<PAGE>
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 JUNE 30, 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
<PAGE>
HAWKINS CHEMICAL, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page No.
---------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets - June 30, 1995 and
October 2, 1994............................................. 3
Consolidated Condensed Statements of Income - Three Months and
Nine Months Ended June 30, 1995 and 1994.................... 4
Consolidated Condensed Statements of Cash Flow - Nine Months
Ended June 30, 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 6. Exhibits and Reports on Form 8-K.............................. 10
Financial Data Schedule................................... Exhibit 27
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
HAWKINS CHEMICAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1995 OCTOBER 2, 1994
------------- ---------------
ASSETS (Unaudited) (Derived from Audited
financial statements)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 10,639,912 $ 6,895,341
Investments......................................................................... 7,871,248 6,576,743
Accounts receivable-net............................................................. 13,094,829 9,509,807
Note receivable..................................................................... 208,943 0
Inventories......................................................................... 5,461,925 7,844,591
Other current assets................................................................ 1,601,383 1,339,833
--------------- ---------------
Total current assets............................................................. 38,878,240 32,166,315
Property, plant and equipment-net..................................................... 10,356,810 9,582,007
Net assets of discontinued operations................................................. 23,531 1,614,717
Note receivable-non current........................................................... 755,045
Other assets.......................................................................... 2,623,632 2,611,945
--------------- ---------------
Total............................................................................ $52,637,258 $45,974,984
--------------- ---------------
--------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $10,227,070 $ 5,746,620
Current portion of long-term debt................................................... 52,344 48,919
Other current liabilities........................................................... 4,484,321 4,389,962
--------------- ---------------
Total current liabilities........................................................ 14,763,735 10,185,501
--------------- ---------------
Long term debt........................................................................ 628,461 680,805
--------------- ---------------
Deferred income taxes................................................................. 331,800 335,300
--------------- ---------------
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................................................................... 2,151,350 7,424,930
--------------- ---------------
Total shareholders' equity....................................................... 36,913,262 34,773,378
--------------- ---------------
Total............................................................................ $52,637,258 $45,974,984
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes
3
<PAGE>
HAWKINS CHEMICAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30 NINE MONTHS ENDED JUNE 30
1995 1994 1995 1994
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Net sales $26,519,043 $22,555,574 $61,916,161 $52,040,732
-------------- -------------- -------------- -------------
Costs and expenses:
Cost of sales................................................... 21,229,029 17,968,823 49,014,124 40,429,604
Selling, general and administrative............................. 2,363,251 2,254,092 6,194,328 5,911,139
Unusual and nonrecurring........................................ 0 0 750,000 0
-------------- -------------- -------------- -------------
Total costs and expenses..................................... 23,592,280 20,222,915 55,958,452 46,340,743
-------------- -------------- -------------- -------------
Income from operations............................................. 2,926,763 2,332,659 5,957,709 5,699,989
-------------- -------------- -------------- -------------
Other income (deductions):
Interest income................................................. 242,687 143,368 676,275 411,006
Interest expense................................................ (13,784) (20,550) (41,274) (52,658)
Miscellaneous................................................... 19,924 (17,810) 43,689 21,114
-------------- -------------- -------------- -------------
Total other income (deductions).............................. 248,827 105,008 678,690 379,462
Income from continuing operations before income
taxes........................................................... 3,175,590 2,437,667 6,636,399 6,079,451
Provision for income taxes from continuing operations.............. 1,277,800 972,900 2,667,700 2,421,700
-------------- -------------- -------------- -------------
Income from continuing operations.................................. 1,897,790 1,464,767 3,968,699 3,657,751
Discontinued Operations:
Income (loss) from operations of Tessman Seed,
Inc. (less applicable income taxes of $0,
$74,100, ($46,500), $59,100, respectively)...................... 0 112,090 (69,905) 89,374
Loss on disposal of assets of Tessman Seed, Inc.
