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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 [FEE REQUIRED]
For the fiscal year ended September 30, 1997
-----------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from Not Applicable
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Commission file number 0-147
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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 [ ]
As of December 11, 1997, the Registrant had 740,984 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 670,461 shares of Class A
Common Stock and 233,098 shares of Class B Common Stock. As of December 11,
1997, based on the closing price of $10.50 per Class A Common Share on The
NASDAQ Small Cap Market, aggregate market value of the Class A Common Stock held
by such non-affiliates was approximately $7,039,840. There is no trading market
in the shares of Class B Common Stock.
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]
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Documents Incorporated by Reference:
------------------------------------
Document Incorporated by
Part of Form 10-K Reference
----------------- ------------------------
Part III (Items 10, Portions of the Registrant's
11, 12 and 13) Definitive Proxy Statement to
be used in connection with its Annual
Meeting of Shareholders to be held on
February 25, 1998.
Except as otherwise stated, the information contained in this Form 10-K
is as of September 30, 1997.
PART I
------
ITEM 1. BUSINESS
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General Development of Business
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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
wholly-owned subsidiary.
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.
The Company is primarily involved in providing products and services to
original equipment manufacturers within the transportation industry. The primary
market served is automotive. Other markets with which the Company is involved
include aircraft, locomotive and marine markets.
Included among the products the Company has supplied to the
transportation industry for many years are precision indicating instruments for
aircraft, locomotive and general industrial applications. In recent years the
Company has adapted this expertise to become a leader in the development of
electronic diagnostic equipment for the automotive market. Production of
diagnostic test equipment is now one of the Company's largest product classes.
The Company has made several acquisitions in two of the last four
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 and customer
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 in an automotive assembly plant to provide
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high quality threading applications. General Motors is the major customer for
the Company's fastening systems products. The fastening systems business was
fully integrated into Hickok's operations by June, 1994. This product has become
a significant part of the Company's total business.
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 addition to its products, the Company also provides support services
to Ford Motor Company relating to the development of training curriculums for
automotive technicians and others. The specific application relates to the use
of diagnostic equipment, primarily Hickok equipment, on automobiles. In some
cases the Company also provides the actual technical training to automotive
technicians relating to the use of diagnostic equipment on automobiles and on
the various components being diagnosed. This training is provided at customer
sites. The support services provided to Ford and the technical training provided
to technicians, though not a significant part of the Company's business, were
developed because of the Company's close working relationship with Ford in the
development of diagnostic tools to service engines and other electronic systems
in Ford automobiles.
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. Because its
international presence is growing, the Company established international
representation in the sales and service area during fiscal 1995.
Description of Business
- -----------------------
Products and Services
---------------------
The Company operates in one major industry segment: instrumentation and
controls products for the transportation industry.
The Company specializes in the development, manufacture and marketing
of precision indicating instruments used in aircraft, locomotives and other
applications. Within the aircraft market, the Company sells its instruments
primarily to manufacturers of business and pleasure aircraft.
The Company also designs, manufactures and markets instruments used to
diagnose problems and to support the servicing of automotive electronic systems.
These products are sold primarily to original equipment manufacturers but also
to the aftermarket using jobbers, wholesalers and wagon distributors. The
Company has increased its marketing efforts in order to expand the aftermarket
business. The aftermarket currently accounts for less than 5% of automotive
diagnostic tool sales.
As a result of the acquisition of the fastening systems business in
February, 1994, the Company designs and manufactures instrumentation used to
monitor and control pneumatic and electric tools that tighten threaded
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fasteners so as to provide high quality threading applications. The equipment is
sold primarily to original equipment manufacturers in the automotive market.
Within the service area the Company supports the development of
training curriculums within Ford Motor Company applicable to servicing
automotive electronic systems. In addition, the Company also provides diagnostic
equipment training both domestically and internationally to Ford and non-Ford
automotive service technicians. Throughout all of fiscal 1997 the Company also
developed software and designed systems that were used to develop diagnostic
strategies including engine, body chassis and electrical systems in Ford
vehicles. This software development contract was not renewed at the end of
fiscal 1997 because Ford consolidated suppliers in this area.
Revenue by class of product/service is shown in the table below.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Automotive Diagnostic Instruments $11,426,000 $13,658,000 $10,476,000
Automotive Diagnostic Service/
Training 3,406,000 4,782,000 5,749,000
Fastening Systems 3,796,000 5,023,000 10,652,000
Indicating Instruments 2,040,000 1,907,000 1,509,000
Other product classes 491,000 801,000 998,000
----------- ----------- -----------
$21,159,000 $26,171,000 $29,384,000
</TABLE>
New Products/Services
---------------------
There were numerous new products under development during fiscal 1997
within the automotive diagnostic instrument area including, among others, a
Multiport Fuel System Analyzer, a Transfer Case Tester and a Coil-On Plug
adapter cable. The Fuel System Analyzer is a product designed primarily for the
aftermarket and its purpose is to diagnose fuel delivery problems. Major design
emphasis was placed on ease of use by the technician while still providing
accurate data. Final development is anticipated to be completed in the first
quarter of fiscal 1998 and initial orders for the product are expected in the
second quarter of fiscal 1998. The Transfer Case Tester and the Coil-On Plug
adapter cable were both developed for Ford Motor Company. The Tester is intended
to be used to diagnose problems with the transfer case which is part of a
vehicle's transmission. The adapter cable will be used to interface Ford's
Service Bay Diagnostic System (SBDS) with a vehicle's ignition system.
Development on both products is nearly complete. The Company anticipates that
the adapter cable will be delivered to Ford dealers in North America in the
second quarter of fiscal 1998. The Company does not yet have a firm delivery
date for the Tester.
During fiscal 1997 the Company completed development on the PDR
(portable data recorder) and the Audio VIM (vehicle interface module). Both are
automotive diagnostic products originally intended for use by Ford Motor
Company. The PDR is an accessory that can be attached to a customer's vehicle to
diagnose intermittent problems. The Audio VIM is an accessory to the New
Generation STAR tool (NGS) that helps diagnose problems in Ford audio systems.
Orders for both were initially anticipated during fiscal 1996 but were delayed
by Ford and, most recently, have been put on hold. The Company
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does not know if Ford will ever place orders for either product though Ford has
ordered a modest number of Audio VIM units to be shipped to their audio system
service centers in the U. S. for evaluation. The Company has recently obtained
an order from another OEM to ship several PDRs in the first quarter of fiscal
1998 for evaluation with the anticipation that a larger order will follow.
Within the fastening systems area, the Pro-Spec 1000 was still under
development during fiscal 1997. The Pro-Spec is a single tool control product
with a market potential that is greater than large networked systems currently
being sold. Initial expectations were that the product would be available in
early fiscal 1997 but the Company significantly underestimated the development
time required to bring the product to completion. Initial development began
during fiscal 1996. Several design changes introduced in early fiscal 1997 were
the main reasons for the delay. The Company expects initial orders for the
product in the second quarter of fiscal 1998.
Within the indicating instrument area, the DIGILOG series of
instruments, a combination analog/digital indicator for the aircraft market, was
first introduced in fiscal 1996. The instruments require FAA certification and
the Company is currently pursuing type certification with several aircraft
manufacturers. In fiscal 1996 the Company began working with an airplane
manufacturer for type certification but that manufacturer pushed the process
into fiscal 1997 and subsequently cancelled the project because of financial
considerations. In fiscal 1997 the Company began soliciting several other
airplane manufacturers and anticipates orders in mid-fiscal 1998 from at least
one and perhaps two companies. Acceptance of this product is expected to provide
an estimated 10% increase in the indicator product class. Another new instrument
is the solid state indicator which began development in fiscal 1995. The
indicator uses an electronic liquid crystal device to display data. The
product's long life and light weight make it attractive. Development continued
in fiscal 1996 but the project was put on hold in fiscal 1997 due to allocation
of engineering resources. At that point the project was an estimated 50%
complete. The Company, however, plans to restart development in mid- to late
fiscal 1998.
