<PAGE>
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, 1999 0-4041
(Unaudited)
------------------------
HATHAWAY CORPORATION
(Incorporated Under the Laws of the State of Colorado)
8228 Park Meadows Drive
Littleton, Colorado 80124
Telephone: (303) 799-8200
84-0518115
(IRS Employer Identification Number)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety (90) days.
YES X NO
----- ------
Number of Shares of the only class of Common Stock outstanding:
(4,283,000 as of September 30, 1999)
<PAGE>
<TABLE>
<CAPTION>
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C> <C>
Condensed Consolidated Balance Sheets
September 30, 1999 and June 30, 1999 (Unaudited)................ 1
Condensed Consolidated Statements of Operations
Three months ended September 30, 1999 and 1998 (Unaudited)...... 2
Condensed Consolidated Statements of Cash Flows
Three months ended September 30, 1999 and 1998 (Unaudited)...... 3
Notes to Condensed Consolidated Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis of Operating
Results and Financial Condition................................. 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................... 10
</TABLE>
<PAGE>
HATHAWAY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
- -------------------------------------------------------------------------------------------------------------
Assets
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 1,087 $ 2,416
Restricted cash 658 646
Trade receivables, net 5,744 6,465
Inventories, net 4,400 3,316
Other 1,267 1,170
Total current assets 13,156 14,013
Property and equipment, net 1,658 1,720
Investment in joint ventures, net 614 514
Cost in excess of net assets acquired, net 115 126
Other long-term assets 17 25
- -------------------------------------------------------------------------------------------------------------
Total Assets $15,560 $16,398
=============================================================================================================
Liabilities and Stockholders' Investment
Current Liabilities:
Line of credit classified as current $ 1,308 $ 1,308
Accounts payable 1,770 1,570
Accrued and other current liabilities 3,751 4,204
Total Liabilities 6,829 7,082
- -------------------------------------------------------------------------------------------------------------
Stockholders' Investment:
Common stock 100 100
Additional paid-in capital 9,954 9,954
Loans receivable for stock (235) (235)
Retained earnings 2,595 3,316
Cumulative translation adjustments 290 154
Treasury stock (3,973) (3,973)
Total Stockholders' Investment 8,731 9,316
Total Liabilities and Stockholders' Investment $15,560 $16,398
=============================================================================================================
</TABLE>
1
<PAGE>
HATHAWAY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
September 30,
1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
$ 8,905 $ 9,118
Revenues
Operating costs and expenses:
Cost of products sold 5,763 6,214
Selling 1,495 1,693
General and administrative 1,241 1,194
Engineering and development 1,144 1,123
Amortization of intangibles 24 59
- ---------------------------------------------------------------------------------------------------------------
Total operating costs and expenses 9,667 10,283
- ---------------------------------------------------------------------------------------------------------------
Operating loss (762) (1,165)
Other income (expenses), net:
Equity income from investments in joint ventures 100 ---
Interest and dividend income 18 36
Interest expense (35) (38)
Other income (expenses), net (84) (135)
- ---------------------------------------------------------------------------------------------------------------
Total other income (expense), net (1) (137)
- ---------------------------------------------------------------------------------------------------------------
Loss before income taxes (763) (1,302)
Benefit (provision) for income taxes 42 (5)
- ---------------------------------------------------------------------------------------------------------------
Net loss $ (721) $(1,307)
- ---------------------------------------------------------------------------------------------------------------
Basic and diluted net loss per share $ (0.17) $ (0.31)
=============================================================================================================
Basic and diluted weighted average shares outstanding 4,283 4,283
=============================================================================================================
</TABLE>
2
<PAGE>
HATHAWAY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
September 30,
1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $ (721) $(1,307)
Adjustments to reconcile net loss to net cash from operating
activities:
Depreciation and amortization 218 261
Other 60 137
Changes in assets and liabilities, net of effect of purchase of
Ashurst Logistic Electronics Limited effective July 1, 1998:
(Increase) decrease in -
Restricted cash (12) (101)
Receivables 698 335
Inventories (1,084) 78
Prepaid expenses and other (89) (290)
Increase (decrease) in -
Accounts payable 200 (370)
Accrued liabilities and other (452) 38
Net cash used in operating activities (1,182) (1,219)
Cash Flows From Investing Activities:
Purchase of property and equipment (154) (250)
Dividend from joint venture investment -- 120
Purchase of Ashurst Logistic Electronics Limited, net of cash -- (258)
acquired
Net cash used in investing activities (154) (388)
Cash Flows from Financing Activities:
Repayments on line of credit (45) (150)
Borrowings on line of credit 45 43
Net cash used in financing activities -- (107)
7 12
Effect of foreign exchange rate changes on cash
Net decrease in cash and cash equivalents (1,329) (1,702)
Cash and cash equivalents at beginning of year 2,416 3,443
Cash and cash equivalents at September 30 $ 1,087 $ 1,741
=============================================================================================================
</TABLE>
3
<PAGE>
HATHAWAY CORPORATION
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Preparation and Presentation
-------------------------------------
The accompanying unaudited condensed consolidated financial statements
include the accounts of Hathaway Corporation, its wholly-owned subsidiaries
and investments in joint ventures (the Company). All significant inter-
company accounts and transactions have been eliminated in consolidation.
