-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LCm1uvuWXyl71NKCGLarDfAEfaviSvclLweNX8LFV9BXlgI7vOCnMXBd+AZ2JvBj 8xrQUjO+h8BIczgZHID6pw== 0000950152-00-008634.txt : 20001222 0000950152-00-008634.hdr.sgml : 20001222 ACCESSION NUMBER: 0000950152-00-008634 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001221 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HICKOK INC CENTRAL INDEX KEY: 0000047307 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 340288470 STATE OF INCORPORATION: OH FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-00147 FILM NUMBER: 792848 BUSINESS ADDRESS: STREET 1: 10514 DUPONT AVE CITY: CLEVELAND STATE: OH ZIP: 44108 BUSINESS PHONE: 2165418060 MAIL ADDRESS: STREET 1: 10514 DUPONT AVE CITY: CLEVELAND STATE: OH ZIP: 44108 FORMER COMPANY: FORMER CONFORMED NAME: HICKOK ELECTRICAL INSTRUMENT CO DATE OF NAME CHANGE: 19920703 10-K405 1 l85437ae10-k405.txt HICKOK INCORPORATED 10-K405 1 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 September 30, 2000 ------------------------------------------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from Not Applicable to Not Applicable -------------------- --------------------- Commission file number 0-147 --------------------------------------------------------- HICKOK INCORPORATED - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Ohio 34-0288470 - ---------------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 10514 Dupont Avenue, Cleveland, Ohio 44108 - ---------------------------------------- ------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (216) 541-8060 ----------------------------- Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Class A Common Shares, $1.00 par value - ------------------------------------------------------------------------------- (Title of Class) 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. [X] As of December 8, 2000, the Registrant had 762,884 voting shares of Class A Common Stock outstanding and 454,866 voting shares of Class B Common Stock outstanding. As of such date, non-affiliates held 710,953 shares of Class A Common Stock and 233,098 shares of Class B Common Stock. As of December 8, 2000, based on the closing price of $3.50 per Class A Common Share on the Nasdaq Small Cap Market, the aggregate market value of the Class A Common Stock held by such non-affiliates was approximately $2,488,335. There is no trading market in the shares of Class B Common Stock. 1 2 Documents Incorporated by Reference: PART OF FORM 10-K DOCUMENT INCORPORATED BY REFERENCE ----------------- ---------------------------------- Part III (Items 10, 11, Portions of the Registrant's Definitive 12 and 13) Proxy Statement to be used in connection with its Annual Meeting of Shareholders to be held on February 21, 2001. Except as otherwise stated, the information contained in this Form 10-K is as of September 30, 2000. PART I ITEM 1. DESCRIPTION OF BUSINESS GENERAL DEVELOPMENT OF BUSINESS Hickok Incorporated was organized in 1915 as an Ohio corporation, and first offered its securities to the public in 1959. Except as otherwise stated, the terms "Company" or "Hickok" as used herein mean Hickok Incorporated and its two wholly-owned subsidiaries. In February 1995 the shareholders approved a change in the Company's name to Hickok Incorporated from The Hickok Electrical Instrument Company. The former name was not representative of the Company's current products and markets and may have conveyed an inaccurate image of the Company to customers, prospects and investors. Hickok develops and manufactures products used by companies in the transportation industry. Primary markets served are automotive, aircraft, and locomotive with sales to both original equipment manufacturers (OEM's) and to the aftermarket. For many years the Company sold precision indicating instruments for aircraft, locomotive and general industrial applications. Within the past ten years the Company has used this expertise to develop and manufacture electronic diagnostic equipment used by automotive technicians in the automotive market. This is now the Company's largest business segment. The Company's first major product in the automotive diagnostic market was the New Generation Star ("NGS") tester sold to Ford Motor Company. The product was introduced in the early 1990's and was very successful though it resulted in Hickok becoming very dependent on a single customer. Product and customer diversification efforts were initiated in 1993 to reduce this dependence. Acquisitions were used as the primary solution. 2 3 The Company has made three acquisitions in the last seven fiscal years as part of a strategic program to expand both its customer base and its product line utilizing its existing expertise. A new product primarily for the automotive market was added in February, 1994 when the Company acquired the fastening systems business from Allen-Bradley Company, Inc. The fastening business provides computerized equipment to control tools that tighten threaded fasteners on cars, trucks, locomotives and heavy equipment to provide high quality threading applications. General Motors is the primary customer for the Company's fastening systems products. The fastening systems business was fully integrated into Hickok's operations by June, 1994. In January, 1996 the Company added new products and customers within the instrumentation area with the acquisition of the Beacon Gage Division of Maradyne Corporation. Beacon Gage manufactures specialty pressure gauges for railroads and transit cars. The gauge business was fully integrated into Hickok's operations by May, 1996. In February, 1998 the Company added new products and customers within the automotive aftermarket with the acquisition of Waekon Industries, a privately owned company in Kirkwood, Pennsylvania. Waekon manufacturers a variety of testing equipment used by automotive technicians. The Waekon name has become the trademark used by the Company to market its products to the automotive aftermarket. For cost reduction purposes the Company closed its manufacturing facility in Kirkwood, Pennsylvania in July 2000 and moved all production of Waekon products to the Company's manufacturing facility in Greenwood, Mississippi. The Company incurred a restructuring charge of $434,015 but expects to recoup that cost by the end of fiscal 2001. The Company's operations are currently concentrated in the United States. Sales are primarily to domestic customers although the Company also makes sales to international customers on a world-wide basis. The Company began to establish international representation in the sales and service area during fiscal 1995. OPERATING SEGMENT INFORMATION The Company's operations are combined into two reportable business segments: 1) indicators and gauges and 2) automotive diagnostic tools and equipment. Reference is made to "Segment and Related Information" on pages 16 and 17 of the Independent Auditors' Report, which is incorporated herein by reference, for financial information relating to operating segments. INDICATORS AND GAUGES For over fifty years the Company has specialized in developing and manufacturing precision indicating instruments used in aircraft, locomotives and other applications. Within the aircraft market, instruments are sold primarily to manufacturers of business and pleasure aircraft. Within the locomotive market, indicators are sold to both original equipment manufacturers and to 3 4 operators of railroad equipment. The Company added pressure gauges to its offerings to locomotive customers in 1996. Indicators and gauges represented approximately 14% of the Company's sales for both fiscal 2000 and fiscal 1999. New product development in fiscal 2000 involved the process of certifying the DIGILOG series of instruments with the FAA. This instrument line is a combination analog/digital indicator for the aircraft market which has the potential to provide a a favorable impact in sales in the indicator business segment beginning in late fiscal 2001. Cost of certification is anticipated to be under $50,000 and completion is targeted for the second quarter of fiscal 2001. AUTOMOTIVE DIAGNOSTIC TOOLS AND EQUIPMENT In the late 1980's the Company began designing and marketing instruments used to diagnose problems and to support the servicing of automotive electronic systems. These products were initially sold to Ford Motor Company but are now sold direct to Ford dealerships and to the aftermarket using jobbers, wholesalers and wagon distributors. The Company increased its aftermarket business with the acquisition in February, 1998 of Waekon Industries which manufactures a variety of testing equipment used by automotive technicians. The acquisition added new distribution sources and significant new products for the aftermarket. The aftermarket currently accounts for approximately 29% of automotive diagnostic and specialty tool sales, the same as in fiscal 1999. As a whole, automotive diagnostic tools and equipment represented approximately 86% of the Company's sales for both fiscal 2000 and fiscal 1999. The fastening control system is one of the automotive products sold by the Company. The product resulted from the acquisition of the fastening systems business from Allen-Bradley in February, 1994. Fastening instrumentation is used to monitor and control pneumatic and electric tools that tighten threaded fasteners so as to provide high quality threading applications. The equipment, especially large networked systems, has been historically sold primarily to General Motors. With the introduction of products such as the pulse tool control and Windows based user station software the Company is attempting to expand its customer base to include tool manufacturers and other car, truck and farm equipment manufacturers. Initial orders from customers other than General Motors are expected in early fiscal 2001. The automotive diagnostic equipment business segment requires a steady flow of new products in order for the segment to grow and prosper. This could consist of entirely new products, upgrading existing products, or simply changes in packaging or design of existing products. During fiscal 2000 the following major products were either in development or were introduced to the market. The Wheel Speed Sensor was introduced in early fiscal 2000. This electronic diagnostic tool is used to test a vehicle's ABS braking system. A repair grade and an inspection grade Gas Tank Tester were also introduced in mid-fiscal 2000. These products are used by repair automotive technicians and by state inspection facilities to check the leak rate on automobile gas tanks. Improved Gas Cap Testers were also introduced. These testers quickly check the leak rate of gas caps for inspection or maintenance purposes. 