<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____ .
COMMISSION FILE NO. 0-147
HICKOK INCORPORATED
-----------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 34-0288470
- -------------------------------- --------------------------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
10514 DUPONT AVENUE; CLEVELAND, OHIO 44108
- ------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE (216) 541-8060
- ------------------------------------------------------------------------------
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 THE
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
----- -----
AS OF AUGUST 16, 1999, 744,884 HICKOK INCORPORATED CLASS A COMMON SHARES
AND 454,866 CLASS B COMMON SHARES WERE OUTSTANDING.
<PAGE> 2
FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
HICKOK INCORPORATED
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
----------------------------------- -----------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales
Product Sales $ 4,756,887 $ 4,644,415 $ 12,509,365 $ 14,857,747
Service Sales 351,966 279,378 994,587 875,567
------------ ------------ ------------ ------------
Total Net Sales 5,108,853 4,923,793 13,503,952 15,733,314
Costs and Expenses:
Cost of Product Sold 2,912,228 2,383,197 7,688,413 8,084,319
Cost of Service Sold 233,955 266,146 669,408 644,092
Product Development 700,178 795,307 2,058,709 2,304,960
Operating Expenses 1,230,091 1,390,677 3,807,927 3,364,624
Interest Charges 16,504 20,382 49,814 39,732
Other Income (8,199) (22,956) (43,833) (109,908)
------------ ------------ ------------ ------------
5,084,757 4,832,753 14,230,438 14,327,819
------------ ------------ ------------ ------------
Income (Loss) before
Income Taxes 24,096 91,040 (726,486) 1,405,495
Income (Recovery of)
Taxes 8,900 33,600 (268,800) 520,000
------------ ------------ ------------ ------------
Net Income (Loss) $ 15,196 $ 57,440 $ (457,686) $ 885,495
============ ============ ============ ============
Earnings per Common Share:
------------
Net Income (Loss) $ .01 $ .05 $ (.38) $ .74
============ ============ ============ ============
Earning per Common Share
Assuming Dilution:
------------------
Net Income (Loss) $ .01 $ .05 $ (.38) $ .73
============ ============ ============ ============
Dividends per Share $ .15 $ .10 $ .15 $ .10
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
(2)
<PAGE> 3
HICKOK INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30, June 30,
1999 1998 1998
----------- ------------- -----------
(Unaudited) (Note) (Unaudited)
<S> <C> <C> <C>
Assets
- ------
Current Assets
- --------------
Cash and Cash Equivalents $ 432,848 $ 1,593,314 $ 1,819,806
Trade Accounts Receivable - Net 3,641,543 2,698,012 2,210,565
Inventories 5,866,519 5,892,089 5,748,631
Prepaid and Deferred Expenses 233,802 234,802 270,476
Refundable Income Taxes 162,763 181,812 --
----------- ----------- -----------
Total Current Assets 10,337,475 10,600,029 10,049,478
-------------------- ----------- ----------- -----------
Property, Plant and Equipment
- -----------------------------
Land 226,738 226,738 199,611
Buildings 1,541,245 1,541,245 1,516,940
Machinery and Equipment 4,397,330 3,953,541 3,915,168
----------- ----------- -----------
6,165,313 5,721,524 5,631,719
Less: Allowance for Depreciation 3,828,477 3,301,279 3,240,463
----------- ----------- -----------
Total Property - Net 2,336,836 2,420,245 2,391,256
-------------------- ----------- ----------- -----------
Other Assets
- ------------
Goodwill - Net of Amortization 1,860,351 1,941,585 1,973,143
Deferred Charges - Net of Amortization 36,398 81,095 101,388
Deposits 1,850 4,350 1,936
----------- ----------- -----------
Total Other Assets 1,898,599 2,027,030 2,076,467
------------------ ----------- ----------- -----------
Total Assets $14,572,910 $15,047,304 $14,517,201
============ =========== =========== ===========
</TABLE>
NOTE: Amounts derived from audited financial statements previously filed with
the Securities and Exchange Commission.