Certain reclassifications have been made to prior year balances in order to
conform with the current year's presentation.
The condensed consolidated financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission and include all adjustments which are,
in the opinion of management, necessary for a fair presentation. Certain
information and footnote disclosures normally included in financial
statements which are prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations. The Company believes that the disclosures herein are
adequate to make the information presented not misleading. The financial
data for the interim periods may not necessarily be indicative of results
to be expected for the year.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make certain
estimates and assumptions. Such estimates and assumptions affect the
reported amounts of assets and liabilities as well as disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
It is suggested that the accompanying condensed interim financial
statements be read in conjunction with the Consolidated Financial
Statements and related Notes to such statements included in the June 30,
1999 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):
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
--------------------------------------
<S> <C> <C>
Parts and raw materials, net $2,546 $2,227
Finished goods and work-in process, net 1,854 1,089
$4,400 $3,316
======================================
</TABLE>
4
<PAGE>
HATHAWAY CORPORATION
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Basic and Diluted Earnings Per Share
------------------------------------
In accordance with Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share" (EPS), Basic and Diluted EPS have been computed
as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
For the three months ended
September 30,
1999 1998
---------------------------------------
<S> <C> <C>
Numerator:
Net loss $ (721) $(1,307)
Denominator:
Weighted average outstanding shares 4,283 4,283
Basic and Diluted net loss per share $(0.17) $ (0.31)
=======================================
</TABLE>
At September 30, 1999 and 1998, stock options totaling 871,004 and 838,204,
respectively, were excluded from the calculation of diluted earnings (loss)
per share since the result would have been anti-dilutive.
4. Segment Information
-------------------
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131). SFAS 131 requires disclosure of operating
segments, which as defined, are components of an enterprise about which
separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources
and in assessing performance.
The Company operates in two different segments: Power and Process Business
(Power and Process) and Motion Control Business (Motion Control).
Management has chosen to organize the Company around these segments based
on differences in products and services.
The following provide information on the Company's segments (in thousands):
<TABLE>
<CAPTION>
For the three months ended September 30,
--------------------------------------------------------------------
1999 1998
------------------------------- -------------------------------
Power and Motion Power and Motion
Process Control Process Control
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Revenues from external customers $ 4,838 $ 4,067 $ 6,062 $ 3,056
Income (loss) before income taxes (1,363) 626 (1,151) (94)
</TABLE>
<TABLE>
<CAPTION>
As of September 30, 1999 As of June 30, 1999
-------------------------------- ------------------------------
Power and Motion Power and Motion
Process Control Process Control
-------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Identifiable assets $ 8,908 $ 5,438 $ 9,232 $ 5,006
</TABLE>
5
<PAGE>
HATHAWAY CORPORATION
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Segment Information (Continued)
-------------------------------
The following is a reconciliation of segment information to consolidated
information:
<TABLE>
<CAPTION>
For the three months ended
September 30,
1999 1998
-------------------------------
<S> <C> <C>
Segments' loss before income taxes $ (737) $(1,245)
Corporate activities (26) (57)
Consolidated loss before income taxes $ (763) $(1,302)
===============================
<CAPTION>
As of As of
September 30, June 30,
1999 1999
<S> <C> <C>
-------------------------------
Segments' identifiable assets $14,346 $14,238
Corporate assets and eliminations 1,214 2,160
Consolidated total assets $15,560 $16,398
===============================
</TABLE>
5. Comprehensive Loss
------------------
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," (SFAS 130). SFAS 130 establishes standards for reporting and
displaying comprehensive income and its components. Comprehensive income
is defined as the change in equity of a business enterprise during a period
from transactions and other events and circumstances from non-owner
sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners.