During fiscal 1997 the Company continued the development of the
Watchdog 1000, a smaller, portable version of the Watchdog 2000, a secondary
ignition analyzer for large non-automotive internal combustion engine users. The
Watchdog 1000 was anticipated to be available in mid-fiscal 1997. Longer than
expected development time has delayed the introduction approximately one year.
The Watchdog 2000 was introduced during fiscal 1996 with the initial sale to a
company in the natural gas distribution industry. There were no sales of the
Watchdog 2000 in fiscal 1997 since the product was placed back in development
with the expectation that it will be reintroduced along with the Watchdog 1000
during the second quarter of fiscal 1998.
During fiscal 1996 the NGS was sold for the first time to a new market,
Mazda dealers in Europe and Ford and Mazda dealers in Asia and the Far East. The
acquisition of Beacon Gage in January, 1996 added new products consisting of
pressure gauges used in locomotives and transit cars, primarily on a replacement
basis. Limited delivery began in March, 1996 with full-scale operations in
effect two months later. And finally, in fiscal 1996 the Company sold its first
Watchdog 2000.
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During fiscal 1995 a major new development was the growth of the
fastening systems product which was added by way of acquisition in mid-fiscal
1994. The acquisition was a strategic move to diversify both the customer base
and the product line using existing engineering and manufacturing expertise.
Fastening systems accounted for $10,652,000 in revenue in fiscal 1995 due to the
sale of several large networked systems to General Motors Corporation. There
were several new market and product developments in fiscal 1995 within the
diagnostic instrument area. The NGS tool was introduced for the first time to
Ford dealers in Australia, South America and South Africa. A new product, the
End-of-Line (EOL) unit, was installed at Ford and Mazda assembly plants in
Mexico and Michigan respectively. The EOL unit performs the final test of an
automobile's various electronic systems as the vehicle exits the assembly line.
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
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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", the Company does
not have any material licenses, trademarks, franchises or concessions.
Seasonality
-----------
The Company does not believe there is any significant seasonality to
its business, except to the extent that shipments of certain products are
dependent upon customer release dates. The Company's operating results often
fluctuate widely from quarter to quarter. The primary reason for such quarterly
fluctuations is the effect of the Company's automotive diagnostic test equipment
business, since orders for such equipment frequently are relatively large and
subject to customer release. In recent years, the fourth quarter of each fiscal
year has accounted for a large portion of the Company's net sales. However, the
Company does not believe that the importance of the fourth quarter is due to
seasonal factors, but instead to the timing of customer release of orders.
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.
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Dependence Upon Single or Few Customers
---------------------------------------
During the fiscal year ended September 30, 1997, sales to Ford and
General Motors Corporation accounted for approximately 60% and 13% respectively
of the consolidated sales of the Company. This compares with 52% and 19%
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
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At September 30, 1997, the unshipped customer order backlog totaled
$2,924,000 in contrast to $3,867,000 at September 30, 1996 and $4,337,000 at
September 30, 1995. The decrease in fiscal 1997 relative to fiscal 1996 is due
primarily to the termination of a contract in September, 1997 to provide
diagnostic services to Ford Motor Company. The contract was not renewed because
Ford consolidated suppliers in this area. Offsetting the loss of this contract
was a $200,000 increase in orders for fastening systems products, a $100,000
increase in orders for automotive diagnostic products and a $100,000 increase in
instrumentation orders. The decrease in fiscal 1996 relative to fiscal 1995 was
due primarily to lower orders for fastening systems products and, to a lesser
extent, to the loss of a contract to provide technical training to Ford dealer
technicians. The training contract was lost because Ford consolidated suppliers
in that area as well. Adjusting the backlog at the end of fiscal 1996 and fiscal
1995 for the lost service and training contracts, the adjusted figure would be
approximately $2.5 million in each year compared with $2.9 million at the end of
fiscal 1997.
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 companies with
which the Company competes 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 manufacturers in the field, such as 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. Hickok is a major supplier in the high end market consisting of
multi-spindle fastening system control systems. 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
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field should be gauged 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
$3,263,857 in 1997, $3,740,003 in 1996, and $3,550,450 in 1995. These
expenditures included engineering product support, support for development of
diagnostic system manuals and development of fastening systems products.
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, 1997 was 227
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
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Export Sales
------------
During the fiscal year ended September 30, 1997, all manufacturing,
research and development and administrative operations were conducted in the
United States. Revenues derived from export sales approximated $616,000 in 1997,
$574,000 in 1996, and $887,000 in 1995. Shipments to Canada make up the majority
of export sales.
ITEM 2. PROPERTIES
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During fiscal 1997, the Company had facilities in the United States as
shown below:
Owned or
Location Feet Description Leased
-------- ---- ----------- --------
Cleveland, 37,000 Two-story brick construction; Owned
Ohio used for corporate administra-
tive headquarters, marketing
and product development with
limited manufacturing.
Greenwood, 63,000 One-story modern concrete Leased, with
Mississippi block construction; used annual renewal
for manufacturing instru- options extending
ments, test equipment, and through 2061.
fastening systems products.
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Farmington 3,800 One-story modern concrete Leased through
Hills, block construction, used 1999.
Michigan by sales and service
personnel.
Management believes that the Mississippi and Michigan facilities are
adequate to provide for current and anticipated business. In fiscal 1997 the
Company indefinitely postponed a modest expansion of the Cleveland facility.
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.
ITEM 10. EXECUTIVE OFFICERS OF THE REGISTRANT*
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The following is a list of the executive officers of the Company as of
September 30, 1997. The executive officers are elected each year and serve at
the pleasure of the Board of Directors. Mr. 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.
Office Officer Age
------ ------- ---
Chairman, President and Robert L. Bauman 57
Chief Executive Officer
Vice President, Finance Eugene T. Nowakowski 54
and Chief Financial
Officer
*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.
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PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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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. 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:
---------------------------
<TABLE>
<CAPTION>
September 30, 1997 September 30,1996
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High Low High Low
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<S> <C> <C> <C> <C>
First Quarter 12 1/2 9 1/2 21 1/2 16 1/2
Second Quarter 13 1/2 7 19 16
Third Quarter 12 8 1/4 17 1/2 13 1/2
Fourth Quarter 11 1/4 7 3/4 13 3/4 12
</TABLE>
b) Holders
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As of December 11, 1997, there were approximately 572 holders of record
of the Company's outstanding Class A Common Shares and approximately 5 holders
of record of the Company's outstanding Class B Common Shares.
c) Dividends
---------
On December 11, 1997 the Board of Directors of the Company declared a
special dividend of $.10 per share on its Class A and Class B Common Shares,
payable on January 23, 1998 to holders of record on January 5, 1998. In fiscal
1997 the Company paid a special dividend of $.20 per share on its Class A and
Class B Shares on January 24, 1997. In fiscal 1996 the Company on January 25,
1996 paid a special dividend of $.10 per share on its Class A and Class B Common
Shares. In fiscal 1995 on January 25, 1995 the Company paid a special dividend
of $.175 per share on its Class A and Class B Common Shares and on July 10, 1995
the Company paid a special dividend of $.10 per share on its Class A and Class B
Common Shares. 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.
