UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1995
--------------
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 number 0-7647
------
HAWKINS CHEMICAL, INC.
----------------------
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0771293
--------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
3100 East Hennepin Avenue, Minneapolis, Minnesota 55413
-------------------------------------------------------
(Address of principal executive offices) Zip Code
(612)331-6910
-------------
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 12, 1995
----- ---------------------------
Common Stock, par value $.05 per share 10,525,772
HAWKINS CHEMICAL, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets - March 31, 1995
and October 2, 1994. . . . . . . . . . . . . . . . . . . 3
Consolidated Condensed Statements of Income - Three
Months and Six Months Ended March 31, 1995 and 1994. . . 4
Consolidated Condensed Statements of Cash Flows - Six
Months Ended March 31, 1995 and 1994 . . . . . . . . . . 5
Notes to Consolidated Condensed Financial Statements . . . 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . 8-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Securities Holders. . . 10
Item 6. Exhibits and Reports of Form 8-K . . . . . . . . . . . . . 11
Financial Data Schedule. . . . . . . . . . . . . . . . . . Exhibit 27
2
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
HAWKINS CHEMICAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, 1995 October 2, 1994
-------------- ---------------
ASSETS (Unaudited) (Derived from Audited
financial statements)
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . $ 8,080,781 $ 6,895,341
Cash investments . . . . . . . . . . . . . . . . . . 6,764,267 6,576,743
Accounts receivable-net. . . . . . . . . . . . . . . 9,985,828 9,509,807
Note receivable. . . . . . . . . . . . . . . . . . . 208,943 0
Inventories. . . . . . . . . . . . . . . . . . . . . 7,582,249 7,844,591
Other current assets . . . . . . . . . . . . . . . . 2,242,940 1,339,833
------------- -------------
Total current assets . . . . . . . . . . . . . . 34,865,008 32,166,315
Property, plant and equipment-net. . . . . . . . . . . 10,320,502 9,582,007
Net assets of discontinued operations. . . . . . . . . 38,185 1,614,717
Note receivable-non current. . . . . . . . . . . . . . 835,771
Other assets . . . . . . . . . . . . . . . . . . . . . 2,623,637 2,611,945
------------- -------------
Total $48,683,103 $45,974,984
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . $ 9,037,864 $ 5,746,620
Current portion of long-term debt. . . . . . . . . . . 52,344 48,919
Other current liabilities. . . . . . . . . . . . . . . 3,615,662 4,389,962
------------- -------------
Total current liabilities. . . . . . . . . . . . . . 12,705,870 10,185,501
------------- -------------
Long term debt . . . . . . . . . . . . . . . . . . . . 628,461 680,805
------------- -------------
Deferred income taxes. . . . . . . . . . . . . . . . . 333,300 335,300
------------- -------------
Shareholders' equity:
Common stock, par value $.05 per share; issued
and outstanding, 10,525,772 shares and
9,569,196 shares respectively. . . . . . . . . . . 526,289 478,460
Additional paid-in capital . . . . . . . . . . . . 34,235,623 26,869,988
Retained earnings. . . . . . . . . . . . . . . . . 253,560 7,424,930
------------- -------------
Total shareholders' equity . . . . . . . . . . . 35,015,472 34,773,378
------------- -------------
Total $48,683,103 $45,974,984
------------- -------------
------------- -------------
See accompanying notes
3
HAWKINS CHEMICAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31 Six Months Ended March 31
1995 1994 1995 1994
-------------- -------------- -------------- --------------
Net sales $18,902,641 $15,293,140 $35,397,118 $29,485,158
-------------- -------------- -------------- --------------
Costs and expenses:
Cost of sales 14,928,367 11,704,670 27,785,095 22,460,781
Selling, general and administrative 1,953,278 1,886,422 3,831,077 3,657,047
Unusual and nonrecurring 750,000 0 750,000 0
-------------- -------------- -------------- -------------
Total costs and expenses 17,631,645 13,591,092 32,366,172 26,117,828
-------------- -------------- -------------- -------------
Income from operations 1,270,996 1,702,048 3,030,946 3,367,330
-------------- -------------- -------------- -------------
Other income (deductions):
Interest income 241,373 143,421 433,588 267,638
Interest expense (13,750) (14,597) (27,489) (32,108)
Miscellaneous 1,176 2,302 23,764 38,923
-------------- -------------- -------------- -------------
Total other income (deductions) 228,799 131,126 429,863 274,453
Income from continuing operations before income
taxes 1,499,795 1,833,174 3,460,809 3,641,783
Provision for income taxes from continuing operations 601,800 729,400 1,389,900 1,448,800
-------------- -------------- -------------- -------------
Income from continuing operations 897,995 1,103,774 2,070,909 2,192,983
Discontinued Operations:
Income (loss) from operations of Tessman Seed,
Inc. (less applicable income taxes of ($8,600),
$3,500, ($46,500),($15,000), respectively) (12,972) 5,105 (69,905) (22,716)
Loss on disposal of assets of Tessman Seed, Inc.