4 5 The Flash Kit, an accessory for the NGS Tester, was introduced in late fiscal 2000. The unit reprograms a Ford automobile's PCM (Powertrain Control Module) which is the "brain" of the car. PCM updates are released periodically by Ford to improve engine performance. Aftermarket technicians who have an NGS unit are the primary buyers of the Flash Kit since it puts them on an equal basis with Ford dealer technicians. Speed Control is an existing accessory that was upgraded in fiscal 2000. This accessory assists automobile technicians in diagnosing problems with electronic speed control devices in Ford automobiles. A locksmith version of the NGS Tester was introduced in early fiscal 2000 and now accounts for about 20% of all NGS sales. The unit is used by locksmiths to reprogram a Ford's PCM whenever a replacement key is required. During fiscal 2000 several fastening system products were introduced into the market. The pulse tool control is an exciting product as it represents a technological advancement in controlling and calibrating a pulse nut running tool. A pulse tool is ergonomically more user friendly than other nut running tools because it eliminates torque reaction. Windows based user station software was also introduced and a $500,000 initial order was received with shipment in the first quarter of fiscal 2000. This product has been well received since it is easier to use and requires less training than its DOS based predecessor. It can be used with tool controls other than Hickok's. SOURCES AND AVAILABILITY OF RAW MATERIALS Raw materials essential to the business are acquired primarily from a large number of U. S. manufacturers. Materials acquired from the electronic components industry include transistors, integrated circuits, resistors, capacitors, switches, potentiometers and fabricated metal or plastic parts. In general, the required materials are available, if ordered with sufficient lead times, from multiple sources at current prices. IMPORTANCE OF PATENTS, LICENSES, FRANCHISES, TRADEMARKS AND CONCESSIONS The Company presently has several patents and patent applications which relate to certain of its products. It does not consider that any one patent or group of patents is material to the conduct of its business as a whole and believes that its position in the industry is dependent upon its present level of engineering skill, research, production techniques and service rather than upon its ownership of patents. Other than the name "Hickok" and "Waekon", the Company does not have any material licenses, trademarks, franchises or concessions. 5 6 SEASONALITY The Company does not believe there is any significant seasonality affecting its business, except to the extent that shipments of certain products are dependent upon customer release dates. Operating results can fluctuate widely from quarter to quarter as orders for products within the automotive equipment segment can be large and subject to customer release. There were no such orders in either of the past two fiscal years. PRACTICES RELATIVE TO WORKING CAPITAL ITEMS The nature of the Company's business requires it to maintain sufficient levels of inventory to meet rapid delivery requirements of customers. The Company provides its customers with payment terms prevalent in the industry. DEPENDENCE UPON SINGLE OR FEW CUSTOMERS During the fiscal year ended September 30, 2000, sales to Ford and General Motors Corporation accounted for approximately 34% and 9% respectively of the consolidated sales of the Company. This compares with 32% and 13% respectively during the prior fiscal year. The Company has no long-term contractual relationships with either Ford or General Motors, and the loss of business from either one without a corresponding increase in business from new or existing customers would have a material adverse effect on the Company. BACKLOG At September 30, 2000, the unshipped customer order backlog totaled $4,640,000 in contrast to $3,652,000 at September 30, 1999 and $2,493,000 at September 30, 1998. The increase in fiscal 2000 is due to higher orders for indicators and gauges of $260,000 and for automotive diagnostic products of $650,000. The increase in fiscal 1999 is due entirely to an increase in orders for automotive diagnostic equipment and components. GOVERNMENT CONTRACT RENEGOTIATION No major portion of the business is open to renegotiation of profits or termination of contracts or subcontracts at the election of the Government. The amount of revenue derived from Government contracts is currently minimal and not material. COMPETITIVE CONDITIONS The Company is engaged in a highly competitive industry and faces competition from domestic and international firms. Several of the Company's competitors have greater financial resources and larger sales organizations than the Company. Competition with respect to the Company's diagnostic tool business arises from the existence of a number of other significant 6 7 manufacturers in the field, such as Snap-On, SPX Corporation, Hewlett-Packard, GenRad and Vetronix which dominate the total available market in terms of total sales. With regard to fastening systems products, competition comes from both companies that make the equipment to control fastening tools and from tool makers themselves. Specific companies include Beta Tech, Atlas Copco, and Stanley. The instrumentation industry is composed primarily of companies which specialize in the production of particular items as compared to a full line of instruments. The Company believes that its competitive position in this field is in the area of smaller, specialized products, an area in which the Company has operated since 1915 and in which the Company has established itself competitively by offering high-quality, high-performance products in comparison to high-volume, mass-produced items. RESEARCH AND DEVELOPMENT ACTIVITIES The Company expensed as incurred product development costs of $2,740,315 in fiscal 2000, $2,805,592 in 1999, and $3,028,011 in 1998. These expenditures included engineering product support and development of manuals for both of the Company's business segments. COMPLIANCE WITH ENVIRONMENTAL PROVISIONS The Company's capital expenditures, earnings and competitive position are not materially affected by compliance with federal, state and local environmental provisions which have been enacted or adopted to regulate the distribution of materials into the environment. NUMBER OF PERSONS EMPLOYED Total employment by the Company at September 30, 2000 was 223 employees. None of the employees are represented by a union. The Company considers its relations with its employees to be good. FINANCIAL INFORMATION CONCERNING FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES During the fiscal year ended September 30, 2000, all manufacturing, research and development and administrative operations were conducted in the United States. Revenues derived from export sales approximated $1,304,000 in 2000, $871,000 in 1999, and $627,000 in 1998. Shipments to Canada make up the majority of export sales. 7 8 ITEM 2. DESCRIPTION OF PROPERTIES As of December 1, 2000, the Company had facilities in the United States as shown below:
Owned or LOCATION SIZE DESCRIPTION LEASED --------- ------- ----------- ------ Cleveland, 37,000 Two-story brick construction; Owned Ohio sq. ft. used for corporate administrative headquarters, marketing and product development with limited manufacturing. Greenwood, 63,000 One-story modern concrete block Leased, with annual Mississippi sq. ft. construction; used for manufacturing renewal options instruments, test equipment, and fastening extending through 2061. systems products. Kirkwood, 19,600 Two, single story, metal and concrete Leased with optional Pennsylvania sq. ft. block buildings, not currently used. renewal through 2008
The Company closed the Kirkwood facility on July 14, 2000 and moved all manufacturing to its Greenwood, Mississippi facility. Management believes that the Cleveland and Greenwood facilities are adequate to provide for current and anticipated business. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. 8 9 ITEM 10. EXECUTIVE OFFICERS OF THE REGISTRANT* The following is a list of the executive officers of the Company as of September 30, 2000. The executive officers are elected each year and serve at the pleasure of the Board of Directors. Mr. Robert Bauman was elected Chairman by the Board of Directors in July 1993. He has been President since 1991. For at least five years prior to 1991 he held the office of Vice President. Mr. Nowakowski was elected Vice President, Finance and Chief Financial Officer by the Board of Directors in December, 1993. He joined the Company in July, 1993 and for at least five years prior to 1993 was a Vice President with Huntington National Bank in Cleveland, Ohio. Mr. Thomas Bauman was elected Vice President, Sales by the Board of Directors in May, 1999. He joined the Company in April, 1998.
OFFICE OFFICER AGE ------ ------- --- Chairman, President and Robert L. Bauman 60 Chief Executive Officer Vice President, Finance Eugene T. Nowakowski 56 and Chief Financial Officer Vice President, Sales Thomas F. Bauman 57
*The description of Executive Officers called for in this Item is included pursuant to Instruction 3 to Section (b) of Item 401 of Regulation S-K. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS a) MARKET INFORMATION The Registrant's Class A Common Shares are traded on The Nasdaq Small Cap Market under the symbol HICKA. There is no market for the Registrant's Class B Common Shares. 9 10 The following table sets forth the range of high and low closing prices for the Registrant's Class A Common Shares for the periods indicated, which prices reflect inter-dealer prices without retail markup, markdown or commissions. Data was supplied by Nasdaq.
PRICES FOR THE YEARS ENDED: --------------------------- SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 ------------------ ------------------ HIGH LOW HIGH LOW ---- --- ---- --- First Quarter 7 3/8 5 9 6 3/8 Second Quarter 9 1/4 5 3/4 8 6 3/4 Third Quarter 6 7/8 4 3/4 7 3/4 7 3/8 Fourth Quarter 6 3 7/8 8 7 3/8
b) HOLDERS As of December 8, 2000, there were approximately 511 holders of record of the Company's outstanding Class A Common Shares and 5 holders of record of the Company's outstanding Class B Common Shares. c) DIVIDENDS In fiscal 2000 the Company paid a special dividend of $.10 per share on its Class A and Class B Common Shares on March 31, 2000. In fiscal 1999 the Company paid a special dividend of $.15 per share on its Class A and Class B Common Shares, on January 22, 1999. In fiscal 1998 the Company paid a special dividend of $.10 per share on its Class A and Class B Shares on January 23, 1998. The declaration and payment of future dividends is restricted, under certain circumstances, by the provisions of the Company's bank credit agreement. Such restriction is not expected to materially limit the Company's ability to pay dividends in the future, if declared. In addition, pursuant to the Company's Amended Articles of Incorporation, no dividends may be paid on Class B Common Shares until cash dividends of ten cents per share per fiscal year are paid on Class A Common Shares. Any determination to pay cash dividends in the future will be at the discretion of the Board of Directors after taking into account various factors, including the Company's financial condition, results of operations and current and anticipated cash needs. 10 11 ITEM 6. SELECTED FINANCIAL DATA
FOR THE YEARS ENDED SEPTEMBER 30 -------------------------------- 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (In Thousands of Dollars, except per share amounts) Net Sales $18,275 $18,827 $20,768 $21,159 $26,171 ======= ======= ======= ======= ======= Net Income (Loss) $ (411) $ (268) $ 1,034 $ 605 $ 960 ======= ======= ======= ======= ======= Working Capital $ 7,923 $ 8,473 $ 8,818 $ 9,279 $ 8,625 ======= ======= ======= ======= ======= Total Assets $13,767 $14,282 $15,047 $13,736 $13,981 ======= ======= ======= ======= ======= Long-term Debt $ 156 $ 418 $ 549 $ 127 -- ======= ======= ======= ======= ======= Total Stockholders' Equity $11,642 $12,110 $12,551 $11,617 $11,235 ======= ======= ======= ======= ======= Net Income (Loss) Per Share $ (.34) $ (.22) $ .86 $ .51 $ .80 ======= ======= ======= ======= ======= Dividends Declared Per Share: Class A $ .10 $ .15 $ .10 $ .20 $ .10 Class B $ .10 $ .15 $ .10 $ .20 $ .10 Stockholders' Equity Per Share: $ 9.56 $ 10.09 $ 10.48 $ 9.71 $ 9.42 Return on Sales (2.2%) (1.4%) 5.0% 2.9% 3.7% Return on Assets (2.9%) (1.8%) 7.2% 4.4% 6.3% Return on Equity (3.5%) (2.2%) 8.6% 5.3% 8.9% Closing Stock Price $ 4.50 $ 7.56 $ 6.88 $ 8.25 $ 12.50
