<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: September 27, 1998, Commission File No. 0-7647
HAWKINS CHEMICAL, INC.
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(Exact Name of Registrant as specified in its Charter)
MINNESOTA 41-0771293
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(State of Incorporation) (I.R.S. Employer Identification No.)
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)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR
VALUE $.05 PER SHARE
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 twelve 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K / X /.
The aggregate market value of voting stock held by nonaffiliates of the
Registrant on November 30, 1998, was $90,567,442 (based upon the last
reported sale price on that date as reported by The Nasdaq Stock Market),
excluding all shares held by officers and directors of the Registrant and by
the Trustees of the Registrant's Employee Stock Ownership Plan and Money
Purchase Pension Plan were deemed to be shares held by affiliates. The
number of shares outstanding of the Registrant's common stock on November 30,
1998 was 11,355,430.
DOCUMENTS INCORPORATED BY REFERENCE
Part II of this Annual Report on Form 10-K incorporates by reference
information (to the extent specific pages are referred to herein from the
Registrant's Annual Report to Shareholders for the year ended September 27,
1998. Part III of this Annual Report on Form 10-K incorporates by reference
information (to the extent specific sections are referred to herein) from the
Registrant's Proxy Statement for its 1999 Annual Meeting of Shareholders to
be held February 24, 1999.
<PAGE>
CAUTIONARY STATEMENT REGARDING
FUTURE RESULTS AND FORWARD-LOOKING STATEMENTS
THE FUTURE RESULTS OF THE COMPANY, INCLUDING RESULTS REFLECTED IN ANY
FORWARD-LOOKING STATEMENT MADE BY OR ON BEHALF OF THE COMPANY, WILL BE
IMPACTED BY A NUMBER OF IMPORTANT FACTORS. WORDS SUCH AS "MAY," "WILL,"
"EXPECT," "BELIEVE," "ANTICIPATE," "ESTIMATE," OR "CONTINUE" OR COMPARABLE
TERMINOLOGY ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
FORWARD-LOOKING STATEMENTS, BY THEIR NATURE, INVOLVE SUBSTANTIAL RISKS AND
UNCERTAINTIES.
PART I
ITEM 1. BUSINESS.
(a) GENERAL DEVELOPMENT OF THE BUSINESS. The Registrant was
incorporated under the laws of the State of Minnesota in 1955. In the past
year the Registrant merged three of its former subsidiaries, Feed-Rite
Controls, Inc., Mon-Dak Chemical, Inc., Dakota Chemical, Inc. and its
Arrowhead Chemical Division together to form a single wholly owned subsidiary
known as Hawkins Water Treatment Group, Inc. ("HWTG"). In fiscal 1999, the
Registrant plans to merge HWTG into the Registrant.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS. Although the
Registrant operates through several divisions, its principal business is the
formulation, blending and distribution of bulk specialty chemicals.
Throughout its operations the Registrant provides related products and
services which share similar raw materials, production methods and
distribution channels. In the judgment of the Registrant, therefore, it is
operating in a single industry segment.
(c) NARRATIVE DESCRIPTION OF THE BUSINESS.
(i) PRODUCTS AND MARKETS. The Registrant's business is conducted
throughout the nine-state area of Minnesota, Wisconsin, Iowa, North Dakota,
South Dakota, Montana, Nebraska, Michigan and Wyoming through its
wholly-owned subsidiary and three divisions described below:
(A) HAWKINS WATER TREATMENT GROUP. This division specializes
in providing water and waste-water treatment equipment and chemicals and
in services relating to the testing of water samples in Minnesota,
Wisconsin, Iowa, North Dakota, South Dakota, Nebraska and Wyoming. It
also operates as a distributor of the Registrant's products, and a
regional distributor of laundry, dry cleaning, and janitorial supplies
in Montana, Wyoming, the Dakotas, Minnesota, northern Wisconsin and the
upper peninsula of Michigan.
(B) HAWKINS TERMINAL DIVISION. This division receives, stores
and distributes various chemicals in bulk, including liquid caustic
soda, phosphoric acid and aqua ammonia; manufactures sodium hypochlorite
(bleach); repackages liquid chlorine; and performs custom blending of
certain chemicals for customers according to customer formulas.
Approximately 80% of the business of the Hawkins Terminal Division is
related to liquid caustic soda. Hawkins Terminal Division operates a
liquid caustic soda barge terminal to receive
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shipments during the period the Mississippi River is open to barge
traffic (approximately April 1 through November 15). During the
remainder of the year the Division relies on stockpiles, as well as
supplies shipped in by railroad tank car. Pursuant to operating
agreements it has with other chemical companies, the Registrant also
receives, stores and ships liquid caustic soda and other chemicals at
both the Hawkins "Terminal 1" location and its "Terminal 2" site which
is located across the river and downstream from Terminal 1.
Since 1963, flooding of the Mississippi River has required the
Hawkins Terminal Division to temporarily shift its operations out of its
buildings three times, the most recent being in April 1997. No substantial
interruptions to sales resulted from the floods because railroad tank cars
were successfully used as an alternative means of supply. Although the use
of tank cars resulted in additional costs, results of operations were not
materially impacted. For approximately two weeks in 1997, the areas around
the Registrant's terminal operations were flooded, preventing shipments to
and from these locations. The terminals themselves were not flooded as the
facilities were adequately protected by dikes. All shipments were made
from alternate locations. The additional costs incurred as a result of the
flooding did not materially impact the Registrant's results of operations
for fiscal 1997. No assurance can be given that flooding will not recur or
that there will not be material damage or interruption to the business of
the Registrant's Hawkins Terminal Division in the future.
(C) INDUSTRIAL CHEMICAL AND EQUIPMENT DIVISION. This division
was created in 1993 when the Registrant acquired the assets of Industrial
Chemical & Equipment Co. It specializes in sales to the plating and
electronic industries, and relies on a specially trained sales staff which
works directly with customers on their plating and other processes.
(D) HAWKINS SALES DIVISION. The Hawkins Sales Division is a
sales distribution center for industrial chemicals, laboratory chemicals
and laboratory supplies. Bulk industrial chemicals are generally repackaged
and sold in smaller quantities to the Registrant's customers. Sales are
concentrated primarily in western Wisconsin, Minnesota, northern Iowa and
North and South Dakota. Among the principal chemicals handled by the Sales
Division are water purification and pollution control chemicals (such as
chlorine) and industrial chemicals (such as anhydrous ammonia, aluminum
sulphate, hydrofluosilicic acid, soda ash, phosphates, muriatic acid, aqua
ammonia, sulfuric acid and liquid caustic soda).
(ii) STATUS OF NEW PRODUCTS. The Registrant began shipping its
Cheese-Phos-Registered Trademark- product (discussed below) in late calendar
1995. Sales of this product through fiscal 1998 were not material to the
Registrant's results of operations for the period.