(less applicable income taxes of $214,200) (321,266) 0 (321,266) 0
-------------- -------------- -------------- -------------
Income (loss) from discontinued operations (334,238) 5,105 (391,171) (22,716)
-------------- -------------- -------------- -------------
Net income $ 563,757 $ 1,108,879 $ 1,679,738 $ 2,170,267
-------------- -------------- -------------- -------------
-------------- -------------- -------------- -------------
Weighted average number of shares
outstanding 10,525,772 10,525,772 10,525,772 10,525,772
-------------- -------------- -------------- -------------
-------------- -------------- -------------- -------------
Earnings per common share
Continuing operations $0.08 $0.10 $0.20 $0.21
Discontinued operations (0.03) 0.00 (0.04) 0.00
-------------- -------------- -------------- -------------
Total $0.05 $0.10 $0.16 $0.21
-------------- -------------- -------------- -------------
-------------- -------------- -------------- -------------
See accompanying notes
4
HAWKINS CHEMICAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED MARCH 31
-----------------------------------
1995 1994
-------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,679,738 $ 2,170,268
Net loss on disposal of assets of Tessman Seed, Inc. . . . . . . . . . . . . 321,266 0
Net loss on discontinued operations of Tessman Seed, Inc . . . . . . . . . . 69,905 0
Unusual and nonrecurring charge. . . . . . . . . . . . . . . . . . . . . . . 750,000 0
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . 652,849 641,804
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . (262,000) (53,250)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44,091) (40,591)
Changes in certain current assets and liabilities. . . . . . . . . . . . . . (486,839) (798,972)
-------------- ---------------
Net cash provided by operating activities . . . . . . . . . . . . . . . . 2,680,828 1,919,259
-------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment . . . . . . . . . . . . . . . . . (1,358,945) (457,423)
Cash investment additions. . . . . . . . . . . . . . . . . . . . . . . . . . (187,524) (600,522)
Acquisition of Industrial Chemical . . . . . . . . . . . . . . . . . . . . . 0 (1,772,706)
Cash received on sale of assets and business of Tessman Seed, Inc. . . . . . 100,000 0
-------------- ---------------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . (1,446,469) (2,830,651)
-------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (48,919) 0
-------------- ---------------
Net cash used in financing activities . . . . . . . . . . . . . . . . . . (48,919) 0
-------------- ---------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . 1,185,440 (911,392)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR . . . . . . . . . . . . . . . . . 6,895,341 9,519,580
-------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . . . . . . . . $ 8,080,781 $ 8,608,188
-------------- ---------------
-------------- ---------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56,111 $ 7,961
-------------- ---------------
-------------- ---------------
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,404,000 $ 1,749,794
-------------- ---------------
-------------- ---------------
See accompanying notes
5
HAWKINS CHEMICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions for Form 10-Q and,
accordingly, do not include all information and footnotes required by generally
accepted accounting principles for complete financial statements. These
statements should be read in conjunction with the financial statements and
footnotes included in the Company's Annual Report on Form 10-K for the year
ended October 2, 1994, previously filed with the Commission. In the opinion of
management, the accompanying unaudited consolidated condensed financial
statements contain all adjustments necessary to present fairly the Company's
financial position and the results of its operations and cash flows for the
periods presented. All adjustments made to the interim financial statements
were of a normal recurring nature except as discussed in note 3 below.
