inventories, net (530) (1,234) 333
Income tax refunds receivable, prepaid
expenses and other (130) 182 183
Increase (decrease) in -
Accounts payable (340) 309 (499)
Accrued liabilities and other (384) 899 408
Income taxes payable (147) (22) 27
Product service reserve (293) 124 214
------- ------- -------
Net cash provided by (used in) operating activities 720 817 40
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (908) (827) (792)
Purchase of Ashurst, net of cash acquired (Note 2) -- -- (281)
Activities related to joint venture investments,
net (Notes 3 and 11) -- (282) (35)
------- ------- -------
Net cash used in investing activities (908) (1,109) (1,108)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on line-of-credit (1,117) (65) (150)
Borrowings on line-of-credit 124 303 213
Repayment on loan to employee stock ownership plan 75 -- --
Sale of stock to employees through stock purchase plan 94 -- --
Proceeds from exercise of employee stock options 55 575 --
Purchase of treasury stock -- (4) --
------- ------- -------
Net cash (used in) provided by financing activities (769) 809 63
Effect of foreign exchange rate changes on cash (60) (5) (22)
------- ------- -------
Net (decrease) increase in cash and cash equivalents (1,017) 512 (1,027)
Cash and cash equivalents at beginning of year 2,928 2,416 3,443
------- ------- -------
Cash and cash equivalents at end of year $ 1,911 $ 2,928 $ 2,416
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Net cash paid during the year for:
Interest $ 94 $ 152 $ 123
Income taxes 179 53 (153)
Noncash investing and financing activities:
Assets of Ashurst purchased, net of liabilities
assumed and cash acquired (Note 2) $ -- $ -- $ 281
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
14
HATHAWAY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
(IN THOUSANDS)
LOANS
COMMON STOCK ADDITIONAL RECEIVABLE CUMULATIVE TREASURY STOCK
-------------- PAID-IN FOR STOCK RETAINED TRANSLATION COMPREHENSIVE ----------------
SHARES AMOUNT CAPITAL (NOTE 7) EARNINGS ADJUSTMENTS INCOME (LOSS) SHARES AMOUNT
------ ------ ---------- ---------- -------- ----------- ------------- ------ --------
Balances, June 30, 1998 5,405 $ 100 $ 9,954 $ (235) $ 4,841 $ 389 1,122 $(3,973)
Foreign currency translation (235) $ (235)
adjustment
Net loss (1,525) (1,525)
-------
Comprehensive loss $(1,760)
------ ------ -------- ------- -------- ------- ======= ------ -------
Balances, June 30, 1999 5,405 100 9,954 (235) 3,316 154 1,122 (3,973)
Purchase of treasury stock (4)
Exercise of stock options 177 575
Tax benefit from disqualifying
stock dispositions 65
Foreign currency translation
adjustment (120) $ (120)
Net income 1,475 1,475
-------
Comprehensive loss $ 1,355
------ ------ -------- ------- -------- ------- ======= ------ -------
Balances, June 30, 2000 5,582 100 10,594 (235) 4,791 34 1,122 (3,977)
Exercise of stock options 29 55
Tax benefit from disqualifying
stock dispositions 178
Shares issued to repurchase
subsidiary stock (Note 6) 76 309
Employee stock purchase plan 32 94
Employee stock ownership plan 75
Foreign currency translation
adjustment (186) $ (186)
Net income 1,996 1,996
-------
Comprehensive income $ 1,810
------ ------ -------- ------- -------- ------- ======= ------ -------
Balances, June 30, 2001 5,719 $ 100 $ 11,230 $ (160) $ 6,787 $ (152) 1,122 $(3,977)
====== ====== ======== ======= ======== ======= ====== =======
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
15
HATHAWAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Hathaway Corporation (the Company) is engaged in the business of designing,
manufacturing and selling advanced systems and instrumentation to the
worldwide power and process industries, as well as motion control products
to a broad spectrum of customers throughout the world. The Company operates
primarily in the United States and Europe and has joint venture investments
in China (Notes 3 and 11).
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions are eliminated in consolidation.
Investments in joint ventures, in which the ownership is at least 20% but
less than 50%, are accounted for using the equity method (Note 3).
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include instruments which are readily convertible
into cash (original maturities of three months or less) and which are not
subject to significant risk of changes in interest rates. Cash flows in
foreign currencies are translated using an average rate.
RESTRICTED CASH
Restricted cash consists of certificates of deposit that serve as
collateral for letters of credit issued on behalf of the
Company.
INVENTORIES
Inventories, valued at the lower of cost (first-in, first-out basis) or
market, are as follows (in thousands):
JUNE 30, 2001 JUNE 30, 2000
------------- -------------
Parts and raw materials, net $3,251 $2,827
Finished goods and work-in-process, net 1,680 1,723
------ ------
$4,931 $4,550
====== ======
Reserves established for anticipated losses on excess or obsolete
inventories were approximately $1,844,000 and $1,900,000 at June 30, 2001
and 2000, respectively.
PROPERTY AND EQUIPMENT
Property and equipment is classified as follows (in thousands):
USEFUL LIVES JUNE 30, 2001 JUNE 30, 2000
------------ ------------- -------------
Machinery, equipment, tools and dies 2-8 years $ 5,987 $ 8,233
Furniture, fixtures and other 3-10 years 2,839 1,350
--------- ---------
8,826 9,583
Less accumulated depreciation and amortization (7,045) (7,876)
--------- ---------
$ 1,781 $ 1,707
========= =========
Depreciation and amortization expense is provided using the straight-line
method over the estimated useful lives of the assets. Maintenance and
repair costs are charged to operations as incurred. Major additions and
improvements are capitalized. The cost and related accumulated depreciation
of retired or sold property are removed from the accounts and any resulting
gain or loss is reflected in earnings.
Depreciation expense was approximately $774,000, $807,000 and $788,000 in
fiscal years 2001, 2000 and 1999, respectively.
16
HATHAWAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLES
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. For assets that are held and used in operations, the
asset would be considered to be impaired if the undiscounted future cash
flows related to the asset did not exceed its net book value. The amount of
the impairment is assessed using the assets' fair market value, which is
estimated using discounted cash flows.
As a result of its acquisition of Hathaway Systems Limited (HSL) in 1991,
the Company had previously recorded goodwill of $1,197,000. At June 30,
1999 and in accordance with Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," the Company determined that the
unamortized cost in excess of net assets acquired from its acquisition of
HSL was impaired; and, therefore, wrote off the remaining unamortized
balance of $249,000. The Company's determination was based on projections
of undiscounted cash flows of HSL, which were reflective of then current
marketplace conditions, low orders and continuing losses. Such undiscounted
cash flow estimates were not sufficient to indicate realization of the
related unamortized cost in excess of net assets acquired. Utilizing such
projections and discounting the estimated cash flows, the Company
determined that the entire unamortized amount was impaired. Fiscal year
1999 amortization of $125,000 and impairment write-off of $249,000,
totaling $374,000, is included in amortization of intangibles and other in
the fiscal year 1999 consolidated statement of operations.
ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
JUNE 30, 2001 JUNE 30, 2000
------------- -------------
Compensation and fringe benefits $1,617 $1,863
Deferred revenue 621 800
Commissions 552 596
Other accrued expenses 555 595
------ ------
$3,345 $3,854
====== ======
FOREIGN CURRENCY TRANSLATION
In accordance with SFAS No. 52, "Foreign Currency Translation," the assets
and liabilities of the Company's foreign subsidiaries are translated into
U.S. dollars using current exchange rates. Revenues and expenses are
translated at average rates prevailing during the period. The resulting
translation adjustments are recorded in the cumulative translation
adjustments component of stockholders' investment in the accompanying
consolidated balance sheets. Transaction gains and losses that arise from
exchange rate fluctuations on transactions denominated in a currency other
than the functional currency are included in the results of operations as
incurred.
REVENUE RECOGNITION
Hathaway Industrial Automation (HIA), a wholly-owned subsidiary of the
Company, undertakes contracts for the installation of integrated process
control systems which are based upon its proprietary software. These
contracts typically require substantial customization of this proprietary
software. Accordingly, in accordance with Statement of Position (SOP) 97-2,
"Software Revenue Recognition," the Company recognizes contract revenues by
applying the percentage of completion achieved to the total contract sales
price. The Company determines the percentage of completion for all
contracts using the "cost-to-cost" method of measuring contract progress.
Under this method, actual contract costs incurred to date are compared to
total estimated contract costs to determine the estimated percentage of
revenues to be recognized. To the extent these estimates prove to be
inaccurate, the revenues and gross margins, if any, reported for the period
during which work on the contract is ongoing may not accurately reflect the
final results of the contract, which can only be determined upon contract
completion. Provisions for estimated losses on uncompleted contracts, to
the full extent of the estimated loss, are made during the period in which
the Company first becomes aware that a loss on a contract is probable. The
Company's other businesses generally recognize revenue when products are
delivered, persuasive evidence of an arrangement exists, selling price is
fixed, and collectibility is reasonably assured.
17
HATHAWAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIC AND DILUTED INCOME PER SHARE
Basic income (loss) per share is computed by dividing net income or loss by
the weighted average number of shares of common stock outstanding. Diluted
income or loss per share is determined by dividing the net income or loss
by the sum of (1) the weighted average number of common shares outstanding
and (2) if not anti-dilutive, the effect of stock options determined
utilizing the treasury stock method. Outstanding options that were
determined to have a dilutive effect totaled 341,962 and 444,316 for fiscal
years 2001 and 2000, respectively. In fiscal year 1999, stock options to
purchase 819,004 shares of common stock (without regard to the treasury
stock method), were excluded from the calculation of diluted loss per share
since the results would have been anti-dilutive.
Basic income (loss) per share have been computed as follows (in thousands,
except per share data):
FOR THE FISCAL YEARS ENDED JUNE 30,
2001 2000 1999
------- ------- -------
Numerator:
Net income (loss) $ 1,996 $ 1,475 $(1,525)
Denominator:
Weighted average outstanding shares 4,493 4,341 4,283
------- ------- -------
Basic net income (loss) per share $ 0.44 $ 0.34 $ (0.36)
======= ======= =======
Diluted income (loss) per share have been computed as follows (in
thousands, except per share data):
FOR THE FISCAL YEARS ENDED JUNE 30,
2001 2000 1999
------- ------- -------
Numerator:
Net income (loss) $ 1,996 $ 1,475 $(1,525)
Denominator:
Weighted average outstanding shares 4,834 4,785 4,283
------- ------- -------
Diluted net income (loss) per share $ 0.41 $ 0.31 $ (0.36)
======= ======= =======
COMPREHENSIVE INCOME
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 and
distributions to shareholders. Items of comprehensive income for all years
presented are limited to cumulative translation adjustments from the
translation of the financial statements of the Company's foreign
subsidiaries.
STOCK-BASED COMPENSATION
The Company accounts for its employee stock option plans and other employee
stock-based compensation arrangements in accordance with the provisions of
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations. The Company adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," which allows entities to continue to apply the provisions of
APB Opinion No. 25 for transactions with employees and provide pro-forma
disclosures for employee stock awards made in 1997 and future years as if
the fair value-based method of accounting in SFAS No. 123 had been applied
to these transactions. The Company accounts for equity instruments issued
to non-employees in accordance with the provisions of SFAS No. 123 and
related interpretations.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, restricted cash, trade receivables, accounts payable
and accrued liabilities approximate fair value because of the immediate or
short-term maturities of these financial instruments. The carrying amount
of the line-of-credit approximates fair value because the underlying
instrument is a variable rate note that reprices frequently.
18
HATHAWAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The current provision for income taxes represents actual or estimated
amounts payable or refundable on tax return filings each year. Deferred tax
assets and liabilities are recorded for the estimated future tax effects of
temporary differences between the tax basis of assets and liabilities and
amounts reported in the accompanying balance sheets, and for operating loss
and tax credit carryforwards. A valuation allowance may be provided to the
extent deemed more likely than not that deferred tax assets will not be
realized. The change in deferred tax assets and liabilities for the period
measures the deferred tax provision or benefit for the period. Effects of
changes in enacted tax laws on deferred tax assets and liabilities are
reflected as adjustments to the tax provision or benefit in the period of
enactment. The ultimate realization of net deferred tax assets is dependent
upon the generation of future taxable income, in the appropriate taxing
jurisdictions, during the periods in which temporary differences become
deductible. Management believes that it is more likely than not that the
Company will realize the benefits of these deductible differences, net of
valuation allowances as of June 30, 2001.
CONCENTRATION OF CREDIT RISK
During fiscal 2001, 2000 and 1999, no single customer accounted for more
than 10% of the Company's consolidated revenue from continuing operations
or its trade receivables balance. Trade receivables subject the Company to
the potential for credit risk. To reduce this risk, the Company performs
evaluations of its customers' financial condition, when necessary.
USE OF ESTIMATES
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 revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS
SFAS No. 133, "Derivative Instruments and Hedging Activities," establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. SFAS No. 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 No. 133 was effective
for all fiscal years beginning after June 15, 1999. During 1999, the
Financial Accounting Standards Board (FASB) issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of SFAS No. 133," which delayed the effective date of
SFAS No. 133 until all fiscal years beginning after June 15, 2000. Through
June 30, 2001, the Company had not entered into any transactions involving
derivative financial instruments falling within the scope of SFAS No. 133,
as amended, and, therefore, the adoption of SFAS No. 133 has had no
financial statement impact.
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition," to provide
guidance on the recognition, presentation and disclosure of revenue in
financial statements. The accounting and disclosures described in SAB No.