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ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
<TABLE>
<CAPTION>
For the years ended September 30
--------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In Thousands of Dollars, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net Sales $21,159 $26,171 $29,384 $22,491 $ 20,876
======= ======= ======= ======= ========
Net Income $ 605 $ 960 $ 1,794 $ 1,556 $ 1,524
======= ======= ======= ======= ========
Working Capital $ 9,279 $ 8,625 $ 8,120 $ 6,991 $ 6,062
======= ======= ======= ======= ========
Total Assets $13,736 $13,981 $16,629 $12,500 $ 11,149
======= ======= ======= ======= ========
Long-term Debt $ 127 - - - -
======= ======= ======= ======= ========
Total Stockholders' Equity $11,617 $11,235 $10,394 $ 8,735 $ 7,338
======= ======= ======= ======= ========
Net Income Per Share $ .51 $ .80 $ 1.50 $ 1.31 $ 1.27
======= ======= ======= ======= ========
Dividends Declared
Per Share:
Class A $ .20 $ .10 $ .275 $ .15 $ .125
Class B $ .20 $ .10 $ .275 $ .15 $ .125
Stockholders' Equity
Per Share: $ 9.71 $ 9.42 $ 8.71 $ 7.43 $ 6.32
Return on Sales 2.9% 3.7% 6.1% 6.9% 7.3%
Return on Assets 4.4% 6.3% 12.3% 13.2% 14.2%
Return on Equity 5.3% 8.9% 18.8% 19.4% 21.9%
Closing Stock Price $ 8.25 $ 12.50 $ 23.00 $12.75 $ 9.50
</TABLE>
Note: Share data adjusted for a 2 for 1 stock split in April 1995.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS
---------------------
Introduction
- ------------
Hickok has had a long established reputation as a leader in the
development and manufacture of high technology precision indicating instruments
for aircraft, locomotive and general industrial applications. The Company has
also been recognized as an authority in the design and implementation of
electronics circuitry. In recent years these areas of expertise have combined to
make the Company a leader in automotive electronics diagnostic technology.
Hickok generates over half of its revenue from designing and manufacturing
diagnostic tools for the OEM market. These tools enable automotive service
technicians to identify problems in the rapidly increasing number of electronics
systems in automobiles. In addition, Hickok develops instructional programs for
Ford and trains automotive technicians in the use of electronic diagnostic tools
and systems. The training and program development functions are generated both
out of the Cleveland, Ohio headquarters and out of a leased facility in
Farmington Hills, Michigan.
Until the end of the current fiscal year 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. This was down
from prior years because the project on which the service was provided was
nearing completion and required less manpower. At the end of the fiscal year the
Company was no longer providing this service since its contract was not renewed
because Ford consolidated suppliers in this area.
In February, 1994 the Company added a new product for the automotive
market by acquiring the fastening systems business from Allen-Bradley Company,
Inc. This was part of a strategic program to expand both the Company's customer
base and its product line using existing expertise. The new business provides
computerized equipment to control tools that tighten threaded fasteners in an
automotive assembly plant to provide high quality threading applications. The
acquisition cost $730,675 and was structured as an asset purchase. The fastening
systems business was fully integrated into Hickok's operations by June, 1994 and
has made a positive contribution to the Company's operations in the past four
fiscal years. This product class continues to be a major part of the Company's
total business.
In January, 1996 the Company added revenue to its indicating instrument
product class with the acquisition of the Beacon Gage Division of Maradyne
Corporation. The acquisition cost $647,103 and was structured as an asset
purchase. It accounted for approximately 25% of instrument revenue in fiscal
1997. Beacon Gage manufactures specialty pressure gauges for railroads and
transit cars. The purchase added new products and customers within Hickok's
instrumentation market. The gauge business was fully integrated into Hickok's
operations by May, 1996.
The timing of order releases in the Company's automotive diagnostic
test equipment business often creates wide fluctuations in the Company's
operating results, particularly on a quarter-to-quarter basis. The same
situation applies to the Company's recently acquired fastening systems
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products. Orders for such equipment frequently are relatively large and subject
to customer release. The result can be substantial variations in quarterly sales
and earnings. For example, in fiscal 1997 fourth quarter sales $7,314,958 were
34.6% of the year's total sales. Even more dramatic is the fact that those sales
resulted in net income of $1,108,317, or $.93 per share, which was 183% of the
year's total net income. In fiscal 1996 first quarter net income of $301,764, or
$.25 per share, represented 31.4% of the year's total net income. In fiscal 1995
fourth quarter net income of $529,082, or $.44 per share, represented 29.5% of
the year's total net income. The Company's contracts are subject to customer
release, and although historically the fourth quarter has accounted for a larger
portion of sales and net income, there can be no assurance that the Company's
customers will continue to authorize release of contracts during the fourth
quarter of future fiscal years. The Company is not aware of any seasonal factors
which lead to its customers' release of orders.
Short-term earnings also can be affected by levels of expenditures for
product development, which has become increasingly significant to the Company's
operations in recent fiscal years.
The Company's order backlog as of September 30, 1997 totaled $2,924,000
as compared to $3,867,000 as of September 30, 1996 and $4,337,000 as of
September 30, 1995. The decrease in fiscal 1997 relative to fiscal 1996 is due
entirely to the termination of a contract in September, 1997 to provide
diagnostic services to Ford Motor Company. The contract was not renewed because
Ford consolidated suppliers in this area. Offsetting the loss of this contract
was a $200,000 increase in orders for fastening systems products, a $100,000
increase in orders for automotive diagnostic products and a $100,000 increase in
instrumentation orders. The decrease in fiscal 1996 relative to fiscal 1995 was
due primarily to lower orders for fastening systems products and, to a lesser
extent, to the termination of a contract to provide technical training to Ford
dealer technicians. The training contract was not renewed because Ford
consolidated suppliers in that area as well. Adjusting the backlog at the end of
fiscal 1996 and fiscal 1995 for the lost service and training contracts, the
adjusted figure would be approximately $2.5 million in each year compared with
$2.9 million at the end of fiscal 1997.
Results of Operations
---------------------
Sales for the fiscal year ended September 30, 1997 declined to
$21,159,098, a decrease of approximately 19% from fiscal 1996 sales. This
decrease in sales is almost totally volume-driven and was attributable to lower
sales in both the product and service categories. In the product category, sales
of automotive diagnostic instruments dropped by $2,310,000 or 17% and sales of
fastening system products declined by $1,326,000 or 26%. Sales of indicating
instruments were up approximately $129,000, a 7% increase over the previous
year. Automotive diagnostic instrument sales were down because Ford has
significantly reduced orders for essential special service tools which are
one-time large volume sales to all dealers in North America. Fastening system
sales were down because of lower orders from General Motors for large networked
systems. In the service category, the decrease in sales of $1,196,000 or 23% was
primarily due to lower diagnostic service revenue
13
<PAGE> 14
since the project on which the service is provided is coming to completion and
required less manpower.
Sales for the fiscal year ended September 30, 1996 declined to
$26,171,461, a decrease of approximately 11% from fiscal 1995 sales. This
decrease in sales was almost totally volume-driven and is attributable to lower
sales in both the product and service categories. In the product category, sales
of fastening systems products dropped $5,629,000 or 53% which was partially
offset by a $3,182,000 or 30% increase in automotive diagnostic instrument sales
and by a $401,000 or 27% increase in indicator sales. The drop in fastening
systems revenue was anticipated given that sales the previous year of
$10,652,000 were a record that was caused in part by an extraordinarily large
$5.5 million order booked in late fiscal 1994. Sales of automotive diagnostic
instruments increased 30% in fiscal 1996 due to sales of NGS units to Mazda
dealers outside of North America and to Ford dealers throughout the world,
exclusive of Europe. The increase in indicator sales resulted from the Beacon
Gage acquisition in January, 1996. In the service category, the decrease of
$927,000 or 15% was due primarily to the loss of a contract to provide technical
training to Ford dealer service technicians. The contract was lost because Ford
consolidated suppliers in this area. This contract had a negative effect on the
Company's service sales beginning in the middle of the Company's second fiscal
quarter.
During fiscal 1996 the Company initiated a three-year strategic plan to
address the level of reduced sales and income that first occurred in the middle
of fiscal 1996. The strategic plan focuses on introducing new products to new
and existing markets, all within the Company's existing product class structure.
Initial sales of new products were originally expected to occur in mid-fiscal
1997 but have been delayed until early fiscal 1998 due to longer than expected
product development lead times. It is anticipated that sales of these new
products will add $2,000,000 to $4,000,000 in revenue beginning in fiscal 1998.
