<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, 2000 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 14, 2000, 762,884 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:
<TABLE>
<CAPTION>
HICKOK INCORPORATED
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
Three months ended Nine months ended
June 30, June 30,
----------------------------- ------------------------------
2000 1999 2000 1999
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net Sales
Product Sales $ 3,780,369 $ 4,756,887 $12,918,332 $12,509,365
Service Sales 412,878 351,966 1,051,317 994,587
----------- ----------- ----------- -----------
Total Net Sales 4,193,247 5,108,853 13,969,649 13,503,952
Costs and Expenses:
Cost of Product Sold 2,181,791 2,912,228 7,219,999 7,688,413
Cost of Service Sold 286,476 233,955 730,541 669,408
Product Development 650,871 700,178 2,112,676 2,058,709
Operating Expenses 1,315,809 1,230,091 4,032,392 3,807,927
Interest Charges 17,083 16,504 41,515 49,814
Other (Income) Expense 425,474 (8,199) 436,939 (43,833)
----------- ----------- ----------- -----------
4,877,504 5,084,757 14,574,062 14,230,438
----------- ----------- ----------- -----------
Income (Loss) before
Income Taxes (684,257) 24,096 (604,413) (726,486)
Income (Recovery of)
Taxes (239,400) 8,900 (211,500) (268,800)
----------- ----------- ----------- -----------
Net Income (Loss) $ (444,857) $ 15,196 $ (392,913) $ (457,686)
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE:
Net Income (Loss) $ (.37) $ .01 $ (.33) $ (.38)
=========== =========== =========== ===========
EARNING PER COMMON SHARE
ASSUMING DILUTION:
Net Income (Loss) $ (.37) $ .01 $ (.33) $ (.38)
=========== =========== =========== ===========
Dividends per Share $ - 0 - $ - 0 - $ .10 $ .15
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
(2)
<PAGE> 3
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
June 30, September 30, June 30,
2000 1999 1999
----------- ------------- -----------
(Unaudited) (Note) (Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 392,907 $ 533,579 $ 432,848
Trade Accounts Receivable - Net 2,539,995 3,377,291 3,641,543
Inventories 6,171,636 5,708,098 5,866,519
Deferred Income Taxes 315,900 315,900 196,000
Prepaid Expenses 93,770 51,569 37,802
Refundable Income Taxes 241,810 199,624 162,763
----------- ----------- -----------
TOTAL CURRENT ASSETS 9,756,018 10,186,061 10,337,475
----------- ----------- -----------
PROPERTY, PLANT AND EQUIPMENT
Land 229,089 229,089 226,738
Buildings 1,454,222 1,565,021 1,541,245
Machinery and Equipment 3,924,392 3,973,241 4,397,330
----------- ----------- -----------
5,607,703 5,767,351 6,165,313
Less: Allowance for Depreciation 3,529,468 3,542,098 3,828,477
----------- ----------- -----------
TOTAL PROPERTY - NET 2,078,235 2,225,253 2,336,836
----------- ----------- -----------
OTHER ASSETS
Goodwill - Net of Amortization 1,828,002 1,833,324 1,860,351
Deferred Charges - Net of Amortization 16,852 35,752 36,398
Deposits 1,750 1,750 1,850
----------- ----------- -----------
TOTAL OTHER ASSETS 1,846,604 1,870,826 1,898,599
----------- ----------- -----------
TOTAL ASSETS $13,680,857 $14,282,140 $14,572,910
=========== =========== ===========
</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,
2000 1999 1999
------------- ------------- -----------
(Unaudited) (Note) (Unaudited)
<S> <C> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Short-term Financing $ 703,000 $ 100,000 $ 475,000
Current Portion of Long-term Debt 102,071 132,616 134,729
Trade Accounts Payable 255,693 682,950 693,789
Accrued Payroll & Related Expenses 401,780 440,107 574,644
Accrued Expenses 387,044 180,481 177,236
Accrued Income Taxes -- 176,757 --
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 1,849,588 1,712,911 2,055,398
----------- ----------- -----------
LONG-TERM LIABILITIES
Deferred Income Taxes 41,500 41,500 165,000
Long-Term Debt 51,731 417,928 432,226
Other Long-Term Liabilities 134,125 -- --
----------- ----------- -----------
TOTAL LONG-TERM LIABILITIES 227,356 459,428 597,226
----------- ----------- -----------
STOCKHOLDERS' EQUITY
Class A, $1.00 par value;
authorized 3,750,000 shares; 746,884 shares
outstanding(744,884 shares at September 30,
1999 and at June 30, 1999) excluding 9,586
shares in treasury 746,884 744,884 744,884
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 953,803 948,803 948,803