(less applicable income taxes of $214,200)...................... 0 0 (321,266) 0
-------------- -------------- -------------- -------------
Income (loss) from discontinued operations......................... (0) 112,090 (391,171) 89,374
-------------- -------------- -------------- -------------
Net income......................................................... $ 1,897,790 $ 1,576,857 $ 3,577,528 $ 3,747,125
-------------- -------------- -------------- -------------
-------------- -------------- -------------- -------------
Weighted average number of shares
outstanding..................................................... 10,525,772 10,525,772 10,525,772 10,525,772
-------------- -------------- -------------- -------------
-------------- -------------- -------------- -------------
Earnings per common share:
Continuing operations........................................... $0.18 $ 0.14 $0.38 $0.35
Discontinued operations......................................... (0.00) 0.01 (0.04) 0.01
-------------- -------------- -------------- -------------
Total........................................................ $0.18 $0.15 $0.34 $0.36
-------------- -------------- -------------- -------------
-------------- -------------- -------------- -------------
</TABLE>
See accompanying notes
4
<PAGE>
HAWKINS CHEMICAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30
1995 1994
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................................. $ 3,577,528 $ 3,747,125
Net loss on disposal of assets of Tessman Seed, Inc......................................... 321,266
Net loss on discontinued operations of Tessman Seed, Inc.................................... 69,905 (89,374)
Unusual and nonrecurring charge............................................................. 750,000
Depreciation and amortization............................................................... 973,579 928,772
Deferred income taxes....................................................................... (103,500)
Other....................................................................................... (60,285) (81,068)
Changes in certain current assets and liabilities........................................... 2,492,842 (795,245)
------------ -------------
Net cash provided by operating activities................................................ 8,021,335 3,710,210
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment.................................................. (1,676,422) (913,323)
Purchases of investments.................................................................... (1,294,505) (3,584,979)
Acquisition of Industrial Chemical.......................................................... (2,502,430)
Cash received on sale of assets and business of Tessman Seed, Inc........................... 100,000
------------ ------------
Net cash used in investing activities.................................................... (2,870,927) (7,000,732)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid......................................................................... (1,437,644) (1,278,163)
Debt repayment.............................................................................. (48,919)
Payments received on note receivable........................................................ 80,726
Proceeds from issuance of long-term debt.................................................... 729,724
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Net cash used in financing activities.................................................... (1,405,837) (548,439)
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............................................. 3,744,571 (3,838,961)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.................................................. 6,895,341 9,519,580
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD...................................................... $ 10,639,912 $ 5,680,619
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest...................................................................... $ 56,180 $ 13,940
------------ -------------
------------ -------------
Cash paid for income taxes.................................................................. $ 1,817,258 $ 2,598,130
------------ -------------
------------ -------------
</TABLE>
See accompanying notes
5
<PAGE>
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 June 30, 1995 and 1994 were $0 and
$1,739,000, respectively, and for the nine months ending June 30, 1995 and 1994
were $931,000 and $3,658,000, 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 of accounts receivable,
inventory, equipment and accounts payable at October 2, 1994.
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 nine months ended June 30, 1995, as unusual
and nonrecurring expenses, an accrual of $750,000 to cover expected legal fees
and expenses, and liability or settlement costs, 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 an office/warehouse facility of The Lynde Company, a wholly
owned subsidiary. See Part II, Item 1 of the Company's quarterly report on Form
10-Q, filed with the Commission on May 15, 1995 and Part II, Item 1 of this Form
10-Q for additional information regarding this matter.
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 fair market value which
approximates cost. 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 June 30, 1995 are not
necessarily indicative of the results that may be expected for the full year.
6
<PAGE>
6. Inventories, principally valued by the LIFO method, are less than current
cost by approximately $2,331,118 at June 30, 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 in the amount
of $1,437,644 were paid on April 12, 1995.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
CONTINUING OPERATIONS
Net sales increased $3,963,469 (17.6%) in the third quarter of this fiscal year
as compared to the same quarter a year ago, and $9,875,429 (19.0%) in the first
nine 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 third quarter of fiscal 1995
was 19.9% compared to 20.3% for the same quarter one year ago, and 20.8% for the
first nine months of fiscal 1995 as compared to 22.3% for the first nine 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 $325,000 and $1,340,000 in the third quarter
and first nine 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 third quarter of fiscal 1995 were 8.9% compared to 10.0% for the same
quarter one year ago, and 10.0% for the first nine months of fiscal 1995 as
compared to 11.4% for the first nine months of fiscal 1994. Most of the
expenses in this category are fixed with the remaining expenses fluctuating only
slightly with net sales.