(iii) RAW MATERIALS. The Registrant has approximately 450 suppliers,
including many of the major chemical producers in the United States, of which
approximately 20 account for a majority of the purchases made by the
Registrant. The Registrant typically has written distributorship agreements
or supply contracts with its suppliers that are renewed from time to time.
Although there is no assurance that any contract or understanding with any
supplier will not be terminated in the foreseeable future, most of the basic
chemicals purchased by the Registrant can be obtained from alternative
sources should existing relationships be terminated.
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(iv) PATENTS, TRADEMARKS, LICENSES, FRANCHISES, AND CONCESSIONS.
There are no patents, trademarks, licenses, franchises or concessions that
are currently material to the successful operation of the Registrant's
business. The Registrant has, however, obtained a patent on a liquid form of
sodium phosphate for use in the processed food industry, as described below;
the patent was granted on October 17, 1995, and will expire on November 8,
2013.
Process cheese producers are increasingly moving away from dry forms of
sodium ortho phosphates to liquid versions. The advantages of the liquid
form include delivery by pumping, greater measurement accuracy and
consistency in finished product, and the elimination of undissolved chemical,
dust, and the disposal of empty chemical bags. The major drawback of the
liquid sodium phosphates currently being used in the cheese processing
industry is that it must be stored at between 130 and 160 degrees Fahrenheit
to prevent crystallization. Expensive heat storage and steam heated piping
is necessary to maintain required temperatures. Back-up generators must also
be installed as safeguards against product cooling and solidifying in case of
a plant power outage.
The Registrant's patented Cheese-Phos-Registered Trademark- liquid
sodium phosphate, which can be stored at room temperature, offers all the
advantages of a liquid sodium phosphate product, but eliminates the need for
high-heat delivery systems. Although it is not currently possible to project
the effect of Cheese-Phos-Registered Trademark- on the Registrant's results
of operations for future periods, the Registrant does not currently expect
this product to add materially to the Registrant's revenues and profits.
(v) SEASONAL ASPECTS. The sale of water treatment chemicals used in
municipal water treatment facilities tends to reach a higher level during
the summer months, which are part of the Registrant's third and fourth fiscal
quarters.
(vi) WORKING CAPITAL ITEMS. As a bulk distributor of chemicals, the
Registrant is required to carry significant amounts of inventory to meet
rapid delivery requirements of customers. Working capital requirements vary
on a seasonal basis as a result of the seasonality of the water treatment
business.
(vii) DEPENDENCE ON LIMITED NUMBER OF CUSTOMERS. No one customer
represents more than approximately four percent of the Registrant's sales,
but the loss of its four largest customers could have a material adverse
effect on the Registrant's results of operations.
(viii) BACKLOG. Backlog is not material to an understanding of the
Registrant's business.
(ix) GOVERNMENT CONTRACTS. No material portion of the Registrant's
business is subject to renegotiation of profits or termination of contracts
at the election of any state or federal governmental subdivision or agency.
(x) COMPETITIVE CONDITIONS. The Registrant operates in a competitive
industry and competes with producers, distributors and sales agents offering
chemicals equivalent to all of the products handled by the Registrant. Many
such producers and distributors have substantially more business and are
substantially larger than the Registrant. No one competitor, however, is
dominant in Registrant's market. Price and service are the principal methods
of competition in the industry.
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(xi) RESEARCH AND DEVELOPMENT. The Registrant does not have a formal
research and development function; employees are assigned to research and
development projects as the need arises. During the past fiscal year,
expenditures for research and development were negligible and not material to
Registrant's business.
(xii) ENVIRONMENTAL MATTERS. The Registrant is primarily a compounder
and distributor, rather than a manufacturer, of chemical products. As such,
compliance with current federal, state and local provisions regarding
discharge of materials into the environment, or otherwise relating to the
protection of the environment, is not anticipated to have any material effect
upon the capital expenditures, earnings or competitive position of the
Registrant. The Registrant does not currently anticipate making any material
capital expenditures for environmental control facilities during fiscal 1999.
(xiii) EMPLOYEES. The number of persons employed by the Registrant and
its subsidiaries as of September 27, 1998 was 156.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES. Because the Registrant deals in only one geographic area of
the United States, a breakdown of revenue, profitability or assets
attributable to different geographic areas is not meaningful to an
understanding of Registrant's business.
ITEM 2. PROPERTIES.
The Registrant's principal location consists of approximately eleven
acres of land in Minneapolis, Minnesota, with six buildings containing a
total of 160,000 square feet of office and warehouse space. The Registrant's
principal office, out of which the Hawkins Sales Division operates, is
located in one of these buildings, at 3100 East Hennepin Avenue. The other
buildings are used by the Registrant, its Hawkins Water Treatment Group
subsidiary, and its Industrial Chemical and Equipment division. The
Registrant's warehouse facilities in Minneapolis have been retrofitted with
sprinklers for fire protection; this process was completed in the second
quarter of calendar 1996. The Registrant carries insurance covering the
replacement of property damaged by fire or flood.
Information about the Registrant's other principal facilities is
presented below. These facilities, as well as those described above, are
adequate and suitable for the purposes they serve. Unless noted, each
facility is owned and is fully utilized by the Registrant or its subsidiary.
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<TABLE>
<CAPTION>
Approx.
Subsidiary or Division Location Primary Use Square Feet
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<S> <C> <C> <C>
Hawkins Terminal Division St. Paul, MN(1) Office, Warehouse and 32,000
Garage
Hawkins Water Treatment
Group Fargo, ND(2) Office and Warehouse 22,800
Fond du Lac, WI(3) Warehouse 20,300
Washburn, ND Office and Warehouse 14,000
Billings, MT Office and Warehouse 6,000
Sioux Falls, SD(4) Warehouse 18,000
Rapid City, SD Warehouse 3,600
Superior, WI Office and Warehouse 17,000
</TABLE>
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(1) The Hawkins Terminal Division operation, located at two sites on
opposite sides of the Mississippi River, is made up of three buildings, nine
outside storage tanks with a total capacity of approximately 8,900,000
gallons for the storage of liquid caustic soda, as well as numerous smaller
tanks for storing and mixing chemicals. The land on which the Hawkins
Terminal Division buildings and storage tanks are located is leased by the
Registrant from the Port Authority of the City of St. Paul, Minnesota for a
basic rent plus an amount based on the tonnage unloaded at both sites each
year. The applicable leases run until December 31, 1998, at which time the
Registrant has an option to renew the leases for an additional five-year
period on the same terms and conditions. The Registrant has exercised its
option to renew these leases. The Registrant also has options to renew these
leases for three additional successive five-year renewal periods (extending
until 2018) for which the rent may be adjusted pursuant to the rental
renegotiation provisions contained in the leases.
(2) This facility is occupied by Hawkins Water Treatment Group (17,800
square feet) and leased to a third party (5,000 square feet).
(3) In addition to the space in this building being used by Hawkins Water
Treatment Group, 10,000 square feet of space is being leased by the
Registrant to third parties.