These new products include the Pro-Spec 1000, the Fuel System Analyzer and the
Watchdog 1000. Unfortunately, the anticipated increase in product sales in
fiscal 1998 will be offset by a $3.4 million reduction in service revenue due to
termination at the very end of fiscal 1997 of the diagnostic service contract
with Ford Motor Company. The primary costs associated with this contract were
manpower related and all such costs were eliminated as of the beginning of
fiscal 1998. Even though the impact on total sales in fiscal 1998 is anticipated
to be negligible, the impact on net income is expected to be positive since the
lost service revenue will be replaced by higher margin product sales.
Furthermore, product development expenditures are anticipated to decrease as
development on the new products nears completion. Product development
expenditures associated with these new products were approximately $700,000 in
fiscal 1997 versus approximately $950,000 in fiscal 1996. Since the development
of these products is near completion at the end of fiscal 1997, product
development expenditures in fiscal 1998 associated with these new products are
anticipated to be approximately $350,000.
Cost of products sold during fiscal 1997 amounted to $9,874,129 or
57.4% of net product sales. For fiscal 1996 the cost of products sold amounted
to $12,700,245 or approximately 60.5% of net product sales and for fiscal 1995
the cost of products sold amounted to $13,975,800 or approximately 60.0% of net
product sales. The decrease in the percentage of
14
<PAGE> 15
cost of products sold relative to product sales between fiscal 1997 and fiscal
1996 was due entirely to product mix. The slight increase in cost of products
sold as a percentage of net product sales between fiscal 1996 and fiscal 1995
was also due to product mix.
Cost of services sold during fiscal 1997 was $3,528,069 or 89.0% of net
service sales. In fiscal 1996 the figure was $4,343,794 or 84.1% of net service
sales. In fiscal 1995 the figure was $4,909,962 or 80.6% of net service sales.
The increase in cost of services sold as a percentage of net service sales
between fiscal 1997 and fiscal 1996 resulted because the diagnostic contract
with Ford involved significant price competition. The increase in cost of
services sold as a percentage of net service sales between fiscal 1996 and
fiscal 1995 was caused primarily by the inability to reduce costs of services
sold to the same extent as service sales volume decreased.
The percentage of cost of products sold relative to net product sales
in fiscal 1998 is expected to revert back to the levels experienced in fiscal
1996 and fiscal 1995 since the figure experienced in fiscal 1997 was due
entirely to product mix and that mix is not anticipated to recur in fiscal 1998.
The percentage of cost of services sold relative to net service sales is
expected to improve slightly in fiscal 1998 due to an improvement in product mix
since costs associated with the Ford diagnostic contract will be eliminated.
In fiscal 1997 product development expenditures were $3,263,857 which
was 13% lower than fiscal 1996 expenditures of $3,740,003. The decrease was due
to a reduction in engineering and development expenditures on new products,
namely the Pro-Spec 1000, Audio VIM, PDR and the Watchdog 1000. Development of
these products was at or near completion at the end of fiscal 1997. During
fiscal 1996 new product development expenditures amounted to $3,740,003 which
represented a 5% increase over fiscal 1995 expenditures of $3,550,450. The
increase was attributable to engineering and development of two new products,
the Pro-Spec 1000 and the Watchdog 1000. The Pro-Spec 1000 is a fastening
systems new single spindle control product. The Watchdog 1000 is the portable
version of the Watchdog 2000 for use by large, non-automotive internal
combustion engine users. It is anticipated that the amount spent on product
development in fiscal 1998 will be slightly below the amount spent in fiscal
1997 since new products currently in development are nearing completion.
Marketing and administrative expense amounted to $3,691,892, or
approximately 17.4% of net sales in fiscal 1997; $3,944,962, or approximately
15.1% of net sales in fiscal 1996; and $4,189,263, or approximately 14.3% of net
sales in fiscal 1995. Expenditures in fiscal 1997 were 6.3% lower than the
amount spent in fiscal 1996. Expenditures in fiscal 1996 were 5.8% lower than
what was spent in fiscal 1995. The absolute decrease in the amount of marketing
and administrative expenses between fiscal 1997 and fiscal 1996 was primarily
related to lower administrative expenses due to lower sales. The absolute
decrease in the amount of marketing and administrative expenses between 1996 and
1995 was entirely related to lower sales in the fastening systems product class.
The Company anticipates that marketing and administrative expenses will be
unchanged in fiscal 1998.
15
<PAGE> 16
Interest charges were $10,966 in fiscal 1997 compared with $156,440 in
fiscal 1996 and $134,713 in fiscal 1995. The decrease in interest charges in
fiscal 1997 compared to fiscal 1996 was caused primarily by a significant
reduction in borrowing by the Company under its revolving line of credit due to
lower working capital requirements due to a 19% reduction in sales. The increase
in interest charges in fiscal 1996 compared to fiscal 1995 was caused primarily
by higher borrowing by the Company under its revolving line of credit to finance
increased working capital levels during the first half of the fiscal year.
Fiscal 1997 results include other income of $70,132 consisting of
interest income on short-term investments and purchased discounts. Fiscal 1996
and 1995 results include other income of $151,858 and $146,227 respectively, of
which approximately two-thirds was due to rental income of excess space at the
Company's former Lincoln Park, Michigan location. Fiscal 1996 and fiscal 1995
other income also included approximately $50,000 and $60,000 respectively of
purchased discounts.
Fiscal 1997 income taxes were $255,000 which represents an effective
tax rate of 29.7%. Income taxes were $478,000 in fiscal 1996 which represented a
33.2% effective tax rate. In fiscal 1995 income taxes were $976,000 which
represented a 35.2% effective tax rate. The effective tax rate decreased in
fiscal 1997 due to recognizing research and development tax credits in an amount
greater than what was estimated at the end of the prior year. The decrease in
the effective tax rate in fiscal 1996 was caused by recognizing 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 1998
will increase due to a reduction in research and development tax credits.
Net income in fiscal 1997 amounted to $605,317, or $.51 per share,
which was a decrease of $354,558, or 36.9% from fiscal 1996 net income of
$959,875. The decrease in net income was primarily due to a decrease in sales,
offset in part by an improvement in gross margin and a reduction in both product
development and marketing and administrative expenses. Fiscal 1996 net income
amounted to $959,875, or $.80 per share, a decrease of $834,355, or 46.5% from
fiscal 1995 net income of $1,794,230, or $1.50 per share. The decrease in net
income was due primarily to a decrease in sales and, to a lesser extent, to an
increase of $189,553 in product development expenditures and to a $236,000 or
.9% increase in the cost of products and services sold on an combined basis.
The Company is in the process of installing new computer hardware and
software. The new computer system will, among its many features, recognize and
process the year 2000 and beyond. The cost of the new system is not expected to
have a material effect on the Company's financial statements in fiscal 1998 and
beyond.
Liquidity and Capital Resources
-------------------------------
Current assets of $11,096,855 at September 30, 1997 were 6.1 times
current liabilities and the total of cash and receivables was 3.3 times current
liabilities. These ratios compare to 4.4 and 2.3 respectively at the end of
fiscal 1996. Total current assets were virtually unchanged from the
16
<PAGE> 17
previous year-end. There was a $2,045,000 reduction in accounts receivable due
to lower sales with cash and cash equivalents increasing by a similar amount.
Total current liabilities were reduced by $752,000 due to a $1,375,000 reduction
in short-term financing offset by a $560,000 increase in trade payables and
accruals.
Working capital at September 30, 1997 was $9,278,599 as compared to
$8,624,753 a year ago. The increase between the two years was due primarily to
retention of earnings and the proceeds were used to reduce short-term
borrowings.
