SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED COMMISSION FILE NUMBER
SEPTEMBER 30, 2001 0-4041
(UNAUDITED)
HATHAWAY CORPORATION
(Incorporated Under the Laws of the State of Colorado)
8228 PARK MEADOWS DRIVE
LITTLETON, COLORADO 80124
TELEPHONE: (303) 799-8200
84-0518115
(IRS Employer Identification Number)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety (90) days.
YES X NO
Number of Shares of the only class of Common Stock outstanding:
(4,630,587 as of September 30, 2001)
HATHAWAY CORPORATION
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 2001 and June 30, 2001 (Unaudited)............................ 1
Condensed Consolidated Statements of Operations
Three months ended September 30, 2001 and 2000 (Unaudited).................. 2
Condensed Consolidated Statements of Cash Flows
Three months ended September 30, 2001 and 2000 (Unaudited) ................. 3
Notes to Condensed Consolidated Financial Statements (Unaudited)................. 4
Item 2. Management's Discussion and Analysis of Operating
Results and Financial Condition................................................ 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................... 11
HATHAWAY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
SEPTEMBER 30, JUNE 30,
2001 2001
- --------------------------------------------------------------------------- ----------------- ----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 3,707 $ 1,911
Restricted cash 413 346
Trade receivables, net of allowance for doubtful accounts of $512 and
$496 at September 30 and June 30, 2001, respectively 6,653 7,708
Inventories, net 5,409 4,931
Deferred income taxes 554 229
Prepaid expenses and other 792 486
- --------------------------------------------------------------------------- ----------------- ----------------
Total Current Assets 17,528 15,611
Property and equipment, net 1,763 1,781
Investment in joint ventures, net 129 2,459
Other 352 352
- --------------------------------------------------------------------------- ----------------- ----------------
Total Assets $ 19,772 $ 20,203
=========================================================================== ================= ================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Line-of-credit $ -- $ 553
Accounts payable 1,591 1,583
Accrued liabilities and other 3,167 3,345
Income taxes payable 558 380
Product warranty reserve 523 514
- --------------------------------------------------------------------------- ----------------- ----------------
Total Current Liabilities 5,839 6,375
- --------------------------------------------------------------------------- ----------------- ----------------
Commitments and Contingencies
Stockholders' Investment:
Preferred stock, par value $1.00 per share, authorized 5,000 shares;
no shares outstanding -- --
Common stock, at aggregate state value, authorized 50,000 shares;
5,753 and 5,719 shares issued at September 30 and June 30, 2001,
respectively 100 100
Additional paid-in capital 11,411 11,230
Loans receivable for stock (133) (160)
Retained earnings 6,549 6,787
Cumulative translation adjustments (17) (152)
Treasury stock, at cost; 1,122 shares (3,977) (3,977)
- --------------------------------------------------------------------------- ----------------- ----------------
Total Stockholders' Investment 13,933 13,828
- --------------------------------------------------------------------------- ----------------- ----------------
Total Liabilities and Stockholders' Investment $ 19,772 $ 20,203
=========================================================================== ================= ================
1
HATHAWAY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
2001 2000
- --------------------------------------------------------------------------- ----------------- ----------------
Revenues $ 9,105 $ 11,333
Cost of products sold 6,229 7,098
- --------------------------------------------------------------------------- ----------------- ----------------
Gross margin 2,876 4,235
Operating costs and expenses:
Selling 1,462 1,616
General and administrative 1,140 1,196
Engineering and development 1,157 1,134
Restructuring charge -- 328
Amortization and other -- 15
- --------------------------------------------------------------------------- ----------------- ----------------
Total operating costs and expenses 3,759 4,289
- --------------------------------------------------------------------------- ----------------- ----------------
Operating loss (883) (54)
Other income (expense), net:
Equity income from investments in joint ventures -- 175
Gain on sale of investment in joint venture 674 --
Interest and dividend income 25 31
Interest expense (10) (40)
Other expense, net (44) (17)
- --------------------------------------------------------------------------- ----------------- ----------------
Total other income, net 645 149
- --------------------------------------------------------------------------- ----------------- ----------------
(Loss) income before income taxes (238) 95