(4) The Sioux Falls facility is occupied by Hawkins Water Treatment Group
(12,000 square feet) and leased to a third party (6,000 square feet).
The Registrant and its subsidiary also own several trucks, tractors,
trailers, and vans.
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ITEM 3. LEGAL PROCEEDINGS.
As of the date of this filing, neither the Registrant nor its subsidiary
were involved in any pending legal proceeding to which the Registrant or its
subsidiary was a party or of which any property of the Registrant or its
subsidiaries were the subject other than ordinary routine litigation
incidental to their business, except as follows:
LYNDE COMPANY WAREHOUSE FIRE. On March 1, 1995, the Registrant and
its former 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 ("COOKSEY"). This action was certified as a partial class
action in state district court in Hennepin County, Minnesota. The
plaintiffs sought damages for personal injury and other damages alleged to
have been caused by the alleged release of hazardous substances as a result
of a fire at an office/warehouse facility used by The Lynde Company. The
Registrant has entered into a class settlement agreement with the class,
pursuant to which the Registrant has agreed to pay certain of the class'
costs and expenses as well as certain compensation to the class pursuant to
a Matrix and Plan of Distribution which form a part of the settlement
agreement (the "Settlement Agreement"). The district court has given final
approval of the settlement.
The Registrant's primary and umbrella insurers had denied a tender
of the defense of the lawsuit and had denied any obligation to indemnify
the Registrant for damages claimed by third parties in connection with the
fire. On July 7, 1995, the Registrant commenced suits against The North
River Insurance Company and the Westchester Fire Insurance Company, the
primary and umbrella insurers, respectively, in the United States District
Court for the District of Minnesota. On October 6, 1996, the Court entered
an Order for Judgment against the two insurers declaring that they each
owed the Registrant a duty to defend the Cooksey action, that the insurers
had breached their duty to defend and that the Registrant was entitled to
judgment against North River in the amount of $890,174 and against
Westchester in the amount of $90,868 for fees and expenses incurred by the
Registrant through October of 1996 in defending against the Cooksey action
and in prosecuting the action against the two insurers. The two insurers
appealed the judgments to the Eighth Circuit Court of Appeals, which
affirmed the lower court judgments.
During fiscal 1995, the Registrant recorded $750,000 to cover
expected legal and settlement costs for this litigation and an additional
$1,771,439 in fiscal 1997. Subsequent to the end of fiscal 1998, the
Registrant has been reimbursed for substantially all of its settlement and
litigation expenses. In addition, any claims remaining under the
Settlement Agreement will be covered by the umbrella insurer as to cost of
defense and payment of claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of fiscal 1998.
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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Company, their ages and offices held, as of
December 15, 1998 are set forth below:
<TABLE>
<CAPTION>
Name Age Office
---- --- ------
<S> <C> <C>
Dean L. Hahn 65 Chairman of the Board and Chief Executive
Officer
Donald L. Shipp 63 Vice Chairman
John R. Hawkins 47 President and Secretary
Howard M. Hawkins 54 Vice President and Treasurer
Jon C. Eaton 55 Vice President, Terminal Operations
Kurt R. Norman 43 Vice President, Hawkins Water Treatment Group
</TABLE>
DEAN L. HAHN has been the Chairman of the Board and Chief Executive
Officer of the Company since 1996 and he was the President of the Company
from 1983 to 1996.
DONALD L. SHIPP has been the Vice Chairman of the Board since December
1998. He was the President of the Company from 1996 to December 1998,
Executive Vice President from 1983 to 1996 and the President of Feed-Rite
Controls, Inc., a subsidiary of the Company, from 1967 to 1996.
HOWARD M. HAWKINS has been a Vice President of the Company since 1996
and the Company's Treasurer since 1973.
JOHN R. HAWKINS has been the Company's President since December 1998 and
its Secretary since 1991. He was an Executive Vice President from 1997 to
December 1998 and Vice President of Sales from 1987 to 1997.
JON C. EATON has been the Vice President of Terminal Operations for the
Company since 1988.
KURT R. NORMAN has been the Vice President of the Hawkins Water
Treatment Group since 1996 and he was General Manager from 1988 to 1996.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The information under the caption "Quarterly Stock Data" on page 21 of
the 1998 Annual Report is incorporated herein by this reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information under the caption "Selected Financial Data" on page 19
of the 1998 Annual Report is incorporated herein by this reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The information under the caption "Management's Discussion and Analysis"
on pages 8 through 11 of the 1998 Annual Report is incorporated herein by
this reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The information under the caption "Management's Discussion and Analysis"
on pages 8 through 11 of the 1998 Annual Report is incorporated herein by this
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements of the Company and the Independent
Auditors' Report therefor on pages 12 through 18 of the 1998 Annual Report
are incorporated herein by this reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
No changes in accountants or disagreements between the Registrant and
its accountants regarding accounting principles or financial statement
disclosure have occurred during the Registrant's two most recent fiscal years
or any subsequent interim period.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information under the captions "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the 1999 Proxy
Statement is incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information under the caption "Compensation of Executive
Officers and Directors" in the 1999 Proxy Statement is incorporated herein by
this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information under the caption "Security Ownership of Management and
Beneficial Ownership" in the 1999 Proxy Statement is incorporated herein by
this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under the captions "Election of Directors" and "Related
Party Transactions" in the 1999 Proxy Statement is incorporated herein by
this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a)(1) FINANCIAL STATEMENTS OF REGISTRANT.
The following consolidated financial statements of Hawkins Chemical,
Inc. and subsidiary, together with the Independent Auditors' Report, found
under appropriate headings in the Registrant's 1998 Annual Report, are hereby
incorporated by reference in this Annual Report on Form 10-K.
Consolidated Balance Sheets at September 27, 1998 and September 28, 1997.
Consolidated Statements of Income for the Years Ended September 27, 1998,
September 28, 1997 and September 29, 1996.
Consolidated Statements of Shareholders' Equity for the Years Ended
September 27, 1998, September 28, 1997 and September 29, 1996.
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Consolidated Statements of Cash Flows for the Years Ended September 27,
1998, September 28, 1997 and September 29, 1996.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
(a)(2) FINANCIAL STATEMENT SCHEDULES OF REGISTRANT.
The additional financial data listed below is included as a schedule to
this Annual Report on Form 10-K and should be read in conjunction with the
consolidated financial statements presented in Part II, Item 8. Schedules
not included with this additional financial data have been omitted because
they are not required or the required information is included in the
financial statements or the notes.
Independent Auditors' Report on Schedule.
Schedule for the Years Ended September 27, 1998, September 28, 1997 and
September 29, 1996:
Schedule II - Valuation and Qualifying Accounts
Condensed financial information of the Registrant is not presented because no
restrictions exist on the transfer of funds or assets between the Registrant
and its subsidiary.
(a)(3) EXHIBITS.
The exhibits to this Annual Report on Form 10-K are listed on the
Exhibit Index on page 15.