During the fiscal year the Company's business may require relatively
large inventories of both work-in-process and finished goods in order to meet
anticipated delivery schedules. During fiscal 1997 there was no need to build
inventory since sales for the year were down from the previous year and year-end
product backlog was only slightly higher than last year. Nevertheless, whenever
there may be a requirement to increase inventory in fiscal 1998 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 1997 were a positive $4,216,015
and were more than adequate to fund the Company's primary non-operating cash
requirement consisting of capital expenditures which amounted to $366,842 and
$63,550 consisting of the current portion of a capitalized lease obligation. The
primary reason for the positive cash flow from operations was a $2,068,580
decrease in accounts receivable. In fiscal 1996 internally generated funds were
a positive $3,339,967 and were more than adequate to fund the Company's primary
non-operating cash requirement consisting of capital expenditures which amounted
to $546,592. The primary reason for the positive cash flow in fiscal 1996 was a
$2,297,688 decrease in inventory. In fiscal 1995 internally generated funds were
a negative $646,322 which was not adequate to fund the Company's primary
non-operating cash requirement consisting of capital expenditures which amounted
to $943,605. The primary reason for the negative operating cash flow was a
$3,076,790 increase in inventory with the shortfall made up by a $2,280,000
increase in short-term borrowing. The Company does not anticipate significant
changes in either accounts receivable or inventory in fiscal 1998. Nevertheless,
the Company expects internally generated funds in fiscal 1998 from other
operating activities, primarily net income, to be adequate to fund approximately
$540,000 of capital expenditures in fiscal 1998. Most of the expenditures will
be made to upgrade engineering and manufacturing equipment.
In February, 1997 the Company amended an existing credit agreement with
its financial lender. The agreement expires in February, 1998 and provides for a
revolving credit facility of $5,000,000 with interest at the prime commercial
rate with a LIBOR option and is unsecured. At September 30, 1997, the Company
had no outstanding balances 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 financial lender. Although no determination has been
made to seek 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.
17
<PAGE> 18
In August, 1988 the Company entered into a Section 303 Stock Redemption
Agreement (the "Stock Redemption Agreement") with Robert D. Hickok. The Stock
Redemption Agreement provided that, upon Mr. Hickok's death, his estate will
have the right to require the Company to purchase from the estate Class A shares
and Class B shares having a value equal to the estate, inheritance, legacy and
succession taxes (including any interest collected as part of such taxes)
imposed because of the death of Mr. Hickok, plus the amount of funeral and
administrative expenses allowable as deductions to the estate of Mr. Hickok
under Section 2053 of the Internal Revenue Code. The Stock Redemption Agreement
provided that the per share price payable by the company for the shares
purchased from Mr. Hickok's estate will be the then market value of such shares.
The Estate of Robert D. Hickok sold to the Company 16,107 Class B shares on
January 11, 1993 and 4,560 Class B shares on March 31, 1995. These purchases by
the Company completed its obligation under the Stock Redemption Agreement.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The following pages contain the Financial Statements and Supplementary
Data as specified for Item 8 of Part II of Annual Report on Form 10-K.
18
<PAGE> 19
- --------------------------------------------------------------------------------
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, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended September 30, 1997. 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, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1997 in conformity with generally accepted accounting
principles.
/s/ Meaden & Moore, Ltd.
MEADEN & MOORE, LTD.
CERTIFIED PUBLIC ACCOUNTANTS
NOVEMBER 25, 1997
CLEVELAND, OHIO
- --------------------------------------------------------------------------------
F-1
<PAGE> 20
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
HICKOK INCORPORATED
SEPTEMBER 30
ASSETS
<TABLE>
<CAPTION>
1997 1996
--------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,668,345 $ 486,812
Accounts receivable - less allowance for
doubtful accounts of $15,000 (1997 and 1996) 3,312,988 5,357,634
Inventories-less allowance for obsolete inventory
of $78,589 ($75,825, 1996) 4,884,401 4,912,858
Prepaid and deferred expenses 231,121 169,625
Refundable income taxes -- 267,599
--------------------------
Total Current Assets 11,096,855 11,194,528
PROPERTY, PLANT AND EQUIPMENT:
Land 199,611 215,495
Buildings 1,410,141 1,472,050
Machinery and equipment 3,813,873 3,404,827
--------------------------
5,423,625 5,092,372
Less accumulated depreciation 3,129,290 2,670,111
--------------------------
2,294,335 2,422,261
OTHER ASSETS:
Goodwill-less accumulated amortization of $55,111
($36,444, 1996) 224,889 243,556
Deferred charges less accumulated amortization
of $103,712 ($30,488, 1996) 115,988 106,712
Deposits 4,350 13,744
--------------------------
345,227 364,012
--------------------------
Total Assets $13,736,417 $13,980,801
=========================
</TABLE>
See notes to consolidated financial statements
- --------------------------------------------------------------------------------
F-2
<PAGE> 21
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996
----------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Short-term financing $ -- $ 1,375,000
Current portion of capitalized lease liability 63,550 --
Trade accounts payable 657,285 360,143
Accrued payroll and related expenses 422,772 769,600
Accrued expenses 131,662 65,032
Customer deposits 237,587 --
Accrued income taxes 305,400 --
----------------------------
Total Current Liabilities 1,818,256 2,569,775
DEFERRED INCOME TAXES 174,000 176,000
LONG-TERM DEBT:
Capitalized lease liability less current portion
of capitalized lease liability of $63,550 127,101 --
STOCKHOLDERS' EQUITY:
Common shares - par value $1.00:
Class A 3,750,000 shares authorized, 750,570
shares issued - 1997; (747,570 - 1996) 740,984 737,984
Class B 1,000,000 convertible shares authorized,
475,533 shares issued 454,866 454,866
Contributed capital 1,532,398 1,520,111
Treasury shares - 9,586 Class A shares and
20,667 Class B shares (605,795) (605,795)
Retained earnings 9,494,607 9,127,860
----------------------------
Total Stockholders' Equity 11,617,060 11,235,026
----------------------------
Total Liabilities and Stockholders' Equity $ 13,736,417 $ 13,980,801
============================
</TABLE>
- --------------------------------------------------------------------------------
F-3
<PAGE> 22
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME
HICKOK INCORPORATED
FOR THE YEARS ENDED SEPTEMBER 30
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------------
<S> <C> <C> <C>
NET SALES
Product sales $ 17,193,552 $ 21,009,103 $ 23,294,950
Service sales 3,965,546 5,162,358 6,089,241
--------------------------------------------
Total net sales 21,159,098 26,171,461 29,384,191
--------------------------------------------
COSTS AND EXPENSES:
Cost of products sold 9,874,129 12,700,245 13,975,800
Cost of services sold 3,528,069 4,343,794 4,909,962
Product development 3,263,857 3,740,003 3,550,450
Marketing and administrative
expenses 3,691,892 3,944,962 4,189,263
Interest charges 10,966 156,440 134,713
Other income (70,132) (151,858) (146,227)
--------------------------------------------
20,298,781 24,733,586 26,613,961
--------------------------------------------
Income before Provision
for Income Taxes 860,317 1,437,875 2,770,230
PROVISION FOR INCOME TAXES:
Current 305,000 327,000 1,087,000
Deferred (50,000) 151,000 (111,000)
--------------------------------------------
255,000 478,000 976,000
--------------------------------------------
NET INCOME $ 605,317 $ 959,875 $ 1,794,230
============================================
NET INCOME PER COMMON SHARE $ .51 $ .80 $ 1.50
============================================
WEIGHTED AVERAGE SHARES OF
COMMON STOCK OUTSTANDING 1,193,497 1,192,850 1,194,500
============================================
</TABLE>
See notes to consolidated financial statements
- --------------------------------------------------------------------------------
F-4
<PAGE> 23
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
HICKOK INCORPORATED
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
COMMON STOCK -
$1.00 PAR VALUE
RETAINED --------------------
EARNINGS CLASS A CLASS B
-----------------------------------------
<S> <C> <C> <C>
Balance at
September 30, 1994 $ 7,420,102 $ 368,492 $ 219,913