The accounting policies followed by the Company are set forth in Note 1 to the
Company's financial statements in the 1994 Hawkins Chemical, Inc. Annual Report
which is incorporated by reference to Form 10-K filed with the Commission on
December 30, 1994.
2. Effective March 1, 1995, the Company sold the inventory, equipment and
operations of Tessman Seed, Inc., which sold a wide range of horticulture and
pest control products. As a result of the sale the Company recorded a loss on
disposal of $321,266, net of taxes totaling $214,200, to write-down Tessman's
assets to the amount realized.
Revenues for Tessman for the quarters ending March 31, 1995 and 1994 were
$507,000 and $1,214,000, respectively, and for the six months ending March 31,
1995 and 1994 were $931,000 and $1,919,000, respectively. The assets and
liabilities of the discontinued operations have been reclassified on the balance
sheet from their historic classification to separately identify them as net
assets of discontinued operations and principally consisted at October 2, 1994
of accounts receivable, inventory, equipment and accounts payable.
The inventory, equipment and operations of Tessman were sold for $1,144,714. At
closing Hawkins received $100,000 and a note receivable for the balance. The
note receivable is due over the next 5 years plus interest at 8%.
3. The Company has recorded in the three months ended March 31, 1995, as
unusual and nonrecurring expenses, an accrual of $750,000 to cover expected
settlement costs, legal fees and expenses which may be incurred by the Company
in connection with it's defense of a lawsuit filed against The Company related
to a fire in the office/warehouse of Lynde Company, a wholly owned subsidiary.
See Part II, Item 1 of this filing for additional information.
4. Investments consist of insurance contracts with highly rated, stable
insurance companies, and marketable securities consisting of investment grade
municipal securities, all of which are carried at cost which approximates fair
value. On October 3, 1994, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." The adoption of SFAS No.
115 did not have a material impact on the Company's financial statements. These
securities are classified as "available-for-sale" as defined by SFAS No. 115.
5. The results of operations for the period ended March 31, 1995 are not
necessarily indicative of the results that may be expected for the full year.
6
6. Inventories, principally valued by the LIFO method, are less than current
cost by approximately $2,017,521 at March 31, 1995. Inventory consists
principally of finished goods. Inventory quantities fluctuate during the year.
No material amounts of interim liquidation of inventory quantities have occurred
that are not expected to be replaced by year-end.
7. Earnings per common share and cash dividends per common share are based
upon the weighted average number of shares outstanding after giving retroactive
effect to a 10% stock dividend declared February 15, 1995 to shareholders of
record at the close of business on March 31, 1995. Cash dividends accrued of
$1,437,644 are included in accounts payable at March 31, 1995.
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
CONTINUING OPERATIONS
Net sales increased $3,609,501 (23.6%) in the second quarter of this fiscal year
as compared to the same quarter a year ago, and $5,911,960 (20.1%) in the first
six months of fiscal 1995 as compared to the same period in fiscal 1994. These
increases are primarily due to increases in the selling price of a single
large-volume product, as well as volume increases which were less significant.
Gross margin, as a percentage of net sales, for the second quarter of fiscal
1995 was 21.0% compared to 23.5% for the same quarter one year ago, and 21.5%
for the first six months of fiscal 1995 as compared to 23.8% for the first six
months of fiscal 1994. These decreases are mainly attributable to the increased
cost of the single large-volume product mentioned previously, which resulted in
an increase in the cost of sales of $450,000 and $1,015,000 in the second
quarter and first six months of fiscal 1995 respectively. One year ago, the
cost of this product dropped substantially, causing unusually high gross
margins. Gross margins are now more in line with what they have been in the
past. The Company has generally been able to and expects to continue to adjust
its selling prices as the cost of materials and other expenses change, thereby
maintaining relatively stable gross margins.
