<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, 2000 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:
(4,476,000 as of September 30, 2000)
<PAGE>
HATHAWAY CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 2000 and June 30, 2000 (Unaudited)................. 1
Condensed Consolidated Statements of Operations
Three months ended September 30, 2000 and 1999 (Unaudited)....... 2
Condensed Consolidated Statements of Cash Flows
Three months ended September 30, 2000 and 1999 (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
</TABLE>
<PAGE>
HATHAWAY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
2000 2000
------------ --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,141 $ 2,928
Restricted cash 256 270
Trade receivables, net 7,360 7,976
Inventories, net 5,195 4,550
Other current assets 905 962
-------- --------
Total current assets 14,857 16,686
Property and equipment, net 1,734 1,707
Investment in joint ventures, net 1,657 1,482
Cost in excess of net assets acquired, net 42 59
Other long-term assets 90 3
-------- --------
Total Assets $ 18,380 $ 19,937
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Line of credit $ 601 $ 1,546
Accounts payable 1,878 1,879
Accrued and other current liabilities 4,590 5,205
-------- --------
Total Liabilities 7,069 8,630
-------- --------
Stockholders' Investment:
Common stock 100 100
Additional paid-in capital 10,625 10,594
Loans receivable for stock (161) (235)
Retained earnings 4,800 4,791
Cumulative translation adjustments (76) 34
Treasury stock (3,977) (3,977)
-------- --------
Total Stockholders' Investment 11,311 11,307
-------- --------
Total Liabilities and Stockholders' Investment $ 18,380 $ 19,937
======== ========
</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,
2000 1999
-------- --------
<S> <C> <C>
Revenues $ 11,333 $ 8,905
Cost of products sold 7,098 5,763
-------- --------
Gross margin 4,235 3,142
Operating costs and expenses:
Selling 1,616 1,495
General and administrative 1,196 1,241
Engineering and development 1,134 1,144
Restructuring charge 328 --
Amortization of intangibles 15 24
-------- --------
Total operating costs and expenses 4,289 3,904
-------- --------
Operating loss (54) (762)
Other income (expense), net:
Equity income from investments in joint ventures 175 100
Interest and dividend income 31 18
Interest expense (40) (35)
Other expense, net (17) (84)
-------- --------
Total other income (expense), net 149 (1)
-------- --------
Income (loss) before income taxes 95 (763)
Benefit (provision) for income taxes (86) 42
-------- --------
Net income (loss) $ 9 $ (721)
======== ========
Basic and diluted net income (loss) per share $ 0.00 $ (0.17)
======== ========
Basic weighted average shares outstanding 4,468 4,283
======== ========
Diluted weighted average shares outstanding 4,901 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,
2000 1999
------- -------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ 9 $ (721)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 196 218
Equity income from investments in joint ventures (175) (100)
Other 37 160
Changes in assets and liabilities:
(Increase) decrease in -
Restricted cash 4 (12)
Receivables 553 698
Inventories (712) (1,084)
Other current assets (31) (89)
Increase (decrease) in -
Accounts payable 14 200
Accrued liabilities and other (619) (452)
------- -------
Net cash used in operating activities (724) (1,182)
CASH USED IN INVESTING ACTIVITIES:
Purchase of property and equipment (215) (154)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on line of credit (1,008) (45)
Borrowings on line of credit 63 45
Repayment on loan to employee stock ownership plan 74 --
Proceeds from exercise of employee stock options 31 --
------- -------
Net cash used in financing activities (840) --
Effect of foreign exchange rate changes on cash (8) 7
Net decrease in cash and cash equivalents (1,787) (1,329)
Cash and cash equivalents at June 30 2,928 2,416
------- -------
Cash and cash equivalents at September 30 $ 1,141 $ 1,087
======= =======
</TABLE>
3
<PAGE>
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 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,