11 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION Until the mid 1980's Hickok was known primarily for its ability to develop and manufacture high technology, precision indicating instruments for business and pleasure aircraft, locomotive and general industrial applications. This reputation was enhanced because of the Company's capabilities in the design and implementation of electronics circuitry. In recent years the Company has applied this expertise toward the development of electronic diagnostic equipment used in the automotive industry. The Company's first major diagnostic tool was introduced in the early 1990's and sold direct to Ford Motor Company. That tool, and all the other diagnostic tools sold by the Company, are now distributed through various aftermarket channels. The Company currently generates approximately 29% of its revenue from designing and manufacturing diagnostic tools for the automotive aftermarket. These tools enable automotive service technicians to identify problems in the rapidly increasing number of electronics systems in automobiles. Until the end of fiscal 1997 the Company also generated about 15% of its revenue from developing diagnostic strategies and assisting in supporting the overall diagnostic system for Ford Motor Company. At the end of fiscal 1997 the Company was no longer providing this service since its contract was not renewed because Ford consolidated suppliers in this area. The Company has elected not to pursue similar activities in the future. Approximately seven years ago the Company initiated a strategy to use existing expertise to diversify its customer base and add new products within its various product classes. The strategy has been implemented using acquisitions and building a market oriented organization. In February, 1998 the Company significantly increased its automotive aftermarket business with the acquisition of Waekon Industries, a privately owned company in Kirkwood, Pennsylvania. Sales of aftermarket products now account for 29% of automotive diagnostic and specialty tool sales, the same as in fiscal 1999. Waekon manufactures a variety of automotive diagnostic equipment and specialty tools used by automotive technicians. The acquisition cost $2,221,302 and was recorded as an asset purchase. Because of its positive position in the industry, the Waekon name has become the trademark used by the Company to market its products to the automotive aftermarket. In July, 2000 the Company closed its manufacturing facility in Kirkwood, Pennsylvania and moved production of Waekon products to the Company's facility in Greenwood, Mississippi. The Company incurred a restructuring charge of $434,015 but expects to achieve annual cost savings of approximately $600,000 as a result of the decision. 12 13 The timing of order releases in the Company's automotive diagnostic equipment business can cause wide fluctuations in the Company's operating results, particularly on a quarter-to-quarter basis. Orders for such equipment can be large, are subject to customer release, and may result in substantial variations in quarterly sales and earnings. There were no large orders of this nature in either of the past two fiscal years. The primary reason for this was the Company's efforts in recent years to diversify its customer base. However, in future years the introduction of new products could result in a significant increase in order levels which may result in substantial variations in quarterly sales and earnings. The Company is not aware of any seasonal factors which could cause a similar variation in quarterly operating results. Short-term earnings also can be affected by levels of expenditures for product development. Introduction of new automotive diagnostic products to the aftermarket on a regular basis is very important for the ongoing success of this business segment. Consequently, expenditures for product development have been and will continue to be significant to the Company's operations. The Company's order backlog as of September 30, 2000 totaled $4,640,000 as compared to $3,652,000 as of September 30, 1999 and $2,493,000 as of September 30, 1998 The increase in fiscal 2000 is due to higher orders for indicators and gauges of $260,000 and for fastening control products of $650,000. Most of the backlog at September 30, 2000 is expected to be shipped by the end of the current fiscal year. The increase in fiscal 1999 was due to higher orders for automotive diagnostic equipment and components. REPORTABLE SEGMENT INFORMATION The Company adopted effective September 30, 1999 Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information. The Standard requires segment information disclosures based on how management evaluates operating performance and resource allocations. The Company has determined that it has two reportable segments: 1) indicators and gauges and 2) automotive related diagnostic tools and equipment. INDICATORS AND GAUGES This segment consists of products manufactured and sold primarily to companies in the aircraft and locomotive industry. Within the aircraft market, the primary customers are those companies that manufacture business and pleasure aircraft. Within the locomotive market, indictors and gauges are sold to both original equipment manufacturers and to operators of railroad equipment. 13 14 AUTOMOTIVE DIAGNOSTIC TOOLS AND EQUIPMENT This segment consists primarily of products designed and manufactured to support the servicing of automotive electronic systems. These products are sold both direct and to the aftermarket using a variety of distribution methods. The acquisition of Waekon Industries in 1998 added significant new products and distribution sources for the aftermarket. Included in this segment are fastening control products used primarily by a large automobile manufacturer to monitor and control the nut running process in an assembly plant. This equipment provides high quality threading applications. The product was added in fiscal 1994 when the Company acquired the fastening systems business from Allen-Bradley Company. RESULTS OF OPERATIONS Sales for the fiscal year ended September 30, 2000 declined to $18,274,626, a decrease of approximately 3% from fiscal 1999 sales. This decrease in sales was volume-driven and attributable primarily to lower product sales of approximately $532,000, Service revenue was essentially unchanged in fiscal 2000 versus fiscal 1999. The reduction in product sales occurred in the automotive diagnostic equipment segment, primarily sales to OEM accounts as the Company continues to emphasize its aftermarket business. Aftermarket sales were unchanged in fiscal 2000 for several reasons. Sales of emissions products were negatively impacted as several states delayed implementation of gas cap and gas tank testing for at least a year. Introduction of the Flash Kit, which was expected to be a significant revenue generator, was delayed until late fiscal 2000 resulting in minimal impact on fiscal 2000 sales. The company anticipates that overall product sales will increase approximately 10% in fiscal 2001 primarily due to an increase in sales of automotive aftermarket products based on higher orders already booked and the market's positive reception to existing product offerings. The current level of service revenue is expected to increase approximately 20% based on new programs and price increases planned for fiscal 2001. Sales for the fiscal year ended September 30, 1999 declined slightly to $18,826,827, a decrease of approximately 9% from fiscal 1998 sales. This decrease in sales was primarily volume-driven and attributable to lower product sales of approximately $2,161,000, or 11%, offset by a $220,000 or 19% increase in service revenue. Service revenue was up due to an increase in billable repairs on automotive products. The reduction in product sales occurred in the first six months of fiscal 1999 primarily in the automotive diagnostic and fastening systems product classes. Sales of automotive diagnostic products in fiscal 1999 dropped by $707,000 or 7% due to a $2,031,000 or 20% reduction in OEM sales offset by a $1,324,000 or 49% increase in automotive product sales to the aftermarket. Sales of fastening systems products dropped by $899,000 or 32% due to a continued reduction in orders from General Motors for large networked systems. Cost of products sold in fiscal 2000 was $9,423,727 or 55.8% of net product sales. In fiscal 1999 cost of products sold was $10,606,454 or 60.9% of net product sales. Cost of products sold during fiscal 1998 was $10,678,809 or 54.5% of net product sales. The decrease 14 15 in the percentage of cost of products sold applicable to product sales between fiscal 2000 and fiscal 1999 was due to a change in product mix and to operating efficiencies realized at the manufacturing level. The increase in the percentage of cost of products sold between fiscal 1999 and fiscal 1998 was due primarily to product mix as sales of lower margin automotive diagnostic products to the aftermarket and other markets represented a larger proportion of total product sales. The cost of products sold percentage should increase slightly in fiscal 2001 due to a change in product mix. Cost of services sold in fiscal 2000 was $1,087,177 or 78.6% of net service sales. Cost of services sold during fiscal 1999 was $935,231 or 66.7% of net service sales. Cost of services sold during fiscal 1998 was $885,731 or 74.9% of net service sales. The increase in the cost of services sold as a percentage of net service sales between fiscal 2000 and fiscal 1999 is primarily due to a change in product mix and a slight increase in warranty repair charges. The reduction in the cost of services sold percentage between fiscal 1999 and fiscal 1998 was due to volume related operating efficiencies. The percentage of cost of services sold relative to net service sales is expected to improve slightly in fiscal 2001. Product development expenditures in fiscal 2000 were $2,740,315 which was 2% lower than expenditures of $2,805,592 in fiscal 1999. This decrease reflects efficiencies resulting from ongoing technology improvements in engineering systems and procedures. Product development expenditures in fiscal 1999 were $2,805,592 which was 7% lower than fiscal 1998 expenditures of $3,028,214. This decrease was due to a reduction in engineering and development expenditures on products completed or nearing completion in fiscal 1999 such as the Gas Cap and Gas Tank Testers and the pulse tool control. It is anticipated that the amount spent on product development in fiscal 2001 will be slightly lower than the amount spent in fiscal 2000 due to operating efficiencies while continuing to support the ongoing need to develop a steady flow of new diagnostic products for the automotive aftermarket. Marketing and administrative expenses amounted to $5,357,063 which was 29.3% of net sales in fiscal 2000; $5,106,577 or 27.1% of net sales in fiscal 1999; and $4,824,995, or 23.2% of net sales in fiscal 1998. Expenditures in fiscal 2000 were 5% higher than fiscal 1999 due to an increase in commissions and royalties associated with certain aftermarket product sales. Expenditures in fiscal 1999 were 6% higher than fiscal 1998 due to the inclusion of Waekon for a full twelve months. The Company anticipates that marketing and administrative expenses will remain unchanged in fiscal 2001 due to cost containment measures already in place. Interest charges were $60,367 in fiscal 2000 compared with $68,171 in fiscal 1999 and $58,908 in fiscal 1998. The decrease in interest charges in fiscal 2000 compared to fiscal 1999 was due to a reduction in long term debt incurred with the Waekon acquisition in February, 1998. The increase in interest charges in fiscal 1999 compared to fiscal 1998 was due to the inclusion for all of fiscal 1999 of long-term debt associated with the Waekon acquisition. 