101 must be applied no later than the fourth fiscal quarter of the
Company's fiscal year ending June 30, 2001, retroactive to July 1, 2000.
The adoption of SAB No. 101 has had no material impact on the Company's
financial statements. However, implementation guidelines for this bulletin,
as well as potential new pronouncements regarding revenue recognition,
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.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS
No. 141 requires that all business combinations be accounted for using the
purchase method of accounting. The use of the pooling-of-interest method of
accounting for business combinations is prohibited. The provisions of SFAS
No. 141 apply to all business combinations initiated after June 30, 2001.
The Company will account for any future business combinations in accordance
with SFAS No. 141.
19
HATHAWAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 changes the accounting for goodwill and intangible
assets and requires that goodwill no longer be amortized but be tested for
impairment at least annually at the reporting unit level in accordance with
SFAS No. 142. Goodwill must also be reviewed for impairment when certain
events indicate that the goodwill may be impaired. Recognized intangible
assets should, generally, be amortized over their useful life and reviewed
for impairment in accordance with SFAS No. 121. Because the Company is a
noncalendar year-end company, the FASB has allowed adoption of SFAS No. 142
either in fiscal year 2002 or fiscal year 2003, except for provisions
related to the nonamortization and amortization of goodwill and intangible
assets acquired after June 30, 2001, which will be subject immediately to
the provisions of SFAS No. 142. The Company will adopt SFAS No. 142 on July
1, 2002. The Company has not yet quantified the effects of adopting SFAS
No. 142 on its financial position or results of operations.
RECLASSIFICATIONS
Certain prior year balances were reclassified to conform to the current
year presentation. Those reclassifications had no impact on net income or
stockholders' investment as previously reported.
2. 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 $317,000 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. The acquired company was renamed
Emoteq UK Limited.
The acquisition was accounted for using the purchase method of accounting,
and, accordingly, the purchase price was allocated to the assets purchased
and the liabilities assumed based upon the estimated fair values at the
date of acquisition. The final net purchase price allocation was as follows
(in thousands):
Cash $ 36
Trade receivables 190
Prepaid expenses 2
Property and equipment, net 25
Cost in excess of net assets acquired 195
Accounts payable (43)
Accrued liabilities and other (88)
-----
Net purchase price $ 317
=====
The results of operations of Ashurst have been included in the Company's
fiscal 1999 consolidated statement of operations starting on July 1, 1998.
3. INVESTMENTS IN JOINT VENTURES
Through July 5, 2001, the Company had three joint venture investments in
China - a 20% interest in Hathaway Si Fang Protection and Control Company,
Ltd. (Si Fang), a 25% interest in Zibo Kehui Electric Company Ltd. (Kehui)
and a 40% interest Hathaway Power Monitoring Systems Company, Ltd. (HPMS).
Si Fang designs, manufactures and sells a new generation of digital
protective relays, control equipment and instrumentation products for
substations in power transmission and distribution systems in China and is
now the largest Chinese supplier of digital relays in China. Kehui designs,
manufactures and sells cable and overhead fault location products,
Supervisory Control and Data Acquisition (SCADA) systems and other test
instruments within the China market and the Company may sell these products
outside of China. HPMS manufactures and sells, under a license from the
Company, instrumentation products designed by the Company to electric power
companies in China.
20
HATHAWAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS IN JOINT VENTURES (CONTINUED)
The Company accounts for its investments in the Chinese joint ventures
using the equity method of accounting. At the time of the original
investments in the Chinese joint ventures and until the beginning of fiscal
1998, the Company determined that due to the start-up nature of the
entities, their untested products and political uncertainty in China, the
realization of the initial investments and subsequent earnings (which were
not significant) was uncertain; and, therefore, the Company wrote down its
investments in these joint ventures to their then-estimated fair value.
The operations of these joint ventures have continued to mature, their
products have gained significant acceptance, and they have achieved
profitability. Because of sustained positive operating results, offset by
the Company's concerns of political and business uncertainty in China, the
Company recognized a portion of its share of equity in income from these
joint ventures, totaling $1,170,000, $698,000 and $329,000 in fiscal years
2001, 2000 and 1999, respectively. These amounts are included in equity
income from investments in joint ventures in the accompanying consolidated
statements of operations and reflect the Company's share of earnings, net
of writedowns, from the joint ventures' operating results for the years
ended December 31. The Company will continue to recognize its share of
equity in income (loss) from these joint ventures to the extent it believes
such amounts are realizable.
At June 30, 2001, the Company's investments and ownership interests in
these joint ventures are as follows (in thousands):
Cumulative
Investment, Share of Income Cumulative Balance at
Ownership Net of (Through Dividends Cumulative June 30,
Interest Sales Dec. 31, 2000) Received Writedowns 2001
-------- ----------- --------------- ---------- ---------- ----------
Si Fang 20% $ 642 $ 2,625 $ (453) $ (484) $ 2,330
Kehui 25% 100 331 (28) (298) 105
HPMS 40% 140 101 -- (217) 24
------- ------- ------- ------- -------
$ 882 $ 3,057 $ (481) $ (999) $ 2,459
======= ======= ======= ======= =======
The Company has no future commitments relating to its investments in these
joint ventures.
Summarized financial information for Si Fang as of December 31, 2000, 1999
and 1998 (Si Fang is on a calendar fiscal year) is presented as follows (in
thousands):
As of and As of and As of and
For the Year Ended For the Year Ended For the Year Ended
December 31, 2000 December 31, 1999 December 31, 1998
------------------ ------------------ ------------------
Current assets $34,722 $25,539 $16,864
Non-current assets 14,869 4,785 1,745
Current liabilities 27,596 20,239 14,752
Non-current liabilities 6,024 -- --
Revenues 48,363 32,959 16,502
Gross margin 12,736 6,834 4,047
Net income before income taxes 6,291 3,940 1,706
Net income 5,580 3,352 1,367
Summarized financial information for Kehui and for HPMS is not presented
because it is not significant relative to the Company's consolidated
financial statements.
During fiscal 1999, the Company sold 2% of its ownership interest in Si
Fang for $57,000 in cash and recognized a $49,000 gain on the sale, which
is included in other income in the accompanying fiscal year 1999
consolidated statement of operations. The Company reinvested the proceeds
from the sale plus an additional $35,000 in cash to maintain its 23%
ownership interest due to a capital call by the joint venture.
21
HATHAWAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS IN JOINT VENTURES (CONTINUED)
During fiscal 2000, the Company sold a portion of its investment in Si Fang
to another partner in the joint venture, reducing its ownership from 23% to
20%. The Company received $143,000 and recognized a $126,000 gain on the
sale. The gain is included in other income in the accompanying consolidated
statement of operations. The Company reinvested the proceeds from the sale
plus an additional $282,000 in cash to maintain its 20% ownership interest
due to a capital call by the joint venture.