Comprehensive loss is computed as follows (in thousands):
<TABLE>
<CAPTION>
For the three months ended
September 30,
1999 1998
-----------------------------------
<S> <C> <C>
Net loss $(721) $(1,307)
Translation adjustment 136 88
Comprehensive loss (585) (1,219)
===================================
</TABLE>
6
<PAGE>
HATHAWAY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL CONDITION
All statements contained herein that are not statements of historical fact
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that could
cause the actual results of the Company to be materially different from the
historical results or from any future results expressed or implied by such
forward-looking statements. Among the factors that could cause actual results
to differ materially are the following: future financial performance may be
impacted by the unavailability of sufficient capital on satisfactory terms to
finance the Company's business plan, general business and economic conditions in
the domestic and international markets, uncertainty in the viability of
international markets, particularly the Asian market, and the impact of
political unrest on market forces, the introduction of new technologies and
competitors into the systems and instrumentation markets where the Company
competes, uncertainties in acceptance of new products in the existing power and
process market environment, increased competition and changes in competitor
responses to the Company's products, further adverse changes in the regulatory
environment, availability of qualified personnel, and others. In addition to
statements that explicitly describe such risks and uncertainties, readers are
urged to consider statements labeled with the terms "believes," "expects,"
"plans," "anticipates," "intends" or "should" to be uncertain and forward-
looking. All cautionary statements made herein should be read as being
applicable to all related forward-looking statements wherever they appear. In
this connection, investors should consider the risks described herein.
Operating Results
- -----------------
For the first quarter ended September 30, 1999, the Company recognized a net
loss of $721,000 or $.17 per share, compared to a net loss of $1,307,000 or $.31
per share, for the same period last year. The decrease in the net loss resulted
from improved profitability in the Motion Control segment (Motion Control),
partially offset by an increased loss in the Power and Process segment (Power
and Process).
Revenues decreased 2% in the first quarter from $9,118,000 last year to
$8,905,000 this year. The 2% decrease in revenues was due to a 20% decrease in
revenues from Power and Process, partially offset by a 33% increase in revenues
from Motion Control.
Motion Control realized pretax profit of $626,000 on revenues of $4,067,000 for
the first quarter of fiscal year 2000 compared with a pretax loss of $94,000 on
revenues of $3,056,000 for the same period last year. The increase in Motion
Control revenues was a reflection of its expansion into new markets and broader
segments of its existing markets in addition to some recovery in the semi-
conductor industry.
Power and Process reported revenues of $4,838,000 and a pretax loss of
$1,363,000 for the first quarter of fiscal year 2000 compared with revenues of
$6,062,000 and a pretax loss of $1,151,000 for the first quarter last year. The
decrease in revenues was due to the delayed introduction of a new fault
recording product; deliveries of this product are now being made. In addition,
Power and Process typically experiences its lowest operating results in the
first fiscal quarter of each year and expects an improvement in results during
the balance of the year. During the first fiscal quarter ended September 30,
1999, the backlog of power instrumentation products, including fault recording
and maintenance products increased by $1,328,000.
Sales to international customers decreased from 36% of total sales in the first
fiscal quarter of last year to 28% in the first fiscal quarter of this year.
The decrease was due to the continuing effect of the downturn in the Far East
markets and the delay in the introduction of new Power and Process products.
Cost of products sold decreased from 68% of revenues in the first quarter of
fiscal 1999 to 65% of revenues in fiscal 2000. The decrease results primarily
from Motion Control and is due to changes in the mix of products sold and
absorption of fixed manufacturing costs by a larger sales volume. Selling,
general and administrative, and engineering and development expenses decreased
4% from $4,069,000 in the first quarter of fiscal 1999 to $3,904,000 in fiscal
2000 due to overall cost reduction efforts of the Company.
7
<PAGE>
HATHAWAY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL CONDITION
During the first quarter of fiscal year 2000, the Company recognized a portion
of its share of equity income from its Chinese joint ventures. The amount
recognized was $100,000 as compared to $0 in the same period last year. The
amount represents a portion of the joint ventures' expected annual results. The
Company will revise its estimates of its share of equity in income (loss) from
its joint ventures as necessary over the remainder of the fiscal year.
In the quarter ended September 30, 1999, the Company recognized a $42,000
benefit for income taxes compared to a provision for income taxes of $5,000
recognized last year. The amount is based on projected taxable income and
utilization of domestic net operating losses carried forward.
Liquidity and Capital Resources
- -------------------------------
The Company's liquidity position as measured by cash and cash equivalents
(excluding restricted cash) decreased $1,329,000 during the first quarter of
fiscal 2000 to a balance of $1,087,000 at September 30, 1999, compared to
$2,416,000 at June 30, 1999. This decrease reflects $1,329,000 used in the
first quarter of fiscal 2000 compared to $1,702,000 used in the same period last
year. Operating activities used $1,182,000 in the first quarter of the current
fiscal year, compared to $1,219,000 used in the same quarter of the prior year.
The decreased use of cash was due to a decrease in net loss, offset by
fluctuations in working capital balances. Inventories increased $1,084,000
during the first quarter of fiscal 2000 compared to a decrease of $78,000 during
the same quarter last year. The increase is due to additional inventory
purchases made to fulfil the Company's increased backlog of orders and
anticipated future orders. The Company expects cash to be provided during the
balance of the year in line with the typically low results in the first fiscal
quarter of each year and the expected improvement in operating results for the
balance of the year.