Retained Earnings 9,448,360 9,961,248 9,771,733
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY 11,603,913 12,109,801 11,920,286
----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $13,680,857 $14,282,140 $14,572,910
=========== =========== ===========
</TABLE>
(4)
<PAGE> 5
<TABLE>
<CAPTION>
HICKOK INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30,
(Unaudited)
2000 1999
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Cash received from customers $ 14,806,945 $ 12,560,421
Cash paid to suppliers and employees (14,505,352) (13,522,232)
Interest paid (30,210) (63,185)
Interest received 9,777 24,252
Income taxes (paid) refunded (7,443) 124,962
------------ ------------
Net Cash Provided by (Used in)
Operating Activities 273,717 (875,782)
Cash Flows from Investing Activities:
Capital expenditures (436,205) (443,789)
Decrease in deposits -- 2,500
Proceeds on sale of assets 7,875 --
Payments for business purchased (Net) (78,192) --
------------ ------------
Net Cash Used in Investing
Activities (506,522) (441,289)
Cash Flows from Financing Activities:
Change in short-term borrowing 572,455 447,967
Decrease in long-term financing (366,197) (117,249)
Sale of Class A shares under option 5,850 5,850
Dividends paid (119,975) (179,963)
------------ ------------
Net Cash Provided by (Used in)
Financing Activities 92,133 156,605
------------ ------------
Net increase (decrease) in cash and
cash equivalents (140,672) (1,160,466)
Cash and cash equivalents at beginning
of year 533,579 1,593,314
------------ ------------
Cash and cash equivalents at end
of third quarter $ 392,907 $ 432,848
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
(5)
<PAGE> 6
FORM 10-Q
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Reconciliation of Net Income (Loss) to Net
Cash Provided by Operating Activities:
Net Income (Loss) $(392,913) $(457,686)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 531,068 653,129
Non-cash compensation charge
related to stock options 1,150 1,150
Loss (Gain) on disposal of assets 146,694 --
Changes in assets and liabilities:
Decrease (Increase) in accounts
receivable 837,296 (943,531)
Decrease (Increase) in inventories (463,538) 25,570
Decrease (Increase) in prepaid
expenses (42,201) 1,000
Decrease (Increase) in refundable
Income taxes (42,186) 19,049
Increase (Decrease) in trade
accounts payable (427,257) 37,487
Increase (Decrease) in accrued
payroll and related expenses (38,327) (29,995)
Increase (Decrease) in accrued
expenses 206,563 (19,667)
Increase (Decrease) in accrued
income taxes (176,757) (162,288)
Increase (Decrease) in other
long-term liabilities 134,125 --
--------- ---------
Total Adjustments 666,630 (418,096)
--------- ---------
Net Cash Provided by (Used in)
Operating Activities $ 273,717 $(875,782)
========= =========
</TABLE>
(6)
<PAGE> 7
FORM 10-Q
HICKOK INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2000
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, 2000 are not
necessarily indicative of the results that may be expected for the year
ended September 30, 2000. 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,
1999.
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,
2000 1999 1999
----------- ----------- -----------
<S> <C> <C> <C>
Components $ 3,033,549 $ 3,336,853 $ 3,472,175
Work-in-Process 1,703,516 1,408,452 1,107,173
Finished Product 1,434,571 962,293 1,287,171
----------- ----------- -----------
$ 6,171,636 $ 5,708,098 $ 5,866,519
=========== =========== ===========
</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 132,300
Class A shares were outstanding at June 30, 2000 (106,500 shares at
September 30, 1999 and 113,600 shares at June 30, 1999) at prices ranging
from $2.925 to $17.25 per share. Options for 27,800 shares and 23,000
shares were granted during the three month periods ended December 31, 1999
and December 31, 1998 respectively, at a price of $ 5.00 and $7.125 per
share respectively, and all options are exercisable. Options for 2,000
shares were exercised at $2.925 per share during the three month period
ended June 30, 2000 resulting in non-cash compensation to the optionee of
$1,150. Options for 2,000 shares were execised at $2.925 per share during
the three month period ended December 31, 1998 resulting in non-cash
compensation to the optionee of $1,150. Options for 1,000 shares were
cancelled during the three month period ended March 31, 1999.