A copy of any of the exhibits listed or referred to above will be
furnished at a reasonable cost to any person who was a shareholder of the
Company as of December 28, 1998, upon receipt from any such person of a
written request for any such exhibit. Such request should be sent to Hawkins
Chemical, Inc., 3100 East Hennepin Avenue, Minneapolis, Minnesota, 55413,
Attn: Secretary.
There are no management contracts or compensatory plans or arrangements
required to be filed as an exhibit to this Annual Report on Form 10-K
pursuant to Item 14(a)(3).
(b) REPORTS ON FORM 8-K.
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ Dean L. Hahn
--------------------------
Dean L. Hahn, Chairman
Dated: December 28, 1998. of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has also been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
By /s/ Dean L. Hahn Dated: December 28, 1998
------------------------------
Dean L. Hahn, Chief Executive
Officer, Director
By /s/ Howard J. Hawkins Dated: December 28, 1998
------------------------------
Howard J. Hawkins, Chairman
Emeritus, Director
By /s/ Donald L. Shipp Dated: December 28, 1998
------------------------------
Donald L. Shipp, Vice Chairman,
Director
By /s/ John R. Hawkins Dated: December 28, 1998
------------------------------
John R. Hawkins, President and
Secretary, Director
By /s/ Howard M. Hawkins Dated: December 28, 1998
------------------------------
Howard M. Hawkins, Treasurer
(Chief Financial and Accounting
Officer), Director
By /s/ Carl J. Ahlgren Dated: December 28, 1998
------------------------------
Carl J. Ahlgren, Director
By /s/ Norman P. Anderson Dated: December 28, 1998
------------------------------
Norman P. Anderson, Director
By /s/ John S. McKeon Dated: December 28, 1998
------------------------------
John S. McKeon, Director
By /s/ Duane M. Jergenson Dated: December 28, 1998
------------------------------
Duane M. Jergenson, Director
</TABLE>
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INDEPENDENT AUDITORS' REPORT ON SCHEDULE
We have audited the consolidated financial statements of Hawkins
Chemical, Inc. and subsidiary (the "Company") as of September 27, 1998 and
September 28, 1997, and for each of the three years in the period ended
September 27, 1998, and have issued our report thereon dated December 3,
1998; such consolidated financial statements and report are included in the
1998 Annual Report to Shareholders and are incorporated herein by reference.
Our audits also included the consolidated financial statement schedule of the
Company, listed in Item 14(a)(2). This consolidated financial statement
schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
this consolidated financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
December 3, 1998
<PAGE>
SCHEDULE II
HAWKINS CHEMICAL, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 27, 1998, SEPTEMBER 28, 1997 AND SEPTEMBER 29,
1996
<TABLE>
<CAPTION>
ADDITIONS
----------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER DEDUCTIONS END OF
DESCRIPTION YEAR EXPENSES ACCOUNTS WRITE-OFFS YEAR
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserve deducted from
asset to which it
applies - allowance
for doubtful accounts:
YEAR ENDED:
September 27, 1998 $361,830 $32,700 $ --- $15,804 $378,726
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YEAR ENDED:
September 28, 1997 $344,002 $31,200 $ --- $13,372 $361,830
--------------------------------------------------------------------------------------------
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YEAR ENDED:
September 29, 1996 $347,871 $68,046 $ --- $71,915 $344,002
--------------------------------------------------------------------------------------------
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</TABLE>
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Method of Filing
- ----------- ----------------------- ----------------
<S> <C> <C>
3.1 Amended and Second Restated Articles of Incorporated by reference to Exhibit
Incorporation as amended through 3D to the Registrant's Quarterly
February 28, 1989. Report on Form 10-Q for the quarter
ended March 31, 1989.
3.2 Second Amended and Superseding By-Laws Incorporated by reference to Exhibit
as amended through February 15, 1995. 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.
13.1* Portions of Annual Report to Security Filed herewith electronically.
Holders for period ended September 27,
1998.
21.1* Subsidiaries of Registrant. Filed herewith electronically.
23.1* Independent Auditors' Consent. Filed herewith electronically.
27.1* Financial Data Schedule. Filed herewith electronically.
</TABLE>
* Denotes previously unfiled documents.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
THE INFORMATION CONTAINED IN THIS ANNUAL REPORT 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 ANNUAL REPORT AND THE
COMPANY'S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. 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 STATEMENT 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 OR CASH FLOWS.
OVERALL SUMMARY
Net sales in fiscal 1998 increased 8.0% to $94,722,511 from $87,745,980 in
fiscal 1997. Net income in fiscal 1998 increased 5.4% to $8,213,869 from
$7,790,487 in fiscal 1997. Basic and diluted earnings per share in fiscal 1998
were $.71 compared to $.67 in fiscal 1997. Return on average shareholders'
equity was 16.0% for 1998, compared to 16.9% for 1997. Book value per share at
September 27, 1998 was $4.67 compared to $4.22 one year ago.
RESULTS OF OPERATIONS
The general economic environment in our markets has improved slightly with
the overall improvement in the economy. While this improvement had a favorable
impact on earnings, management will continue to focus efforts on programs aimed
at improving profitability and controlling costs.
NET SALES
For the year ended September 27, 1998, sales increased $6,976,531, an 8.0%
increase from 1997, due to an increase in the volume and selling price (and the
cost) of caustic soda and to increasing business in food grade products and
pharmaceutical chemicals, which accounted for slightly more than one-half of the
increase. The remaining increase came from overall volume increases in all
divisions. For the year ended September 28, 1997, sales increased $6,859,918, an
8.5% increase from 1996, due to volume increases of caustic soda, increasing
business in food grade products and pharmaceutical chemicals and overall volume
increases in all divisions and subsidiaries.
GROSS MARGINS
<PAGE>
Gross margin, as a percentage of sales, was 23.6% in 1998, 24.3% in 1997
and 22.4% in 1996. The 1998 decrease was due to lower profit margins on a major
product line while the cost and selling price of the product line was increasing
throughout the year. The Company attempts to maintain relatively constant dollar
margins as the cost of this product line increases and decreases. The cost of
this product is normally subject to fluctuations and such fluctuations are
expected to continue in future periods. By maintaining relatively stable dollar
margins, the gross margin percentage will decrease when the cost of the product
is increasing and increase when the cost of the product is decreasing. The 1997
increase was due mainly to better profit margins on a portion of the sales
volume increase and the Company's ability to maintain relatively constant dollar
profit margins on this major product line while the cost of the materials
decreased. The Company has also 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.
The Company's caustic soda operations are located on the Mississippi
River, enabling the Company to receive caustic soda through barge
transportation. When the river has flooded, the Company has been able to
receive caustic soda by tank cars. Although the use of tank cars has resulted
in additional costs, results of operations have not been materially impacted.