15 16 In fiscal 2000, a restructuring charge of $434,015 was recorded due to the closing in July, 2000 of the Company's manufacturing facility in Kirkwood, Pennsylvania. These charges were composed of $228,375 (including $22,500 relating to the current fiscal year) of future lease payments, $111,750 of losses on the abandonment of the plant facility and equipment and $93,890 of employee severance and related expenses. The Company expects to realize pre-tax operating cost savings of approximately $600,000 annually as the facility in Greenwood, Mississippi has taken over all manufacturing formerly performed in Kirkwood. Other expense of $6,366 in fiscal 2000 compares with other income of $51,527 in fiscal 1999. The change was primarily due to losses on fixed asset disposals. Other income of $51,527 in fiscal 1999 and $145,642 in fiscal 1998, consisted of interest income on short-term investments and discounts on purchases. Income taxes in fiscal 2000 were a negative $423,800 which represents a recovery of income taxes at a 50.8% effective tax rate. In fiscal 1999 income taxes were a negative $375,500 which represents a recovery of income taxes at a 58.3% effective tax rate. The recovery rate in both fiscal 2000 and fiscal 1999 exceeded the normal tax rate of 37% due to the recognition of both current and prior year research and development tax credits in an amount greater than what was previously estimated. Income taxes in fiscal 1998 were $403,000 which represents a 28.0% effective tax rate. The effective tax rate in fiscal 1998 was below the normal rate also due to the recognition of research and development tax credits in an amount greater than what was estimated at the end of the prior year. It is anticipated that the effective tax rate in fiscal 2001 will approach the rate experienced in fiscal 1998 due to the anticipated existence of research and development tax credits. Management anticipates that increased sales volume, as evidenced by the increase in order backlog, combined with operating efficiencies due to the restructuring of the Kirkwood, Pennsylvania operation will generate sufficient taxable income during the carryforward period to fully realize the deferred tax benefits thereby reducing future federal income taxes payable. The net loss in fiscal 2000 was $410,604, or $.34 per share which was an increase of $142,433 as compared with the net loss of $268,171, or $.22 per share, in fiscal 1999. Net income in fiscal 1998 was $1,034,400, or $ .86 per share. The change in fiscal 2000 versus fiscal 1999 was primarily due to a restructuring charge of $434,015 which represented a one-time charge associated with the decision to close the Company's manufacturing facility in Kirkwood, Pennsylvania. The facility was closed on July 14, 2000 as a cost saving measure and production was transferred to the Company's Greenwood, Mississippi facility. The change in fiscal 1999 versus fiscal 1998 was due primarily to a decrease in automotive diagnostic sales to the OEM market and a decrease in fastening systems sales of large networked systems. These reduced sales occurred in the first six months of fiscal 1999. In addition, there was a reduction in gross product margin due to a change in product mix as sales of lower margin automotive diagnostic products to the aftermarket and non OEM markets represented a larger proportion of total product sales. 16 17 LIQUIDITY AND CAPITAL RESOURCES Current assets of $9,891,765 at September 30, 2000 were 5.0 times current liabilities and the total of cash and receivables was 1.7 times current liabilities. These ratios compare to 5.9 and 2.3 respectively at the end of fiscal 1999. Total current assets were down approximately $294,000 from the previous year end due primarily to a reduction in accounts receivable of approximately $357,000 caused by lower sales in the last half of fiscal 2000. Working capital at September 30, 2000 was $7,923,233 as compared to $8,473,150 a year ago. The decrease was due a decrease in cash and in accounts receivable totaling approximately $577,000, proceeds of which were used to fund, in part, non-operating cash requirements. During the fiscal year the Company's business may require an increase in inventory of work-in-process and finished goods in order to meet anticipated delivery schedules. Whenever there may be a requirement to increase inventory in fiscal 2001 there will be a negative but temporary impact on liquidity. The Company believes that internally generated funds and a $5,000,000 revolving line of credit will provide sufficient liquidity to meet ongoing working capital requirements. Internally generated funds in fiscal 2000 were $220,557 and were not adequate to fund the Company's primary non-operating cash requirements consisting of capital expenditures of $405,703 and long-term debt payments of $466,936. The primary reason for the negative cash flow from operations was the net loss for the fiscal year of $410,604 and a $281,144 reduction in accounts payable. In fiscal 1999 internally generated funds were a negative $370,925 and were not adequate to fund the Company's primary non-operating cash requirements consisting of capital expenditures and long-term debt payments of $460,954 and $160,693 respectively. The primary reason for the negative cash flow from operations was a $679,279 increase in accounts receivable. In fiscal 1998 internally generated funds were a positive $1,867,048 and were more than adequate to fund the Company's primary non-operating cash requirements consisting of capital expenditures of $390,290 and long-term debt payments of $65,306. Despite an anticipated slight increase in accounts receivable in fiscal 2001 due to higher sales, the Company expects internally generated funds in fiscal 2001 from operating activities, primarily net income, to be adequate to fund approximately $400,000 of capital expenditures in addition to $131,000 due on the current portion of long-term debt. Most of the capital expenditures will be made to upgrade engineering and manufacturing equipment. In February, 2000 the Company amended an existing credit agreement with its financial lender. The agreement expires in February, 2001 and provides for an unsecured revolving credit facility of $5,000,000 with interest at the prime commercial rate with a LIBOR option and is unsecured. At September 30, 2000, the Company had $668,000 outstanding under this loan facility and remains in compliance with its loan covenants. The revolving credit facility is subject to annual review by the Company's lender. Although no determination has been made to seek 17 18 renewal of the credit agreement, the Company believes that, given its current financial condition, renewal at the existing amount may be obtained on acceptable terms. IMPACT OF INFLATION In recent years, inflation has had a minimal effect on the Company because of low rates of inflation and the Company's policy prohibiting the acceptance of long-term fixed rate contracts without provisions permitting adjustment for inflation. YEAR 2000 READINESS DISCLOSURE The Company has completed its Year 2000 remediation efforts and, since the turn of the century, has not experienced any significant problems internally or with suppliers and customers in connection with this event. Nevertheless, additional dates in the future exist which could potentially cause computer system failures. The Company's most likely worst case scenario would be a short-term slowdown or cessation of manufacturing operations at one or more of its facilities and a short-term inability on the part of the Company to process orders and to deliver product to customers in a timely manner. Because the Company has not, to date, experienced any significant problems in the Year 2000, it does not anticipate any major impact in its operations. Costs associated with the Company's assessment and remediation of Year 2000 issues were not material in fiscal 2000. The Company has used cash and cash equivalents to fund such costs. FORWARD-LOOKING STATEMENTS The foregoing discussion includes forward-looking statements relating to the business of the Company. These forward-looking statements, or other statements made by the Company, are made based on management's expectations and beliefs concerning future events impacting the Company and are subject to uncertainties and factors (including, but not limited to, those specified below) which are difficult to predict and, in many instances, are beyond the control of the Company. As a result, actual results of the Company could differ materially from those expressed in or implied by any such forward-looking statements. These uncertainties and factors include (a) the Company's dependence upon a limited number of customers, including Ford and General Motors, (b) the highly competitive industry in which the company operates, which includes several competitors with greater financial resources and larger sales organizations, and (c) the acceptance in the marketplace of new products and/or services developed or under development by the Company including automotive diagnostic products, fastening systems products and indicating instrument products, and (d) the ability of the Company to effectively make the transition from primarily serving OEM customers to serving smaller customers in the automotive aftermarket. 18 19 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to certain market risks from transactions that are entered into during the normal course of business. The Company has not entered into derivative financial instruments for trading purposes. The Company's primary market risk exposure relates to interest rate risk. The Company's only debt subject to interest rate risk is its revolving credit facility. The Company has a balance of $668,000 on its revolving credit facility at September 30, 2000, which is subject to variable rate of interest based on the prime commercial rate with a LIBOR option. Assuming borrowings at September 30, 2000, a one-hundred basis point change in interest rates would affect the Company's pre-tax earnings by approximately $6,700 annualized. As a result, the Company believes that the market risk relating to interest rate movements is minimal. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following pages contain the Financial Statements and Supplementary Data as specified for Item 8 or Part II of Annual Report on Form 10-K. 19 20 - -------------------------------------------------------------------------------- INDEPENDENT AUDITORS' REPORT SHAREHOLDERS AND BOARD OF DIRECTORS HICKOK INCORPORATED CLEVELAND, OHIO We have audited the accompanying consolidated balance sheets of HICKOK INCORPORATED as of September 30, 2000 and 1999, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended September 30, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free from 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 consolidated financial position of Hickok Incorporated as of September 30, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 2000 in conformity with generally accepted accounting principles. /s/ MEADEN & MOORE, LTD. MEADEN & MOORE, LTD. CERTIFIED PUBLIC ACCOUNTANTS NOVEMBER 17, 2000 CLEVELAND, OHIO - -------------------------------------------------------------------------------- F-1 21 - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEET HICKOK INCORPORATED SEPTEMBER 30 ASSETS
2000 1999 -------------------------------- CURRENT ASSETS: Cash and cash equivalents $ 313,553 $ 533,579 Accounts receivable - less allowance for doubtful accounts of $80,000 ($70,000, 1999) 3,020,754 3,377,291 Inventories-less allowance for obsolete inventory of $255,000 ($212,000, 1999) 5,860,217 5,708,098 Deferred income taxes 400,800 315,900 Prepaid expenses 34,608 51,569 Refundable income taxes 261,833 199,624 -------------------------------- Total Current Assets 9,891,765 10,186,061 PROPERTY, PLANT AND EQUIPMENT: Land 229,089 229,089 Buildings 1,486,845 1,565,021 Machinery and equipment 3,706,199 3,973,241 -------------------------------- 5,422,133 5,767,351 Less accumulated depreciation 3,474,290 3,542,098 -------------------------------- 1,947,843 2,225,253 OTHER ASSETS: Goodwill-less accumulated amortization of $350,088 ($238,569, 1999) 1,799,999 1,833,324 Deferred charges - less accumulated amortization of $29,285 ($223,785, 1999) 10,552 35,752 Deferred income taxes 114,400 -- Deposits 2,050 1,750 -------------------------------- 1,927,001 1,870,826 -------------------------------- Total Assets $13,766,609 $14,282,140 ================================
See accompanying summary of accounting policies and notes to financial statements - -------------------------------------------------------------------------------- F-2 22 - -------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY
2000 1999 ---------------------------------- CURRENT LIABILITIES: Short-term financing $ 668,000 $ 100,000 Current portion of earn out and capitalized lease payable 40,128 132,616 Trade accounts payable 401,806 682,950 Accrued payroll and related expenses 443,646 440,107 Accrued expenses 207,750 180,481 Accrued income taxes 207,202 176,757 ---------------------------------- Total Current Liabilities 1,968,532 1,712,911 DEFERRED INCOME TAXES -- 41,500 LONG-TERM DEBT: Minimum earn out and capitalized lease payable- less current portion 43,480 417,928 Other long-term liabilities 112,375 -- ---------------------------------- Total Long-Term Liabilities 155,855 417,928 STOCKHOLDERS' EQUITY: Common shares - par value $1.00: Class A 3,750,000 shares authorized, 772,470 shares issued; (754,470 - 1999) 762,884 744,884 Class B 1,000,000 convertible shares authorized, 475,533 shares issued 454,866 454,866 Contributed capital 1,599,598 1,554,598 Treasury shares - 9,586 Class A shares and 20,667 Class B shares (605,795) (605,795) Retained earnings 9,430,669 9,961,248 ---------------------------------- Total Stockholders' Equity 11,642,222 12,109,801 ---------------------------------- Total Liabilities and Stockholders' Equity $13,766,609 $14,282,140 ==================================
- -------------------------------------------------------------------------------- F-3 23 - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF INCOME HICKOK INCORPORATED FOR THE YEARS ENDED SEPTEMBER 30
2000 1999 1998 -------------------------------------------------------- NET SALES Product sales $16,891,799 $17,424,101 $19,585,276 Service sales 1,382,827 1,402,726 1,183,086 -------------------------------------------------------- Total net sales 18,274,626 18,826,827 20,768,362 COSTS AND EXPENSES: Cost of products sold 9,423,727 10,606,454 10,678,809 Cost of services sold 1,087,177 935,231 885,731 Product development 2,740,315 2,805,592 3,028,211 Marketing and administrative expenses 5,357,063 5,106,577 4,824,995 Interest charges 60,367 68,171 58,908 Restructuring charge 434,015 -- -- Other (income) expense 6,366 (51,527) (145,692) -------------------------------------------------------- 19,109,030 19,470,498 19,330,962 -------------------------------------------------------- Income (Loss) before Provision for Income Taxes (834,404) (643,671) 1,437,400 PROVISION FOR (RECOVERY OF) INCOME TAXES: Current (183,000) (132,100) 416,000 Deferred (240,800) (243,400) (13,000) -------------------------------------------------------- (423,800) (375,500) 403,000 -------------------------------------------------------- NET INCOME (LOSS) $ (410,604) $ (268,171) $ 1,034,400 ======================================================== NET INCOME (LOSS) PER COMMON SHARE $ (.34) $ (.22) $ .86 ======================================================== WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING 1,204,276 1,199,416 1,196,602 ========================================================
See accompanying summary of accounting policies and notes to financial statements - -------------------------------------------------------------------------------- F-4 24 - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY HICKOK INCORPORATED FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999, AND 1998
COMMON STOCK - $1.00 PAR VALUE --------------- RETAINED EARNINGS CLASS A CLASS B ----------------------------------------------- Balance at September 30, 1997 $9,494,607 $740,984 $454,866 Dividend of $.10 per Class A and B shares (119,625) -- -- Sale of Class A shares under option -- 1,900 -- Net income 1,034,400 -- -- ----------------------------------------------- Balance at September 30, 1998 10,409,382 742,884 454,866 Dividend of $.15 per Class A and B shares (179,963) -- -- Sale of Class A shares under option -- 2,000 -- Net Loss (268,171) -- -- ----------------------------------------------- Balance at September 30, 1999 9,961,248 744,884 454,866 Dividend of $.10 per Class A and B shares (119,975) -- -- Sale of Class A shares under option -- 18,000 -- Net Loss (410,604) -- -- ----------------------------------------------- Balance at September 30, 2000 $9,430,669 $762,884 $454,866 ===============================================
See accompanying summary of accounting policies and notes to financial statements - -------------------------------------------------------------------------------- F-5 25 - --------------------------------------------------------------------------------
CONTRIBUTED TREASURY CAPITAL SHARES TOTAL ---------------------------------------------------- Balance at September 30, 1997 $1,532,398 $(605,795) $11,617,060 Dividend of $.10 per Class A and B shares -- -- (119,625) Sale of Class A shares under option 17,200 -- 19,100 Net income -- -- 1,034,400 ---------------------------------------------------- Balance at September 30, 1998 1,549,598 (605,795) 12,550,935 Dividend of $.15 per Class A and B shares -- -- (179,963) Sale of Class A shares under option 5,000 -- 7,000 Net Loss -- -- (268,171) ---------------------------------------------------- Balance at September 30, 1999 1,554,598 (605,795) 12,109,801 Dividend of $.10 per Class A and B shares -- -- (119,975) Sale of Class A shares under option 45,000 -- 63,000 Net Loss -- -- (410,604) ---------------------------------------------------- Balance at September 30, 2000 $1,599,598 $(605,795) $11,642,222 ====================================================
- -------------------------------------------------------------------------------- F-6 26 - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF CASH FLOWS HICKOK INCORPORATED FOR THE YEARS ENDED SEPTEMBER 30
2000 1999 1998 ----------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers $ 18,631,163 $ 18,147,548 $ 21,882,134 Cash paid to suppliers and employees (18,495,372) (18,601,050) (19,341,978) Interest paid (85,509) (71,934) (26,232) Interest received 19,039 25,753 94,048 Income taxes (paid) refunded 151,236 128,758 (740,924) ----------------------------------------------------------- Net Cash Provided by (Used in) Operating Activities 220,557 (370,925) 1,867,048 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (405,703) (460,954) (390,290) Change in deposits (300) 2,600 101 Proceeds on sale of assets 9,875 4,350 44,743 Payments for business purchased (78,194) -- (2,426,518) ----------------------------------------------------------- Net Cash Used in Investing Activities (474,322) (454,004) (2,771,964) CASH FLOWS FROM FINANCING ACTIVITIES: Changes in short-term borrowings 568,000 100,000 -- Decrease in long-term financing (466,936) (160,693) (65,306) Sale of Class A shares under option 52,650 5,850 14,816 Dividends paid (119,975) (179,963) (119,625) ----------------------------------------------------------- Net Cash Provided by (Used in) Financing Activities 33,739 (234,806) (170,115) ----------------------------------------------------------- Decrease in Cash and Cash Equivalents (220,026) (1,059,735) (1,075,031) Cash and Cash Equivalents at Beginning of Year 533,579 1,593,314 2,668,345 ----------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 313,553 $ 533,579 $ 1,593,314 ===========================================================
See accompanying summary of accounting policies and notes to financial statements - -------------------------------------------------------------------------------- F-7 27 - --------------------------------------------------------------------------------
2000 1999 1998 ---------------------------------------------------- RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: Net income (Loss) $(410,604) $(268,171) $1,034,400 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and amortization 651,870 746,919 746,804 Non-cash compensation 10,350 53,721 4,284 Loss on disposal of assets 158,087 5,710 13,346 Deferred income taxes (240,800) (243,400) (13,000) CHANGES IN ASSETS AND LIABILITIES: Decrease (Increase) in accounts receivable 356,537 (679,279) 1,108,772 Decrease (Increase) in inventories (152,119) 183,991 (288,444) Decrease (Increase) in prepaid expenses 16,961 (12,767) 3,167 Increase in refundable income taxes (62,209) (17,812) (181,812) Increase (Decrease) in trade accounts payable (281,144) 26,648 (370,073) Increase (Decrease) in accrued payroll and related expenses 3,539 (164,532) 145,062 Increase (Decrease) in other accrued expenses and other long-term liabilities 139,644 (16,422) (192,346) Increase (Decrease) in accrued income taxes 30,445 14,469 (143,112) ---------------------------------------------------- Total Adjustments 631,161 (102,754) 832,648 ---------------------------------------------------- Net Cash Provided by (Used in) Operating Activities $ 220,557 $(370,925) $1,867,048 ====================================================
NON-CASH INVESTING AND FINANCING ACTIVITIES: During 1999, non-cash compensation included $52,571 for equipment transferred to a former employee. During 1998, the Company sold equipment for $5,000. At September 30, 1998, $1,578 of the proceeds remained in accounts receivable. Also during 1998, the Company incurred an earn-out liability of $585,892 in connection with the purchase of Waekon Industries, Inc. - -------------------------------------------------------------------------------- F-8 28 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS HICKOK INCORPORATED SEPTEMBER 30, 2000, 1999 AND 1998 1. NATURE OF OPERATIONS Hickok Incorporated and its wholly-owned domestic subsidiaries ("Company") develop and manufacture products used by companies in the transportation industry. Among the products are indicators and gauges sold to companies in aircraft and locomotive markets. On a much larger scale, the Company manufactures diagnostic equipment used by automotive technicians to test the various electronic systems in automobiles. Also within the automotive segment, the Company manufactures equipment to control the nut running process in an assembly plant. The Company serves the automotive, locomotive and general aviation markets predominately in North America. Sales in the Company's principal product classes, as a percent of consolidated sales, are as follows:
PRODUCT CLASSES 2000 1999 1998 --------------- -------------------------------------- Automotive Test Equipment 73.8% 73.2% 69.2% Fastening Systems 10.7 11.0 14.1 Indicating Instruments 14.1 13.6 13.6 Other Product Classes 1.4 2.2 3.1 -------------------------------------- Total 100.0% 100.0% 100.0% ======================================
Current operating properties consist of a manufacturing plant in Greenwood, Mississippi, and a corporate headquarters, marketing and product development facility in Cleveland, Ohio. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of Hickok Incorporated and its wholly-owned domestic subsidiaries since date of acquisition. Significant intercompany transactions and balances have been eliminated in the financial statements. CONCENTRATION OF CREDIT RISK: The Company sells its products and services primarily to customers in the United States and to a lesser extent overseas. The Company extends normal credit terms to its customers. Customers in the automotive industry (primarily original equipment manufacturers) comprise 58% of outstanding receivables at September 30, 2000 (86% in 1999). Sales to two customers, each of which were in excess of 10% of total sales, approximated $6,300,000 and $1,700,000 (2000),$6,100,000 and $2,400,000 (1999), $9,400,000 and $2,500,000 (1998). The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts of certain assets and liabilities and disclosure of contingencies at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION: The Company records sales as manufactured items are shipped to customers. Revenue from development contracts is recognized as earned under terms of the contracts. The Company warrants certain products against defects for periods ranging primarily from 12 to 36 months. Charges against income for warranty expense and sales returns and allowances were immaterial during each of the three years in the period ending September 30, 2000. - -------------------------------------------------------------------------------- F-9 29 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED PRODUCT DEVELOPMENT COSTS: Product development costs, which include engineering production support, are expensed as incurred. Research and development performed for customers represents no more than 1% of sales in each year. The arrangements do not include a repayment obligation by the Company. INVENTORIES: Inventories are valued at the lower of cost (first-in, first-out) or market and consist of:
2000 1999 ------------------------------ Raw materials and component parts $2,950,611 $3,336,853 Work-in-process 1,821,531 1,408,952 Finished products 1,088,075 962,293 ------------------------------ $5,860,217 $5,708,098 ==============================
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are carried at cost. Maintenance and repair costs are expensed as incurred. Additions and betterments are capitalized. The depreciation policy of the Company is generally as follows:
CLASS METHOD RATE -------------------------------------------------------------------- Buildings Straight-line 2-1/2 to 4% Machinery and equipment Straight-line 8 to 33-1/3% Tools and dies Straight-line 33-1/3%
Depreciation, including depreciation on capitalized leases, amounted to $515,151 (2000), $593,314 (1999), and $596,878 (1998). INTANGIBLE ASSETS: Deferred charges represent patents and software implementation costs and are being amortized over 3 years. Software implementation costs were incurred to support and enhance internal information systems. Goodwill is being amortized on a straight-line basis over 15 to 20 years. Amortization of intangibles amounted to $136,719 (2000), $153,605 (1999) and $149,926 (1998). The Company reviews goodwill and other intangibles for impairment when impairment indicators, such as significant changes in market conditions, changes in product mix or management focus, and a potential sale or disposition, arise. In most instances, the Company will use the undiscounted cash flow method, but the market value method is used if the Company is considering a sale or disposition. ADVERTISING COSTS: Advertising costs are expensed as incurred. INCOME TAXES: The Company records income taxes under the provisions of Financial Accounting Standards Board Statement No. 109, "Accounting for Income Taxes." INCOME PER COMMON SHARE: Income per common share information is computed on the weighted average number of shares outstanding during each period as disclosed in note 8. CASH AND EQUIVALENTS: For purposes of the Statement of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. From time to time the Company maintains cash balances in excess of the FDIC limits. The cash balance at September 30, 2000 amounted to $382,107. RECLASSIFICATIONS: Certain prior year amounts have been reclassified to conform with current year presentation. - -------------------------------------------------------------------------------- F-10 30 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 3. SHORT-TERM FINANCING The Company has an unsecured credit agreement of $5,000,000 which matures in February, 2001 with interest at the bank's prime commercial rate with a LIBOR option. The agreement includes covenants with which the Company has complied. Selected details of short-term borrowings are as follows:
WEIGHTED AVERAGE AMOUNT INTEREST RATE -------- ------------- Balance at September 30, 2000 $668,000 9.32% Average during 2000 $296,850 9.30% Maximum during 2000 (month end) $703,000 9.50% Balance at September 30, 1999 $100,000 7.88% Average during 1999 $ 55,836 7.99% Maximum during 1999 (month end) $475,000 7.75%
4. LEASES OPERATING: The Company leases a facility and certain equipment under operating leases expiring through February, 2003. The Company's minimum commitments under operating leases are as follows: 2001 $54,347 2002 26,073 2003 8,265 ------- Total $88,685 =======
Rental expense under these commitments was $153,465 (2000), $178,509 (1999) and $171,176 (1998). CAPITAL: During 2000, the Company purchased equipment under a capital lease obligation, replacing equipment purchased in 1997. The obligation is payable in monthly installments of $3,344 including interest at 8.0% per year until February 2003. The total capital lease obligation payable includes $44,954 remaining on the equipment purchased in 1997. The balance outstanding at September 30, 2000 was $83,608. Minimum annual lease payments under the capital lease are as follows: 2001 $40,128 2002 40,128 2003 11,505 91,761 Less amounts representing interest 8,153 ------- $83,608 =======
The cost and accumulated depreciation of the equipment held under capital lease at September 30, 2000 is as follows: Cost $189,578 Accumulated depreciation/Amortization 74,499 -------- Book value $115,079 ========
A facility held under a capital lease has a net book value of $0 at September 30, 2000. Future minimum lease payments which extend through 2061 are immaterial. - -------------------------------------------------------------------------------- F-11 31 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 5. STOCK OPTIONS Under the Company's Key Employees Stock Option Plans (collectively the "Employee Plans") the Compensation Committee of the Board of Directors has the authority to grant options to Key Employees to purchase up to 23,600 Class A shares, net of granted options. The options are exercisable for up to 10 years. Incentive stock options are available at an exercise price of not less than market price on the date the option is granted. However, options available to an individual owning more than 10% of the Company's Class A shares at the time of grant must be at a price not less than 110% of the market price. Nonqualified stock options may be issued at such exercise price and on such other terms and conditions as the Compensation Committee may determine. No options may be granted at a price less than $2.925. Non-cash compensation expense related to stock option plans was $10,350 (2000), $1,150 (1999) and $4,284 (1998). All options granted under the Employee Plans are exercisable at September 30, 2000. The Company's Outside Directors Stock Option Plans (collectively the "Directors Plans") provide for the automatic grant of options to purchase up to 51,000 shares (less 21,000 options which were either canceled, expired or unissued) of Class A common stock over a five year period to members of the Board of Directors who are not employees of the Company, at the fair market value on the date of grant. All options granted under the Directors Plans become fully exercisable on February 25, 2003. Transactions involving the plans are summarized as follows:
WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE OPTION SHARES 2000 PRICE 1999 PRICE 1998 PRICE - ------------------------------------------------------------------------------------------------------------------------- EMPLOYEE PLANS: Outstanding October 1, 106,500 $ 9.14 97,600 $ 9.69 78,400 $ 9.47 Granted 27,800 5.00 23,000 7.13 24,000 10.50 Canceled -- -- (12,100) 10.72 (2,900) 11.93 Exercised (2000-$2.93 per share) (18,000) 2.93 (2,000) 2.93 (1,900) 7.80 ------- ------ ------ Outstanding September 30, (2000-$5.00 to $17.25 per share) 116,300 9.34 106,500 9.14 97,600 9.69 ======= ====== ====== Exercisable September 30, 116,300 9.34 106,500 9.14 97,600 9.69 ======= ====== ====== DIRECTORS PLANS: Outstanding October 1, 36,000 $13.02 30,000 $14.20 24,000 $14.69 Granted 6,000 8.50 6,000 7.13 6,000 12.25 Canceled (12,000) 13.02 -- -- -- -- Exercised -- -- -- -- -- -- ------- ------ ------ Outstanding September 30, (2000-$7.13 to $18.00 per share) 30,000 12.07 36,000 13.02 30,000 14.20 ======= ====== ====== Exercisable September 30, 20,000 13.86 24,000 15.00 18,000 15.69 ======= ====== ======
The Company applies APB Opinion No. 25, "Accounting for Stock Issued To Employees" and related interpretations in accounting for its stock plans as allowed under FAS Statement No. 123, "Accounting for Stock-Based Compensation. "Accordingly, the adoption of this statement did not affect the Company's results - -------------------------------------------------------------------------------- F-12 32 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED of operations, financial position or liquidity. Had compensation cost for fixed price stock options granted in 2000, 1999 and 1998 been determined consistent with FAS 123, pro forma net income and earnings per share would have been as follows:
2000 1999 1998 ------------------------------------------ Net Income (Loss) - as reported $(410,604) $(268,171) $1,034,400 ========================================== - pro forma $(472,858) $(308,524) $ 939,672 ========================================== Net Income (Loss) per share - as reported $ (.34) $ (.22) $ .86 ========================================== - pro forma $ (.39) $ (.26) $ .79 ==========================================
The fair value method of accounting has not been determined for options granted prior to October 1, 1995. The effects of applying FAS No. 123 in this pro forma disclosure are not necessarily indicative of future amounts. The fair value of issued stock options is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model was originally developed for use in estimating the fair value of traded options which have different characteristics from the Company's employee stock options. The model is also sensitive to changes in the subjective assumptions which can materially affect the fair value estimate. As a result, management believes that the Black-Scholes model may not necessarily provide a reliable single measure of the fair value of employee stock options. The following weighted-average assumptions were used in the option pricing model for 2000, 1999 and 1998 respectively: a risk free interest rate of 5.7%, 6.0% and 5.2%; an expected life of 6, 5 and 5 years; an expected dividend yield of 1.8%, 2.0% and 1.3%; and a volatility factor of .15, .30 and .20. 6. CAPITAL STOCK, TREASURY STOCK, AND CONTRIBUTED CAPITAL Unissued shares of Class A common stock (601,166 and 597,366 shares in 2000 and 1999 respectively) are reserved for the share-for-share conversion rights of the Class B common stock and stock options under the Employee Plans and the Directors Plans (see note 5). The Class A shares have one vote per share and the Class B shares have three votes per share, except under certain circumstances such as voting on voluntary liquidation, sale of substantially all the assets, etc. Dividends up to $.10 per year, noncumulative, must be paid on Class A shares before any dividends are paid on Class B shares. 7. INCOME TAXES A reconciliation of the provision for income taxes to the statutory Federal income tax rate is as follows:
2000 1999 1998 -------------------------------------------------- Income (Loss) before income taxes $(834,404) $(643,671) $1,437,400 Statutory rate 34% 34% 34% -------------------------------------------------- (283,697) (218,848) 488,716 State and local (recovery of) taxes - net (18,000) (23,200) 73,900 Permanent differences 16,300 (18,700) (13,000) Research and development credit - net (129,200) (109,600) (105,800) Adjustment of estimated research and development credit - net -- (6,600) (49,500) Other (9,203) 1,448 8,684 -------------------------------------------------- $(423,800) $(375,500) $ 403,000 ==================================================
- -------------------------------------------------------------------------------- F-13 33 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Deferred tax asset (liabilities) consist of the following:
2000 1999 --------------------------- Current: Inventories $ 73,600 $ 72,000 Contribution carryforward -- 25,200 Research and development credit carryforward 204,000 110,000 Accrued liabilities 123,200 108,700 --------------------------- 400,800 315,900 Noncurrent: Depreciation (150,400) (157,500) Research and development credit carryforward 206,200 56,000 Contribution carryforward 86,000 60,000 Amortization (27,400) -- --------------------------- 114,400 (41,500) --------------------------- Total $ 515,200 $ 274,400 ===========================