See Notes to Consolidated Financial Statements.
(3)
<PAGE> 4
FORM 10-Q
<TABLE>
<CAPTION>
June 30, September 30, June 30,
1999 1998 1998
----------- ------------- -----------
(Unaudited) (Note) (Unaudited)
<S> <C> <C> <C>
Liabilities
- -----------
Current Liabilities
- -------------------
Short-term Financing $ 475,000 $ -- $ --
Current Portion of Long-term Debt 134,729 161,762 161,762
Trade Accounts Payable 693,789 656,302 458,902
Accrued Payroll & Related Expenses 574,644 604,639 423,291
Accrued Expenses 177,236 196,903 174,615
Customer Deposits -- -- 55,110
Accrued Income Taxes -- 162,288 102,744
----------- ----------- -----------
Total Current Liabilities 2,055,398 1,781,894 1,376,424
------------------------- ----------- ----------- -----------
Deferred Income Taxes 165,000 165,000 174,000
- --------------------- ----------- ----------- -----------
Long-term Debt 432,226 549,475 564,747
- -------------- ----------- ----------- -----------
Stockholders' Equity
- --------------------
Class A, $1.00 par value;
authorized 3,750,000 shares; 744,884 shares outstanding
(742,884 shares at September 30, 1998 and 742,884
shares at June 30, 1998) excluding 9,586 shares in
treasury 744,884 742,884 742,884
Class B, $1.00 par value;
authorized 1,000,000 shares;
454,866 shares outstanding
excluding 20,667 shares in treasury 454,866 454,866 454,866
Contributed Capital 948,803 943,803 943,803
Retained Earnings 9,771,733 10,409,382 10,260,477
----------- ----------- -----------
Total Stockholders' Equity 11,920,286 12,550,935 12,402,030
-------------------------- ----------- ----------- -----------
Total Liabilities and
Stockholders' Equity $14,572,910 $15,047,304 $14,517,201
==================== =========== =========== ===========
</TABLE>
(4)
<PAGE> 5
HICKOK INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30,
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Cash received from customers $ 12,560,421 $ 17,340,019
Cash paid to suppliers and employees (13,522,232) (14,695,138)
Interest paid (63,185) (21,245)
Interest received 24,252 77,081
Income taxes (paid) refunded 124,962 (722,657)
------------ ------------
Net Cash Provided by (Used in)
Operating Activities (875,782) 1,978,060
Cash Flows from Investing Activities:
Capital expenditures (443,789) (277,009)
Decrease in deposits 2,500 2,514
Proceeds on sale of assets -- 29,257
Payments for business purchased (Net) -- (2,426,518)
------------ ------------
Net Cash Used in Investing Activities (441,289) (2,671,756)
Cash Flows from Financing Activities:
Change in short-term borrowing 447,967 --
Decrease in long-term financing (117,249) (50,034)
Sale of Class A shares under option 5,850 14,816
Dividends paid (179,963) (119,625)
------------ ------------
Net Cash Provided by (Used in)
Financing Activities 156,605 (154,843)
------------ ------------
Net increase (decrease) in cash and cash equivalents (1,160,466) (848,539)
Cash and cash equivalents at beginning of year 1,593,314 2,668,345
------------ ------------
Cash and cash equivalents at end of third quarter $ 432,848 $ 1,819,806
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
(5)
<PAGE> 6
FORM 10-Q
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Reconciliation of Net Income (Loss) to Net
Cash Provided by Operating Activities:
Net Income (Loss) $ (457,686) $ 885,495
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 653,129 618,249
Non-cash compensation charge
related to stock options 1,150 4,284
Loss (Gain) on disposal of assets -- 10,759
Changes in assets and liabilities:
Decrease (Increase) in accounts
receivable (943,531) 1,606,705
Decrease (Increase) in inventories 25,570 (144,986)
Decrease (Increase) in prepaid
expenses 1,000 (36,507)
Decrease in refundable income
taxes 19,049 --
Increase (Decrease) in trade
accounts payable 37,487 (567,473)
Increase (Decrease) in accrued
payroll and related expenses (29,995) (36,286)
Increase (Decrease) in accrued
expenses (19,667) (159,524)
Increase (Decrease) in accrued
income taxes (162,288) (202,656)
----------- -----------
Total Adjustments (418,096) 1,092,565
----------- -----------
Net Cash Provided by (Used in)
Operating Activities $ (875,782) $ 1,978,060
=========== ===========
Non-Cash Financing Activity:
----------------------------
Earn Out Payable $ -- $ 585,892
=========== ===========
</TABLE>
(6)
<PAGE> 7
FORM 10-Q
HICKOK INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 1999
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three and nine-month periods ended June 30,
1999 are not necessarily indicative of the results that may be expected
for the year ended September 30, 1999. For further information, refer to
the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended September 30,
1998.