On July 5, 2001, the Company sold its equity interest in Si Fang (Note 11).
4. DEBT
On May 7, 1998, the Company entered into a long-term financing agreement
(Agreement) with Silicon Valley Bank (Silicon). The Agreement matures on
May 7, 2002 and, accordingly, the $553,000 balance of the line-of-credit
has been classified as a current liability as of June 30, 2001. The
Agreement is subject to automatic and continuous annual renewal for
successive additional terms of one year each unless either party notifies
the other of its intention to terminate the Agreement at least sixty days
before the next maturity date. Borrowings on this line-of-credit are
restricted to the lesser of $3,000,000 or 85% of the Company's eligible
receivables (Maximum Credit Limit). As of June 30, 2001, 85% of the
Company's eligible receivables exceeded the maximum loan amount; therefore
the Company could borrow an additional $2,447,000 up to the $3,000,000
Maximum Credit Limit.
The line-of-credit bears interest at Silicon's prime borrowing rate (prime
rate, 6.75% at June 30, 2001) plus 1.5%. The interest rate is adjustable on
a quarterly basis to prime rate plus 2% if the Company incurs a net loss
greater than $750,000 for each previous twelve-month rolling period. In
addition to interest, the line bears a monthly unused line fee at 0.0625%
of the Maximum Credit Limit less the average daily balance of the
outstanding loan during a month. The unused line fee is also adjustable on
a quarterly basis to 0.125% if the Company incurs a net loss greater than
$750,000 for each previous twelve-month rolling period. The debt is secured
by all assets of the Company. The Agreement requires that the Company
maintain compliance with certain covenants related to tangible net worth
and prohibits the Company from paying dividends without prior approval.
5. INCOME TAXES
The benefit (provision) for income taxes is based on income (loss) before
income taxes as follows (in thousands):
FOR THE FISCAL YEARS ENDED JUNE 30,
2001 2000 1999
------- ------- -------
Domestic $ 2,231 $ 1,918 $(1,065)
Foreign 341 (314) (252)
------- ------- -------
Income (loss) before income taxes $ 2,572 $ 1,604 $(1,317)
======= ======= =======
Components of the provision for income taxes are as follows (in thousands):
FOR THE FISCAL YEARS ENDED JUNE 30,
2001 2000 1999
----- ----- -----
Current provision (benefit):
Domestic $ 204 $ 117 $ 61
Foreign -- (19) --
----- ----- -----
Total current provision 204 98 61
Deferred provision - domestic 372 31 147
----- ----- -----
Provision for income taxes $ 576 $ 129 $ 208
===== ===== =====
22
HATHAWAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
The provision for income taxes differs from the amount determined by
applying the federal statutory rate as follows (in thousands):
FOR THE FISCAL YEARS ENDED JUNE 30,
2001 2000 1999
----- ----- -----
Tax provision (benefit) computed at statutory rate $ 874 $ 545 $(448)
State tax, net of federal benefit 87 99 36
Nondeductible expenses and goodwill amortization 119 14 145
Adjustments to prior year accruals* (312) -- --
Change in valuation allowance (186) (561) 497
Other (6) 32 (22)
----- ----- -----
Provision for income taxes $ 576 $ 129 $ 208
===== ===== =====
* Adjustments relate to the successful resolution of certain income tax
related issues.
The tax effects of significant temporary differences and credit and
operating loss carryforwards that give rise to the net deferred tax assets
are as follows (in thousands):
JUNE 30, 2001 JUNE 30, 2000
------------- -------------
Allowances and other accrued liabilities $ 983 $ 1,008
Investment in joint ventures (530) (198)
Tax credit carryforwards 236 376
Net operating loss carryforwards 14 75
Valuation allowance (474) (660)
------- -------
Net deferred tax asset $ 229 $ 601
======= =======
The Company was entitled to a deduction for tax purposes related to the
exercise of employee stock options during fiscal 2000 that resulted in a
domestic operating loss carryforward for tax purposes. The carryforward
balance at June 30, 2001 is $364,000 and will expire in 2019. A benefit for
income taxes will not be recorded upon realization of the operating loss
carryforward. The Company also has domestic tax credit carryforwards of
$334,000 expiring in 2004 through 2008 and foreign advance corporation tax
of $40,000 available which may be utilized to reduce future foreign taxes
due.
Realization of the Company's net deferred tax asset is dependent upon the
Company generating sufficient taxable income in future years to obtain
benefit from the reversal of net deductible temporary differences and from
tax credit carryforwards. The Company has recorded a valuation allowance
due to the uncertainty related to the realization of certain deferred tax
assets existing at June 30, 2001. The amount of deferred tax assets
considered realizable is subject to adjustment in future periods if
estimates of future taxable income are changed. Management believes that it
is more likely than not that the Company will realize the benefits of the
net deferred tax asset, net of valuation allowances as of June 30, 2001.
6. STOCK COMPENSATION
HATHAWAY CORPORATION STOCK OPTION PLAN
At June 30, 2001, 303,732 shares of common stock were available for grant
under the Company's stock option plans. Under the terms of the plans,
options may not be granted at less than 85% of fair market value. However,
all options granted to date have been granted at fair market value as of
the date of grant. Options generally become exercisable evenly over three
years starting one year from the date of grant and expire seven years from
the date of grant.
In conjunction with the acquisition of HIA during fiscal 1997, the Company
granted options for 125,000 shares of the Company's common stock to certain
key management personnel of HIA with accelerated vesting schedules
dependent on meeting certain performance criteria. At June 30, 2001,
options to purchase 54,000 shares remain outstanding. The options vest
during fiscal 2004.