100% share dividend Class A and B shares 598,455 368,742 229,713
Dividend of $.275 per Class A and B shares 328,607 -- --
Sale of Class A shares under option -- 750 --
Redemption of Class B shares -- -- 4,560
Reclassification of redeemable Class B
shares after redemption completed -- -- 9,800
Non-cash compensation charge related
to stock options -- -- --
Net income 1,794,230 -- --
-----------------------------------------
Balance at
September 30, 1995 8,287,270 737,984 454,866
Dividend of $.10 per Class A and B shares 119,285 -- --
Net income 959,875 -- --
-----------------------------------------
Balance at
September 30, 1996 9,127,860 737,984 454,866
Dividend of $.20 per Class A and B shares 238,570 -- --
Sale of Class A shares under option -- 3,000 --
Net income 605,317 -- --
-----------------------------------------
Balance at
September 30, 1997 $ 9,494,607 $ 740,984 $ 454,866
=========================================
</TABLE>
See notes to consolidated financial statements
- --------------------------------------------------------------------------------
F-5
<PAGE> 24
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
HICKOK INCORPORATED
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
CONTRIBUTED TREASURY
CAPITALS SHARES TOTAL
-----------------------------------------
<S> <C> <C> <C>
Balance at
September 30, 1994 $ 1,259,293 $ 532,603 $ 8,735,197
100% share dividend Class A and B shares -- -- --
Dividend of $.275 per Class A and B shares -- -- --
Sale of Class A shares under option 7,250 -- 8,000
Redemption of Class B shares -- 73,192 77,752
Reclassification of redeemable Class B
shares after redemption completed 225,200 -- 235,000
Non-cash compensation charge related
to stock options 28,368 -- 28,368
Net income -- -- 1,794,230
-----------------------------------------
Balance at
September 30, 1995 1,520,111 605,795 10,394,436
Dividend of $.10 per Class A and B shares -- -- 119,285
Net income -- -- 959,875
-----------------------------------------
Balance at
September 30, 1996 1,520,111 605,795 11,235,026
Dividend of $.20 per Class A and B shares -- -- 238,570
Sale of Class A shares under option -- -- 15,287
Net income -- -- 605,317
-----------------------------------------
Balance at
September 30, 1997 $ 1,532,398 $ 605,795 $11,,617,060
=========================================
</TABLE>
- --------------------------------------------------------------------------------
F-6
<PAGE> 25
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
HICKOK INCORPORATED
FOR THE YEARS ENDED SEPTEMBER 30
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 23,227,678 $ 27,085,022 $ 29,154,622
Cash paid to suppliers and employees (19,316,363) (22,949,707) (28,382,805)
Interest paid (19,377) (168,592) (117,606)
Interest received 56,077 3,588 2,887
Income taxes (paid) refunded 268,000 (630,344) (1,303,420)
------------------------------------------------------
Net Cash Provided by (Used in)
Operating Activities 4,216,015 3,339,967 (646,322)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (366,842) (546,592) (943,605)
Deferred charges (82,500) (137,200) --
Decrease (Increase) in deposits 9,394 -- (300)
Proceeds on sale of assets 6,266 35,600 4,800
Payments for businesses purchased -- (647,103) --
------------------------------------------------------
Net Cash Used in Investing
Activities (433,682) (1,295,295) (939,105)
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in short-term borrowings (1,375,000) (2,135,000) 2,280,000
Purchase of Class B shares -- -- (77,752)
Sale of Class A shares under option 12,770 -- 6,920
Dividends paid (238,570) (119,285) (328,607)
------------------------------------------------------
Net Cash Provided by (Used in)
Financing Activities (1,600,800) (2,254,285) 1,880,561
------------------------------------------------------
Increase (Decrease) in Cash and Cash
Equivalents 2,181,533 (209,613) 295,134
Cash and Cash Equivalents at
Beginning of Year 486,812 696,425 401,291
------------------------------------------------------
Cash and Cash Equivalents at
End of Year $ 2,668,345 $ 486,812 $ 696,425
======================================================
</TABLE>
See notes to consolidated financial statements
- --------------------------------------------------------------------------------
F-7
<PAGE> 26
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------------------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 605,317 $ 959,875 $ 1,794,230
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Depreciation and amortization 707,164 666,315 587,213
Non-cash compensation charge related
to stock options 2,517 -- 29,448
Loss (Gain) on disposal of assets 30,622 (12,800) 3,030
Deferred income taxes (50,000) 151,000 (111,000)
CHANGES IN ASSETS AND LIABILITIES:
Decrease (Increase) in accounts receivable 2,068,580 913,561 (229,569)
Decrease (Increase) in
inventories 28,457 2,297,688 (3,076,790)
Decrease (Increase) in prepaid and
deferred expenses (4,172) 2,488 (13,944)
Decrease (Increase) in refundable income taxes 267,599 (267,599) --
Increase (Decrease) in trade
accounts payable 297,142 (495,075) 313,195
Increase (Decrease) in accrued payroll and
related expenses (346,828) (551,011) 155,603
Increase (Decrease) in other
accrued expenses 304,217 (288,731) 118,682
Increase (Decrease) in accrued
income taxes 305,400 (35,744) (216,420)
---------------------------------------------
Total Adjustments 3,610,698 2,380,092 (2,440,552)
---------------------------------------------
Net Cash Provided by
(Used in) Operating
Activities $ 4,216,015 $ 3,339,967 $ (646,322)
==============================================
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITIES:
During 1997, the Company sold land for $30,000. At September 30, 1997, $23,934
of the proceeds remained in accounts receivable.
Also during 1997, the Company purchased equipment under a capitalized lease for
$190,651.
- --------------------------------------------------------------------------------
F-8
<PAGE> 27
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HICKOK INCORPORATED
SEPTEMBER 30, 1997, 1996 AND 1995
1. NATURE OF OPERATIONS
Hickok Incorporated and its wholly-owned domestic subsidiary ("Company") operate
in one major business segment: The development and manufacture of measuring,
indicating, instrumentation and control products, fastening systems and related
engineering services for the transportation industry. As an extension of the
sales of automotive electronic test equipment, the Company also provides
technical training programs in the proper use of the equipment for some of its
automotive technician customers. The Company serves the automotive, marine,
locomotive and general aviation markets predominately in North America. The
Company also makes sales to international customers on a worldwide basis. Sales
in the Company's principal product classes, as a percent of consolidated sales,
are as follows:
<TABLE>
<CAPTION>
PRODUCT CLASSES 1997 1996 1995
--------------- -------------------------------
<S> <C> <C> <C>
Automotive Test Equipment 54.0% 52.2% 35.7%
Diagnostic/Training 16.1 18.3 19.6
Fastening Systems 17.9 19.2 37.3
Indicating Instruments 9.6 7.3 5.1
Other Product Classes 2.4 3.0 2.3
-------------------------------
Total 100.0% 100.0% 100.0%
===============================
</TABLE>
Current operating properties consist of a manufacturing plant in Greenwood,
Mississippi; a sales and service facility in Farmington Hills, Michigan; 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 subsidiary. 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 84% of
outstanding receivables at September 30, 1997 (91% in 1996). Sales to individual
customers in excess of 10% of total sales approximated $12,700,000 and
$2,800,000 (1997), $13,600,000 and $5,000,000 (1996), $14,600,000 and
$10,900,000 (1995). 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 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, 1997.
- --------------------------------------------------------------------------------
F-9
<PAGE> 28
- --------------------------------------------------------------------------------
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:
<TABLE>
<CAPTION>
1997 1996
-------------------------
<S> <C> <C>
Raw materials and component parts $2,482,194 $2,182,723
Work-in-process 1,268,995 1,316,622
Finished products 1,133,212 1,413,513
-------------------------
$4,884,401 $4,912,858
=========================
</TABLE>
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.
Capital expenditures, including capitalized leases, amounted to $557,493,
$546,592 and $943,605 for 1997, 1996 and 1995 respectively.
The depreciation policy of the Company is generally as follows:
<TABLE>
<CAPTION>
CLASS METHOD RATE
----------------------------------------------------------
<S> <C> <C> <C>
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%
</TABLE>
Depreciation amounted to $615,273 (1997), $619,382 (1996) and $575,213 (1995).