2. Inventories
Inventories are valued at the lower of cost or market and consist of the
following:
<TABLE>
<CAPTION>
June 30, Sept. 30, June 30,
1999 1998 1998
---------- ---------- ----------
<S> <C> <C> <C>
Components $3,472,175 $3,249,619 $3,136,971
Work-in-Process 1,107,173 1,440,624 1,336,227
Finished Product 1,287,171 1,201,846 1,275,433
---------- ---------- ----------
$5,866,519 $5,892,089 $5,748,631
========== ========== ==========
</TABLE>
3. Capital Stock, Treasury Stock, Contributed Capital and Stock Options
Under the Company's Key Employees Stock Option Plans (collectively the
"Employee Plans"), incentive stock options, in general, are exercisable
for up to ten years, at an exercise price of not less than the market
price on the date the option is granted. Non-qualified stock options may
be granted at such exercise price and such other terms and conditions as
the Compensation Committee of the Board of Directors may determine. No
options may be granted at a price less than $2.925. Options for 113,600
Class A shares were outstanding at June 30, 1999 (97,600 shares at
September 30, 1998 and 98,300 shares at June 30, 1998) at prices ranging
from $2.925 to $17.25 per share. Options for 23,000 shares and 24,000
shares were granted during the three month period ended December 31, 1998
and December 31, 1997 respectively, at a price of $ 7.125 and $10.50 per
share respectively, and all options are exercisable.
(7)
<PAGE> 8
FORM 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
During the third quarter period ended June 30, 1999, no options were
exercised. During the third quarter period ended June 30, 1998, options
for 1,500 Class A shares were exercised at a price of $6.92 to $8.31 per
share resulting in non-cash compensation to the optionee of $3,480.
During the second quarter period ended March 31, 1999, no options were
exercised. During the second quarter period ended March 31, 1998, options
for 400 Class A shares were exercised at a price of $6.92 to $8.31 per
share resulting in non-cash compensation to the optionee of $804. During
the first quarter period ended December 31, 1998, options for 2,000 Class
A shares were exercised at $2.925 per share resulting in non-cash
compensation to the optionee of $1,150. During the first quarter period
ended December 31, 1997 no options were exercised. Options for 1,000
shares and 4,000 shares were cancelled during the three month periods
ended March 31, 1999 and December 31, 1998 respectively. Options for
2,100 shares of Class A shares were cancelled during the three month
period ended March 31, 1998.
No other options were granted, exercised or cancelled during the three,
six or nine month periods under the Employee Plans.