Based on this experience, the Company does not expect any future flooding to
have a material impact on the Company's financial condition, results of
operations, or cash flows.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased 7.1% and 7.3% in
1998 and 1997, respectively, over the previous year. The 1998 increase was due
to increases in employee salaries and benefits cost and to costs related to
upgrading the computer and phone systems. The 1997 increase was due to
increasing the sales staff, which resulted in higher employee salaries and
benefits costs and to general inflation in all other areas.
LITIGATION AND SETTLEMENT COSTS RELATED TO 1995 FIRE
The charges of $1,771,439 in 1997 and $750,000 in 1995 were recorded to
cover legal fees and settlement costs in connection with the Company's defense
of a lawsuit filed against it in Minnesota. The lawsuit resulted from a fire at
an office/warehouse facility occupied by The Lynde Company, formerly a wholly
owned subsidiary of the Company. Through September 27, 1998, the Company had
paid $2,728,000 in settlement and legal costs relating to the fire. Most of the
claimants have now been paid under the Settlement Agreement.
The Company's primary and umbrella insurers denied coverage and refused to
defend the lawsuit. Subsequent to the end of fiscal 1998, the Company has
prevailed in its claims against its insurers and has been reimbursed $2.7
million for substantially all of its settlement and legal expenses. In addition,
the Company anticipates that the claims remaining under the Settlement Agreement
will be covered by the umbrella insurer as to the cost of defense and claims
payment.
<PAGE>
OTHER INCOME
Interest income was up 7.3% in 1998 as compared to the previous year due to
a higher rate of return on the cash available for investments. Interest income
was up 15.9% in 1997 as compared to 1996 due to more cash available for
investment and to additional interest earned on the notes receivable relating to
the sale of The Lynde Company. Interest expense decreased in 1998 and 1997 as
compared to the previous year. Most of the interest expense is the result of the
Company issuing a note payable to the seller in connection with the acquisition
of the assets of Industrial Chemical & Equipment Company in 1993. The gain on
the sale of The Lynde Company relates to the Company's sale of the subsidiary on
May 29, 1997. Other miscellaneous income decreased in 1998 and 1997 as compared
to the previous years due to the gain on the sale of land in 1997 and to the
gain on the sale of a building in 1996.
PROVISION FOR INCOME TAXES
The effective income tax rate was 38.9% for the year ended September 27,
1998, 38.8% for the year ended September 28, 1997 and 38.0% for the year ended
September 29, 1996. The differences are due mainly to variations in tax-free
income on investments in municipal bonds.
INFLATION
Inflation has not had a significant impact on the Company, as selling
prices have generally been adjusted as the cost of materials and other expenses
have changed. On occasion, however, slight fluctuations in the cost of a single,
large-volume product have not been reflected in the selling price of that
product.
FINANCIAL CONDITION
LIQUIDITY
Cash provided by operations in fiscal 1998 was $6,127,052 compared with
$5,675,264 in fiscal 1997 and $7,241,783 in fiscal 1996. The increase in fiscal
1998 over 1997 was due primarily to the increase in net income. The decrease in
fiscal 1997 over 1996 was due primarily to an increase in trade receivables
caused by the sales increase, an increase in inventories to meet expected future
sale increases, and to a decrease in accounts payable caused by the timing of
year-end purchases.
Cash and investments available-for-sale decreased by $2,304,155 to
$17,740,944 at the end of fiscal 1998. The Company is investing excess cash
primarily in conservative investments. Cash equivalents consist of bank
certificates of deposit having a maturity of three months or less. Investments
consist of investment contracts with high-rated, stable insurance companies and
marketable securities consisting of variable rate municipal bonds carried at
fair value which approximates cost. Cash equivalents and investments are highly
liquid and are available upon demand generally with only a minor penalty.
<PAGE>
On May 29, 1997, the Company sold the inventory and operations of The Lynde
Company, a wholly owned subsidiary which specialized in swimming pool chemicals,
for $2,590,000, effective March 1, 1997. The Company recorded a gain on the sale
of approximately $1.3 million. At closing, the Company received $500,000 cash
and a note receivable for the balance. The note receivable is due over the next
five years plus interest at 8%.
Subsequent to fiscal 1998, the Company received $2.7 million from a
litigation settlement (see Note 10). These proceeds will be used for future
working capital requirements.
CAPITAL EXPENDITURES
Capital expenditures in fiscal years 1998, 1997 and 1996 were $5,051,641,
$4,017,543 and $4,299,071, respectively. Of the 1998 capital expenditures, the
new food chemical production facility and truck wash area accounted for
approximately $1.6 million, improvements to the outside storage tanks at
Terminal I amounted to approximately $.5 million, transportation equipment
additions accounted for $.6 million and building additions and the installation
of automatic sprinkling systems at out-state locations accounted for $.7
million. Other building improvements and additions amounted to $.7 million and
other warehouse, laboratory and office machinery and equipment accounted for $1
million.
COMMON STOCK REPURCHASES
During fiscal year 1998, the Company acquired and retired 153,000 shares of
common stock for $1,568,296.
OUTLOOK
Management does not anticipate the need for stock or debt issuances in the
short or long-term, as cash, investments and cash flows from operations have
been adequate to fund working capital, capital investments, dividend needs and
common stock repurchases. If the need for additional financing arises, however,
management will consider issuance of debt or equity if such financing can be
obtained on favorable terms. Although management continually looks for
companies to acquire and for ways to modernize its warehouse facilities and
equipment, no material commitments for acquisitions or capital expenditures
currently exist.
Other than as discussed above, management is not aware of any matters or
trends that have materially affected the results of operations for fiscal 1998
that are not expected to have either short or long-term implications, nor is it
aware of any trends or other matters that have not materially affected results
in fiscal 1998 but are expected to have a material effect on future periods.
YEAR 2000 READINESS
As generally known, the Year 2000 issue pertains to the inability of some
computer hardware and software and other electronic devices to operate properly
as January 1,
<PAGE>
2000 approaches, and beyond. The Company has taken, and will continue to
take, actions intended to minimize the impact of the Year 2000 issue,
although it is impossible to eliminate these risks entirely.
The Company's major information technology (IT) systems and infrastructure
have been upgraded or replaced in the ordinary course of business over the last
two years. Approximately $450,000 has been spent through September 27, 1998 to
upgrade the Company's primary IT systems, IT infrastructure and security
systems, and to replace the telephone, voicemail, and timekeeping systems to
Year 2000 compliant systems. The Company will continue to invest in technology
to accommodate the Company's future growth, with such improvements intended to
achieve Year 2000 compliance as a byproduct of the upgrades.
The Company is currently implementing a Year 2000 compliance testing
program of its hardware, software and equipment. Testing will include, but is
not limited to, corporate IT systems, IT infrastructure, security systems,
telephone systems, manufacturing and laboratory equipment, and timekeeping
systems. Although the Company does not expect that costs necessary to replace
non-compliant systems will have a material impact on the Company's results of
operations, liquidity, or financial condition, it is not possible to estimate
the total expected cost associated with achieving Year 2000 readiness.