2000 Annual Report and Form 10-K previously filed by the Company.
2. INVENTORIES
Inventories, valued at the lower of cost (first-in, first-out basis) or
market, are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
2000 2000
------------- ------
<S> <C> <C>
Parts and raw materials, net $3,249 $2,827
Finished goods and work-in process, net 1,946 1,723
------ ------
$5,195 $4,550
====== ======
</TABLE>
4
<PAGE>
HATHAWAY CORPORATION
NOTES TO 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
BASIC EPS COMPUTATION SEPTEMBER 30,
2000 1999
------- -------
<S> <C> <C>
Numerator:
Net income (loss) $ 9 $ (721)
Denominator:
Basic weighted average outstanding shares 4,468 4,283
------- -------
Basic income (loss) per share $ 0.00 $ (0.17)
======= =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
DILUTED EPS COMPUTATION SEPTEMBER 30,
2000 1999
------- -------
<S> <C> <C>
Numerator:
Net income (loss) $ 9 $ (721)
Denominator:
Diluted weighted average outstanding shares 4,901 4,283
------- -------
Diluted net income (loss) per share $ 0.00 $ (0.17)
======= =======
</TABLE>
For the three months ended September 30, 2000, stock options to purchase
708,913 shares of common stock were included in the calculation of diluted
earnings per share. For the three months ended September 30, 1999, stock
options to purchase 871,004 shares of common stock were excluded from the
calculation of diluted loss per share since the result would have been
anti-dilutive.
4. SEGMENT INFORMATION
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131) requires disclosure of operating segments, which as
defined, are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.
The Company operates in two different segments: Power and Process Business
(Power and Process) and Motion Control Business (Motion Control).
Management has chosen to organize the Company around these segments based
on differences in products and services.
5
<PAGE>
HATHAWAY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. SEGMENT INFORMATION (CONTINUED)
The following tables provide information on the Company's segments (in
thousands):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------
2000 1999
------------------------ ------------------------
POWER AND MOTION POWER AND MOTION
PROCESS CONTROL PROCESS CONTROL
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Revenues from external customers $ 5,664 $ 5,669 $ 4,838 $ 4,067
Equity income from investments
in joint ventures 175 -- 100 --
Income (loss) before income taxes (1,259) 1,152 (1,363) 626
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000 AS OF JUNE 30, 2000
------------------------ ------------------------
POWER AND MOTION POWER AND MOTION
PROCESS CONTROL PROCESS CONTROL
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Identifiable assets $ 10,483 $ 7,694 $ 10,620 $ 7,134
</TABLE>
The following is a reconciliation of segment information to consolidated
information:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
------ ------
<S> <C> <C>
Segments' loss before income taxes $(107) $(737)
Corporate activities 202 (26)
----- -----
Consolidated income (loss) before income taxes $ 95 $(763)
===== =====
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, JUNE 30,
2000 2000
----------- -------
<S> <C> <C>
Segments' identifiable assets $18,177 $17,754
Corporate assets and eliminations 203 2,183
------- -------
Consolidated total assets $18,380 $19,937
======= =======
</TABLE>
5. COMPREHENSIVE LOSS
SFAS No. 130, "Reporting Comprehensive Income," (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 and
distributions to shareholders.
Comprehensive loss is computed as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
------ ------
<S> <C> <C>
Net income (loss) $ 9 $(721)
Translation adjustment (110) 136
----- -----
Comprehensive loss (101) (585)
===== =====
</TABLE>
6
<PAGE>
HATHAWAY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. RESTRUCTURING CHARGE
As a result of changing business conditions in the process instrumentation
business, the Company began restructuring its process instrumentation
operations in Dallas. The restructuring will consist of retaining a portion
of the business in Dallas, moving the manufacturing of two product lines to
its power instrumentation manufacturing facilities in Seattle and selling
the remaining two product lines. The Company anticipates the restructuring
will be substantially completed by the end of the second fiscal quarter
ending December 31, 2000.
The Company estimates that the costs associated with the restructuring will
be approximately $328,000 consisting of $213,000 of employee termination
expenses related to 15 employees and $115,000 of closure costs and asset
write-downs. The estimated restructuring charge has been included in
operating costs and expenses in the condensed consolidated statement of
operations for the quarter ended September 30, 2000.
The restructuring charge was determined based on the plans approved by the
Company's management using the best information available to it at the
time. The amounts the Company may ultimately incur may change as the
restructuring plan is executed.
7. RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133, "Derivative
Instruments and Hedging Activities," ("SFAS 133") establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. SFAS 133 requires that an entity recognize all derivatives as
either assets or liabilities and measure those instruments at fair value.