Provision for income taxes -- (86)
- --------------------------------------------------------------------------- ----------------- ----------------
Net (loss) income $ (238) $ 9
=========================================================================== ================= ================
Basic and diluted net (loss) income per share $ (0.05) $ 0.00
=========================================================================== ================= ================
Basic weighted average common shares 4,614 4,468
=========================================================================== ================= ================
Diluted weighted average common shares 4,614 4,901
=========================================================================== ================= ================
2
HATHAWAY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
2001 2000
- --------------------------------------------------------------------------- ----------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (238) $ 9
Adjustments to reconcile net (loss) income to net cash used in operating
activities:
Depreciation and amortization 175 196
Provision for doubtful accounts 53 12
Provision for obsolete inventory 114 29
Equity income, net of dividends, from investments in joint ventures -- (175)
Gain on sale of investment in joint venture (674) --
Deferred income tax benefit (325) 37
Other 83 (2)
Changes in assets and liabilities:
(Increase) decrease in -
Restricted cash (53) 4
Trade receivables 1,061 553
Inventories, net (549) (712)
Income tax refunds receivable, prepaid expenses and other (315) (68)
Increase (decrease) in -
Accounts payable (7) 14
Accrued liabilities and other (190) (686)
Income taxes payable 171 43
Product service reserve 6 22
- --------------------------------------------------------------------------- ----------------- ----------------
Net cash used in operating activities (688) (724)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (159) (215)
Proceeds from sale of joint venture 3,020 --
- --------------------------------------------------------------------------- ----------------- ----------------
Net cash provided by (used in) investing activities 2,861 (215)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on line-of-credit (553) (1,008)
Borrowings on line-of-credit -- 63
Repayment on loan to employee stock ownership plan 27 74
Sale of stock to employees through stock purchase plan 106 --
Proceeds from exercise of employee stock options -- 31
- --------------------------------------------------------------------------- ----------------- ----------------
Net cash used in financing activities (420) (840)
Effect of foreign exchange rate changes on cash 43 (8)
- --------------------------------------------------------------------------- ----------------- ----------------
Net increase (decrease) in cash and cash equivalents 1,796 (1,787)
Cash and cash equivalents at beginning of year 1,911 2,928
- --------------------------------------------------------------------------- ----------------- ----------------
Cash and cash equivalents at September 30 $ 3,707 $ 1,141
=========================================================================== ================= ================
3
HATHAWAY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PREPARATION AND PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of Hathaway Corporation and its wholly-owned
subsidiaries (the Company). All significant inter-company accounts and
transactions have been eliminated in consolidation.
The condensed consolidated financial statements included herein have
been prepared by the Company pursuant to the rules and regulations of
the Securities and Exchange Commission and include all adjustments
which are, in the opinion of management, necessary for a fair
presentation. Certain information and footnote disclosures normally
included in financial statements which are prepared in accordance with
accounting principles generally accepted in the United States have been
condensed or omitted pursuant to such rules and regulations. The
Company believes that the disclosures herein are adequate to make the
information presented not misleading. The financial data for the
interim periods may not necessarily be indicative of results to be
expected for the year.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management
to make certain estimates and assumptions. Such estimates and
assumptions affect the reported amounts of assets and liabilities as
well as disclosure of contingent assets and liabilities at the date of
the consolidated financial statements, and the reported amounts of
revenue and expenses during the reporting period. Actual results could
differ from those estimates.
It is suggested that the accompanying condensed interim financial
statements be read in conjunction with the Consolidated Financial
Statements and related Notes to such statements included in the June
30, 2001 Annual Report and Form 10-K previously filed by the Company.