The Company relies on computer processing for its business activities and
the Year 2000 issue creates risk for the Company from unforeseen problems in the
Company's systems and from third parties with whom the Company does business.
The failure of the Company's systems and/or third party systems could have a
material adverse effect on the Company's results of operations, liquidity, and
financial condition. Year 2000 readiness of third parties with whom the Company
does business, particularly suppliers of critical products and providers of
utility and communication services, could impair the Company's ability to
deliver products and services and could cause system failures or errors,
business interruptions and, in a worst case scenario, the inability to engage in
normal business practices for an unknown length of time. This worst case
scenario, if it should occur, could have a material adverse effect on the
Company's operations, liquidity or financial condition, particularly if the
disruption continues for a significant length of time. While third party risk
related to the Year 2000 issues is difficult to quantify or control, the Company
is taking steps to try to minimize the potential adverse effect that could
arise. The Company has sent Year 2000 surveys to its suppliers asking for the
compliance status of suppliers' products and internal operations. The responses
received by the Company to date indicate that most of its suppliers expect to be
Year 2000 compliant in a timely manner. The Company plans to develop third party
contingency plans as it identifies partners evidencing inadequate Year 2000
preparations. Contingency plans may include plans to accumulate extra inventory
and/or establish alternative sources of supply and channels of distribution.
However, even with diligent planning, third party providers pose an uncertain
risk that cannot be entirely eliminated.
Due to the general uncertainty inherent in the Year 2000 issue, resulting
in part from the uncertainty of the Year 2000 issue readiness of third-party
suppliers and customers,
<PAGE>
the Company is unable to determine at this time whether the consequences of
Year 2000 issue failures will have a material impact on the Company's results
of operations, liquidity, or financial condition.
MARKET RISK
At the end of fiscal 1998, the Company had an investment portfolio of fixed
income securities, excluding $17,171,214 of those classified as cash and cash
equivalents and variable rate securities, of $2,418,573. 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.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income will include all changes in
shareholders' equity except those resulting from investments by and
distributions to owners. The Company will be required to adopt SFAS No. 130 in
fiscal 1999. Such adoption is not expected to have a material impact on the
Company.
In June 1997, the FASB also issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information." SFAS No. 131 redefines how operating
segments are determined and requires disclosures of certain financial and
descriptive information about a company's operating segments. The Company has
not yet determined the effects SFAS No. 131 will have on the financial
statements. The Company will be required to adopt SFAS No. 131 in fiscal 1999.
In June 1998, the FASB issued 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. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999, with earlier adoption encouraged. Management has
not yet determined the effects SFAS No. 133 will have on its financial position
or the results of its operations.
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 27, September 28,
1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 3,197,015 $ 8,065,021
Investments available-for-sale ....................................... 14,543,929 11,980,078
Trade receivables - less allowance for doubtful
accounts: 1998, $378,726; 1997, $361,830 .......................... 11,436,690 11,117,991
Notes receivable ..................................................... 271,027 222,946
Inventories .......................................................... 10,816,460 8,580,705
Prepaid expenses and other ........................................... 1,848,662 1,912,325
--------------------------------
Total current assets .............................................. 42,113,783 41,879,066
PROPERTY, PLANT AND EQUIPMENT:
Land ................................................................. 645,194 655,194
Buildings and improvements ........................................... 17,593,650 14,716,226
Machinery and equipment .............................................. 7,302,134 6,173,501
Transportation equipment ............................................. 5,211,745 5,051,518
Office furniture and equipment ....................................... 1,978,677 1,668,849
--------------------------------
32,731,400 28,265,288
Less accumulated depreciation ........................................ 14,307,911 12,777,743
--------------------------------
Net property, plant and equipment ................................. 18,423,489 15,487,545
OTHER ASSETS:
Intangible assets - less accumulated
amortization: 1998, $393,015; 1997, $329,917 ...................... 664,199 727,297
Investments held-to-maturity ......................................... 1,848,843 1,750,658
Notes receivable - noncurrent ........................................ 3,302,923 3,639,712
Other ................................................................ 182,238 168,338
--------------------------------
Total other assets ................................................ 5,998,203 6,286,005
--------------------------------
TOTAL ASSETS ............................................................. $66,535,475 $63,652,616
--------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade ............................................. $ 4,970,341 $ 5,729,584
Current portion of long-term debt .................................... 89,123 59,928
Dividends payable .................................................... 1,147,090 1,044,351
Accrued payroll and employee benefits ................................ 3,245,815 2,452,746
Container deposits ................................................... 1,503,889 1,539,585
Other accruals ....................................................... 664,347 2,389,123
--------------------------------
Total current liabilities ......................................... 11,620,605 13,215,317
LONG-TERM DEBT ........................................................... 423,402 512,525
DEFERRED INCOME TAXES .................................................... 1,011,500 983,000
COMMITMENTS AND CONTINGENCIES (NOTES 4, 6 AND 8)..........................
