UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1997
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, 1997
- -------------------------------------- ---------------------------
Common Stock, par value $.05 per share 11,603,895
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, 1997 and
September 29, 1996 . . . . . . . . . . . . . . . . . . . . . . .3
Consolidated Condensed Statements of Income - Three Months and
Six Months Ended March 31, 1997 and 1996 . . . . . . . . . . . .4
Consolidated Condensed Statements of Cash Flows - Six Months
Ended March 31, 1997 and 1996. . . . . . . . . . . . . . . . . .5
Notes to Consolidated Condensed Financial Statements . . . . . . .6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . .7-8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . .9
Item 4. Submission of Matters to a Vote of Securities Holders. . . . . . .9
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 10
Exhibit Index. . . . . . . . . . . . . . . . . . . . . . . . . . 11
Financial Data Schedule. . . . . . . . . . . . . . . . . . . . . 12
2
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
HAWKINS CHEMICAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, 1997 September 29, 1996
---------------- ----------------------
(Unaudited) (Derived from Audited
financial statements)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 8,854,450 $ 8,932,125
Investments (fair value approximates cost). . . . . . . . 10,738,555 10,504,603
Accounts receivable-net . . . . . . . . . . . . . . . . . 9,649,623 9,740,285
Notes receivable. . . . . . . . . . . . . . . . . . . . . 171,986 170,988
Inventories . . . . . . . . . . . . . . . . . . . . . . . 6,388,817 8,584,034
Other current assets. . . . . . . . . . . . . . . . . . . 1,438,022 924,457
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . 37,241,453 38,856,492
Property, plant and equipment-net. . . . . . . . . . . . . . 13,744,000 13,187,678
Note receivable-non current. . . . . . . . . . . . . . . . . 1,660,603 1,797,707
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 2,658,112 2,645,479
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $55,304,168 $56,487,356
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . $ 5,310,271 $ 6,709,434
Current portion of long-term debt . . . . . . . . . . . . 59,928 56,008
Dividends payable . . . . . . . . . . . . . . . . . . . . 997,274 884,135
Other current liabilities . . . . . . . . . . . . . . . . 3,042,736 4,823,394
----------- -----------
Total current liabilities. . . . . . . . . . . . . . . 9,410,209 12,472,971
Long term debt . . . . . . . . . . . . . . . . . . . . . . . 512,525 572,453
Deferred income taxes. . . . . . . . . . . . . . . . . . . . 430,300 426,800
Shareholders' equity:
Common stock, par value $.05 per share; issued
and outstanding, 11,603,895 shares and
11,051,690 shares respectively. . . . . . . . . . . . . . 580,195 552,585
Additional paid-in capital. . . . . . . . . . . . . . . . 42,517,455 38,679,630
Retained earnings . . . . . . . . . . . . . . . . . . . . 1,853,484 3,782,917
----------- -----------
Total shareholders' equity . . . . . . . . . . . . . . 44,951,134 43,015,132
----------- -----------
Total. . . . . . . . . . . . . . . . . . . . . . . . . $55,304,168 $56,487,356
----------- -----------
----------- -----------
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
1997 1996 1997 1996
----------- ----------- ----------- -----------
Net sales $20,673,498 $18,439,067 $40,609,556 $35,862,051
----------- ----------- ----------- -----------
Costs and expenses:
Cost of sales 16,247,088 14,585,730 32,018,170 28,245,041
Selling, general and administrative 2,237,922 2,083,759 4,350,122 4,045,670
----------- ----------- ----------- -----------
Total costs and expenses 18,485,010 16,669,489 36,368,292 32,290,711
----------- ----------- ----------- -----------
Income from operations 2,188,488 1,769,578 4,241,264 3,571,340
----------- ----------- ----------- -----------
Other income (deductions):
Interest income 260,431 231,995 522,612 490,495
Interest expense (11,819) (13,686) (23,662) (26,509)
Miscellaneous 5,374 41,817 88,262 70,890
----------- ----------- ----------- -----------
Total other income (deductions) 253,986 260,126 587,212 534,876
Income before income taxes 2,442,474 2,029,704 4,828,476 4,106,216
----------- ----------- ----------- -----------
Provision for income taxes 964,700 811,900 1,895,200 1,646,700
----------- ----------- ----------- -----------
Net income $ 1,477,774 $ 1,217,804 $ 2,933,276 $ 2,459,516
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of shares outstanding 11,603,895 11,603,895 11,603,895 11,603,895
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per common share $0.13 $0.10 $0.25 $0.21
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
See accompanying notes
4
HAWKINS CHEMICAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED MARCH 31