The Company's Outside Directors Stock Option Plans (collectively the
"Directors Plans"), provide for the automatic grant of options to
purchase up to 45,000 shares of Class A Common Stock to members of the
Board of Directors who are not employees of the Company, at the fair
market value on the date of grant. Options for 36,000 Class A shares were
outstanding at June 30, 1999 (30,000 shares at September 30, 1998 and
June 30, 1998) at prices ranging from $7.125 to $18.00 per share. Options
for 6,000 shares were granted under the Directors Plans during each of
the three month periods ended March 31, 1999 and March 31, 1998, at a
price of $7.125 and $12.25 per share respectively. Options for 6,000
Class A shares expired during the three month period ended March 31,
1999. All outstanding options under the Directors Plans become fully
exercisable on February 25, 2002.
Unissued shares of Class A common stock (604,466 shares) are reserved for
the share-for-share conversion rights of the Class B common stock and
stock options under the Employee Plans and the Directors Plans.
The Company declared a $.15 per share special dividend on its Class A and
Class B common shares on December 9, 1998 payable January 22, 1999 to
shareholders of record January 4, 1999. A special dividend of $.10 per
share on Class A and Class B common shares, payable January 23, 1998 to
shareholders of record January 5, 1998, was declared on December 11,
1997.
(8)
<PAGE> 9
FORM 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - continued
4. Earnings per Common Share
Earnings per common share are based on the provisions of FAS Statement
No. 128, "Earnings per Share." Accordingly, the adoption of this
statement did not affect the Company's results of operations, financial
position or liquidity. The effects of applying FAS No. 128 on earnings
per share and required reconciliations are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------------- ---------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income (Loss) available
to common stockholders $ 15,196 $ 57,440 $ (457,686) $ 885,495
Shares denominator 1,199,750 1,196,695 1,199,303 1,196,217
Per share amount $ .01 $ .05 $ (.38) $ .74
=========== =========== =========== ===========
EFFECT OF DILUTIVE
SECURITIES
Average shares
outstanding 1,199,750 1,196,695 1,199,303 1,196,217
Stock options 13,995 24,440 -- 23,064
----------- ----------- ----------- -----------
1,213,745 1,221,135 1,199,303 1,219,281
DILUTED EARNINGS PER SHARE
Income (Loss) available
to common stockholders $ 15,196 $ 57,440 $ (457,686) $ 885,495
Per share amount $ .01 $ .05 $ (.38) $ .73
=========== =========== =========== ===========
</TABLE>
Options to purchase 98,400 and 41,250 shares of common stock during the
third quarter of fiscal 1999 and the third quarter of fiscal 1998,
respectively, at prices ranging from $8.31 to $18.00 per share were
outstanding but were not included in the computation of diluted earnings
per share because the option's effect was antidilutive or the exercise
price was greater than the average market price of the common share.
For the nine month periods ended June 30, 1999 and 1998 options to
purchase 149,600 and 41,250 shares of common stock, respectively, at
prices ranging from $2.925 to $18.00 per share were outstanding but were
not included in the computation of diluted earnings per share because the
option's effect was antidilutive or the exercise price was greater than
the average market price of the common shares.
(9)
<PAGE> 10
FORM 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
5. Purchase
On February 17, 1998, the Company purchased certain assets of Waekon
Industries, Inc. for $2,221,302 which has been accounted for under the
purchase method of accounting. The purchase consisted of accounts
receivable ($504,282), inventory ($719,244), prepaid and other assets
($42,786), machinery and equipment ($380,100), assumption of current
liabilities ($425,895), and goodwill ($1,000,785). The Company has also
incurred and recorded as goodwill closing costs related to the purchase
($205,216) as well as the present value of a five year earn out contract
($585,892). Goodwill is being amortized over 20 years.
Pro forma effects of the Waekon Industries, Inc. purchase on fiscal 1998
operations were reported in the Company's Annual Report on Form 10K for
the fiscal year ended September 30, 1998. Pro forma effects of the Waekon
Industries, Inc. purchase on operations for the three months ended
December 31, 1997 were reported in Unaudited Consolidated Pro Forma
Condensed Financial Statements included in the Company's Form 8K dated
February 17, 1998. The following pro forma data summarizes the results of
operations of the Company for the twelve months ended September 30, 1998
and for the nine months ended June 30, 1998, assuming Waekon was acquired
at the beginning of each period presented. In preparing the pro forma
data, adjustments have been made to conform Waekon's accounting policies
to those of the Company and to reflect purchase accounting adjustments
and interest expense.