SHAREHOLDERS' EQUITY:
Common stock - authorized: 15,000,000 shares of $.05 par value;
issued and outstanding: 1998 - 11,450,895 shares;
1997 - 11,603,895 shares 572,545 580,195
Additional paid-in capital ........................................... 41,960,535 42,517,455
Retained earnings .................................................... 10,946,888 5,844,124
--------------------------------
Total shareholders' equity ........................................ 53,479,968 48,941,774
--------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............................... $66,535,475 $63,652,616
--------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Fiscal Years Ended
-----------------------------------------------------------
September 27, September 28, September 29,
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales ................................................... $ 94,722,511 $ 87,745,980 $ 80,886,062
Cost of sales ............................................... 72,380,576 66,413,954 62,789,554
----------------------------------------------------------
Gross profit ................................................ 22,341,935 21,332,026 18,096,508
Selling, general and administrative expenses ................ 10,170,255 9,499,558 8,853,319
Litigation and settlement costs relating to 1995 fire ....... 1,771,439
----------------------------------------------------------
Income from operations ...................................... 12,171,680 10,061,029 9,243,189
Other income (deductions):
Interest income ......................................... 1,237,789 1,153,322 995,012
Interest expense ........................................ (43,516) (47,439) (53,170)
Gain on sale of The Lynde Company ....................... 1,324,827
Miscellaneous ........................................... 83,084 234,518 262,020
----------------------------------------------------------
Total other income, net .............................. 1,277,357 2,665,228 1,203,862
----------------------------------------------------------
INCOME BEFORE INCOME TAXES .................................. 13,449,037 12,726,257 10,447,051
Provision for income taxes .................................. 5,235,168 4,935,770 3,970,641
----------------------------------------------------------
NET INCOME .................................................. $ 8,213,869 $ 7,790,487 $ 6,476,410
----------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING ............... 11,594,752 11,603,895 11,603,895
----------------------------------------------------------
BASIC AND DILUTED EARNINGS PER SHARE ........................ $ 0.71 $ 0.67 $ 0.56
----------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT OCTOBER 1, 1995 ........................................ 10,525,772 $ 526,289 $ 34,235,623 $ 3,356,710
Stock dividend ................................................ 525,918 26,296 4,444,007 (4,470,303)
Cash dividend ................................................. (1,729,200)
Income tax savings from dividends paid on ESOP shares ......... 149,300
Net income .................................................... 6,476,410
---------------------------------------------------------------
BALANCE AT SEPTEMBER 29, 1996 ..................................... 11,051,690 552,585 38,679,630 3,782,917
Stock dividend ................................................ 552,205 27,610 3,837,825 (3,865,435)
Cash dividend ................................................. (2,041,623)
Income tax savings from dividends paid on ESOP shares ......... 177,778
Net income .................................................... 7,790,487
---------------------------------------------------------------
BALANCE AT SEPTEMBER 28, 1997 ..................................... 11,603,895 580,195 42,517,455 5,844,124
Cash dividend ................................................. (2,307,479)
Stock acquired and retired .................................... (153,000) (7,650) (556,920) (1,003,726)
Income tax savings from dividends paid on ESOP shares ......... 200,100
Net income .................................................... 8,213,869
---------------------------------------------------------------
BALANCE AT SEPTEMBER 27, 1998 ..................................... 11,450,895 $ 572,545 $ 41,960,535 $ 10,946,888
---------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Fiscal Years Ended
-------------------------------------------------
September 27, September 28, September 29,
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FORM OPERATING ACTIVITIES:
Net income .............................................................. $ 8,213,869 $ 7,790,487 $ 6,476,410
Gain on sale of The Lynde Company ....................................... (1,324,827)
Litigation and settlement costs relating to 1995 fire ................... (1,083,866) 1,175,286
Reconciliation to cash flows:
Depreciation and amortization ........................................ 1,993,112 1,686,622 1,477,228
Deferred income taxes ................................................ 750,894 (307,800) 230,511
Earnings on other assets ............................................. (112,084) (91,076) (81,093)
Loss (gain) from property disposals .................................. 20,992 (110,807) (160,212)
Changes in operating accounts (requiring) providing cash:
Trade receivables ................................................. (318,699) (1,377,706) 771,975
Inventories ....................................................... (2,235,755) (1,221,750) 79,925
Accounts payable .................................................. (759,243) (979,850) (1,981,770)
Accrued liabilities ............................................... 116,463 383,058 (262,185)
Other ............................................................. (458,631) 53,627 690,994
------------------------------------------------
Net cash provided by operating activities ............................... 6,127,052 5,675,264 7,241,783
CASH FLOWS FORM INVESTING ACTIVITIES:
Additions to property, plant and equipment .............................. (5,051,641) (4,017,543) (4,299,071)
Purchase of investments ................................................. (2,563,852) (1,475,475) (3,183,787)
Sale of investments ..................................................... 647,945
Proceeds from property disposals ........................................ 164,691 191,946 198,069
Cash received on sale of assets and business of The Lynde Company ....... 500,000
Payments received on notes receivable ................................... 288,708 196,120 55,293
------------------------------------------------
Net cash used in investing activities ................................... (7,162,094) (4,604,952) (6,581,551)
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt repayment .......................................................... (59,928) (56,008) (52,344)
Cash dividends paid ..................................................... (2,204,740) (1,881,408) (1,581,870)
Acquisition and retirement of stock ..................................... (1,568,296)
------------------------------------------------
Net cash used in financing activities ................................... (3,832,964) (1,937,416) (1,634,214)
------------------------------------------------
Net decrease in cash and cash equivalents ................................... (4,868,006) (867,104) (973,982)
Cash and cash equivalents at beginning of year .............................. 8,065,021 8,932,125 9,906,107
------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR .................................... $ 3,197,015 $ 8,065,021 $ 8,932,125
------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Note receivable on sale of land and building ............................ $ 1,100,000
------------------------------------------------
Note receivable on sale of The Lynde Company ............................ $ 2,090,083
------------------------------------------------
Cash paid during the year for:
Interest ............................................................. $ 47,711 $ 51,359 $ 56,834
------------------------------------------------
Income taxes ......................................................... $ 5,739,297 $ 4,334,567 $ 3,942,596
------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Hawkins Chemical, Inc. and its wholly owned subsidiary, Hawkins Water
Treatment Group, Inc., are engaged in the wholesale trade of chemicals and
chemical feeding and control equipment and the formulating and blending of
specialty chemicals.
BASIS OF CONSOLIDATION
The financial statements include the consolidated accounts of Hawkins
Chemical, Inc. and its wholly owned subsidiary (the Company). All
significant inter-company transactions and balances have been eliminated.
The Company's fiscal year is a 52/53-week year ending on the Sunday closest
to September 30.
CASH EQUIVALENTS
Cash equivalents include all liquid debt instruments (primarily cash funds
and certificates of deposit) purchased with an original maturity of three
months or less. Cash equivalents are carried at cost, which approximates
market value.
INVESTMENTS AVAILABLE-FOR-SALE
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.
INVENTORIES
Inventories, consisting primarily of finished goods, are primarily valued
at the lower of cost or net realizable value, with cost being determined
using the last-in, first-out (LIFO) method. One division values its
inventory using the first-in, first-out (FIFO) cost method (See Note 2).
PROPERTY, PLANT AND EQUIPMENT
Property is stated at cost and depreciated over the lives of the assets
using both straight-line and declining-balance methods. Estimated lives
are: 10 to 50 years for buildings and improvements; 3 to 15 years for
machinery and equipment; 3 to 10 years for transportation equipment; and 3
to 10 years for office furniture and equipment.
INTANGIBLES
The excess of the purchase price and related costs over the fair value of
the net assets acquired is being amortized over 15 or 40 years.
INVESTMENTS HELD-TO-MATURITY
Held-to-maturity securities consist of Minnesota municipal bonds which the
Company has the intent and ability to hold to maturity, and are valued at
amortized historical cost, increased for accretion of discounts and reduced
by amortization of premiums, computed by the constant-yield method.
RECOVERABILITY OF LONG-LIVED ASSETS
The Company reviews its long-lived assets whenever events or changes in
circumstances indicate the carrying amount of the assets may not be
recoverable. The Company determines potential impairment by comparing the
carrying value of the assets with expected net cash flows expected to be
provided by operating activities of the business or related products.
Should the sum of the expected future net cash flows be less than the
carrying value, the Company would determine whether an impairment loss
should be recognized. An impairment loss would be measured by comparing the
amount by which the carrying value exceeds the fair value of the asset
based on market value that is based on the discounted cash flows expected
to be generated by the asset.
<PAGE>
INCOME TAXES
The Company utilizes Statement of Financial Accounting Standard (SFAS) No.
109, "Accounting for Income Taxes." Under SFAS No. 109, the deferred tax
assets and liabilities are recognized based on differences between the
financial statements and the tax bases of assets and liabilities using
presently enacted tax rates.