23
HATHAWAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCK COMPENSATION (CONTINUED)
Option activity in fiscal years 1999, 2000 and 2001 was as follows:
WEIGHTED WEIGHTED
AVERAGE NUMBER OF AVERAGE
NUMBER OF EXERCISE SHARES EXERCISE
SHARES PRICE ($) EXERCISABLE PRICE ($)
--------- -------- ----------- ---------
Outstanding at June 30, 1998 648,204 3.35 303,138 3.36
Granted 249,104 1.71
Canceled or forfeited (78,304) 3.18
---------
Outstanding at June 30, 1999 819,004 2.87 371,866 3.36
Granted 164,000 1.81
Canceled or forfeited (144,400) 3.48
Exercised (177,101) 3.25
---------
Outstanding at June 30, 2000 661,503 2.37 410,800 2.49
Granted 452,700 5.43
Canceled or forfeited (32,936) 3.75
Exercised (28,630) 1.93
---------
Outstanding at June 30, 2001 1,052,637 3.66 460,857 2.36
=========
Exercise prices for options outstanding and exercisable at June 30, 2001
are as follows:
RANGE OF EXERCISE PRICES TOTAL
------------------------ -----
$1.13 - $2.13 $2.66 - $3.88 4.31 - $6.72 $1.13 - $6.72
------------- ------------- ------------- -------------
Options Outstanding:
Number of options 346,467 251,670 454,500 1,052,637
Weighted average exercise price $ 1.73 $ 3.18 $ 5.39 $ 3.66
Weighted average remaining
contractual life 4.5 years 2.9 years 6.2 years 4.8 years
Options Exercisable:
Number of options 258,467 188,890 13,500 460,857
Weighted average exercise price $ 1.78 $ 3.01 $ 4.31 $ 2.36
Pro forma information regarding net income (loss) and income (loss) per
share is required by SFAS No. 123 and has been determined as if the Company
had accounted for its stock-based compensation plans using the fair value
method prescribed by that statement. The fair value for these options was
estimated at the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions:
FOR THE FISCAL YEARS ENDED JUNE 30,
2001 2000 1999
------- ------- -------
Risk-free interest rate 5.9% 6.7% 6.3%
Expected dividend yield 0.0% 0.0% 0.0%
Expected life 6 years 6 years 6 years
Expected volatility 89.5% 81.9% 60.8%
Using the fair value method of SFAS No. 123, the net income (loss) and net
income (loss) per share would have been adjusted to the pro forma amounts
indicated below (in thousands, except per share data):
FOR THE FISCAL YEARS ENDED JUNE 30,
2001 2000 1999
--------- --------- ---------
Actual net income (loss) $ 1,996 $ 1,475 $ (1,525)
Pro forma net income (loss) $ 1,364 $ 1,444 $ (1,702)
Actual basic net income (loss) per share $ 0.44 $ 0.34 $ (0.36)
Pro forma basic net income (loss) per share $ 0.30 $ 0.33 $ (0.40)
Actual diluted net income (loss) per share $ 0.41 $ 0.31 $ (0.36)
Pro forma diluted net income (loss) per share $ 0.28 $ 0.30 $ (0.40)
24
HATHAWAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCK COMPENSATION (CONTINUED)
The weighted average fair value of options granted during fiscal years
2001, 2000 and 1999 was $4.19, $0.79 and $1.07, respectively. The total
fair value of options granted was $1,897,000, $130,000 and $266,000 in
fiscal years 2001, 2000 and 1999, respectively. These amounts are being
amortized ratably over the vesting periods of the options for purposes of
this disclosure.
EMOTEQ CORPORATION STOCK OPTION PLAN
Prior to fiscal year 2001, the Company had granted options for shares of
common stock of Emoteq Corporation (Emoteq, a wholly-owned subsidiary) to
officers and key employees of Emoteq. The options were granted with
exercise prices equal to the fair value of the underlying common stock on
the date of grant, and consisted of time vesting options and performance
vesting options. During fiscal year 2001 all of the outstanding (and also
fully vested) stock options were exercised and 223,636 shares of Emoteq
common stock, representing 12% ownership of Emoteq, were issued. Proceeds
to the Company from the exercises totaled $498,000. Under the terms of the
Emoteq stock option plan and the related stockholders' agreements, the
stockholders had a liquidity put option that they could exercise only after
owning the stock for at least six months. If the holder of the shares
elected this put option, the Company would be required to purchase the
shares of Emoteq at their then current fair market value. After holding the
shares for at least six months, all such holders of Emoteq common stock
exercised their put options and consequently, the Company purchased the
shares for $1,006,000, the fair value of the shares, for consideration
consisting of Hathaway common stock, notes payable and cash. The Company
recorded $352,000 of cost in excess of net assets acquired related to the
purchase of these Emoteq shares. The Emoteq stock option plan and
stockholders' agreements were terminated in August 2001.
Option activity for the Emoteq plan during fiscal years 2001, 2000 and 1999
was as follows:
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
----------------------------- -------------------------
TIME PERFORMANCE TIME PERFORMANCE
VESTED VESTED VESTED VESTED
-------- ----------- -------- -----------
Outstanding at June 30, 1998 80,000 187,600 $ 1.37 $ 1.37
Granted 11,000 34,000 $ 2.50 $ 2.50
Cancelled or forfeited -- (33,683) -- $ 1.56
-------- -------- -------- --------
Outstanding at June 30, 1999 91,000 187,917 $ 1.51 $ 1.54
Granted 83,118 -- $ 3.43 --
Cancelled or forfeited (6,000) (132,399) $ 1.37 $ 1.55
-------- -------- -------- --------
Outstanding at June 30, 2000 168,118 55,518 $ 2.46 $ 1.51
Exercised (168,118) (55,518) $ 2.46 $ 1.51
-------- -------- -------- --------
Outstanding at June 30, 2001 -- -- -- --
======== ======== ======== ========
Prior to the exercise of the Emoteq stock options, the Company accounted
for the performance vested options under variable plan accounting. The
Company recognized $21,000 in compensation expense for the fiscal year
ended June 30, 2000 related to the 55,518 performance options.
7. LOANS RECEIVABLE FOR STOCK
The Company's loans receivable balance of $160,000 at June 30, 2001 is
comprised of a loan for $27,000 from the Leveraged Employee Stock Ownership
Plan and Trust (the Plan) and $133,000 from an Officer of the Company. The
balance of $235,000 at June 30, 2000 is comprised of a loan of $102,000
from the Plan and $133,000 from an officer of the Company. The loans relate
to the purchase of Company common stock and are reflected in the
accompanying consolidated balance sheet as an offset to stockholders'
investment.
The Plan allows eligible Company employees to participate in ownership of
the Company. The $27,000 receivable represents the unpaid balance of the
original $500,000 that the Company loaned to the Plan in fiscal year 1989
so that the Plan could acquire from the Company 114,285 newly issued shares
of the Company's common stock. The note bears interest at an annual rate of
9.23% and
25
HATHAWAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LOANS RECEIVABLE FOR STOCK (CONTINUED)
matures May 31, 2004. The terms of the Plan require the Company to make an
annual contribution equal to the greater of i) the Board established
percentage of pretax income before the contribution (5% in fiscal years
2001, 2000, and 1999) or ii) the annual interest payable on the note.
Company contributions to the Plan were $135,000 in 2001, $84,000 in 2000
and $9,000 in 1999. The Company's contribution for 2001 was made on August
16, 2001 and was used to pay off the entire principal and interest due on
the loan and purchase 33,095 newly issued shares of common stock of the
Company.
The $133,000 receivable represents the principal balance of a loan made in
fiscal year 1994 to the Chief Executive Officer of the Company in
connection with his purchase of the Company's common stock, pursuant to the
Officer and Director Loan Plan approved by stockholders on October 26,
1989. The loan is full-recourse and bears interest at a current interest
rate. The loan is due on demand but no later than October 31, 2001.