<TABLE>
<CAPTION>
Twelve Months Nine Months
Ended Ended
September 30, 1998 June 30, 1998
------------------ -------------
<S> <C> <C>
Net Sales $ 22,809,660 $17,774,612
============ ===========
Net Income $ 1,118,606 $ 969,701
============ ===========
Net Income per Common Share $ .93 $ .81
============ ===========
</TABLE>
The pro forma information does not purport to be indicative of the
results of operations which would have actually been obtained if the
acquisition had occurred on the dates indicated or the results of
operations which will be reported in the future.
(10)
<PAGE> 11
FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations, Third Quarter (April 1, 1999 through June 30, 1999)
Fiscal 1999 Compared to Third Quarter Fiscal 1998
--------------------------------------------------------------------------
Product sales for the quarter ended June 30, 1999 were $4,756,887 versus
$4,644,415 for the quarter ended June 30, 1998. The 2.4% increase in product
sales in the current quarter is volume related and due entirely to an increase
in sales of automotive diagnostic products. The Company anticipates that the
current amount of product sales experienced in the third quarter will remain at
that level in the fourth quarter.
Service sales for the quarter ended June 30, 1999 were $351,966 versus $279,378
for the quarter ended June 30, 1998. The increase was both volume and price
related. The current level of service sales is expected to continue in the
fourth quarter of the fiscal year.
Cost of product sold in the third quarter of fiscal 1999 was $2,912,228 or 61.2%
of product sales as compared to $2,383,197 or 51.3% of product sales in the
third quarter of 1998. This increase in the cost of product sold percentage was
due primarily to a change in product mix as sales of lower margin automotive
diagnostic products to the aftermarket and other markets represented a larger
proportion of total product sales. The current cost of products sold percentage
is anticipated to decrease slightly during the balance of the fiscal year due to
a change in product mix and improved plant utilization.
Cost of service sold for the quarter ended June 30, 1999 was $233,955 or 66.5%
of service sales as compared to $266,146 or 95.3% of service sales in the
quarter ended June 30, 1998. This decrease in the cost of service sold
percentage was due to volume related operating efficiencies. The cost of service
sold percentage is expected to remain at the current level in the fourth quarter
of the fiscal year.
Product development expenses were $700,178 in the third quarter of fiscal 1999
or 14.7% of product sales as compared to $795,307 or 17.1% of product sales in
the third quarter of fiscal 1998. The dollar decrease was due to a reduction in
staff, primarily contract engineers, due to a reduction in current development
projects. The percentage decrease is due primarily to a 12% decrease in product
development expenses. The level of expenditures incurred during the third
quarter of fiscal 1999 is expected to continue in the fourth quarter.
Operating expenses in the most recent quarter were $1,230,091 or 24.1% of total
sales versus $1,390,677 or 28.2% of total sales for the same period a year ago.
The decrease in operating expenses is due primarily to staff reductions. The
current level of operating expenses is expected to continue for the balance of
the fiscal year.
Interest expense was $16,504 in the third quarter of fiscal 1999, as compared to
$20,382 in the third quarter of fiscal 1998. This decrease was due primarily to
a reduction in long term debt associated with the Waekon acquisition on February
17, 1998. The current level of interest expense will continue for the remainder
of fiscal 1999.
(11)
<PAGE> 12
FORM 10-Q
Other income of $8,199 in the current quarter compares with $22,956 in the same
quarter last year. The reduction is due to lower interest income on a reduced
level of short-term cash investments.