Cash of $154,000 was used by investing activities in the first quarter of fiscal
2000, compared to $388,000 used in investing activities during the first quarter
last year. The variance was due to a decrease in property and equipment
purchases and a prior year acquisition, offset by a dividend received from a
joint venture investment in the prior year.
No net cash was used for financing activities during the first quarter of fiscal
year 2000, compared to $107,000 used in the first quarter of fiscal 1999. The
decreased use of cash was due to a decrease in repayments on the line of credit
during the current quarter.
The Company expects to fund its remaining fiscal 2000 working capital, capital
expenditure and debt service requirements from the existing cash balance of
$1,087,000 and the $1,692,000 available under the long-term financing agreement
at September 30, 1999. The Company believes that such amounts are sufficient to
fund operations and working capital needs for at least the next twelve months.
The Company's long-term financing agreement with Silicon Valley Bank matures on
May 7, 2000 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.
8
<PAGE>
HATHAWAY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL CONDITION
Year 2000 Compliance
- --------------------
Some computers and computer-based systems use only the last two digits to
identify a year in the date field and cannot distinguish the year 2000 from the
year 1900. The Company recognizes that the Year 2000 poses a challenge to the
proper functioning of computer systems included in its products, software
systems used in its business and items purchased from its suppliers. The
Company has adopted a "Y2K Readiness Program" and is taking what it believes to
be appropriate steps necessary in preparation for Year 2000 issues.
The Company is completing an assessment of its products to determine which
products will be affected by Year 2000 issues. Test procedures have been modeled
from the public document titled "Year 2000 Test Procedures", published by
General Motors Corporation, and include a step by step method of date
verification using each interface to the product. Testing of most products is
completed or under way. Modifications and updates have been or are being made
as needed for products that are not Y2K compliant. With the possible exception
of some of the older RTU protocol software, testing of all of the Company's
current products will be complete before December 31, 1999. Some of the
Company's older products that are no longer sold will not be tested for
compliance. The Company will indicate on its Web site which products will not
be tested.
The Company has completed its assessment of its internal systems, processes and
facilities for Year 2000 compliance and they are now 100% compliant. The
Company's assessment of its suppliers', service providers' and contractors' Year
2000 compliance is complete and sources have generally attested to being
compliant. Alternative sources for major suppliers have been identified so that
a secondary supplier will be available in the event that disruption in supply
occurs from the primary supplier.
The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of, normal business activities or operations. There
is inherent uncertainty regarding the Year 2000 problem primarily due to the
uncertainty of the readiness of suppliers and customers. Therefore, the Company
is unable to predict with certainty whether the consequences of Year 2000
failures will have a material impact on the Company's business, results of
operations or financial condition. The Company's Year 2000 efforts are expected
to significantly reduce the Company's level of uncertainty about the Year 2000
problem and the Company currently believes it will be able to modify or offer
alternative products as well as modify or replace its affected systems in time
to minimize any detrimental effects on customer relationships or operations.
Activities related to Year 2000 compliance are being performed with internal
resources. The Company is expensing as incurred all payroll and associated
costs related to the Year 2000 issue. It is not anticipated that Year 2000
activities will delay other projects or materially impact the Company's
business. However, the Company will continue to review on an ongoing basis
whether it needs to further address any anticipated costs, problems and
uncertainties associated with Year 2000 consequences.
9
<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
13. Annual Report containing Notes to Consolidated Financial Statements
in the Registrant's June 30, 1999 Annual Report to Stockholders.
27. Financial Data Schedule.
*This document was filed with the Securities and Exchange
Commission and is incorporated herein by reference.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three months ended
September 30, 1999.
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HATHAWAY CORPORATION
DATE: November 12, 1999 By: /s/ Richard D. Smith
-------------------- ----------------------------------------
President, Chief Executive Officer and
Chief Financial Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,087
<SECURITIES> 0
<RECEIVABLES> 6,259<F1>
<ALLOWANCES> 515
<INVENTORY> 4,400
<CURRENT-ASSETS> 13,156
<PP&E> 9,282<F1>
<DEPRECIATION> 7,624
<TOTAL-ASSETS> 15,560
<CURRENT-LIABILITIES> 6,829
<BONDS> 0
100
0
<COMMON> 0
<OTHER-SE> 8,631
<TOTAL-LIABILITY-AND-EQUITY> 15,560
<SALES> 8,905
<TOTAL-REVENUES> 8,905
<CGS> 5,763
<TOTAL-COSTS> 5,763
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 22
<INTEREST-EXPENSE> 35
<INCOME-PRETAX> (763)
<INCOME-TAX> 42
<INCOME-CONTINUING> (721)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (721)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
<FN>
<F1>Presented gross
</FN>
</TABLE>