Selling, general and administrative expenses, as a percentage of net sales, for
the second quarter of fiscal 1995 were 10.3% compared to 12.3% for the same
quarter one year ago, and 10.8% for the first six months of fiscal 1995 as
compared to 12.4% for the first six months of fiscal 1994. These expenses are
primarily fixed and do not fluctuate with net sales.
The unusual and nonrecurring charge in the second quarter and first six months
of fiscal 1995 is attributable to the recording of a $750,000 reserve to cover
settlement costs, legal fees and expenses which may be incurred by the Company
in connection with its defense of a lawsuit filed against the Company. The
lawsuit alleges that the plaintiff sustained damages resulting from a fire at an
office/warehouse facility used by The Lynde Company, a wholly owned subsidiary
of the Company. The actual legal fees and expenses, and liability or
settlement costs, if any, which may be incurred by the Company throughout the
life of the lawsuit are highly dependent on a variety of technical legal
issues. For further discussion of the lawsuit, please see Part II, Item 1 of
this Form 10-Q. The Company's operations were not materially impacted by the
event as operations were able to be relocated to other facilities.
Additionally, insurance will cover most of the loss sustained to the building
and inventory.
Interest income increased $97,952 in the second quarter of fiscal 1995 as
compared to the same quarter one year ago and $165,950 for the first six months
of this fiscal year as compared to the same period one year ago. These
increases are due to an increase in the amount of cash available for investments
and to a higher rate of return earned on cash equivalents and investments.
Interest expense decreased slightly due mainly to the settlement of an income
tax audit in the prior year.
Income from operations before income taxes decreased $431,052 (25.3%) in the
second quarter and $336,384 (10.0%) for the first six months of fiscal 1995 when
compared to fiscal 1994. These decreases are primarily attributable to the
$750,000 accrual mentioned above. The decreases were offset in part by an
increase in gross margin dollars associated with increased revenues.
DISCONTINUED OPERATIONS
In March 1995, the Company adopted a formal plan to discontinue operations of
Tessman Seed, which sold a wide range of horticulture and pest control products.
Effective March 1, 1995, the Company sold the inventory, equipment and
operations of Tessman. As a result of the purchase transaction the
8
Company recorded a loss on the disposal in the second quarter of $321,266, net
of taxes totaling $214,200, to write-down Tessman's assets to the amount
realized.
Revenues for Tessman for the quarters ended March 31, 1995 and 1994 were
$507,000 and $1,214,000, respectively, and for the six months ended March 31,
1995 and 1994 were $931,000 and $1,919,000, respectively. The income/(loss) for
Tessman for the quarters and six months ending
March 31, 1995 and 1994 were less than $.01 per share.
LIQUIDITY AND CAPITAL RESOURCES
For the six month period ended March 31, 1995 cash flows from operations were
$2,680,828, which is $1,001,090 higher than net income primarily due to non-cash
charges incurred for the loss on the sale of Tessman and the unusual and
nonrecurring charge relating to the Lynde lawsuit.
During the six months ended March 31, 1995, the Company purchased additional
equipment and made improvements to the existing facilities for cash of
$1,358,945, and purchased $187,524 of investments.
The inventory, equipment and operations of Tessman were sold for $1,144,714. At
closing Hawkins received $100,000 and a note receivable for the balance. The
note receivable is due over the next five years plus interest at 8%.
The cash flows from operations, coupled with the Company's strong cash position,
puts the Company in a position to fund both short and long-term working capital
and capital investment needs with internally generated funds. Management does
not, therefore, anticipate the need to engage in significant financing
activities in either the short or long-term. If the need to obtain additional
capital does arise, however, management is confident that the Company's total
debt to capital ratio puts the Company in a position to issue either debt or
equity securities on favorable terms.
Although management continually reviews opportunities to enhance the value of
the Company through strategic acquisitions, other capital investments and
strategic divestitures, no material commitments for such investments or
divestitures currently exist. Until appropriate investment opportunities are
identified, the Company will continue to invest excess cash in conservative
investments. Cash equivalents consist of short-term certificates of deposit and
investments consist of low-risk investment contracts with highly rated, stable
insurance companies, and marketable securities consisting of investment grade
municipal securities, all of which are carried at cost which approximates fair
value. All cash equivalents and investments are highly liquid and are available
upon demand.