Net income in the third quarter of fiscal 1999 was $15,196 which compared with
net income of $57,440 in fiscal 1998. This change was due primarily to a change
in gross product margin related to a change in product mix as sales of lower
margin automotive diagnostic products and components represented a larger
proportion of total product sales.
Unshipped customer orders as of June 30, 1999 were $4,095,000 versus $2,671,000
at June 30, 1998. The increase was primarily due to an increase in orders for
automotive diagnostic products ($980,000) and for fastening systems products
($503,000). Almost all of the increase in orders for automotive and fastening
products is expected to be shipped in the fourth quarter of fiscal 1999.
Results of Operations, Nine Months Ended June 30, 1999
Compared to Nine Months Ended June 30, 1998
------------------------------------------------------
Product sales for the nine months ended June 30, 1999 were $12,509,365 versus
$14,857,747 for the same period in fiscal 1998. The decrease is volume related
due primarily to a $548,000 decrease in sales of automotive diagnostic products
and a $1,346,000 decrease in fastening systems sales. The reduction in fastening
systems sales occurred primarily in the first and second quarters of fiscal 1999
and was due to a lack of orders for large networked systems. The reduction in
automotive diagnostic sales, specifically sales to the OEM market, occurred in
the second quarter of the fiscal year. Despite a recent increase in orders for
both fastening systems products and automotive diagnostic products, the combined
revenue shortfall for the nine months ended June 30, 1999 is not expected to be
recovered during the last quarter of the fiscal year.
Service sales for the nine months ended June 30, 1999 were $994,587 compared
with $875,567 for the same period in fiscal 1998. The increase was both volume
and price related and occurred in the first and third quarter of the fiscal
year.
Cost of product sold was $7,688,413 or 61.5% of product sales as compared to
$8,084,319 or 54.4% of product sales for the nine months ended June 30, 1998.
This increase in the cost of product sold percentage was due to a change in
product mix that occurred primarily in the second and third quarters of the
fiscal year as sales of lower margin automotive diagnostic products to the
aftermarket and other markets represented a larger proportion of total product
sales. The cost of products sold percentage should decrease slightly in the
balance of the fiscal year due to change in product mix and improved plant
utilization.
Cost of service sold was $669,408 or 67.3% of service sales compared with
$644,092 or 73.6% of service sales for the nine months ended June 30, 1998. The
reduction in the cost of service sold percentage occurred in the third quarter
of the fiscal year and was due to volume related operating efficiencies. The
current cost of service sold percentage is expected to remain at that level for
the balance of the fiscal year.
Product development expenses were $2,058,709 or 16.5% of product sales as
compared to $2,304,960 or 15.5% of product sales for the nine months ended June
30, 1998. The percentage increase is due to a 16% decrease in product sales.
(12)
<PAGE> 13
FORM 10-Q
Operating expenses were $3,807,927 for the nine months ended June 30, 1999 or
28.2% of total sales versus $3,364,624 or 21.4% of total sales for the nine
months ended June 30, 1998. Most of the dollar increase represents marketing and
administrative expenses for Waekon Industries which was acquired on February 17,
1998.
Interest expense was $49,814 for the nine months ended June 30, 1999, and
$39,732 for the same period in 1998. This increase was due to additional
long-term debt associated with the Waekon acquisition on February 17, 1998.
Other income of $43,833 decreased $66,075 compared with the same period last
year due primarily to a decrease in interest income caused by a reduced level of
short-term cash investments.
The net loss for the nine months ended June 30, 1999 was $457,686 compared with
net income of $885,495 for the nine months ended June 30, 1998. The change was
due primarily to a decrease in automotive diagnostic sales to the OEM market and
a decrease in fastening systems sales of large networked systems. These reduced
sales occurred in the first six months of the fiscal year. In addition, there
was a continued reduction in gross product margin due to a change in product mix
as sales of lower margin automotive diagnostic products to the aftermarket and
non OEM markets represented a larger proportion of total product sales.