INTANGIBLE ASSETS:
Deferred charges represent software implementation costs that were purchased to
support and enhance internal information systems and are being amortized over 3
years. Goodwill is being amortized on a straight-line basis over 15 years.
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. For the years presented, stock options
have an immaterial dilutive effect.
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.
RECLASSIFICATIONS:
Certain prior year amounts have been reclassified to conform with current year
presentation.
3. SHORT-TERM FINANCING
The Company has an unsecured credit agreement of $5,000,000 which matures in
February, 1998 with interest at the bank's prime commercial rate with a LIBOR
option. The agreement includes covenants with which the Company has complied.
The weighted average interest rate on short-term financing was 8.25% (1997),
8.40% (1996), and 8.84% (1995).
- --------------------------------------------------------------------------------
F-10
<PAGE> 29
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
4. LEASES
OPERATING:
The Company leases a facility and certain equipment under operating leases
expiring through October 1999.
The Company's future minimum commitments under
operating leases are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 $ 79,092
1999 61,932
2000 8,561
--------
Total $149,585
========
</TABLE>
Rental expense under these commitments was $119,926 (1997), $264,499 (1996) and
$266,106 (1995).
CAPITAL:
During 1997, the Company purchased equipment under a capital lease obligation.
The obligation is payable in monthly installments of $5,906 including interest
at 7.2% per year until October 2000. The balance outstanding at September 30,
1997 was $190,651. Minimum annual lease payments under the capital lease are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 70,872
1999 70,872
2000 70,872
------------
212,616
Less amounts representing interest 21,965
------------
$ 190,651
============
</TABLE>
The cost and accumulated depreciation of the equipment held under capital lease
at September 30, 1997 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Cost $ 190,651
Accumulated depreciation --
------------
Book value $ 190,651
============
</TABLE>
A facility held under a capital lease has a net book value of $25,000 at
September 30, 1997. Future minimum lease payments which extend through 2061 are
immaterial.
5. CAPITAL STOCK, TREASURY STOCK, AND CONTRIBUTED CAPITAL
On February 23, 1995, the number of authorized shares of Class A and Class B
common stock was increased to 3,750,000 from 1,000,000 and 1,000,000 from
295,980, respectively. On April 10, 1995, the Company distributed to
stockholders of record on March 10, 1995, a 2-for-1 stock split in the form of a
100% share dividend of Class A and Class B common stock. One share of Class A
common stock was issued for each share of Class A outstanding and one share of
Class B common stock was issued for each share of Class B outstanding.
Unissued shares of Class A common stock (557,266 and 526,716 shares in 1997 and
1996 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 Plan(see note 6). 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.
The Company purchased Class B common stock (4,560 and 16,107 shares in 1995 and
1993, respectively) for Treasury for approximately $443,000 from the Estate of
Robert D. Hickok, completing an obligation under a Section 303 Stock Redemption
agreement.
- --------------------------------------------------------------------------------
F-11
<PAGE> 30
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
6. STOCK OPTIONS
The Company's Key Employees Stock Option Plan and the 1995 Key Employees Stock
Option Plan (collectively the "Employee Plans") provides the Compensation
Committee of the Board of Directors with the authority to grant options to Key
Employees to purchase up to 120,000 Class A shares. 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 $2,517 (1997) and $29,448 (1995). All
options granted under the Employee Plans are exercisable at September 30, 1997.
The Company's 1995 Outside Directors Stock Option Plan (the "Directors Plan")
provides for the automatic grant of options to purchase up to 30,000 shares 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 Plan become fully
exercisable on February 23, 2000.
Transactions involving the plans are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXCERCISE EXCERCISE EXCERCISE
OPTION SHARES 1997 PRICE 1996 PRICE 1995 PRICE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EMPLOYEE PLANS:
Outstanding October 1, 53,850 $ 8.53 39,800 $ 5.45 33,600 $ 4.88
Granted 27,550 10.75 14,050 17.25 7,200 8.31
Canceled -- -- -- -- -- --
Exercised (1997 -$2.93
to $6.92 per share) (3,000) 4.26 -- -- (1,000) 6.92
------ ------ ------
Outstanding September 30,
(1997 -$2.93 to $17.25
per share) 78,400 9.47 53,850 8.53 39,800 5.45
====== ====== ======
Exercisable September 30, 78,400 9.47 53,850 8.53 39,800 5.45
====== ====== ======
DIRECTORS PLAN:
Outstanding October 1, 18,000 $ 16.75 12,000 $ 16.13 -- $-
Granted 6,000 8.50 6,000 18.00 12,000 16.13
Canceled -- -- -- -- -- --
Exercised -- -- -- -- -- --
------ ------ ------
Outstanding September 30,
(1997 -$8.50 to $18.00
per share) 24,000 14.69 18,000 16.75 12,000 16.13
====== ====== ======
Exercisable September 30, 10,000 16.50 4,000 16.13 -- --
====== ====== ======
</TABLE>
- --------------------------------------------------------------------------------
F-12
<PAGE> 31
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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
of operations, financial position or liquidity. Had compensation cost for fixed
stock options granted in 1997 and 1996 been determined consistent with FAS 123,
pro forma net income and earnings per share would have been as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net Income as reported $ 605,317 $ 959,875
=========== ===========
- pro forma $ 518,040 $ 864,571
=========== ===========
Net Income per share - as reported $ .51 $ .80
=========== ===========
- pro forma $ .43 $ .72
=========== ===========
</TABLE>
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 incorporating the following
assumptions for options granted in 1997 and 1996, respectively: Expected
volatility (the amount by which the stock price is expected to fluctuate) of 20%
and 21%; expected dividend yield of 1.6% and 1.2%; risk free interest rate of
5.9% for both years; and expected life of 5 years.
7. INCOME TAXES
A reconciliation of the provision for income taxes to the statutory Federal
income tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------
<S> <C> <C> <C>
Income before income taxes $ 860,317 $ 1,437,875 $ 2,770,230
Statutory rate 34% 34% 34%
------------------------------------------------
292,508 488,878 941,878
State and local taxes, net of federal tax 67,300 86,460 141,900
Non-deductible expenses 20,300 36,900 26,530
Income not subject to tax -- -- (3,230)
Research and development credit - net (68,000) (38,000) (132,000)
Adjustment of estimated research
and development credit (52,000) (96,000) --
Other (5,108) (238) 922
------------------------------------------------
$ 255,000 $ 478,000 $ 976,000
================================================
</TABLE>
Changes in deferred income taxes which relate to temporary differences in the
recognition of revenue and expenses for tax and financial reporting purposes are
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------
<S> <C> <C> <C>
Inventory costing $ (23,900) $ 65,700 $ (85,700)
Warranty reserve -- 49,000 --
Other (26,100) 36,300 (25,300)
----------------------------------------
$ (50,000) $ 151,000 $(111,000)
========================================
</TABLE>
- --------------------------------------------------------------------------------
F-13
<PAGE> 32
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Deferred tax asset (liabilities) consist of the following:
<TABLE>
<CAPTION>
1997 1996
------------------------------
<S> <C> <C>
Current:
Inventories $ 92,500 $ 31,300
Accrued liabilities 99,500 112,700
------------------------------
192,000 144,000
Noncurrent:
Depreciation (180,200) (175,600)
Other 6,200 (400)
------------------------------
(174,000) (176,000)
------------------------------
Total $ 18,000 $ (32,000)
==============================
</TABLE>
Deferred tax asset balances are included in "prepaid and deferred expenses."
8. EMPLOYEE BENEFIT PLANS
The Company has a formula based profit sharing bonus plan for officers and key
employees. The bonus 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 year ended September 30, 1997, the formula based profit sharing bonus
plan did not produce a distribution requirement. For fiscal years ended
September 30, 1996 and 1995, approximately $98,000 and $456,000, 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 year ended September
30, 1997 there were no Company contributions, including discretionary matching
to this plan. For fiscal years ended September 30, 1996 and 1995, approximately
$27,600 and $27,300, 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, 1997 and 1996, approximately $9,725 and $86,038, respectively, were
allocated by the participants to this plan and is included in "Accrued Payroll
and Related Expenses."