(7)
<PAGE> 8
FORM 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
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 30,000 Class A shares were outstanding
at June 30, 2000 (36,000 shares at September 30, 1999 and June 30, 1999)
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, 2000 and March 31, 1999, at a price of $8.50
and $7.125 per share, respectively. Options for 6,000 shares expired
during the three month period ended March 31, 1999. Options for 12,000
shares were cancelled during the three month period ended June 30, 2000.
All outstanding options under the Directors Plans become fully exercisable
on February 25, 2003.
Unissued shares of Class A common stock (617,166 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 $.10 per share special dividend on its Class A and
Class B common shares on February 23, 2000 payable March 31, 2000 to
shareholders of record March 15, 2000. A special dividend of $.15 per
share on Class A and Class B common shares, payable January 22, 1999 to
shareholders of record January 4, 1999, was declared on December 9, 1998.
(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,
-------------------------- -----------------------------
2000 1999 2000 1999
---------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income (Loss) available
to common stockholders $ (444,857) $ 15,196 $ (392,913) $ (457,686)
Shares denominator 1,200,564 1,199,750 1,201,235 1,199,303
Per share amount $ (.37) $ .01 $ (.33) $ (.38)
=========== ========== =========== ===========
EFFECT OF DILUTIVE
SECURITIES
Average shares
Outstanding 1,200,564 1,199,750 1,201,235 1,199,303
Stock options -- 13,995 -- --
----------- ---------- ----------- -----------
1,200,564 1,213,745 1,201,235 1,199,303
DILUTED EARNINGS PER SHARE
Income (Loss) available
to common stockholders $ (444,857) $ 15,196 $ (392,913) $ (457,686)
Per share amount $ (.37) $ .01 $ (.33) $ (.38)
=========== ========== =========== ===========
</TABLE>
Options to purchase 162,300 and 98,400 shares of common stock during the third
quarter of fiscal 2000 and the third quarter of fiscal 1999, 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.
For the nine month periods ended June 30, 2000 and 1999 options to purchase
162,300 and 149,600 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. which has been accounted for under the purchase method of
accounting. The Company initially paid $2,221,302 for the assets
consisting 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 also recorded as goodwill closing costs related to the
purchase ($205,216) and the present value of an earn out contract
($585,892). In December 1999 the Company renegotiated and accelerated the
terms of the future earn out contract incurring an additional amount due
of $78,192 deemed to be additional purchase price and recorded as an
increase in goodwill. The revised earn out balance ($61,943) has been
classified as a current liability at June 30, 2000. Goodwill is being
amortized over 20 years.
6. NON-RECURRING CHARGES
During the third quarter of fiscal 2000, the Company decided to close its
Kirkwood, Pennsylvania production facility and incorporate this operation
into its existing Greenwood, Mississippi production facility. The actual
closing occurred on July 14, 2000. In connection with this decision, the
Company recorded charges of $434,015 consisting of future lease payments
($228,375), losses and abandonment of the plant facility and equipment
($111,750) and employee severance and related expenses ($93,890).
These costs are included in other (income) expense. The corresponding
liability consists of a current portion of $200,079 which is included in
accrued expenses and a long-term portion of $134,125 which is included in
other long-term liabilities.
7. SEGMENT AND RELATED INFORMATION
The Company has adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, which changes the way the Company
reports the information about its operating segments. The information for
1999 has been restated from the prior year's presentation in order to
conform to the current-year presentation.
The Company's four business units have separate management teams and
infrastructures that offer different products and services. The business
units have been aggregated into two reportable segments: 1.) indicators
and gauges and 2.) automotive related diagnostic tools and equipment.
INDICATORS AND GAUGES
This segment consists of products manufactured and sold primarily to
companies in the aircraft and locomotive industry. Within the aircraft
market, the primary customers are those companies that manufacture
business and pleasure aircraft. Within the locomotive market, indicators
and gauges are sold to both original equipment manufacturers and to
operators of railroad equipment.