8. COMMITMENTS AND CONTINGENCIES
LEASES
At June 30, 2001, the Company maintained leases for certain facilities and
equipment. Minimum future rental commitments under all non-cancelable
operating leases are as follows (in thousands):
FISCAL YEAR AMOUNT
----------- ------
2002 $1,010
2003 632
2004 688
2005 650
2006 486
Thereafter 248
------
$3,714
======
Rental expense was $1,027,000, $1,126,000 and $1,000,000 in fiscal years
2001, 2000 and 1999, respectively.
SEVERANCE BENEFIT AGREEMENTS
The Company has entered into annually renewable severance benefit
agreements with certain key employees which, among other things, provide
inducement to the employees to continue to work for the Company during and
after any period of threatened takeover. The agreements provide the
employees with specified benefits upon the subsequent severance of
employment in the event of change in control of the Company and are
effective for 24 months thereafter. The maximum amount of salary that could
be required to be paid under these contracts, if such events occur, totaled
approximately $1,869,000 as of June 30, 2001. In addition to salary,
severance benefits include the cost of life, disability, accident and
health insurance for 24 months, a pro-rata calculation of bonus for the
current year and a gross-up payment for all federal, state and excise taxes
due on the severance payment.
CONSULTING AGREEMENT
Effective September 1, 1998, the Company entered into a consulting
agreement (Consulting Agreement) with the Chairman of the Board of
Directors who is a major shareholder. Under the Consulting Agreement, he
will be compensated for providing consulting services to the Company
primarily on matters involving the Company's motion control business, as
well as other matters as requested by the Chief Executive Officer. During
fiscal years 2001, 2000 and 1999, the Company paid $0, $66,000 and
$137,750, respectively, to the Chairman of the Board under the Consulting
Agreement.
STOCK REPURCHASE PROGRAM
Under an employee stock repurchase program approved by the Board of
Directors, the Company may repurchase its common stock from its employees
at the current market value. The Company's Agreement with Silicon limits
employee stock repurchases to $125,000 per fiscal year. Under
26
HATHAWAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Colorado law enacted in July 1994, repurchased shares of capital stock are
considered authorized and unissued shares and have the same status as
shares that have never been issued.
LITIGATION
The Company, with other parties, has been named as a defendant in an
environmental contamination lawsuit. The Company is investigating the
nature of the claims but believes the claims are without merit and,
therefore, no reserve for this litigation is required at this time.
The Company is also involved in certain actions that have arisen out of the
ordinary course of business. Management believes that resolution of the
actions will not have a significant adverse affect on the Company's
consolidated financial position or results of operations.
9. 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 products lines to its
power instrumentation manufacturing facility in Seattle and selling the
remaining two product lines. The costs associated with the restructuring
were $587,000 for the fiscal year 2001, which includes $282,000 of employee
termination expenses related to 15 employees, and closure and moving costs
of $305,000. All restructuring costs have been incurred as of June 30,
2001.
10. 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.
POWER AND PROCESS BUSINESS
Hathaway's complete line of power instrumentation products helps ensure
that electric utilities provide high quality service to consumers of
electricity. The power products group produces a comprehensive and
cost-effective range of products designed exclusively for the power
industry worldwide. Hathaway's equipment assists the electric power system
operators in operating and maintaining proper system performance. The
products, which are used to monitor and control the power generation,
transmission and distribution processes, include fault recording products,
fault location products, condition monitoring (circuit breaker) products
and remote terminal units for SCADA systems.
Hathaway's state-of-the-art software system for SCADA has been used to
fully automate such industrial applications as water and wastewater
treatment plants, glass manufacturing plants, oil and gas terminals and
tank farm facilities. In addition to expanding into its traditional process
markets, the system is being marketed to the power utility industry. The
Company has successfully sold the system with certain other Hathaway
products and targets the combined product at substation automation and
integration applications used in power generation, transmission and
distribution facilities.
The process instrumentation products group manufactures and markets
products for the process and power industries including monitoring systems
and calibration equipment. The monitoring systems, called visual
annunciators and sequential event recorders, provide both visual and
audible alarms and are used to control processes in various plants
including, chemical, petroleum, food and beverage, pulp and paper, and
textiles. Calibration equipment is used to test and adjust instrumentation
for proper and accurate operation in measuring electricity, temperatures
and pressure within the process industry.
27
HATHAWAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SEGMENT INFORMATION (CONTINUED)
MOTION CONTROL BUSINESS
Motion Control offers quality, cost-effective products that suit a wide
range of applications in the industrial, medical, military and aerospace
sectors, as well as in manufacturing of analytical instruments and computer
peripherals. The end products using Hathaway technology include special
industrial and technical products such as satellite tracking systems, MRI
scanners, and high definition printers.
The group designs, manufactures and markets direct current brush and
brushless motors, related components, and drive and control electronics as
well as precision direct-current fractional horsepower motors and certain
motor components. Industrial equipment and military products are the major
application for the motors.
The group also manufactures optical encoders that are used to measure
rotational and linear movements of parts as well as fiber optic-based
encoders with special characteristics, such as immunity to radio frequency
interference and high temperature tolerance.
The following provides information on the Company's segments (in
thousands):
FOR THE FISCAL YEARS ENDED JUNE 30,
2001 2000 1999
----------------------- ----------------------- -----------------------
POWER POWER POWER
AND MOTION AND MOTION AND MOTION
PROCESS CONTROL PROCESS CONTROL PROCESS CONTROL
-------- -------- -------- -------- -------- --------
Revenue from external customers $ 27,198 $ 21,188 $ 26,542 $ 18,591 $ 28,711 $ 12,980
Equity income from investments in
joint ventures 1,170 -- 698 -- 329 --
(Loss) income before income taxes (1,539) 3,584 (1,643) 3,139 (1,932) 487
Identifiable assets 12,142 6,532 10,620 7,134 9,232 5,006
The following is a reconciliation of segment information to consolidated
information (in thousands):
FOR THE FISCAL YEARS ENDED AND
AS OF JUNE 30,
2001 2000 1999
-------- -------- --------
Segments' income (loss) before income taxes $ 2,045 $ 1,496 $ (1,445)
Corporate activities 527 108 128
-------- -------- --------
Consolidated income (loss) before income taxes $ 2,572 $ 1,604 $ (1,317)
======== ======== ========
Segments' identifiable assets $ 18,674 $ 17,754 $ 14,238
Corporate assets and eliminations 1,529 2,183 2,160
-------- -------- --------
Consolidated total assets $ 20,203 $ 19,937 $ 16,398
======== ======== ========
The Company's wholly-owned foreign subsidiaries in the United Kingdom are
included in the accompanying consolidated financial statements. Financial
information for the foreign subsidiaries is summarized below (in
thousands):
FOR THE FISCAL YEARS ENDED AND AS OF JUNE 30,
2001 2000 1999
------ ------ ------
Revenues derived from foreign subsidiaries $7,223 $5,632 $7,744
Identifiable assets 3,927 3,078 3,179
28
HATHAWAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SEGMENT INFORMATION (CONTINUED)
Sales to international customers was $15,282,000, $11,577,000 and
$12,902,000 in fiscal years 2001, 2000 and 1999, respectively.