2. INVENTORIES
Inventories, valued at the lower of cost (first-in, first-out basis)
or market, are as follows (in thousands):
SEPTEMBER 30, JUNE 30,
2001 2001
---------------- -----------------
Parts and raw materials, net $ 3,563 $ 3,251
Finished goods and work-in process, net 1,846 1,680
---------------- -----------------
$ 5,409 $ 4,931
================ =================
3. BASIC AND DILUTED (LOSS) INCOME PER SHARE
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings Per Share" (EPS), basic and diluted EPS have been
computed as follows (in thousands, except per share data):
BASIC EPS COMPUTATION FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
2001 2000
---------------------------------
Numerator:
Net (loss) income $ (238) $ 9
Denominator:
Basic weighted average outstanding shares 4,614 4,468
---------------------------------
Basic (loss) income per share $ (0.05) $ 0.00
=================================
4
3. BASIC AND DILUTED (LOSS) INCOME PER SHARE (CONTINUED)
DILUTED EPS COMPUTATION FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
2001 2000
---------------------------------
Numerator:
Net (loss) income $ (238) $ 9
Denominator:
Diluted weighted average outstanding shares 4,614 4,901
---------------------------------
Diluted net (loss) income per share $ (0.05) $ 0.00
=================================
For the three months ended September 30, 2001, stock options to
purchase 508,137 shares of common stock were excluded in the
calculation of diluted loss per share since the result would have been
anti-dilutive. For the three months ended September 30, 2000, stock
options to purchase 708,913 shares of common stock, 432,000 after
application of the treasury stock method, were included in the
calculation of diluted income per share.
4. SEGMENT INFORMATION
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" requires disclosure of operating segments, which as
defined, are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performance.
The Company operates in two different segments: Power and Process
Business (Power and Process) and Motion Control Business (Motion
Control). Management has chosen to organize the Company around these
segments based on differences in products and services.
The following tables provide information on the Company's segments (in
thousands):
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------
2001 2000
----------------------------- -----------------------------
POWER AND MOTION POWER AND MOTION
PROCESS CONTROL PROCESS CONTROL
----------------------------- -----------------------------
Revenues from external customers $ 5,459 $ 3,646 $ 5,664 $ 5,669
Gain on sale of investment
in joint venture 674 -- -- --
Equity income from investments
in joint ventures -- -- 175 --
(Loss) income before income taxes (499) 6 (1,259) 1,152
AS OF SEPTEMBER 30, 2001 AS OF JUNE 30, 2001
----------------------------- ----------------------------
POWER AND MOTION POWER AND MOTION
PROCESS CONTROL PROCESS CONTROL
--------------- ------------- -------------- -------------
Identifiable assets $ 9,897 $ 6,787 $ 12,142 $ 6,532
5
4. SEGMENT INFORMATION (CONTINUED)
The following is a reconciliation of segment information to
consolidated information:
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
2001 2000
----------------------------------
Segments' loss before income taxes $ (493) $ (107)
Corporate activities 255 202
----------------------------------
Consolidated (loss) income before income taxes $ (238) $ 95
==================================
AS OF AS OF
SEPTEMBER 30, JUNE 30,
2001 2001
----------------------------------
Segments' identifiable assets $ 16,684 $ 18,674
Corporate assets and eliminations 3,088 1,529
----------------------------------
Consolidated total assets $ 19,772 $ 20,203
==================================
5. COMPREHENSIVE LOSS
SFAS No. 130, "Reporting Comprehensive Income," establishes standards
for reporting and displaying comprehensive income and its components.
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from non-owner sources. It includes all changes in equity
during a period except those resulting from investments by and
distributions to shareholders.
Comprehensive loss is computed as follows (in thousands):
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
2001 2000
----------------------------
Net (loss) income $ (238) $ 9
Translation adjustment 135 (110)
----------------------------
Comprehensive loss $ (103) $ (101)
============================
6. INVESTMENT IN JOINT VENTURES
On July 5, 2001, the Company completed the sale of its 20% equity
interest in Hathaway Si Fang Protection and Control Company, Ltd. (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 recorded a pretax gain on the sale, net of selling costs,
of $674,000, or $.15 per basic or diluted share, in the first quarter
ending September 30, 2001 and equity income of $175,000, or $.04 per
basic and diluted share in the first quarter last year. These amounts
are included in other income in the Company's consolidated financial
statements.