The contribution and research and development credit carryforwards will begin to expire in 2004 and 2019 respectively. 8. EARNINGS PER COMMON SHARE Earnings per common share are based on the provision of FAS Statement No. 128, "Earnings per Share." Accordingly, the adoption of this statement did not affect the Company's results of operations, financial position or liquidity. The effect of applying FAS No. 128 on earnings per share and required reconciliations are as follows:
2000 1999 1998 ---------------------------------------------------- BASIC EARNINGS (LOSS) PER SHARE Income (Loss) available to common stockholders $ (410,604) $ (268,171) $1,034,400 Shares denominator 1,204,276 1,199,416 1,196,602 Per share amount $ (.34) $ (.22) $ .86 ==================================================== EFFECT OF DILUTIVE SECURITIES Average share outstanding 1,204,276 1,199,416 1,196,602 Stock options -- -- 18,073 ---------------------------------------------------- 1,204,276 1,199,416 1,214,675 DILUTED EARNINGS (LOSS) PER SHARE Income (Loss) available to common stockholders $ (410,604) $ (268,171) $1,034,400 Per share amount $ (.34) $ (.22) $ .85 ====================================================
- -------------------------------------------------------------------------------- F-14 34 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 9. EMPLOYEE BENEFIT PLANS The Company has a formula based profit sharing bonus plan for officers and key employees. The formula takes into account "Economic Profit" in determining the bonus pool. The bonus distribution is determined by the Compensation Committee of the Board of Directors after considering such factors as salary, length of service and merit. The maximum individual distribution is 50% of the distributee's salary. For fiscal years ended September 30, 2000, 1999 and 1998, approximately -0-, -0-, and $73,000, respectively, were expensed. The Company has a 401(k) Savings and Retirement Plan covering all full-time employees. Company contributions to the plan, including matching of employee contributions, are at the Company's discretion. For fiscal years ended September 30, 2000, 1999 and 1998, approximately $37,992, $38,217, and $30,106, respectively, were contributed to the plan. The Company does not provide any other post retirement benefits to its employees. The Company has a deferred compensation plan which permits selected management and highly compensated employees to make tax deferred contributions in the form of salary reductions instead of, or in addition to, contributions made by them under the 401(k) Savings and Retirement Plan. For fiscal years ended September 30, 2000, 1999 and 1998, approximately $8,000, $22,443 and $5,542 respectively, were allocated by the participants to this plan and is included in "Accrued Payroll and Related Expenses." 10. ACQUISITION On February 17, 1998, the Company purchased certain assets of Waekon Industries, Inc. for $2,221,302 which has been accounted for under the purchase method of accounting. The purchase included accounts receivable ($504,282), inventory ($719,244), prepaid and other assets ($42,786), machinery and equipment ($380,100), assumption of current liabilities ($425,895), and goodwill ($1,000,785). The Company also recorded as goodwill closing costs related to the purchase ($205,216), and the present value of a five year earn out contract having a minimum required pay out of $585,892. In December 1999, the Company terminated the earn out agreement in exchange for payment of the minimum earn out liability plus an additional payment of $78,194. The $78,194 was treated as an addition to the purchase price. Accordingly, goodwill was increased by the amount of the payment. Goodwill is being amortized over 20 years. 11. RESTRUCTURING CHARGE During the third quarter of fiscal 2000, the Company decided to close its Kirkwood, Pennsylvania production facility and incorporate this operation into its existing Greenwood, Mississippi production facility. The actual closing occurred on July 14, 2000. In connection with this decision, the Company recorded charges of $434,015 consisting of future lease payments ($228,375), losses and abandonment of the plant facility and equipment ($111,750) and employee severance and related expenses ($93,890). The decision resulted in the termination of most of the Kirkwood workforce, approximately 30 employees. These costs relate to the automotive diagnostic tools and equipment segment (see note 12). The corresponding liability consists of a current portion of $91,067 which is included in accrued expenses and a long-term portion of $112,375 which is included in other long-term liabilities. - -------------------------------------------------------------------------------- F-15 35 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 12. SEGMENT AND RELATED INFORMATION The Company has adopted SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which changes the way the Company reports the information about its operating segments The information for 1998 has been restated from the prior year's presentation in order to conform to the current-year presentation. The Company's four business units have separate management teams and infrastructures that offer different products and services. The business units have been aggregated into two reportable segments: 1.) indicators and gauges and 2.) automotive related diagnostic tools and equipment. INDICATORS AND GAUGES This segment consists of products manufactured and sold primarily to companies in the aircraft and locomotive industry. Within the aircraft market, the primary customers are those companies that manufacture business and pleasure aircraft. Within the locomotive market, indicators and gauges are sold to both original equipment manufacturers and to operators of railroad equipment. AUTOMOTIVE DIAGNOSTIC TOOLS AND EQUIPMENT This segment consists primarily of products designed and manufactured to support the servicing automotive electronic systems. These products are sold to the aftermarket using a variety of distribution methods. The acquisition of Waekon Industries in 1998 added significant new products and distribution sources for the aftermarket. Included in this segment are fastening control products used by a large automobile manufacturer monitor and control the nut running process in an assembly plant. This equipment provides high quality threading applications. The product was added in fiscal 1994 when the Company acquired the fastening systems business from Allen-Bradley Company. INFORMATION BY INDUSTRY SEGMENT IS SET FORTH BELOW:
YEARS ENDED SEPTEMBER 30, 2000 1999 1998 - ----------------------------------------------------------------------------------------------- NET REVENUE Indicators and Gauges $ 2,573,469 $ 2,552,456 $ 2,815,633 Automotive Diagnostic Tools and Equipment 15,701,157 16,274,371 17,952,729 -------------------------------------------------------- $18,274,626 $18,826,827 $20,768,362 ======================================================== INCOME (LOSS) FROM OPERATIONS Indicators and Gauges $ 454,111 $ 524,155 $ 633,931 Automotive Diagnostic Tools and Equipment 1,870,204 1,956,984 3,669,686 General Corporate Expenses (2,724,704) (3,124,810) (2,866,217) Restructuring Charge (434,015) -- -- -------------------------------------------------------- $ (834,404) $ (643,671) $ 1,437,400 ========================================================
- -------------------------------------------------------------------------------- F-16 36 - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED ASSET INFORMATION:
INDICATORS AUTOMOTIVE CORPORATE CONSOLIDATION - ----------------------------------------------------------------------------------------------- 2000 -Identifiable Assets $1,213,652 $9,538,127 $3,014,830 $13,766,609 1999 -Identifiable Assets $1,365,237 $9,819,539 $3,097,364 $14,282,140 1998 -Identifiable Assets $1,572,998 $9,373,488 $4,100,818 $15,047,304
GEOGRAPHICAL INFORMATION Included in the consolidated financial statements are the following amounts related to geographic locations:
YEARS ENDED SEPTEMBER 30, 2000 1999 1998 - ---------------------------------------------------------------------------------------- REVENUE: United States $16,970,977 $17,956,203 $20,141,814 Canada 415,703 579,230 444,780 Other foreign countries 887,946 291,394 181,768 ----------------------------------------------------- $18,274,626 $18,826,827 $20,768,362 =====================================================
13. QUARTERLY DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH ----- ------ ----- ------ NET SALES 2000 $5,380,619 $4,395,783 $4,193,247 $4,304,977 1999 3,814,426 4,580,673 5,108,853 5,322,875 GROSS PROFIT 2000 2,343,977 1,950,152 1,724,980 1,744,613 1999 1,519,447 1,664,014 1,962,670 2,139,011 NET INCOME (LOSS) 2000 226,391 (174,447) (444,857)(1) (17,691) 1999 (247,074) (225,808) 15,196 189,515 NET INCOME (LOSS) PER COMMON SHARE BASIC 2000 .19 (.15) (.37) (.01) 1999 (.21) (.18) .01 .16 DILUTED 2000 .19 (.15) (.37) (.01) 1999 (.21) (.18) .01 .16
(1) The third quarter of 2000 includes a pre-tax expense of $434,015 for a restructuring charge. - -------------------------------------------------------------------------------- F-17 37 ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item 10 as to the Directors of the Company is incorporated herein by reference to the information set forth under the caption "Information Concerning Nominees for Directors" in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on February 21, 2001, since such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company's fiscal year pursuant to Regulation 14A. Information required by this Item 10 as to the Executive Officers of the Company is included in Part I of this Annual Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item 11 is incorporated by reference to the information set forth under the caption "Executive Compensation" in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on February 21, 2001, since such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company's fiscal year pursuant to Regulation 14A. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item 12 is incorporated by reference to the information set forth under the captions "Principal Shareholders" and "Share Ownership of Directors and Officers" in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on February 21, 2001, since such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company's fiscal year pursuant to Regulation 14A. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item 13 is incorporated by reference to the information set forth under the caption "Transactions with Management" in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on February 21, 2001, since such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company's fiscal year pursuant to Regulation 14A. 20 38 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON REPORT 8-K (a) (1) FINANCIAL STATEMENTS The following Consolidated Financial Statements of the Registrant and its subsidiaries are included in Part II, Item 8:
PAGE ---- Report of Independent Auditors.................................................F-1 Consolidated Balance Sheet - As of September 30, 2000 and 1999...........................................F-2 Consolidated Statement of Income - Years Ended September 30, 2000, 1999 and 1998...............................F-4 Consolidated Statement of Stockholders' Equity - Years Ended September 30, 2000, 1999 and 1998.........................................................F-5 Consolidated Statement of Cash Flows - Years Ended September 30, 2000, 1999 and 1998..............................................................F-7 Notes to Consolidated Financial Statements.....................................F-9
(a) (2) FINANCIAL STATEMENT SCHEDULES The following Consolidated Financial Statement Schedules of the Registrant and its subsidiaries are included in Item 14 hereof.