--------------------------------
1997 1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 2,933,276 $ 2,459,516
Depreciation and amortization . . . . . . . . . . . . . . 770,480 679,734
Deferred income taxes . . . . . . . . . . . . . . . . . . 38,500 14,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (45,032) (155,453)
Changes in certain current assets and liabilities . . . . (1,442,507) (1,091,722)
------------ ------------
Net cash provided by operating activities. . . . . . . 2,254,717 1,906,075
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment. . . . . . . . (1,294,403) (1,779,211)
Purchase of investments . . . . . . . . . . . . . . . . . (233,952) (2,304,868)
Cash received on sale of land and building. . . . . . . . 108,188
------------ ------------
Net cash used in investing activities. . . . . . . . . (1,528,355) (3,975,891)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid . . . . . . . . . . . . . . . . . . . (884,135) (736,804)
Debt repayment. . . . . . . . . . . . . . . . . . . . . . (56,008) (52,344)
Payments received on note receivable. . . . . . . . . . . 136,106 24,046
------------ ------------
Net cash used in financing activities. . . . . . . . . (804,037) (765,102)
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . (77,675) (2,834,918)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR . . . . . . . . 8,932,125 9,906,107
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . $ 8,854,450 $ 7,071,189
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest. . . . . . . . . . . . . . . . . . $ 49,011 $ 53,562
------------ ------------
------------ ------------
Cash paid for income taxes. . . . . . . . . . . . . . . . $ 1,968,000 $ 2,102,326
------------ ------------
------------ ------------
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 September 29, 1996, 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.
The accounting policies followed by the Company are set forth in Note 1 to
the Company's financial statements in the 1996 Hawkins Chemical, Inc. Annual
Report which is incorporated by reference to Form 10-K filed with the
Commission on December 30, 1996.
2. The results of operations for the period ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the full year.
3. Inventories, principally valued by the LIFO method, are less than
current cost by approximately $1,306,100 at March 31, 1997. 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.
4. Earnings per common share are based upon the weighted average number of
shares outstanding after giving retroactive effect to a 5% stock dividend
declared February 12, 1997 to shareholders of record at the close of business
on March 28, 1997.
5. In March 1997, the Company reached an agreement to sell the inventory
and operations of The Lynde Company. The Company expects to finalize the
sale during the third quarter. Sales for Lynde were $708,000 and $899,000
for the six-month period ending March 31, 1997 and 1996, respectively, and
their inventory at March 31, 1997 was approximately $1.2 million. Lynde had
a net loss after taxes of $36,600 and $8,900 for the six-month period ending
March 31, 1997 and 1996, respectively. The sale, if completed as
contemplated, is not expected to have a material impact on operating results.
6. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share." This statement specifies the computation, presentation, and
disclosure requirements for earnings per share. This Statement is effective
for financial statements issued for periods ending after December 15, 1997,
including interim periods. The Company does not believe the adoption of SFAS
No. 128 will have a material impact on the financial statements.
6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
CONTINUING OPERATIONS
Net sales increased $2,234,431 (12.1%) in the second quarter of this fiscal
year as compared to the same quarter a year ago, and increased $4,747,505
(13.2%) in the first six months of fiscal 1997 as compared to the same period
in fiscal 1996. The increases were primarily due to volume increases in most
of the Company's divisions and subsidiaries.
Gross margin, as a percentage of net sales, for the second quarter of this
fiscal year was 21.4% compared to 20.9% for the same quarter one year ago,
and 21.2% for the first six months of both fiscal years 1997 and 1996. The
second quarter increase was mainly due to maintaining the same dollar profit
margin as the cost and selling price of a single, large-volume product were
decreasing, and to increased sales on higher profit margin items. The demand
for this product does not fluctuate materially as the cost and selling price
increase or decrease. By maintaining stable dollar margins, the gross margin
percentage will generally increase when the cost of the product is
decreasing. 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 dollar gross margins.