11. SUBSEQUENT EVENT
On July 5, 2001, the Company completed the sale of its 20% equity interest
in Si Fang for $3,020,000 in cash. The sale became effective upon receipt
of the net proceeds in U.S. dollars and the required approvals from the
State Administration of Foreign Exchange in China. The Company sold its
interest to Beijing Si Fang Tongchuang Protection and Control Co., Ltd.
(Tongchuang), a Chinese company. Prior to the sale, Tongchuang held a 22%
interest in Si Fang. The Company will record a pretax gain on the sale, net
of selling costs, of approximately $650,000. The gain will be recorded in
the first quarter of the fiscal year ending June 30, 2002 and will be
included in other income in the Company's consolidated financial
statements.
Prior to the sale, the Company's net cash investment in Si Fang was
$39,000. This consisted of the original acquisition of a 25% interest in Si
Fang in 1994 for $175,000, subsequent capital contributions made and
proceeds received in two partial sale transactions, netting to an
additional $317,000 investment and dividends received of $453,000. Through
the date of sale, the Company has recognized equity income of $2,291,000
and gain on sales of $175,000. During fiscal years ended June 30, 2001,
2000 and 1999, the Company recognized equity income of $1,116,000, $670,000
and $314,000, respectively.
The following presents the Company's unaudited pro forma financial
information for the fiscal years ended June 30, 2001, 2000 and 1999. The
pro forma statements of operations give effect to the sale of the Company's
joint venture investment in Si Fang as if it had occurred at the beginning
of each fiscal year.
The pro forma financial information is for informational purposes only and
does not purport to present what the Company's results would actually have
been had these transactions actually occurred on the dates presented or to
project the Company's results of operations or financial position for any
future period. The gain on the sale of Si Fang is not reflected in the pro
forma financial information as it is a non-recurring item.
FOR THE FISCAL YEARS ENDED JUNE 30,
2001 2000 1999
--------- --------- ---------
Net income (loss) $ 1,301 $ 1,036 $ (1,729)
Basic net income (loss) per share 0.29 0.24 (0.40)
Diluted net income (loss) per share 0.27 0.22 (0.40)
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for each of the four quarters in fiscal
years 2001 and 2000 is as follows (in thousands, except per share data):
FIRST SECOND THIRD FOURTH
2001 QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
Revenues $ 11,333 $ 13,166 $ 11,313 $ 12,574
Operating income (loss) (54) 754 (16) 793
Net income (loss) 9 771 260 956
Basic net income (loss) per share 0.00 0.17 0.06 0.21
Diluted net income (loss) per share 0.00 0.16 0.05 0.20
FIRST SECOND THIRD FOURTH
2000 QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
Revenues $ 8,905 $ 11,151 $ 11,767 $ 13,310
Operating income (loss) (762) 501 139 1,096
Net income (loss) (721) 617 225 1,354
Basic net income (loss) per share (0.17) 0.14 0.05 0.30
Diluted net income (loss) per share (0.17) 0.14 0.05 0.28
29
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
The Company has not changed its accounting or auditing firm during the past 24
months, nor has it had any material disagreements with its accountants or
auditors regarding any accounting or financial statement disclosure matters.
PART III
The information required by Part III is included in the Company's Proxy
Statement, and is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by this item is set forth in the sections entitled
"Election of Directors" (page 2), "Executive Officer" (page 3) and "Section
16(a) Beneficial Ownership Reporting Compliance" (page 9) in the Company's Proxy
Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is set forth in the section entitled
"Executive Compensation" (pages 5 through 9) in the Company's Proxy Statement
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is set forth in the section entitled
"Security Ownership of Certain Beneficial Owners and Management" (pages 4
through 5) in the Company's Proxy Statement and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Effective September 1, 1998, the Company entered into a Consulting Agreement
with Eugene E. Prince, who resigned from the offices of President and Chief
Executive Officer on August 13, 1998 and retired from employment with the
Company effective August 31, 1998. Mr. Prince is the Chairman of the Board of
Directors and a major shareholder of the Company. Under the Consulting
Agreement, he will be compensated for providing consulting services to the
Company primarily on matters involving the Company's Motion Control business, as
well as other matters as requested by the Chief Executive Officer. During fiscal
year 2001, the Company made no payments to Mr. Prince under the Consulting
Agreement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
a) The following documents are filed as part of this Report:
1. FINANCIAL STATEMENTS
a) Consolidated Balance Sheets as of June 30, 2001 and June 30,
2000.
b) Consolidated Statements of Operations for each of the fiscal
years in the three-year period ended June 30, 2001.
c) Consolidated Statements of Cash Flows for each of the fiscal
years in the three-year period ended June 30, 2001.
d) Consolidated Statements of Stockholders' Investment for each of
the fiscal years in the three-year period ended June 30, 2001.
e) Notes to Consolidated Financial Statements.
f) Report of Independent Public Accountants.
2. FINANCIAL STATEMENT SCHEDULES
II. Valuation and Qualifying Accounts.
3. EXHIBITS
EXHIBIT NO. SUBJECT PAGE
----------- ------- ----
3.1 Restated Articles of Incorporation. *
3.2 Amendment to Articles of Incorporation dated September 24, 1993. *
30
EXHIBIT NO. SUBJECT PAGE
----------- ------- ----
3.3 By-laws of the Company adopted August 11, 1994. *
10.1 Severance Agreement dated June 15, 1989 between Hathaway *
Corporation and Richard D. Smith. Incorporated by reference to
Exhibit 10n(ii) to the Company's 1989 annual Report and Form 10-K
for the fiscal year ended June 30, 1989.
10.2 The 1989 Incentive and Non-Qualified Stock Option Plan dated *
January 4, 1989. Incorporated by reference to the Company's Form
S-8 filed October 25, 1990.
10.3 Joint Venture Agreement between Zibo Kehui Electric Company and *
Hathaway Instruments Limited, for the establishment of Zibo Kehui
Electric Company Ltd., dated July 25, 1993. Incorporated by
reference to Exhibit 10.15 to the Company's Form 10-K for the
fiscal year ended June 30, 1994.
10.4 Promissory Note from Richard D. Smith to Hathaway Corporation *
dated October 26, 1993. Incorporated by reference to Exhibit
10.23 to the Company's Form 10-K for the fiscal year ended June
30, 1994.
10.5 Joint Venture Contract between Si Fang Protection and Control *
Company Limited and Hathaway Corporation for the establishment of
Beijing Hathaway Si Fang Protection and Control Company, Ltd.,
dated March 2, 1994. Incorporated by reference to Exhibit 10.26
to the Company's Form 10-K for the fiscal year ended June 30,
1994.