6
7. RECENTLY ISSUED ACCOUNTING STANDARDS
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.
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.
In August 2001, the FASB approved SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." SFAS No. 121 did not address
the accounting for a segment of a business accounted for as a
discontinued operation which resulted in two accounting models for
long-lived assets to be disposed of. SFAS No. 144 establishes a single
accounting model for long-lived assets to be disposed of by sale and
requires that those long-lived assets be measured at the lower of
carrying amount or fair value less cost to sell, whether reported in
continuing operations or in discontinued operations. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001. The
Company will adopt SFAS No. 144 on July 1, 2002, but has not yet
quantified the effects of adopting SFAS No. 144 on its financial
position or results of operations.
7
HATHAWAY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL CONDITION
ALL STATEMENTS CONTAINED HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL FACT
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. FORWARD-LOOKING STATEMENTS INCLUDE,
WITHOUT LIMITATION, ANY STATEMENT THAT MAY PREDICT, FORECAST, INDICATE, OR IMPLY
FUTURE RESULTS, PERFORMANCE, OR ACHIEVEMENTS, AND MAY CONTAIN THE WORD
"BELIEVE," "ANTICIPATE," "EXPECT," "PROJECT," "INTEND," "WILL CONTINUE," "WILL
LIKELY RESULT," "SHOULD" OR WORDS OR PHRASES OF SIMILAR MEANING. FORWARD-LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS 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 CONTINUED
SUCCESS OF THE COMPANY'S CUSTOMERS TO ALLOW THE COMPANY TO REALIZE REVENUES FROM
ITS ORDER BACKLOG AND TO SUPPORT THE COMPANY'S EXPECTED DELIVERY SCHEDULES, THE
CONTINUED VIABILITY OF THE COMPANY'S CUSTOMERS AND THEIR ABILITY TO ADAPT TO
CHANGING TECHNOLOGY AND PRODUCT DEMAND, 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, THE ABILITY OF THE COMPANY'S LENDERS AND FINANCIAL INSTITUTIONS TO
PROVIDE ADDITIONAL FUNDS IF NEEDED AND THE ABILITY TO ATTRACT AND RETAIN
QUALIFIED PERSONNEL WHO CAN DESIGN NEW APPLICATIONS AND PRODUCTS FOR THE MOTION
CONTROL AND POWER INDUSTRIES. DEREGULATION AND CHANGES IN DEMOGRAPHIC PATTERNS
AND WEATHER CONDITIONS HAVE CHANGED THE PRODUCT NEEDS AND REQUIREMENTS OF THE
POWER INDUSTRY AND NEW PRODUCTS ARE BEING INTRODUCED ON A REGULAR BASIS. THEY
ARE OFTEN PRODUCTS FOR IMPROVING THE EFFICIENCY AND RELIABILITY OF THE POWER
SYSTEMS AND INCLUDE PRODUCTS THAT AUTOMATE AND IMPROVE THE AVAILABILITY OF
INFORMATION REGARDING THE PERFORMANCE OF THE POWER SYSTEM. THE COMPANY'S ABILITY
TO COMPETE IN THIS MARKET 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.
NEW RISK FACTORS EMERGE FROM TIME TO TIME AND IT IS NOT POSSIBLE FOR MANAGEMENT
TO PREDICT ALL SUCH RISK FACTORS, NOR CAN IT ASSESS THE IMPACT OF ALL SUCH RISK
FACTORS ON ITS BUSINESS OR THE EXTENT TO WHICH ANY FACTOR, OR COMBINATION OF
FACTORS, MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN
ANY FORWARD-LOOKING STATEMENTS. THE COMPANY'S EXPECTATIONS, BELIEFS AND
PROJECTIONS ARE EXPRESSED IN GOOD FAITH AND ARE BELIEVED TO HAVE A REASONABLE
BASIS; HOWEVER, THE COMPANY MAKES NO ASSURANCE THAT EXPECTATIONS, BELIEFS OR
PROJECTIONS WILL BE ACHIEVED.