It also specifies the accounting for changes in the fair value of a
derivative instrument depending on the intended use of the instrument and
whether (and how) it is designated as a hedge. SFAS 133 was effective for
all fiscal years beginning after June 15, 1999. During 1999, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of SFAS 133," ("SFAS
137") which delayed the effective date of SFAS 133 until all fiscal years
beginning after June 15, 2000. Through September 30, 2000, the Company had
not entered into any transactions involving derivative financial
instruments and, therefore, the adoption of SFAS 133 has had no financial
statement impact.
In December 1999, the SEC staff released Staff Accounting Bulleting No.
101, "Revenue Recognition," ("SAB 101") to provide guidance on the
recognition, presentation and disclosure of revenue in financial
statements. In order to recognize revenue, there must be persuasive
evidence that an arrangement exists, delivery must have occurred or
services must have been rendered, the selling price must be fixed or
determinable, and collectibility must be reasonably assured. The accounting
and disclosures described in SAB 101 must be applied no later than the
fourth fiscal quarter of the Company's current fiscal year. The Company
believes that adoption of SAB No. 101 will not materially impact its
financial statements. However, implementation guidelines for this bulletin,
as well as potential new bulletins, could result in unanticipated changes
to the Company's current revenue recognition policies. These changes could
affect the timing of the Company's future revenue recognition and results
of operations.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN 44"). FIN 44
clarifies the applications of APB No. 25 for certain issues related to
equity-based instruments issued to employees. FIN 44 is effective on July
1, 2000, except for certain transactions, and is applied on a prospective
basis.
7
<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. FORWARD-LOOKING STATEMENTS INCLUDE,
WITHOUT LIMITATION, ANY STATEMENT THAT MAY PREDICT, FORECAST, INDICATE, OR IMPLY
FUTURE RESULTS, PERFORMANCE, OR ACHIEVEMENTS, AND MAY CONTAIN THE WORD
"BELIEVE," "ANTICIPATE," "EXPECT," "PROJECT," "INTEND," "WILL CONTINUE," "WILL
LIKELY RESULT," "SHOULD" OR WORDS OR PHRASES OF SIMILAR MEANING. FORWARD-LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS
WHICH MAY CAUSE THE ACTUAL RESULTS OF THE COMPANY TO DIFFER MATERIALLY FROM THE
FORWARD-LOOKING STATEMENTS. THE RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHERS,
THE FOLLOWING: INTERNATIONAL, NATIONAL AND LOCAL GENERAL BUSINESS AND ECONOMIC
CONDITIONS; THE WORLDWIDE POWER AND PROCESS PRODUCT MARKET, INCLUDING A MOVEMENT
FROM SINGLE PURPOSE PRODUCTS TO THOSE WITH MULTIPLE USES; THE MOTION CONTROL
PRODUCT MARKET; THE ABILITY OF THE COMPANY TO SUSTAIN, MANAGE OR FORECAST ITS
GROWTH AND PRODUCT ACCEPTANCE; NEW PRODUCT DEVELOPMENT AND INTRODUCTION;
INCREASED COMPETITION AND CHANGES IN COMPETITOR RESPONSES TO THE COMPANY'S
PRODUCTS AND SERVICES; THE ABILITY TO PROTECT THE COMPANY'S INTELLECTUAL
PROPERTY; BUSINESS DISRUPTION; CHANGES IN GOVERNMENT REGULATIONS; CONTINUED
UNCERTAINTY ABOUT THE IMPACT OF DEREGULATION OF THE POWER BUSINESS ON THE
COMPANY'S PRODUCTS; THE ABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL;
AVAILABILITY OF FINANCING; AND OTHER FACTORS REFERENCED OR INCORPORATED HEREIN.
THE COMPANY OPERATES IN A VERY COMPETITIVE ENVIRONMENT. NEW RISK FACTORS EMERGE
FROM TIME TO TIME AND IT IS NOT POSSIBLE FOR MANAGEMENT TO PREDICT ALL SUCH RISK
FACTORS, NOR CAN IT ASSESS THE IMPACT OF ALL SUCH RISK FACTORS ON ITS BUSINESS
OR THE EXTENT TO WHICH ANY FACTOR, OR COMBINATION OF FACTORS, MAY CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN ANY FORWARD-LOOKING
STATEMENTS. THE COMPANY'S EXPECTATIONS, BELIEFS AND PROJECTIONS ARE EXPRESSED IN
GOOD FAITH AND ARE BELIEVED TO HAVE A REASONABLE BASIS; HOWEVER, THE COMPANY
MAKES NO ASSURANCE THAT EXPECTATIONS, BELIEFS OR PROJECTIONS WILL BE ACHIEVED.