(10)
<PAGE> 11
FORM 10Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
AUTOMOTIVE DIAGNOSTIC TOOLS AND EQUIPMENT
This segment consists primarily of products designed and manufactured to
support the servicing of automotive electronic systems. These products are
sold to the aftermarket using a variety of distribution methods. The
acquisition of Waekon Industries in 1998 added significant new products
and distribution sources for the aftermarket.
Included in this segment are fastening control products used by a large
automobile manufacturer to monitor and control the nut running process in
an assembly plant. This equipment provides high quality threading
applications. The product was added in fiscal 1994 when the Company
acquired the fastening systems business from Allen-Bradley Company.
(11)
<PAGE> 12
FORM 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
INFORMATION BY INDUSTRY SEGMENT IS SET FORTH BELOW:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------------- -----------------------------
2000 1999 2000 1999
------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
NET REVENUE
Indicators and Gauges $ 690,423 $ 676,907 $ 1,879,400 $ 1,968,925
Automotive Diagnostic Tools
and Equipment 3,502,824 4,431,946 12,090,249 11,535,027
----------- ----------- ----------- -----------
$ 4,193,247 $ 5,108,853 $13,969,649 $13,503,952
=========== =========== =========== ===========
INCOME (LOSS) FROM OPERATIONS
Indicators and Gauges $ 118,762 $ 171,685 $ 391,248 $ 453,910
Automotive Diagnostic Tools
and Equipment 268,947 616,339 1,504,859 1,191,702
General Corporate Expenses (1,071,966) (763,928) (2,500,520) (2,372,098)
----------- ----------- ----------- -----------
$ (684,257) $ 24,096 $ (604,413) $ (726,486)
=========== =========== =========== ===========
ASSET INFORMATION
Indicators and Gauges $ 1,265,569 $ 1,417,002
Automotive Diagnostic Tools
and Equipment 9,313,926 10,296,293
Corporate 3,101,362 2,859,615
----------- -----------
$13,680,857 $14,572,910
=========== ===========
GEOGRAPHICAL INFORMATION
Included in the consolidated
financial statements are the
following amounts related to
geographical locations:
REVENUE:
United States $ 3,838,469 $ 4,936,987 $13,051,239 $12,808,036
Canada 128,118 113,106 291,754 460,775
Other foreign countries 226,660 58,760 626,656 $ 235,141
----------- ----------- ----------- -----------
$ 4,193,247 $ 5,108,853 $13,969,649 $13,503,952
=========== =========== =========== ===========
</TABLE>
(12)
<PAGE> 13
FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations, Third Quarter (April 1, 2000 through June 30, 2000)
Fiscal 2000 Compared to Third Quarter Fiscal 1999
--------------------------------------------------------------------------
REPORTABLE SEGMENT INFORMATION
The Company has determined that it has two reportable segments: 1) indicators
and gauges and 2) automotive related diagnostic tools and equipment. The
indicators and gauges segment consists of products manufactured and sold
primarily to companies in the aircraft and locomotive industry. Within the
aircraft market, the primary customers are those companies that manufacture
business and pleasure aircraft. Within the locomotive market, indicators and
gauges are sold to both original equipment manufacturers and to operators of
railroad equipment. Revenue in this segment was $690,423 and $676,907 for the
third quarter of fiscal 2000 and fiscal 1999, respectively and $1,879,400 and
$1,968,925 for the first nine months of fiscal 2000 and fiscal 1999,
respectively. The automotive diagnostic tools and equipment segment consists
primarily of products designed and manufactured to support the servicing of
automotive electronic systems. These products are sold both directly to the end
user and to the aftermarket using a variety of distribution methods. Included in
this segment are fastening control products used primarily by a large automobile
manufacturer to monitor and control the nut running process in an assembly
plant. Revenue in this segment was $3,502,824 and $4,431,946 for the third
quarter of fiscal 2000 and fiscal 1999, respectively and $12,090,249 and
$11,535,027 for the first nine months of fiscal 2000 and fiscal 1999,
respectively.
RESULTS OF OPERATIONS
Product sales for the quarter ended June 30, 2000 were $3,780,369 versus
$4,756,887 for the quarter ended June 30, 1999. The 21% decrease in product
sales in the current quarter is volume related and due entirely to a decrease in
sales of automotive diagnostic products to the aftermarket. The Company
anticipates that the current amount of product sales experienced in the third
quarter will increase slightly in the fourth quarter based on recent order
levels.