9. ACQUISITION
On January 31, 1996, the Company purchased certain assets of Maradyne
Corporation's Beacon Gage Division for $647,103 which has been accounted for
under the purchase method of accounting. The purchase consisted of inventory
($289,354), machinery and equipment ($257,749), and goodwill ($100,000).
Goodwill will be amortized over 15 years.
Operations of the Beacon Gage Line have been included in the statement of
income from the date of acquisition. The pro forma effect of the acquisition on
prior years operations is not determinable.
F-14
- --------------------------------------------------------------------------------
<PAGE> 33
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 25, 1998, 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 25, 1998, 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 25,
1998, 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 25, 1998, 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.
19
<PAGE> 34
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:
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Auditors...................................................... F-1
Consolidated Balance Sheet - As of
September 30, 1997 and 1996................................................ F-2
Consolidated Statement of Income - Years
Ended September 30, 1997, 1996 and 1995.................................... F-4
Consolidated Statement of Stockholders'
Equity - Years Ended September 30, 1997,
1996 and 1995.............................................................. F-5
Consolidated Statement of Cash Flows -
Years Ended September 30, 1997, 1996
and 1995................................................................... F-7
Notes to Consolidated Financial Statements.......................................... F-9
</TABLE>
(a) (2) Financial Statement Schedules
-----------------------------
The following Consolidated Financial Statement Schedules of the Registrant and
its subsidiaries are included in Item 14 hereof.
<TABLE>
<CAPTION>
Sequential Page
<S> <C>
Report of Independent Auditors as to Schedules.........................................38
Schedule VIII-Valuation and Qualifying Accounts........................................39
Schedule IX-Short-term Borrowings......................................................40
</TABLE>
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, 1997.
20
<PAGE> 35
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
18th day of December, 1997.
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 18th day of December,
1997:
<TABLE>
<CAPTION>
Signature: Title
- ---------- -----
<S> <C>
/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/ Thomas H. Barton Director
- ----------------------------------------
Thomas H. Barton
/s/ Harry J. Fallon Director
- ----------------------------------------
Harry J. Fallon
/s/ T. Harold Hudson Director
- ----------------------------------------
T. Harold Hudson
/s/ George S. Lockwood, Jr. Director
- ----------------------------------------
George S. Lockwood, Jr.
/s/ Michael L. Miller Director
- ----------------------------------------
Michael L. Miller
/s/ Janet H. Slade Director
- ----------------------------------------
Janet H. Slade
</TABLE>
<PAGE> 36
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No.: Document Page
------------ -------- ----
<S> <C> <C> <C>
3(a) Articles of Incorporation and Code of Regulations. *
3(b) Amendment to Articles of Incorporation (incorporated
herein by reference to the appropriate exhibit 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 28, 1997 by and between
the Company and Huntington National Bank (incorporated herein by
reference to the appropriate exhibit to the Company's Annual Report
on Form 10-Q for the fiscal year ended March 31, 1997).
11 Computation of Net Income Per Common Share. 37
22 Subsidiaries of the Registrant (incorporated herein by reference to
the appropriate exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended
September 30, 1993).
23 Consent of Independent Auditors. 38
27 Financial Data Schedule.
- --------------
<FN>
* 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.
</TABLE>
E-1
<PAGE> 37
The following pages contain the Consolidated Financial Statement
Schedules as specified for Item 14(a)(2) of Part IV of Form 10-K.
<PAGE> 38
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, 1997 and 1996, and for each of the three
years in the period ended September 30, 1997, and have issued our report thereon
dated November 25, 1997; 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 19, 1997
Cleveland, Ohio
<PAGE> 39
<TABLE>
<CAPTION>
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 30,1995
----------------------------
<S> <C> <C> <C> <C> <C>
Reserve for doubtful accounts $ 15,000 $ 361 (1) $ 463 (2) $ 824 (3) $ 15,000
Reserve for inventory obsolescence $ - $ 142,783 $ - $ 82,583 (5) $ 60,200
Reserve for warranty claim (4) $ - $ - $ - $ (4) $ -
Year Ended September 30,1996
----------------------------
Reserve for doubtful accounts $ 15,000 $ 2,562 (1) $ 409 (2) $ 2,971 (3) $ 15,000
Reserve for inventory obsolescence $ 60,200 $ 264,138 $ - $ 248,513 (5) $ 75,825
Reserve for warranty claim (4) $ - $ - $ - $ - $ -
Year Ended September 30,1997
----------------------------
Reserve for doubtful accounts $ 15,000 $ 19,941 (1) $ 2,258 (2) $ 22,199 (3) $ 15,000
Reserve for inventory obsolescence $ 75,825 $ 276,913 $ - $ 274,149 (5) $ 78,589
Reserve for warranty claim (4) $ - $ - $ - $ - $ -
<FN>
(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. The certificate was cashed in during fiscal 1993.
(5) Inventory charged off during the year as obsolete.
</TABLE>
<PAGE> 40
<TABLE>
<CAPTION>
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, 1995
-----------------------------
<S> <C> <C> <C> <C> <C>
Note Payable to Bank (1) $ 3,510,000 8.84% $ 3,510,000 $1,353,000 (2) 9.92%
Year Ended September 30, 1996
-----------------------------
Note Payable to Bank (1) $ 1,375,000 8.40% $ 3,835,000 $1,595,000 (2) 8.58%
Year Ended September 30, 1997
-----------------------------
Note Payable to Bank (1) $ - 8.25% $ 1,205,000 $ 8,260 (2) 4.62%
<FN>
(1) Note payable to bank represents borrowings under a revolving credit facility which expires February 28, 1998.
(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.
</TABLE>
<PAGE> 1
HICKOK INCORPORATED
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended September 30
----------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
PRIMARY
- -------
Average shares outstanding 1,193,497 1,192,850 1,194,500
Net effect of dilutive stock
options- based on the
treasury stock method using
average market price 17,992 24,305 27,918
---------- ---------- ----------
Total Shares 1,211,489 1,217,155 1,222,418
========== ========== ==========
Net Income $ 605,317 $ 959,875 $1,794,230
========== ========== ==========
Net Income per Share $ .50 $ .79 $ 1.47
========== ========== ==========
FULLY DILUTED
- -------------
Average shares outstanding 1,193,497 1,192,850 1,194,500
Net effect of dilutive stock
options- based on the
treasury stock method using
year-end market price if
higher than average market
price 17,992* 24,305* 29,474
---------- ---------- ----------
Total Shares 1,211,489 1,217,155 1,223,974
========== ========== ==========
Net Income $ 605,317 $ 959,875 $1,794,230
========== ========== ==========
Net Income Per Share $ .50 $ .79 $ 1.47
========== ========== ==========
<FN>
* Year-end market price is less than average market price, use same as primary
shares.
</TABLE>
<PAGE> 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 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, 1997.
/s/ MEADEN & MOORE, Ltd.
MEADEN & MOORE, Ltd.
Certified Public Accountants
December 19, 1997
Cleveland, Ohio
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 2,668,345
<SECURITIES> 0
<RECEIVABLES> 3,312,988
<ALLOWANCES> 0
<INVENTORY> 4,884,401
<CURRENT-ASSETS> 11,096,855
<PP&E> 5,423,625
<DEPRECIATION> 3,129,290
<TOTAL-ASSETS> 13,736,417
<CURRENT-LIABILITIES> 1,818,256
<BONDS> 127,101
1,195,850
0
<COMMON> 0
<OTHER-SE> 10,421,210
<TOTAL-LIABILITY-AND-EQUITY> 13,736,417
<SALES> 21,159,098
<TOTAL-REVENUES> 0
<CGS> 13,402,198
<TOTAL-COSTS> 6,955,749
<OTHER-EXPENSES> (70,132)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,966
<INCOME-PRETAX> 860,317
<INCOME-TAX> 255,000
<INCOME-CONTINUING> 605,317
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 605,317
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
