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 DECEMBER 31, 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 number 0-7647
HAWKINS CHEMICAL, INC.
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(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
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(Address of principal executive offices) Zip Code
(612) 331-6910
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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
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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 FEBRUARY 9, 2001
- --------------------------------------- -----------------------------------
Common Stock, par value $.05 per share 10,367,239
HAWKINS CHEMICAL, INC.
INDEX TO FORM 10-Q
Page No.
PART I FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Balance Sheets - December 31, 2000 and
October 1, 2000 3
Condensed Statements of Income - Three Months Ended
Ended December 31, 2000 and 1999 4
Condensed Statements of Cash Flows - Three Months Ended
December 31, 2000 and 1999 5
Notes to Condensed Financial Statements 6-7
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-10
PART II OTHER INFORMATION
Item 1 Legal Proceedings 11
Item 6 Exhibits and Reports on Form 8-K 11
Page 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HAWKINS CHEMICAL, INC.
CONDENSED BALANCE SHEETS
DECEMBER 31, OCTOBER 1,
2000 2000
(UNAUDITED) (DERIVED FROM AUDITED
FINANCIAL STATEMENTS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,185,757
Investments available-for-sale $ 12,178,229 12,033,866
Trade receivables-net 11,602,058 11,610,606
Notes receivable 160,877 157,701
Inventories 8,803,298 8,929,957
Prepaid expenses and other 2,130,517 2,658,875
------------ ------------
Total current assets 34,874,979 37,576,762
PROPERTY, PLANT AND EQUIPMENT-net 25,180,380 23,687,337
NOTES RECEIVABLE-NONCURRENT 2,533,447 2,611,577
OTHER ASSETS 5,973,797 6,018,844
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$ 68,562,603 $ 69,894,520
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,638,491 $ 5,006,580
Current portion of long-term debt 109,180 102,037
Dividends payable 1,566,036
Other current liabilities 3,438,829 4,788,365
------------ ------------
Total current liabilities 9,186,500 11,463,018
LONG-TERM DEBT 116,823 226,003
DEFERRED INCOME TAXES 942,330 937,330
OTHER LONG-TERM LIABILITIES 553,997 596,943
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, par value $.05 per share; issued and
outstanding, 10,387,439 and 10,417,739 shares respectively 519,372 520,887
Additional paid-in capital 38,378,364 38,490,313
Retained earnings 18,865,217 17,660,026
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Total shareholders' equity 57,762,953 56,671,226
------------ ------------
$ 68,562,603 $ 69,894,520
============ ============
See accompanying notes to condensed financial statements.
Page 3
HAWKINS CHEMICAL, INC.
CONDENSED STATEMENTS OF INCOME
THREE MONTHS ENDED
DECEMBER 31
---------------------------------
2000 1999
(UNAUDITED)
NET SALES $ 24,024,827 $ 21,626,369
COST OF SALES 18,949,791 16,654,017
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GROSS PROFIT 5,075,036 4,972,352
SELLING, GENERAL AND ADMINISTRATIVE 3,121,868 2,560,859
-------------- ---------------
INCOME FROM OPERATIONS 1,953,168 2,411,493
OTHER INCOME (DEDUCTIONS):
Interest income 255,968 287,356
Interest expense (5,724) (7,561)
Miscellaneous 966 14,499
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TOTAL OTHER INCOME (DEDUCTIONS) 251,210 294,294
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INCOME BEFORE INCOME TAXES 2,204,378 2,705,787
PROVISION FOR INCOME TAXES 864,000 1,066,100
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NET INCOME $ 1,340,378 $ 1,639,687
============== ==============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 10,408,095 10,868,087
============== ==============
EARNINGS PER COMMON SHARE - BASIC AND DILUTED $ 0.13 $ 0.15
============== ==============
See accompanying notes to condensed financial statements.
Page 4
HAWKINS CHEMICAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
DECEMBER 31
---------------------------------
2000 1999
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,340,378 $ 1,639,687
Depreciation and amortization 588,893 510,774
Deferred income taxes 35,000 27,500
Other (25,824) (26,024)
Changes in certain current assets and liabilities (127,006) 1,324,901
-------------- -------------
Net cash provided by operating activities 1,811,441 3,476,838
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,011,065) (2,392,445)
Purchases of investments (144,363) (169,787)
Sale of investments 500,000
Payments received on notes receivable 74,954 73,202
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Net cash used in investing activities (2,080,474) (1,989,030)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (1,566,036) (1,314,154)
Acquisition and retirement of stock (248,651) (1,085,189)
Debt repayment (102,037) (95,362)
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Net cash used in financing activities (1,916,724) (2,494,705)
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DECREASE IN CASH AND CASH EQUIVALENTS (2,185,757) (1,006,897)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,185,757 4,778,174
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ - $ 3,771,277
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest $ 24,729 $ 32,541
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Cash paid for income taxes $ 110,000 $ 322,233
============= =============
See accompanying notes to condensed financial statements.