Service sales for the quarter ended June 30, 2000 were $412,878 versus $351,966
for the quarter ended June 30, 1999. 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 2000 was $2,181,791 or 57.7%
of product sales as compared to $2,912,228 or 61.2% of product sales in the
third quarter of 1999. This decrease in the cost of product sold percentage was
due primarily to a change in product mix applicable to sales of higher margin
automotive diagnostic products to the aftermarket and other markets. 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, 2000 was $286,476 or 69.4%
of service sales as compared to $233,955 or 66.5% of service sales in the
quarter ended June 30, 1999. This increase in the cost of service sold
percentage was due to a slight increase in warranty repairs. 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 $650,871 in the third quarter of fiscal 2000
or 17.2% of product sales as compared to $700,178 or 14.7% of product sales in
the third quarter of fiscal 1999. The dollar decrease was due to a reduction in
staff, primarily part-time engineers, due to a temporary reduction in current
development projects.
(13)
<PAGE> 14
FORM 10-Q
The percentage increase is due primarily to a 21% decrease in product sales. The
level of expenditures incurred during the third quarter of fiscal 2000 is
expected to continue in the fourth quarter.
Operating expenses in the most recent quarter were $1,315,809 or 31.4% of total
sales versus $1,230,091 or 24.1% of total sales for the same period a year ago.
The dollar increase in operating expenses is due entirely to higher royalty
payments associated with sales of automotive OEM diagnostic products. The
current level of operating expenses is expected to continue for the balance of
the fiscal year.
Interest expense was $17,083 in the third quarter of fiscal 2000, as compared to
$16,504 in the third quarter of fiscal 1999. The current level of interest
expense will continue for the remainder of fiscal 2000.
Other expense of $425,474 in the current quarter compares with other income of
$8,199 in the same quarter last year. The change is due to recording a one-time
charge of $434,015 associated with the decision to close the Company's
manufacturing facility in Kirkwood, Pennsylvania. The facility was closed on
July 14, 2000 and all production was moved to the Company's Greenwood,
Mississippi manufacturing facility. The Company expects to save approximately
$600,000 annually as a result of the restructuring. Costs recorded include lease
termination expense of $228,375, severance and related payroll expenses of
$93,890 and fixed asset impairment costs of $111,750.
The net loss in the third quarter of fiscal 2000 was $444,857 which compared
with net income of $15,196 in fiscal 1999. Approximately two-thirds of the
change was due to costs associated with the closing of the Company's Kirkwood,
Pennsylvania manufacturing facility. The balance of the change was due to a 21%
reduction in product sales.
Unshipped customer orders as of June 30, 2000 were $4,745,000 versus $4,095,000
at June 30, 1999. The increase was primarily due to an increase in orders for
indicators and gauges ($540,000) and for automotive diagnostic products
($110,000). Almost all of the increase in orders highlighted above are expected
to ship in early fiscal 2001.
Results of Operations, Nine Months Ended June 30, 2000
Compared to Nine Months Ended June 30, 1999
------------------------------------------------------
Product sales for the nine months ended June 30, 2000 were $12,918,332 versus
$12,509,365 for the same period in fiscal 1999. The increase is volume related
due to higher sales of automotive diagnostic products during the first three
months of fiscal 2000.
Service sales for the nine months ended June 30, 2000 were $1,051,317 compared
with $994,587 for the same period in fiscal 1999. The increase was both volume
and price related.
Cost of product sold was $7,219,999 or 55.9% of product sales as compared to
$7,688,413 or 61.5% product sales for the nine months ended June 30, 1999. This
decrease in the cost of product sold percentage was due to a change in product
mix and to operating efficiencies realized at the manufacturing level.
Cost of service sold was $730,541 or 69.5% of service sales compared with
$669,408 or 67.3% of service sales for the nine months ended June 30, 1999.
Product development expenses were $2,112,676 or 16.4% of product sales as
compared to $2,058,709 or 16.5% of product sales for the nine months ended June
30, 1999.
(14)
<PAGE> 15
FORM 10-Q
Operating expenses were $4,032,392 for the nine months ended June 30, 2000 or
28.9% of total sales versus $3,807,927 or 28.2% of total sales for the nine
months ended June 30, 1999. Most of the dollar increase represents higher
marketing expenses applicable to automotive product sales to the aftermarket.
Interest expense was $41,515 for the nine months ended June 30, 2000, and
$49,814 for the same period in 1999. This decrease was due to lower long-term
debt.