Liquidity and Capital Resources
-------------------------------
Total current assets were $10,337,475, $10,600,029 and $10,049,478 at June 30,
1999, September 30, 1998 and June 30, 1998, respectively. The increase from June
to June was due primarily to an increase in accounts receivable due primarily to
higher product sales in the last two months of the current quarter versus the
comparable period a year ago. Between September 1998 and June 1999, current
assets dropped by approximately $263,000 due to a decrease in cash and cash
equivalents. Cash was used to fund operations, capital expenditures, and
dividends.
Working capital as of June 30, 1999 amounted to $8,282,077 compared to
$8,673,054 a year earlier. Current assets were 5.0 times current liabilities and
total cash and receivables were 2.0 times current liabilities. These ratios
compare to 7.3 and 2.9, respectively, at June 30, 1998.
Internally generated funds were a negative $875,782 during the nine months ended
June 30, 1999 and were not adequate to fund the Company's primary non-operating
cash requirement consisting of capital expenditures of $443,789 and long term
debt payments of $117,249. The shortfall was made up by a comparable decrease in
cash and cash equivalents. Management of the Company believes that cash and cash
equivalents, together with funds anticipated to be generated by operations and
funds available under the Company's credit agreement, will provide the liquidity
necessary to support its current and anticipated capital expenditures through
the end of fiscal 1999.
Shareholders' equity during the nine months ended June 30, 1999 decreased by
$630,649 ($.53 per share) resulting primarily from a net loss of $457,686 plus a
$179,963 payment of dividends.
In February 1999, the Company renewed its credit agreement with its financial
lender. The agreement expires in February 2000, and provides for a revolving
credit facility of $5,000,000 with interest at the bank's prime commercial rate
with a LIBOR option and is unsecured. The Company remains in compliance with its
loan covenants.
(13)
<PAGE> 14
FORM 10-Q
Year 2000 Readiness Disclosure
------------------------------
In late fiscal 1997 the Company began its review of Year 2000 issues with
emphasis placed on information technology systems software and hardware. During
fiscal 1998 the Company expanded its review to include non-information
technology systems and the readiness of key third parties, primarily suppliers
and customers. The Company used internal resources to make its assessment.
The Company determined that its primary information systems software and
hardware were not Year 2000 compliant and decided to replace non-compliant
equipment and software. Training and testing occurred throughout all of fiscal
1998. Installation began in early fiscal 1999 and has been completed. The system
is functioning properly.
The Company's review of non-information technology systems and the readiness of
key third parties is essentially complete and will be finalized by September 1,
1999. Based on assessment efforts to date, the Company does not believe that the
Year 2000 issue applicable to these two areas will have a material adverse
effect on the Company's business and operating results. This assessment is based
on certain assumptions and expectations, primarily the ability of third parties
to remediate their own Year 2000 issues. Unexpected and significant compliance
problems in this area, including the failure of key third parties such as
suppliers, customers, public utilities and government to complete their year
2000 effort, could result in a material adverse effect on the Company's business
and operating results. The Company's most likely worst case scenario would be a
short-term slowdown or cessation of manufacturing operations at one or more of
its facilities and a short-term inability on the part of the Company to process
orders and to deliver product to customers in a timely manner. Though the
Company does not expect a material adverse impact on operations, contingency
plans are essentially completed and will be finalized by September 1, 1999. Such
plans primarily involve the use of alternative suppliers and transportation
vendors.
Costs associated with the Company's assessment and remediation of Year 2000
issues are not expected to be material in fiscal 1999. The Company has used cash
and cash equivalents to fund such costs.