Page 5
HAWKINS CHEMICAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed 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 1, 2000, previously filed
with the Commission. In the opinion of management, the accompanying
unaudited 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.
The accounting policies followed by the Company are set forth in Note 1
to the Company's financial statements in the Company's Annual Report on
Form 10-K for the year ended October 1, 2000 filed with the Commission
on December 27, 2000.
2. The results of operations for the period ended December 31, 2000 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 $1,176,000 at December 31, 2000. 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. Cash dividends in the amount of $1,566,036 were paid on October 13,
2000.
5. During the quarter ended December 31, 2000, the Company acquired and
retired 30,300 shares of common stock for $248,651.
6. In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities." SFAS No. 133
requires companies to record derivatives on the balance sheet as assets
and liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for
hedge accounting. In July 1999, the FASB issued SFAS No. 137 delaying
the effective date of SFAS No. 133 for one year to fiscal years
beginning after June 15, 2000, with earlier adoption encouraged. This
statement, adopted by the Company for the fiscal year beginning October
2, 2000, did not have a material impact on the Company's financial
statements.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 that provides the staff's views in applying
generally accepted accounting principles to selected revenue recognition
issues. An amendment in June 2000 delayed the effective date and it is
not required to be adopted by the Company until the fourth quarter of
fiscal 2001. The Company is reviewing the requirements of this standard
and has not yet determined the impact of this standard on its financial
statements.
Page 6
7. The Company has two reportable segments: Industrial and Water Treatment.
Reportable segments are defined by product and type of customer.
Segments are responsible for the sales, marketing and development of
their products and services. The segments do not have separate
accounting, administration, customer service or purchasing options.
WATER
REPORTABLE SEGMENTS INDUSTRIAL TREATMENT TOTAL
THREE MONTHS ENDED DECEMBER 31, 2000
Net sales $ 17,562,683 $ 6,462,144 $ 24,024,827
Gross profit 3,087,399 1,987,637 5,075,036
Operating income 825,159 1,128,009 1,953,168
THREE MONTHS ENDED DECEMBER 31, 1999
Net sales $ 15,231,831 $ 6,394,538 $ 21,626,369
Gross profit 2,987,029 1,985,323 4,972,352
Operating income 1,267,412 1,144,081 2,411,493
Page 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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.
FORWARD-LOOKING INFORMATION OR STATEMENTS INCLUDE STATEMENTS ABOUT THE FUTURE OF
THE INDUSTRIES REPRESENTED BY OUR OPERATING GROUPS, STATEMENTS ABOUT OUR FUTURE
BUSINESS PLANS AND STRATEGIES, THE TIMELINESS OF PRODUCT INTRODUCTIONS AND
DELIVERIES, EXPECTATIONS ABOUT INDUSTRY AND MARKET GROWTH DEVELOPMENTS,
EXPECTATIONS ABOUT OUR GROWTH AND PROFITABILITY AND OTHER STATEMENTS THAT ARE
NOT HISTORICAL IN NATURE. MANY OF THESE STATEMENTS CONTAIN WORDS SUCH AS "MAY",
"WILL", "BELIEVE", "INTEND", "ESTIMATE", OR "CONTINUE" OR OTHER SIMILAR WORDS.
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, RESULTS OF OPERATIONS, AND CASH
FLOWS.
CONTINUING OPERATIONS
Net sales increased $2,398,458, or 11.1%, in the first quarter of this fiscal
year as compared to the same quarter a year ago, due to an increase of
$2,330,852 in Industrial segment sales and an increase of $67,606 in Water
Treatment segment sales. The Industrial segment increase is mainly attributable
to selling price increases of a single, large-volume product (caustic soda), and
increased volumes in several other product lines.
The gross margin, as a percentage of net sales, for the first quarter of
fiscal 2001 was 21.1% compared to 23.0% for the same quarter one year ago.
For the Industrial segment, gross margin, as a percentage of sales, was 17.6%
for the first quarter of fiscal 2001 and 19.6% for the first quarter of
fiscal 2000. This decrease is mainly due to higher caustic soda costs, which
have increased substantially since October 1, 2000. Due to the large
quantities of caustic soda that we had on hand at the beginning of this
fiscal year and because we are on the LIFO method of valuing inventories,
this increase negatively impacted gross margins in the first quarter of
fiscal 2001. The Company was able to implement some caustic soda price
increases during the quarter; however, market pressures prevented the Company
from recovering all of the increased caustic soda costs. The demand for this
product does not fluctuate materially as the cost and selling price increases
or decreases. Gross margin, as a percentage of sales, for the Water Treatment
Page 8
segment was 30.8% for the quarter ended December 31, 2000 which was
consistent with the 31.0% for the comparable quarter one year ago.
Selling, general and administrative expenses, as a percentage of net sales,
for the first quarter of fiscal 2001 was 13.0% compared to 11.8% for the same
quarter one year ago, an increase of $561,009, from the prior period. The
increase was mainly due to increased employee compensation and benefits
associated with the hiring of personnel within both the Industrial and Water
Treatment segments and increased operating costs within the Industrial
segment. Employee compensation and benefits comprise the majority of the
selling, general and administrative expenditures. Most of the remaining
expenses in this category are fixed in nature and vary only slightly with
sales fluctuations.