Selling, general and administrative expenses, as a percentage of net sales,
for the second quarter of fiscal 1997 were 10.8% compared to 11.3% for the
same quarter one year ago, and 10.7% for the first six months of fiscal 1997
as compared to 11.3% for the first six months of fiscal 1996. Stated as a
percentage of the same period one year ago, the second quarter increase was
7.4%, or $154,163, and the six month increase was 7.5%, or $304,452. These
increases were mainly due to increased employee compensation and benefits,
which make up the majority of the selling, general and administrative
expenditures. Of the remaining expenses in this category, no single item is
more than 7% of the total. Most of these expenses fluctuate only slightly
with sales.
Income from operations increased $418,910, or 23.7%, in the second quarter
and $669,924, or 18.8%, in the first six months of fiscal 1997 as compared to
the same periods one year ago. These increases are primarily attributable to
the net sales increase.
Interest income increased $28,436 in the second quarter of fiscal 1997 as
compared to the same quarter one year ago and increased $32,117 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 decline
in long term debt.
In March 1997, the Company reached an agreement to sell the inventory and
operations of The Lynde Company. The Company expects to finalize the sale
during the third quarter. Sales for Lynde were $708,000 and $899,000 for the
six month period ending March 31, 1997 and 1996, respectively, and their
inventory at March 31, 1997 was approximately $1.2 million. Lynde had a net
loss after taxes of $36,600 and $8,900 for the six month period ending March
31, 1997 and 1996, respectively. The sale, if completed as contemplated, is
not expected to have a material impact on operating results.
LIQUIDITY AND CAPITAL RESOURCES
7
For the six-month period ended March 31, 1997, cash flows from operations
were $2,254,717. This amount was $348,642 higher than cash provided by
operations during the same period one year ago, due mainly to the changes in
certain current assets and liability accounts discussed below. During the
six-month period ended March 31, 1997, the Company invested $1,294,403 in
property and equipment additions and added $233,952 to investments.
Accounts receivable, inventories and accounts payable decreased during the
first six months of fiscal 1997. These decreases are typical for the first
six months of our fiscal year. Other current assets increased due to
payments of prepaid expenses that will be charged to the remaining quarters
of this fiscal year and to insurance proceeds receivable. Other current
liabilities decreased as a result of the payment of benefit plan accruals
that existed at fiscal year end. The Company did not issue any securities
during the six-month period ended March 31, 1997.
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 it 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 relatively low-risk investment and annuity
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 are
highly liquid and are available upon demand. There are some penalties
associated with the early liquidation of the Company's investment and annuity
contracts.
Other than as discussed above, management is not aware of any matters that
have materially affected the first six months of fiscal 1997, 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.
FORWARD-LOOKING STATEMENTS
THE INFORMATION CONTAINED IN THIS FORM 10-Q INCLUDES FORWARD-LOOKING
STATEMENTS AS DEFINED IN SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED. THESE FORWARD-LOOKING STATEMENTS INVOLVE A NUMBER OF RISKS AND
UNCERTAINTIES, INCLUDING DEMAND FROM MAJOR CUSTOMERS, COMPETITION, CHANGES IN
PRODUCT OR CUSTOMER MIX OR REVENUES, CHANGES IN PRODUCT COSTS AND OPERATING
EXPENSES AND OTHER FACTORS DISCLOSED THROUGHOUT THIS REPORT. THE ACTUAL
RESULTS THAT THE COMPANY ACHIEVES MAY DIFFER MATERIALLY FROM ANY
FORWARD-LOOKING STATEMENTS DUE TO SUCH RISKS AND UNCERTAINTIES. THE COMPANY
UNDERTAKES NO OBLIGATION TO REVISE ANY FORWARD-LOOKING STATEMENTS IN ORDER TO
REFLECT EVENTS OR CIRCUMSTANCES THAT MAY ARISE AFTER THE DATE OF THIS REPORT.
READERS ARE URGED TO CAREFULLY REVIEW AND CONSIDER THE VARIOUS DISCLOSURES
MADE BY THE COMPANY IN THIS REPORT AND IN THE COMPANY'S OTHER REPORTS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION THAT ATTEMPT TO ADVISE INTERESTED
PARTIES OF THE RISKS AND UNCERTAINTIES THAT MAY AFFECT THE COMPANY'S
FINANCIAL CONDITION AND RESULTS OF OPERATION.