BECAUSE OF THE RISKS AND UNCERTAINTIES, INVESTORS SHOULD NOT PLACE UNDUE
RELIANCE ON FORWARD-LOOKING STATEMENTS AS A PREDICTION OF ACTUAL RESULTS. THE
COMPANY HAS NO OBLIGATION OR INTENT TO RELEASE PUBLICLY ANY REVISIONS TO ANY
FORWARD LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS, OR OTHERWISE.
OPERATING RESULTS
The Company recorded net income for the first quarter ended September 30, 2000
of $9,000 or $0.00 per share compared to a net loss of $721,000 or $.17 per
share for the same period last year. This year's first quarter net income
includes a pretax restructuring charge of $328,000. Excluding the restructuring
charge, net income for the first quarter was $250,000 or $0.05 per fully diluted
share.
Revenues increased 27% in the first quarter to $11,333,000 this year from
$8,905,000 last year. The 27% increase in revenues was due to a 39% increase in
revenues from the Company's motion control products and a 17% increase in
revenues from the Company's power and process systems and instrumentation
products.
Motion Control realized pretax profit of $1,152,000 on revenues of $5,669,000
for the first quarter of fiscal year 2001 compared with a pretax profit of
$626,000 on revenues of $4,067,000 for the same period last year. At September
30, 2000, backlog for Motion Control orders was 55% higher than at the end of
the first quarter last year and orders received during the quarter were 12%
higher than the first quarter last year.
Power and Process reported revenues of $5,664,000 and a pretax loss of
$1,259,000 for the first quarter of fiscal year 2001 compared with revenues of
$4,838,000 and a pretax loss of $1,363,000 for the first quarter last year. The
segment's first quarter results this year contain a pretax charge of $328,000
for restructuring the process instrumentation business. Excluding the
restructuring charge, pretax loss for Power and Process for the first quarter
was $931,000. At September 30, 2000 backlog for power instrumentation and
systems products remained at the same level as this time last year while backlog
for process instrumentation products was 29% lower than last year resulting in
total backlog for Power and Process orders at a level 2% lower than at this time
last year.
8
<PAGE>
HATHAWAY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL CONDITION
As a result of changing business conditions in the process instrumentation
business, the Company began restructuring its process instrumentation operations
in Dallas. The restructuring will consist of retaining a portion of the business
in Dallas, moving the manufacturing of two product lines to its power
instrumentation manufacturing facilities in Seattle and selling the remaining
two product lines. Revenues for this business were down 32% for the first
quarter compared to the first quarter of last year. The Company's goal is to
eliminate the losses being incurred by this business when the restructuring is
substantially completed by the end of the second fiscal quarter ending December
31, 2000.
Sales to international customers increased to 31% of total sales in the first
fiscal quarter of this year from 28% in the first fiscal quarter of last year.
Foreign sales of motion control products increased to $1,853,000 in the first
quarter of this year from $1,075,000 in the first quarter of last year,
representing 33% and 26% of total motion control product sales in the first
quarter this year and last year, respectively. Foreign sales for Power and
Process increased to $1,686,000 in the first quarter of this year from
$1,413,000 in the first quarter of last year, representing 30% and 29% of total
Power and Process sales in the first quarter of this year and last year,
respectively.
Gross product margins for the first quarter of fiscal 2001 increased to 37% from
35% for the same quarter last year. The improvement is due to changes in the mix
of products sold and absorption of fixed manufacturing costs by a larger sales
volume.
Selling expenses as a percentage of revenues decreased to 14% for the first
quarter of fiscal 2001 from 17% for the first quarter of fiscal 2000. General
and administrative, engineering and development and amortization of intangibles
decreased 3% in the first quarter of fiscal 2001 compared to the first quarter
last year. The improvements are due the overall cost reduction efforts of the
Company.