Other expense of $436,939 in first nine months of fiscal 2000 compares with
other income of $43,833 in the same period last year. The change was due
primarily to recording a one-time charge of $434,015 associated with the
decision to close the Company's manufacturing facility in Kirkwood,
Pennsylvania.
The net loss for the nine months ended June 30, 2000 was $392,913 compared with
a net loss of $457,686 for the nine months ended June 30, 1999. The improvement
was due to an increase in gross product margin offset by an increase in other
costs of almost $480,000, most of which represented one-time charges associated
with the decision to close the Company's manufacturing facility in Kirkwood,
Pennsylvania. The facility was closed on July 14, 2000 as a cost saving measure
and production was transferred to the Company's Greenwood, Mississippi facility.
LIQUIDITY AND CAPITAL RESOURCES
Total current assets were $9,756,018, $10,186,061 and $10,337,475 at June 30,
2000, September 30, 1999 and June 30, 1999, respectively. The decrease from June
to June was due primarily to a reduction in accounts receivable due to lower
product sales in the last two months of the current quarter versus the
comparable period a year ago. Between September 1999 and June 2000, current
assets dropped by approximately $430,000 due to a decrease in accounts
receivable of $837,000 as a result of lower sales in the current period offset
by an increase in inventory of $464,000.
Working capital as of June 30, 2000 amounted to $7,906,430 compared to
$8,282,077 a year earlier. Current assets were 5.3 times current liabilities and
total cash and receivables were 1.6 times current liabilities. These ratios
compare to 5.0 and 2.0, respectively, at June 30, 1999.
Internally generated funds were $273,717 during the nine months ended June 30,
2000 but were not adequate to fund the Company's primary non-operating cash
requirements consisting of capital expenditures of $436,205 and long term debt
payments of $366,197. The shortfall was made up by a comparable increase in
short term financing. 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 2000.
Shareholders' equity during the nine months ended June 30, 2000 decreased by
$505,888 ($.42 per share) resulting primarily from a net loss of $392,913 plus a
$119,975 payment of dividends.
In February 2000, the Company renewed its credit agreement with its financial
lender. The agreement expires in February 2001, 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.
(15)
<PAGE> 16
FORM 10-Q
YEAR 2000 READINESS DISCLOSURE
The Company has completed its Year 2000 remediation efforts and, since the turn
of the century, has not experienced any significant problems internally or with
suppliers and customers in connection with this event. Nevertheless, additional
dates in the future exist which could potentially cause computer system
failures. The Company's most likely worst case scenario would be a short-term
slowdown or cessation of manufacturing operations at one or more of its
facilities and a short-term inability on the part of the Company to process
orders and to deliver product to customers in a timely manner. Because the
Company has not, to date, experienced any significant problems in the Year 2000,
it does not anticipate any major impact in its operations.
FORWARD-LOOKING STATEMENTS
The foregoing discussion includes forward-looking statements relating to the
business of the Company. These forward-looking statements, or other statements
made by the Company, are made based on management's expectations and beliefs
concerning future events impacting the Company and are subject to uncertainties
and factors (including, but not limited to, those specified below) which are
difficult to predict and, in many instances, are beyond the control of the
Company. As a result, actual results of the Company could differ materially from
those expressed in or implied by any such forward-looking statements. These
uncertainties and factors include (a) the Company's dependence upon a limited
number of customers, including Ford and General Motors, (b) the highly
competitive industry in which the company operates, which includes several
competitors with greater financial resources and larger sales organizations, and
(c) the acceptance in the marketplace of new products and/or services developed
or under development by the Company including automotive diagnostic products,
fastening systems products and indicating instrument products, and (d) the
ability of the Company to effectively make the transition from primarily serving
OEM customers to serving smaller customers in the automotive aftermarket.
(16)
<PAGE> 17
FORM 10-Q
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------------------------------------------------------------------
The Company is exposed to certain market risks from transactions that are
entered into during the normal course of business. The Company has not entered
into derivative financial instruments for trading purposes. The Company's
primary market risk exposure relates to interest rate risk. There were no
material changes in the Company's exposure to market risk from September 30,
1999.
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, 2000.
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 14, 2000 HICKOK INCORPORATED
(Registrant)
/s/ E. T. Nowakowski
-----------------------------------------
E. T. Nowakowski, Chief Financial Officer
(17)