10.6 Joint Venture Contract between Wuhan Electric Power Instrument *
Factory, Beijing Huadian Electric Power Automation Corporation
and Hathaway Corporation for the establishment of Hathaway Power
Monitoring Systems Company, Ltd., dated June 12, 1995.
Incorporated by reference to Exhibit 10.29 to the Company's Form
10-K for the fiscal year ended June 30, 1995.
10.7 Technology License Contract between Wuhan Electric Power *
Instrument Factory and Beijing Huadian Electric Power Automation
Corporation on behalf of Hathaway Power Monitoring Systems
Company, Ltd. and Hathaway Corporation dated June 12, 1995.
Incorporated by reference to Exhibit 10.30 to the Company's Form
10-K for the fiscal year ended June 30, 1995.
10.8 Supplementary Agreement between Wuhan Electric Power Instrument *
Factory, Beijing Huadian Electric Power Automation Corporation
and Hathaway Corporation dated August 30, 1995. Incorporated by
reference to Exhibit 10.31 to the Company's Form 10-K for the
fiscal year ended June 30, 1995.
10.9 Management Incentive Bonus Plan for the fiscal year ending June *
30, 1996. Incorporated by reference to Exhibit 10.28 to the
Company's Form 10-K for the fiscal year ended June 30, 1995.**
10.10 Purchase Agreement between Hathaway Corporation and Tate *
Engineering Services Corporation dated October 10, 1996, for the
Company's purchase of all the issued and outstanding stock of
Tate Integrated Systems, Inc. Incorporated by reference to the
Company's Form 8-K dated October 25, 1996.
10.11 Loan and Security Agreement dated May 7, 1998 between Hathaway *
Corporation and certain subsidiaries of Hathaway Corporation and
Silicon Valley Bank. Incorporated by reference to Exhibit 10.16
to the Company's Form 10-K for the fiscal year ended June 30,
1998.
31
EXHIBIT NO. SUBJECT PAGE
----------- ------- ----
10.12 Schedule to Loan and Security Agreement dated May 7, 1998 between *
Hathaway Corporation and certain subsidiaries of Hathaway
Corporation and Silicon Valley Bank. Incorporated by reference to
Exhibit 10.17 to the Company's Form 10-K for the fiscal year
ended June 30, 1998.
10.13 Amendment Number One dated August 1, 1998 to the 1989 Incentive *
and Non-Qualified Stock Option Plan. Incorporated by reference to
Exhibit 10.18 to the Company's Form 10-K for the fiscal year
ended June 30, 1998.
10.14 The Amended 1991 Incentive and Nonstatutory Stock Option Plan *
dated August 1, 1998. Incorporated by reference to Exhibit 10.19
to the Company's Form 10-K for the fiscal year ended June 30,
1998.
10.15 Employment Agreement between Hathaway Corporation and Richard D. *
Smith, effective August 13, 1998.
10.16 Consulting Agreement between Hathaway Corporation and Eugene E. *
Prince dated September 1, 1998.
10.17 The Year 2000 Stock Incentive Plan. Incorporated by reference to *
Exhibit A to the Company's Proxy Statement dated September 21,
2000.
10.18 The 2001 Employee Stock Purchase Plan. Incorporated by reference *
to Exhibit B to the Company's Proxy Statement dated September 21,
2000.
10.19 The Agreement for Assignment of Equity Interest in Hathaway Si *
Fang Protection and Control Co. Ltd. Incorporated by reference to
Exhibit 99.1 to the Company's Form 8-K dated July 20, 2001.
21 List of Subsidiaries 37
22 Definitive Proxy Statement dated September 21, 2001 for the *
Registrant's 2001 Annual Meeting of Shareholders.
23 Consent of ARTHUR ANDERSEN LLP. 33
* These documents have been filed with the Securities and Exchange
Commission and are incorporated herein by reference.
** The Management Incentive Bonus Plans for the fiscal years ending June
30, 1997, 1998, 1999, and 2000 are omitted because they are
substantially identical in all material respects to the Management
Incentive Bonus Plan for the fiscal year ending June 30, 1996
previously filed with the Commission, except for the fiscal years to
which they apply.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of fiscal 2001.
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ Richard D. Smith
-----------------------
Richard D. Smith
President, Chief Executive Officer
and Chief Financial Officer
Date: September 21, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities and on the dates indicated.
SIGNATURES TITLE DATE
/s/ Richard D. Smith President, Chief Executive September 21, 2001
---------------------- Officer, Chief Financial
Richard D. Smith Officer and Director
/s/ Eugene E. Prince Chairman of the Board of September 21, 2001
---------------------- Directors
Eugene E. Prince
/s/ George J. Pilmanis Director September 21, 2001
----------------------
George J. Pilmanis
/s/ Delwin D. Hock Director September 21, 2001
----------------------
Delwin D. Hock
/s/ Graydon D. Hubbard Director September 21, 2001
----------------------
Graydon D. Hubbard
HATHAWAY CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
BALANCE AT CHARGED TO DEDUCTIONS BALANCE
BEGINNING OF COSTS AND FROM AT END OF
PERIOD EXPENSES RESERVES PERIOD
------------ ---------- ---------- ---------
YEAR ENDED JUNE 30, 2001:
Reserve for bad debts $ 530 $ 150 $(184) $ 496
YEAR ENDED JUNE 30, 2000:
Reserve for bad debts $ 479 $ 150 $ (99) $ 530
YEAR ENDED JUNE 30, 1999:
Reserve for bad debts $ 599 $ 14 $(134) $ 479
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated July 27, 2001 included in this Form 10-K, into the Company's
previously filed Registration Statement on Form S-8 (No. 2-73235) of the
Hathaway Corporation Amended 1980 Non-Incentive Stock Option Plan dated August
3, 1981, into the Registration Statement on Form S-8 (No. 2-90687) of the 1983
Incentive and Non-Qualified Stock Option Plan of Hathaway Corporation dated May
10, 1984, into the Registration Statement on Form S-8 (No. 33-44998) of the 1992
Employee Stock Purchase Plan of Hathaway Corporation dated January 8, 1992, into
the Registration Statement on Form S-8 (No. 33-37473) of the 1989 Incentive and
Non-Qualified Stock Option Plan of Hathaway Corporation dated October 25, 1990,
into the Registration Statements on Form S-8 (Nos. 33-44997 and 333-21337) of
the 1991 Incentive and Non-Statutory Stock Option Plan of Hathaway Corporation
dated January 8, 1992 and February 7, 1997, respectively, and into the
Registration Statement on Form S-8 (No. 333-55344) of the Hathaway Corporation
2001 Employee Stock Purchase Plan, the Hathaway Corporation Year 2000 Stock
Incentive Plan and the Emoteq Corporation Restated and Amended 1997 Incentive
and Nonstatutory Stock Option Plan dated February 6, 2001.
/s/ ARTHUR ANDERSEN LLP
Denver, Colorado,
September 21, 2001.