During the first quarter of fiscal year 2001, the Company recognized a portion
of its share of estimated income from its Chinese joint venture investments. The
amount recognized was $175,000 as compared to $100,000 in the same period last
year. The increase reflects the improvement in revenues and profits being
experienced by the Hathaway Si Fang joint venture.
In the quarter ended September 30, 2000, the Company recognized a $86,000
provision for income taxes compared to a benefit from income taxes of $42,000
recognized last year. The amount is based on projected taxable 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) decreased $1,787,000 during the first quarter of
fiscal 2001 to $1,141,000 at September 30, 2000. This decrease reflects
$1,787,000 used in the first quarter of fiscal 2001 compared to $1,329,000 used
in the same period last year. During this year's first quarter net repayments
made on the Company's line of credit totaled $945,000 compared to $0 in the
first quarter last year. Excluding the repayments on the line of credit, cash
used in the first quarter of fiscal 2001 and 2000 was $779,000 and $1,284,000,
respectively.
Cash used by operating activities was $724,000 in the first quarter of the
current fiscal year, compared to $1,182,000 used in the same quarter of the
prior year. The decreased use of cash was primarily due to net income of $9,000
in the first quarter this year compared to a net loss of $721,000 in the first
quarter last year. The Company typically experiences cash usage in its first
fiscal quarter and expects to generate positive cash flow during the balance of
the year.
Cash of $215,000 was used by investing activities in the first quarter of fiscal
2001, compared to $154,000 used in investing activities during the first quarter
last year. The variance was due to an increase in property and equipment
purchases.
9
<PAGE>
HATHAWAY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL CONDITION
Cash used in financing activities was $840,000 in the first quarter of fiscal
2001 compared to no cash used in financing activities for the same quarter last
year. The increased use of cash was due to an increase in repayments on the line
of credit during the current quarter as explained above offset by the receipt of
a payment on the loan previously made to the Company's employee stock ownership
plan.
The Company expects to fund its remaining fiscal 2001 working capital, capital
expenditure and debt service requirements from the existing cash balance of
$1,141,000 and the $2,399,000 available under the long-term financing agreement
at September 30, 2000. 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, 2001 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.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133, "Derivative Instruments and
Hedging Activities," ("SFAS 133") establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities and measure those
instruments at fair value. It also specifies the accounting for changes in the
fair value of a derivative instrument depending on the intended use of the
instrument and whether (and how) it is designated as a hedge. SFAS 133 was
effective for all fiscal years beginning after June 15, 1999. During 1999, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of SFAS 133," ("SFAS 137") which
delayed the effective date of SFAS 133 until all fiscal years beginning after
June 15, 2000. Through September 30, 2000, the Company had not entered into any
transactions involving derivative financial instruments and, therefore, the
adoption of SFAS 133 has had no financial statement impact.
In December 1999, the SEC staff released Staff Accounting Bulleting No. 101,
"Revenue Recognition," ("SAB 101") to provide guidance on the recognition,
presentation and disclosure of revenue in financial statements. In order to
recognize revenue, there must be persuasive evidence that an arrangement exists,
delivery must have occurred or services must have been rendered, the selling
price must be fixed or determinable, and collectibility must be reasonably
assured. The accounting and disclosures described in SAB 101 must be applied no
later than the fourth fiscal quarter of the Company's current fiscal year. The
Company believes that adoption of SAB No. 101 will not materially impact its
financial statements. However, implementation guidelines for this bulletin, as
well as potential new bulletins, could result in unanticipated changes to the
Company's current revenue recognition policies. These changes could affect the
timing of the Company's future revenue recognition and results of operations.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN 44"). FIN 44 clarifies
the applications of APB No. 25 for certain issues related to equity-based
instruments issued to employees. FIN 44 is effective on July 1, 2000, except for
certain transactions, and is applied on a prospective basis.
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HATHAWAY CORPORATION
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
13. Annual Report containing Notes to Consolidated Financial Statements in
the Registrant's June 30, 2000 Annual Report to Stockholders.
*This document was filed with the Securities and Exchange
Commission and is incorporated herein by reference.
27. Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three months ended
September 30, 2000.
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, 2000 By: /s/ Richard D. Smith
--------------------- ------------------------------
President, Chief Executive Officer and
Chief Financial Officer
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