Forward-Looking Statements
--------------------------
The foregoing discussion includes forward-looking statements relating to the
business of the Company. These forward-looking statements, or other statements
made by the Company, are made based on management's expectations and beliefs
concerning future events impacting the Company and are subject to uncertainties
and factors (including, but not limited to, those specified below) which are
difficult to predict and, in many instances, are beyond the control of the
Company. As a result, actual results of the Company could differ materially from
(14)
<PAGE> 15
FORM 10-Q
those expressed in or implied by any such forward-looking statements. These
uncertainties and factors include (a) the Company's dependence upon a limited
number of customers, including Ford and General Motors, (b) the Company's
reliance on large orders to generate product sales, (c) the Company's ability to
make the transition from serving primarily OEM customers to serving smaller and
more diffuse customers in the automotive aftermarket, (d) the highly competitive
industry in which the company operates, which includes several competitors with
greater financial resources and larger sales organizations, (e) the acceptance
in the marketplace of new products and/or services developed or under
development by the Company including automotive diagnostic products, fastening
systems products and indicating instrument products, and (f) the ability of
significant third parties with whom the Company does business to provide
products and services in the Year 2000 and beyond.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not believe that there is any material market risk exposure
with respect to derivative or other financial instruments which would require
disclosure under this item.
PART II. OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K:
a) The following exhibits are included herein: (11) Statement re: Computation of
earnings per share. (27) Financial Data Schedule
b) The Company did not file any reports on Form 8-K during the three months
ended June 30, 1999.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 16, 1999 HICKOK INCORPORATED
(Registrant)
/s/ E. T. Nowakowski
-----------------------------------------
E. T. Nowakowski, Chief Financial Officer
(15)
<PAGE> 1
FORM 10-Q
EXHIBIT 11
HICKOK INCORPORATED
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------------- ----------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY
- -------
Average shares outstanding 1,199,750 1,196,695 1,199,303 1,196,217
Net effect of dilutive
stock options - based
on the treasury stock
method using average
market price 12,755 24,440 --** 20,122
----------- ----------- ----------- -----------
Total Shares 1,212,505 1,221,135 1,199,303 1,216,339
----------- ----------- ----------- -----------
Net Income (Loss) $ 15,196 $ 57,440 $ (457,686) $ 885,495
=========== =========== =========== ===========
Per Share $ .01 $ .05 $ (.38) $ .73
=========== =========== =========== ===========
FULLY DILUTED
- -------------
Average shares outstanding 1,199,750 1,196,695 1,199,303 1,196,217
Net effect of dilutive
stock options - based
on the treasury stock
method using year-end
market price, if higher
than average market price 13,995 24,440* --** 23,064
----------- ----------- ----------- -----------
Total Shares 1,213,745 1,221,135 1,199,303 1,219,281
----------- ----------- ----------- -----------
Net Income (Loss) $ 15,196 $ 57,440 $ (457,686) $ 885,495
=========== =========== =========== ===========
Per Share $ .01 $ .05 $ (.38) $ .73
=========== =========== =========== ===========
</TABLE>
* Period-end market price is less than average market price, use same as
primary shares.
** Net effect of stock options was antidilutive for the period.
(16)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 432,848
<SECURITIES> 0
<RECEIVABLES> 3,641,543
<ALLOWANCES> 0
<INVENTORY> 5,866,519
<CURRENT-ASSETS> 10,337,475
<PP&E> 6,165,313
<DEPRECIATION> 3,828,477
<TOTAL-ASSETS> 14,572,910
<CURRENT-LIABILITIES> 2,055,398
<BONDS> 432,226
0
0
<COMMON> 1,199,750
<OTHER-SE> 10,720,536
<TOTAL-LIABILITY-AND-EQUITY> 14,572,910
<SALES> 13,503,952
<TOTAL-REVENUES> 0
<CGS> 8,284,453
<TOTAL-COSTS> 5,940,004
<OTHER-EXPENSES> (43,833)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,814
<INCOME-PRETAX> (726,486)
<INCOME-TAX> (268,800)
<INCOME-CONTINUING> (457,686)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (457,686)
<EPS-BASIC> (.38)
<EPS-DILUTED> (.38)
</TABLE>