BECAUSE OF THE RISKS AND UNCERTAINTIES, INVESTORS SHOULD NOT PLACE UNDUE
RELIANCE ON FORWARD-LOOKING STATEMENTS AS A PREDICTION OF ACTUAL RESULTS. THE
COMPANY HAS NO OBLIGATION OR INTENT TO RELEASE PUBLICLY ANY REVISIONS TO ANY
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS, OR OTHERWISE.
OPERATING RESULTS
The Company recorded a net loss for the first quarter ended September 30, 2001
of $238,000 or $.05 per share compared to net income of $9,000 or $.00 per share
for the same period last year. The decrease in results is due to the continued
worldwide economic slowdown and is partially offset by a gain on the sale of our
largest Chinese joint venture investment.
Revenues decreased 20% in the first quarter to $9,105,000 this year from
$11,333,000 last year. The 20% decrease in revenues was due to a 36% decrease in
revenues from the Company's motion control products and a 4% decrease in
revenues from the Company's power and process instrumentation and systems
automation businesses.
Motion Control realized pretax profit of $6,000 on revenues of $3,646,000 for
the first quarter of fiscal year 2002 compared with a pretax profit of
$1,152,000 on revenues of $5,669,000 for the same period last year. The 36%
decrease in Motion Control revenues is due to the adverse effects of the
continued economic slowdown, especially in the telecommunications and
semiconductor processing industries. The segment has recently been awarded new
orders for products to be used in the military, medical, automotive and
8
industrial automation markets. At September 30, 2001, backlog for Motion Control
orders was 35% higher than at the end of the first quarter last year and orders
received during the quarter were 25% higher than the first quarter last year.
Power and Process reported revenues of $5,459,000 and a pretax loss of $499,000
for the first quarter of fiscal year 2002 compared with revenues of $5,664,000
and a pretax loss of $1,259,000 for the first quarter last year. The decrease
reflects a decline in revenues from systems automation products partially offset
by a 24% increase in revenues from power and process instrumentation. The
segment's first quarter results this year contain a $674,000 pretax gain from
the sale of our 20% interest in Hathaway Si Fang Protection and Control Company,
Ltd. (Si Fang), compared with $175,000 equity income from Si Fang included in
the first quarter last year. Last year's Power and Process results include a
pretax restructuring charge of $328,000. Without the gain or income from Si Fang
or the restructuring charge, the Power and Process segment reported a pretax
loss of $1,173,000 compared with a pretax loss of $1,106,000 last year. At
September 30, 2001 backlog for Power and Process orders was $8,393,000 which is
down 31% from the same time last year and represents a decline in systems
automation backlog. The decrease in systems automation revenues and backlog is a
result of the Company's decision to shift the focus of the systems automation
business to power generation and transmission automation systems and away from
industrial automation applications. The new power business is not accelerating
as quickly as the industrial projects are being completed. The future growth in
revenues for the systems automation business is highly dependent on the
continued growth in the power applications side of this business.
Sales to international customers increased to 35% of total sales in the first
fiscal quarter of this year from 31% in the first fiscal quarter of last year.
Foreign sales of motion control products decreased to $1,327,000 in the first
quarter of this year from $1,853,000 in the first quarter of last year,
representing 36% and 33% of total motion control product sales in the first
quarter this year and last year, respectively. Foreign sales for Power and
Process increased to $1,842,000 in the first quarter of this year from
$1,686,000 in the first quarter of last year, representing 34% and 30% of total
Power and Process sales in the first quarter of this year and last year,
respectively.
Gross product margins from Motion Control for the first quarter this year
decreased to 26% from 39% for the first quarter last year due to the large
decrease in sales volume for our Motion Control business while the margins from
Power and Process remained constant resulting in an overall decrease in total
gross product margins to 32% from 37% last year.
Selling expenses, general and administrative and amortization of intangibles
decreased 8% in the first quarter of fiscal 2002 compared to the first quarter
last year as a result of savings from continued cost reduction efforts by the
Company. Engineering and development costs increased 2% during the first quarter
this year compared to the first quarter last year.