Income from operations decreased by $458,325 in the first quarter of fiscal
2001, compared to the first quarter of fiscal 2000. The decrease is mainly
due to competitive conditions, primarily in caustic soda prices, which
resulted in a negative adjustment to inventory of $.03 per share.
Additionally, selling, general and administrative expenses increased from
11.8% to 13.0% of sales due to an increased investment in infrastructure
necessary to support the Company's long-term strategic growth plans including
expansion into new markets.
OTHER INCOME
Interest income decreased by $31,388, or 10.9%, for the quarter ended
December 31, 2000 compared to the same quarter one year ago. This decrease is
due to less cash available for investment during the quarter. Interest
expense decreased slightly due to the decline in the outstanding amount of
long-term debt. Other miscellaneous income decreased by $13,533, as compared
to the same period in the previous year due to losses on disposals of fixed
assets.
LIQUIDITY AND CAPITAL RESOURCES
For the first quarter ended December 31, 2000, cash provided by operations
was $1,811,441 compared to $3,476,838 for the same period one-year ago. This
decrease was due mainly to the decrease in net income and changes in certain
current asset and liability accounts discussed in the next paragraph below.
The decrease in net income is primarily due to higher operating expenses
incurred to meet our long-term strategic growth plans. During the three
months ended December 31, 2000, the Company invested $2,011,065 in property
and equipment additions, which included approximately $1,300,000 for a new
building constructed in St. Paul, Minnesota. The new facility opened during
the first quarter of fiscal 2001 and is currently occupied by the
Minneapolis/St. Paul Water Treatment operations.
Inventories and other current liabilities decreased during the first three
months of fiscal 2001. Decreases in these accounts are typical for the first
quarter of our fiscal year. Accounts payable increased due to amounts due for
construction costs of the new building in St. Paul and timing of payments.
The Company did not issue any securities during the quarter ended December
31, 2000.
During the quarter ended December 31, 2000, the Company acquired and retired
30,300 shares of common stock for an aggregate of $248,651.
Cash flows from operations, coupled with the Company's strong financial
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 debt on
favorable terms.
Page 9
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 include all liquid debt instruments (primarily
cash funds, certificates of deposit and a money market account) purchased
with an original maturity of three months or less. Cash equivalents are
carried at cost, which approximates market value. Investments classified as
available-for-sale securities consist of insurance contracts and variable
rate marketable securities (primarily municipal bonds and annuity contracts)
that will be held for indefinite periods of time, including securities that
may be sold in response to changes in market interest or prepayment rates,
needs for liquidity or changes in the availability or yield of alternative
investments. These securities are carried at market value, which approximates
cost.
Other than as discussed above, management is not aware of any matters that
have materially affected the first three months of fiscal 2001, or are
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.
MARKET RISK
At December 31, 2000, the Company had an investment portfolio of fixed income
securities of $1,606,648, excluding $12,647,168 of those classified variable
rate securities. These securities, like all fixed income instruments, are
subject to interest rate risk and will decline in value if market interest
rates increase. However, the Company has the ability to hold its fixed income
investments until maturity and therefore the Company would not expect to
recognize an adverse impact in income or cash flows.
RECENTLY ISSUED ACCOUNTING STANDARD
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 that provides the staff's view in applying
generally accepted accounting principles to selected revenue recognition
issues. An amendment in June 2000 delayed the effective date and it is not
required to be adopted by the Company until the fourth quarter of fiscal
2001. The Company is reviewing the requirements of this standard and has not
yet determined the impact of this standard on its financial statements.
Page 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As of the date of this filing, the Registrant was not involved in any pending
legal proceedings other than ordinary routine litigation incidental to their
business, except as follows:
LYNDE COMPANY WAREHOUSE FIRE. The settlement agreement (the "Settlement
Agreement") relating to the class action, DONNA M. COOKSEY, ET AL. V.
HAWKINS CHEMICAL, INC. AND THE LYNDE COMPANY ("Cooksey"), brought in
March 1995 against the Company and its former subsidiary, for damages
alleged to be caused by a fire at an office/warehouse facility used by
the former subsidiary, was approved by the court on January 30, 1998.
Pursuant to the Settlement Agreement, the Company agreed to pay certain
of the plaintiffs' costs and expenses as well as certain compensation to
the class. Less than 10 claimants remain who have not yet resolved their
claims under the Settlement Agreement. The Registrant anticipates that
the defense and payment of these remaining claims, which are subject to
arbitration, will be covered by its umbrella insurer.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the fiscal quarter
ended December 31, 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.
HAWKINS CHEMICAL, INC.
By /s/ Marvin E. Dee
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Marvin E. Dee, Vice President, Chief
Financial Officer, Secretary, Treasurer
Dated: February 14, 2001
Page 11