Other than as discussed above, management is not aware of any matters that have
materially affected the first six months of fiscal 1995, but are not expected to
materially affect future periods, nor is management aware of other matters not
affecting this period that are expected to materially affect future periods.
9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On March 1, 1995, the Company and its subsidiary The Lynde Company were named as
defendants in DONNA M. COOKSEY.ET AL. V. HAWKINS CHEMICAL, INC. AND THE LYNDE
COMPANY. This proceeding is currently pending in state district court in
Hennepin County, Minnesota. The plaintiff is seeking damages for personal
injury, property damage and other damages alleged to have been caused by the
alleged release of certain pollutants as a result of a fire at an
office/warehouse facility used by The Lynde Company. The plaintiff is also
seeking to have the lawsuit certified as a class action. The Company has denied
liability and intends to vigorously defend itself in this matter.
The Company's insurer has denied a tender of the defense of the lawsuit and has
denied any obligation to indemnify the Company for damages claimed by third
parties in connection with the fire. This denial is based on a "Total Pollution
Exclusion" which purports to exclude coverage for bodily injury and other losses
caused by a release of pollutants. Because the insurer has denied tender of the
defense of this action, the Company will incur significant legal fees and
expenses in fiscal 1995 and future periods. The actual legal fees and
expenses, and liability or settlement costs, if any, which may be incurred
by The Company throughout the life of the lawsuit are highly dependent on a
variety of technical legal issues. The Company, based in part on discussions
with legal counsel, has determined, however, to reserve $750,000 to cover its
exposure for these costs and its potential liability. The Company reasonably
believes, based on facts currently available, that this reserve will be
sufficient to cover the Company's probable exposure for legal costs and
liability in connection with the lawsuit.
Item 4. Submission of matter to a vote of Security Holders.
a. The annual meeting of the shareholders of the Company was held on
February 15, 1995.
c. The following is a tabulation of the results of votes cast on the
matters noted upon at the annual meeting of the shareholders:
Election of Directors:
Broker
For Against Withheld Abstain Non-Votes
--------- ------- -------- ------- ---------
Howard J. Hawkins 7,919,870 0 51,787 0 0
Dean L. Hahn 7,919,870 0 51,787 0 0
Carl J. Ahlgren 7,898,834 0 72,823 0 0
Howard M. Hawkins 7,666,708 0 304,949 0 0
Norman P. Anderson 7,919,870 0 51,787 0 0
Donald L. Shipp 7,645,672 0 325,985 0 0
C. Charles Jackson, Jr. 7,898,834 0 72,823 0 0
John S. McKeon 7,919,870 0 51,787 0 0
John R. Hawkins 7,919,540 0 52,117 0 0
S. Albert Diez Hanser 7,904,901 0 66,756 0 0
Approval of Deloitte & Touche as Independent Auditors:
Broker
For Against Abstain Non-Votes
--------- ------- ------- ---------
7,474,375 419,313 77,969 0
10
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The following exhibits are included with this Quarterly Report on Form 10-Q
(or incorporated by reference) as required by Item 601 of Regulation S-K.
Exhibit No. Description Page No.
- - - - - ----------- ----------------------- --------
27 Financial Data Schedule 13
(b) Reports on Form 8-K.
A current report on Form 8-K was filed on April 18, 1995, disclosing a
press release regarding the litigation related to the fire at The Lynde
Company's office/warehouse.
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.
HAWKINS CHEMICAL, INC.
BY_______________________________
Howard M. Hawkins, Treasurer
(Chief Financial and Accounting
Officer)
Dated: May 12, 1995
5
6-MOS
OCT-01-1995
OCT-03-1994
MAR-31-1995
8,080,781
6,764,267
9,985,828
0
7,582,249
34,865,008
10,320,502
0
48,683,103
12,705,870
0
526,289
0
0
34,489,183
48,683,103
35,397,118
35,397,118
27,785,095
32,366,172
0
0
27,489
3,460,809
1,389,900
2,070,909
391,171
0
0
1,679,738
.16
0