During the first quarter, the Company completed the sale of our 20% equity
interest in Si Fang, the largest of our Chinese joint venture investments. The
sale price for our investment was $3,020,000 and the company recognized a pretax
gain of $674,000. During the first quarter last year, the Company recognized
$175,000 equity income from the joint venture. Si Fang had begun the process of
becoming a publicly traded company in the Chinese stock market and was
encountering difficulties with a successful IPO due to the foreign ownership by
Hathaway. In addition, Si Fang had begun developing product lines and engaging
in business transactions which were not compatible with Hathaway's business.
Accordingly, the largest owner in Si Fang made an offer to buy out Hathaway's
interest and the Company felt this was the optimal time and structure to dispose
of the investment. The proceeds received from the sale will be used to look for
other opportunities to expand the Company, including investing in internal
growth as well as pursuing complementary acquisitions.
In the quarter ended September 30, 2001, the Company recognized no provision for
or benefit from income taxes compared to a provision for income taxes of $86,000
recognized last year. The effective rate used to
9
calculate income taxes is based on projected income and differs from
statutory amounts primarily due to losses in foreign jurisdictions that
cannot be benefited.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity position as measured by cash and cash equivalents
(excluding restricted cash) increased $1,796,000 during the first quarter of
fiscal 2002 to $3,707,000 at September 30, 2001. This increase compares to
$1,787,000 used in the same period last year. This difference is largely due to
differences in activities from our Si Fang joint venture and debt repayments.
During this year's first quarter, $3,020,000 was received from the sale of our
20% ownership in Si Fang, compared to $0 received last year. Repayments to pay
off the Company's line of credit totaled $553,000 during the first quarter this
year compared to $945,000 net repayments in the first quarter last year.
Excluding the sale of Si Fang and net repayments on the line of credit, cash
used in the first quarter of fiscal 2002 was $671,000 compared to $842,000 used
during the same period last year.
The Company expects to fund its remaining fiscal 2002 working capital, capital
expenditure and debt service requirements from the existing cash balance of
$3,707,000 and the $2,619,000 available under the financing agreement at
September 30, 2001. The Company believes that such amounts are sufficient to
fund operations and working capital needs for at least the next twelve months.
The Company's financing agreement with Silicon Valley Bank matures on May 7,
2002 but will continue for successive additional terms of one year 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, however, if such notice was received, the
Company would pursue other lenders to meet its long-term financing needs.
Although the Company believes it would be successful in its efforts to obtain
alternate financing, there are no assurances that it will be successful in doing
so. An inability to obtain such alternate financing may have a material adverse
effect on the Company's results of operations and financial condition and could
require the Company to implement various strategic alternatives.
10
HATHAWAY CORPORATION
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10. Agreement for Assignment of Equity Interest in Hathaway Si
Fang Protection and Control Co., Ltd. *
13. Annual Report containing Notes to Consolidated Financial
Statements in the Registrant's June 30, 2001 Annual Report to
Stockholders. *
*These documents were filed with the Securities and Exchange
Commission and are incorporated herein by reference.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the three months
ended September 30, 2001:
1. Form 8-K dated July 5, 2001 reporting the sale of the Company's
20% equity interest in Hathaway Si Fang Protection and Control
Co., Ltd. (Si Fang) for $3,020,000 in cash.
2. Amendment No. 1 to Form 8-K dated August 31, 2001 presenting
unaudited pro forma financial information to give effect to
the sale of the Company's joint venture investment in Si Fang
as if it had occurred on July 1, 1999. The financial
statements included were the unaudited pro forma consolidated
balance sheet as of March 31, 2001 and the unaudited pro forma
consolidated statements of operations for the year ended June
30, 2000 and the nine months ended March 31, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HATHAWAY CORPORATION
DATE: November 14, 2001 By: /s/ Richard D. Smith
--------------------- -----------------------------------------
President, Chief Executive Officer and
Chief Financial Officer
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