8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
LYNDE COMPANY WAREHOUSE FIRE. On March 1, 1995, the Company and its
subsidiary The Lynde Company were named as defendants in an action
entitled DONNA M. COOKSEY, ET AL. V. HAWKINS CHEMICAL, INC. AND THE
LYNDE COMPANY. This proceeding is pending in state district court in
Hennepin County, Minnesota. On March 28, 1997, the court issued its
decision on the plaintiffs' motion for class certification. The court
denied class certification as to all issues except the issue of whether
the Company is liable for the fire. Issues as to whether a particular
person was exposed to anything hazardous, whether the alleged exposure
caused any injuries, and whether any damages resulted were not
certified by the court and must be the subject of a separate suit or
claim by each person seeking damages. The court also rejected the
plaintiffs' motion to set aside the approximately 470 individual
settlements which Hawkins previously entered into with potential
claimants. A trial on the issue of liability has been set
for October 20, 1997.
Earlier, by order dated February 8, 1997, the Court granted the
plaintiffs' motion to plead a claim for punitive damages on the ground
the Company did not have a sprinkler system installed at the time of
the fire. This decision means that the plaintiffs may ask the jury to
award punitive damages if the plaintiffs can prove by clear and
convincing evidence that the Company acted in deliberate disregard of
the rights and safety of others. The Company, with its consultant, was
in the process of designing a sprinkler system and hiring a contractor
to install the system at the time of the fire, in accordance with a
schedule approved by the Minneapolis Fire Department. Accordingly,
while the court has allowed the plaintiffs to plead a claim for
punitive damages, The Company believes there is no factual basis to
support such an award. The Company anticipates asking the court, at
the appropriate time, to dismiss the punitive damage claim as a matter
of law.
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 12, 1997.
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 9,022,452 0 37,247 0 0
Dean L. Hahn 9,023,672 0 36,027 0 0
Carl J. Ahlgren 8,955,771 0 103,928 0 0
Howard M. Hawkins 9,022,452 0 37,247 0 0
Norman P. Anderson 8,948,387 0 111,312 0 0
Donald L. Shipp 8,706,690 0 353,009 0 0
John S. McKeon 9,023,672 0 36,027 0 0
John R. Hawkins 9,023,292 0 36,407 0 0
S. Albert Diez Hanser 7,582,987 0 1,476,712 0 0
Duane Jergenson 9,023,672 0 36,027 0 0
Approval of Deloitte & Touche LLP as Independent Auditors:
Broker
For Against Abstain Non-Votes
--------- ------- ------- ---------
8,712,103 311,964 35,632 0
9
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 of Exhibit
----------- ------------------------------------------------------
3.1 Amended and Second Restated Articles of Incorporation
as amended through February 28, 1989 (Incorporated by
reference to Exhibit 3D to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1989).
3.2 Second Amended and Superseding By-Laws as amended
through February 15, 1995 (incorporated by reference to
Exhibit 3.2 to the Registrant's Annual Report on Form
10-K for the year ended October 1, 1995).
4 See Exhibits 3.1 and 3.2 above.
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the fiscal quarter ended
MARCH 31, 1997.
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 /s/Howard M. Hawkins
-----------------------------
Howard M. Hawkins, Treasurer
(Chief Financial and Accounting Officer)
Dated: May 12, 1997
10
EXHIBIT INDEX
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 of Exhibit Page No.
----------- --------------------------------------------------- --------
3.1 Amended and Second Restated Articles of
Incorporation as amended through February 28, 1989
(Incorporated by reference to Exhibit 3D to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1989).
3.2 Second Amended and Superseding By-Laws as amended
through February 15, 1995 (incorporated by
reference to Exhibit 3.2 to the Registrant's
Annual Report on Form 10-K for the year ended
October 1, 1995).
4 See Exhibits 3.1 and 3.2 above.
27 Financial Data Schedule 12
11
5
6-MOS
SEP-28-1997
SEP-30-1996
MAR-31-1997
8,854,450
10,738,555
9,649,623
0
6,388,817
37,241,453
13,744,000
0
55,304,168
9,410,209
0
580,195
0
0
44,370,939
55,304,168
40,609,556
40,609,556
32,018,170
36,368,292
0
0
23,662
4,828,476
1,895,200
2,933,276
0
0
0
2,933,276
.25
0