SEQUENTIAL PAGE --------------- Report of Independent Auditors as to Schedules...............................................45 Schedule VIII-Valuation and Qualifying Accounts..............................................46 Schedule IX-Short-term Borrowings............................................................47
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (a) (3) EXHIBITS Reference is made to the Exhibit Index set forth herein. (b) There were no reports filed on Form 8-K during the quarter ended September 30, 2000. 21 39 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 at Cleveland, Ohio this 21st day of December, 2000. HICKOK INCORPORATED By: /S/ ROBERT L. BAUMAN ---------------------------- Robert L. Bauman, Chairman, President and Chief Executive Officer 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 and in the capacities indicated and on the 21st day of December, 2000:
SIGNATURE: TITLE - --------- ----- /S/ ROBERT L. BAUMAN Chairman, President and Chief Executive Officer - ------------------------------------ (Principal Executive Officer) Robert L. Bauman /S/ EUGENE T. NOWAKOWSKI Chief Financial Officer - ------------------------------------ (Principal Financial and Accounting Officer) Eugene T. Nowakowski /S/ HARRY J. FALLON Director - ------------------------------------ Harry J. Fallon /S/ T. HAROLD HUDSON Director - ------------------------------------ T. Harold Hudson /S/ JAMES T. MARTIN Director - ------------------------------------ James T. Martin /S/ MICHAEL L. MILLER Director - ------------------------------------ Michael L. Miller /S/ JAMES MORELAND Director - ------------------------------------ James Moreland /S/ JANET H. SLADE Director - ------------------------------------ Janet H. Slade
40 EXHIBIT INDEX
EXHIBIT NO.: DOCUMENT PAGE - ----------- -------- ---- 2 Asset Purchase Agreement, dated February 6, 1998, by and among Waekon Industries, Inc. a Pennsylvania corporation, Peter Vinci, and Waekon Corp., an Ohio corporation (incorporated herein by reference to the appropriate exhibit to the Company's Current Report on Form 8-K dated February 17, 1998). 3(a) Articles of Incorporation and Code of Regulations.* 3(b) Amendment to Articles of Incorporation (incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1995). 10(a) Restated Loan Agreement, dated as of February 15, 2000, by and between the Company and Huntington National Bank (incorporated herein by reference to the appropriate exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1999). 10(b) Hickok Incorporated 1995 Key Employees Stock Option Plan (incorporated herein by reference to the appropriate exhibit to the Company's Registration Statement on Form S-8 as filed with the Commission on September 17, 1998). 10(c) Hickok Incorporated 1997 Outside Directors Stock Option Plan (incorporated herein by reference to the appropriate exhibit to the Company's Registration Statement on Form S-8 as filed with the Commission on September 17, 1998). 10(d) Hickok Incorporated 1997 Key Employees Stock Option Plan (incorporated herein by reference to the appropriate exhibit to the Company's Registration Statement on Form S-8 as filed with the Commission on September 17, 1998). 11 Computation of Net Income Per Common Share. 41 21 Subsidiaries of the Registrant. 42 23 Consent of Independent Auditors. 43 27 Financial Data Schedule 48
* Reference is made to the Company's basic documents filed as Exhibits 3(a) and 3(b) to the Company's Registration Statement on Form S-1, dated September 1, 1959, as supplemented by Amendments 1 and 2 thereto, dated respectively October 15, 1959, and October 19, 1959 (the October 15, 1959 amendment containing an Amendment to Articles of Incorporation, dated September 29, 1959) and such exhibits are hereby incorporated by reference herein E-1 41 The following pages contain the Consolidated Financial Statement Schedules as specified for Item 14(a)(2) of Part IV of Form 10-K. 42 REPORT OF INDEPENDENT AUDITORS AS TO CONSOLIDATED SCHEDULES ----------------------------------------------------------- To the Shareholders and Board of Directors Hickok Incorporated Cleveland, Ohio We have audited the consolidated financial statements of HICKOK INCORPORATED (the "Company") as of September 30, 2000 and 1999, and for each of the three years in the period ended September 30, 2000, and have issued our report thereon dated November 17, 2000; such consolidated financial statements and report are included in Part II, Item 8 of this Form 10-K. Our audits also included the consolidated financial statement schedules ("schedules") of the Company listed in Item 14 (a)(2). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ MEADEN & MOORE, LTD. MEADEN & MOORE, Ltd. Certified Public Accountants December 20, 2000 Cleveland, Ohio 43 HICKOK INCORPORATED SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
Col. A Col. B Col. C Col. D Col. E - ------------------------------------ ---------- ---------------------------------- ---------- --------- Additions ---------------------------------- Balance at Charged to Charged to Balance Beginning Costs and Other at End Description of Period Expenses Accounts Deductions of Period ----------- ---------- ---------- ---------- ---------- --------- Deducted from Asset Accounts: Year Ended September 30,1998 ---------------------------------- Reserve for doubtful accounts $ 15,000 $ 25,647 (1) $ 55 (2) $ 20,702 (3) $ 20,000 Reserve for inventory obsolescence $ 78,589 $377,743 $ -- $344,310 (5) $112,022 Reserve for warranty claim (4) $ -- $ -- $ -- $ -- $ -- Year Ended September 30,1999 ---------------------------------- Reserve for doubtful accounts $ 20,000 $ 56,243 (1) $20,361 (2) $ 26,604 (3) $ 70,000 Reserve for inventory obsolescence $112,022 $247,250 $ -- $147,272 (5) $212,000 Reserve for warranty claim (4) $ -- $ -- $ -- $ -- $ -- Year Ended September 30,2000 ---------------------------------- Reserve for doubtful accounts $ 70,000 $ 1,721 (1) $ 7,481 (2) $ (798) (3) $ 80,000 Reserve for inventory obsolescence $212,000 $459,756 $ -- $420,286 (5) $251,470 Reserve for warranty claim $ -- $ -- $ -- $ -- $ --
(1) Classified as bad debt expense. (2) Recoveries on accounts charged off in prior years. (3) Accounts charged off during year as uncollectible. (4) Reserve classified as an offset to a certificate of deposit of $142,995 in current assets which collateralized a related bank guaranteed letter of credit which expired in February 1998. (5) Inventory charged off during the year as obsolete. 44 HICKOK INCORPORATED SCHEDULE IX - SHORT-TERM BORROWINGS
Col. A Col. B Col. C Col. D Col. E Col. F - --------------------- ---------- -------- -------------- -------------- ---------------- Weighted Maximum Amount Average Amount Weighted Average Balance at Average Outstanding Outstanding Interest Rate Category of Aggregate End of Interest During the During the During the Short-term Borrowings Period Rate Period Period Period (3) - --------------------- ---------- -------- -------------- -------------- ---------------- Year Ended September 30, 1998 Note Payable to Bank (1) $ -- 8.50% $350,000 $ 14,205 (2) 9.30% Year Ended September 30, 1999 Note Payable to Bank (1) $ -- 7.88% $637,000 $ 55,836 (2) 7.99% Year Ended September 30, 2000 Note Payable to Bank (1) $668,000 9.32% $975,000 $296,850 (2) 9.30%
(1) Note payable to bank represents borrowings under a revolving credit facility which expires February 28, 2001. (2) The average amount outstanding during the period was computed by dividing the total of daily outstanding principal balances by 365. (3) The weighted average interest rate during the period was computed by dividing the actual interest by the average short-term debt outstanding. EX-11 2 l85437aex11.txt EXHIBIT 11 1 HICKOK INCORPORATED EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Year Ended September 30 --------------------------------------------------- 2000 1999 1998 ---------- ---------- ---------- PRIMARY - ------- Average shares outstanding 1,204,276 1,199,416 1,196,602 Net effect of dilutive stock options- based on the treasury stock method using average market price -- ** -- ** 18,073 ---------- ---------- ---------- Total Shares 1,204,276 1,199,416 1,214,675 ========== ========== ========== Net Income (Loss) $ (410,604) $ (268,171) $1,034,400 ========== ========== ========== Net Income (Loss) per Share $ (.34) $ (.22) $ .85 ========== ========== ========== FULLY DILUTED - ------------- Average shares outstanding 1,204,276 1,199,416 1,196,602 Net effect of dilutive stock options- based on the treasury stock method using year-end market price if higher than average market price -- ** -- ** 18,073* ---------- ---------- ---------- Total Shares 1,204,276 1,199,416 1,214,675 ========== ========== ========== Net Income (Loss) $ (410,604) $ (268,171) $1,034,400 ========== ========== ========== Net Income (Loss) Per Share $ (.34) $ (.22) $ .85 ========== ========== ==========
* Year-end market price is less than average market price, use same as primary shares. ** Net effect of stock options was antidilutive for the period. EX-21 3 l85437aex21.txt EXHIBIT 21 1 HICKOK INCORPORATED Exhibit 21 Subsidiaries of Registrant COMPANY NAME STATE OF INCORPORATION - ------------ ---------------------- Supreme Electronics Corp. Mississippi Waekon Corp. Ohio EX-23 4 l85437aex23.txt EXHIBIT 23 1 EXHIBIT 23 - CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in Registration Statement No. 33-68196 on Form S-8 dated September 1, 1993 and Registration Statement No. 333-63597 on Form S-8 dated September 17, 1998 of our report on the consolidated financial statements and report as to schedules included in the Annual Report on Form 10-K of Hickok Incorporated for the year ended September 30, 2000. /s/ MEADEN & MOORE, LTD. MEADEN & MOORE, Ltd. Certified Public Accountants December 20, 2000 Cleveland, Ohio EX-27 5 l85437aex27.txt EXHIBIT 27
5 YEAR SEP-30-2000 OCT-01-1999 SEP-30-2000 313,553 0 3,020,754 0 5,860,217 9,891,765 5,422,133 3,474,290 13,766,609 1,968,532 43,480 0 0 1,217,750 10,424,472 13,766,609 18,274,626 18,274,626 10,510,904 8,097,378 440,381 0 60,367 (834,404) (423,800) (410,604) 0 0 0 (410,604) (.34) (.34)
-----END PRIVACY-ENHANCED MESSAGE-----