The unusual and nonrecurring charge in the second quarter and first nine months
of fiscal 1995 is attributable to the recording of a $750,000 reserve to cover
legal fees, and expenses and liability or settlement costs, if any, 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 the Company's quarterly report on Form 10-Q filed with the
Commission on May 15, 1995, and 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 $99,319 in the third quarter of fiscal 1995 as
compared to the same quarter one year ago and $265,269 for the first nine 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.
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 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.
8
<PAGE>
Revenues for Tessman for the quarters ended June 30, 1995 and 1994 were $0 and
$1,739,000, respectively, and for the nine months ended June 30, 1995 and 1994
were $931,000 and $3,658,000, respectively. The income/(loss) for Tessman for
the quarters and nine months ending June 30, 1995 and 1994 were $.01 per share
or less.
LIQUIDITY AND CAPITAL RESOURCES
For the nine month period ended June 30, 1995 cash flows from operations were
$8,021,335, which is $4,433,807 higher than net income primarily due to non-cash
charges incurred and significant flucuations in inventory, accounts receivable
and accounts payable. Noncash charges incurred during the first nine months
include the loss on the sale of Tessman Seed and the unusual and nonrecuring
charge relating to The Lynde Company lawsuit, totaling $1,071,266. Inventories
are $2,382,666 lower than they were at the end of the 1994 fiscal year primarily
due to delays in the receipt of barge shipments of caustic soda caused by high
water on the Mississippi River for approximately three weeks in May and June.
Accounts receivables are $3,585,022 higher than the they were at the end of the
1994 fiscal year due to normal sales activity during the third quarter.
Accounts payable have increased $4,480,450 during the year primarily due to
timing of payments.
During the nine months ended June 30, 1995, the Company purchased additional
equipment and made improvements to the existing facilities for cash of
$1,676,422, and purchased $1,294,505 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 fair value which approximates
cost. 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 nine 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
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As noted in the Company's quarterly report on Form 10-Q, filed with the
Commission on May 15, 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. As further noted in such previous filing,
the Company's primary and umbrella insurers have denied a tender of the defense
of the lawsuit and have denied any obligation to indemnify the Company for
damages claimed by third parties in connection with the fire. On July 7, 1995,
the Company commenced suit (the "Lawsuit") against The North River Insurance
Company and The Weschester Fire Insurance Company, the primary and umbrella
insurers, respectively, which have denied coverage. This action was filed in
Federal District Court for the District of Minnesota. The Lawsuit seeks
declaratory relief consisting of a finding that the Company has coverage under
both the primary and umbrella policies. Each of the defendant insurers has
filed an answer in the Lawsuit, each denying the allegations in the Company's
Complaint. No further progress has been made with respect to the Lawsuit to
date, and it is impossible to determine at this time what the outcome will be.
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 11
(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: August 11, 1995
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-01-1995
<PERIOD-START> OCT-03-1994
<PERIOD-END> JUN-30-1995
<CASH> 10,639,912
<SECURITIES> 7,871,248
<RECEIVABLES> 13,094,829
<ALLOWANCES> 0
<INVENTORY> 5,461,925
<CURRENT-ASSETS> 38,878,240
<PP&E> 10,356,810
<DEPRECIATION> 0
<TOTAL-ASSETS> 52,637,258
<CURRENT-LIABILITIES> 14,763,735
<BONDS> 0
<COMMON> 526,289
0
0
<OTHER-SE> 36,386,973
<TOTAL-LIABILITY-AND-EQUITY> 52,637,258
<SALES> 61,916,161
<TOTAL-REVENUES> 61,916,161
<CGS> 49,014,124
<TOTAL-COSTS> 55,958,452
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,274
<INCOME-PRETAX> 6,636,399
<INCOME-TAX> 2,667,700
<INCOME-CONTINUING> 3,968,699
<DISCONTINUED> 391,171
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,577,528
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