REVENUE RECOGNITION
The Company recognizes revenues upon shipment of the product.
EARNINGS PER SHARE
Effective December 15, 1997, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 128, "Earnings Per Share." Per share amounts
for the fiscal years ended September 28, 1997 and September 29, 1996 have
been restated for the adoption of SFAS No. 128. The per share amounts
reported under SFAS No. 128 are not materially different than those
calculated and presented under Accounting Principles Board Opinion No. 15.
Basic and diluted earnings per share are computed by dividing net income by
the weighted average number of common shares outstanding.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to a
concentration of credit risk principally consist of cash, investments
available-for-sale and trade receivables. The Company sells its principal
products to a large number of customers in many different industries. To
reduce credit risk, the Company routinely assesses the financial strength
of its customers. The Company invests its excess cash balances in
certificates of deposit at a single financial institution. At September 27,
1998, the Company had certificates of deposit in excess of federally
insured limits of approximately $3,100,000.
At the end of fiscal 1998, the Company had an investment portfolio of
fixed income securities, excluding $17,171,214 of those classified as cash
and cash equivalents and variable rate securities, of $2,418,573. 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.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
RISK AND UNCERTAINTIES
There are no concentrations of business transacted with a particular
customer or supplier nor concentrations of revenue from a particular
service or geographic area that would severely impact the Company in the
near term.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, "Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. Comprehensive income will
include all changes in shareholders' equity except those resulting from
investments by and distributions to owners. The Company will be required to
adopt SFAS No. 130 in fiscal 1999. Such adoption is not expected to have a
material impact on the Company.
In June 1997, the FASB also issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information." SFAS No. 131 redefines how
operating segments are determined and requires disclosures of certain
financial and descriptive information about a company's operating segments.
<PAGE>
The Company has not yet determined the effects SFAS No. 131 will have on
the financial statements. The Company will be required to adopt SFAS No.
131 in fiscal 1999.
In June 1998, the FASB issued 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 I the values of those
derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. SFAS No. 133 is effective
for fiscal years beginning after June 15, 1999, with earlier adoption
encouraged. Management has not yet determined the effects SFAS No. 133 will
have on its financial position or the results of its operations.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
September 27, September 28,
1998 1997
- -------------------------------------------------------------------------
<S> <C> <C>
Finished goods (FIFO basis) ........ $ 12,841,114 $ 9,025,817
LIFO reserve ....................... (2,024,654) (445,112)
---------------------------------
Net inventory ...................... $ 10,816,460 $ 8,580,705
---------------------------------
</TABLE>
Inventories valued under the LIFO method for the fiscal years ended September
27, 1998 and September 28, 1997, were approximately $12,238,000 and $7,796,000,
respectively. The balance of the inventory was valued under the FIFO method.
In fiscal 1998, the LIFO reserve increased by $1,579,542. As a result, the
ending LIFO cost was less than the ending cost determined using the first-in,
first-out (FIFO) method by $2,024,654. The increase in the LIFO reserve was
caused by a significant increase in the cost of a single, large-volume component
of inventory.
3. NOTES RECEIVABLE
At September 27, 1998 and September 28, 1997, the net balance outstanding on the
note receivable from the sale of Tessman Seed was $615,091 and $733,432,
respectively. On March 1, 1996, the balance of the note receivable was
refinanced at the request of the borrower. The note receivable is due in equal
installments of $146,466 with interest at 8%.
During 1996, the Company sold a building and realized a gain of approximately
$142,000 on the sale. The Company received a $1,100,000 note receivable and cash
of $108,188 at the time of the sale. The note receivable is secured by the
building and is due in monthly installments of $9,201 including interest at 8%
through January 1, 2004, when the remaining balance of $849,985 is due. At
September 27, 1998 and September 28, 1997, the balance outstanding was
$1,033,629 and $1,060,186, respectively.
In 1997, the Company sold the inventory and operations of The Lynde Company
(Lynde), a wholly owned subsidiary which specialized in swimming pool chemicals,
for approximately $2,590,000. The Company recorded a gain on the sale of
$1,324,827. At closing, the Company received $500,000 cash and a note receivable
for the balance. The note receivable requires principal payments through March
2002 plus interest at 8%. At September 27, 1998 and September 28, 1997, the
balance outstanding on the note receivable was $1,925,230 and $2,069,040,
respectively. Revenues from Lynde for the fiscal years ended September 28, 1997
and September 29, 1996 were $725,500 and $3,413,200, respectively. Lynde
recorded a net loss in 1997 of $19,600 through the effective date of the sale
and net income for the year ended September 29, 1996 of $195,300.
4. LONG-TERM DEBT
<PAGE>
Long-term debt at September 27, 1998 and September 28, 1997 is summarized as
follows:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------
<S> <C> <C>
Note payable, due in annual
installments to 2002 ........... $ 512,525 $ 572,453
Less current portion .............. 89,123 59,928
-----------------------
Total ............................. $ 423,402 $ 512,525
- -------------------------------------------------------------
</TABLE>
Long-term debt maturities for the five fiscal years subsequent to 1998 are: 1999
- - $89,123, 2000 - $95,362, 2001 - $102,037, 2002 - $109,180 and 2003 - $116,823.
5. SHAREHOLDERS' EQUITY
The stock dividends in 1997 and 1996 were accounted for by transferring the fair
value of the issued stock from retained earnings to the categories of permanent
capitalization as common stock (par value) and additional paid-in capital.
During 1998, the Company acquired and retired 153,000 shares of common stock for
$1,568,296.
6. LEASES
The Company has various operating leases for land and buildings on which some of
its operations are located. Total rental expense for the years ended September
27, 1998, September 28, 1997 and September 29, 1996 was $47,612, $46,003 and
$60,955, respectively. Future minimum lease payments due under operating leases
with an initial term of one year or more at September 27, 1998 are $8,596 in
1999.
7. PENSION AND EMPLOYEE STOCK OWNERSHIP PLANS
The Company has a defined contribution pension plan covering substantially all
of its non-union employees. Pension expense for the years ended September 27,
1998, September 28, 1997 and September 29, 1996 was $545,650, $459,367 and
$425,398, respectively. The Company's cost for the pension plan is determined as
7% of each employee's covered compensation. Amounts charged to pension expense
and contributed to union multi-employer pension plans (not included in the above
amounts) were not material. It is the Company's policy to fund all pension costs
accrued.
The Company has an employee stock ownership plan covering substantially all of
its non-union employees. Contributions are made at the discretion of the Board
of Directors subject to a maximum amount allowed under the Internal Revenue
Code. Contributions for the years ended September 27, 1998, September 28, 1997
and September 29, 1996 were $984,455, $889,979 and $824,955, respectively. The
Company does not currently offer any post-retirement benefits, deferred stock or
stock-based compensation plans.
8. CONTINGENCIES
During 1995, the Company had a fire in the office/warehouse of The Lynde
Company, a former wholly owned subsidiary. Charges of $1,771,439 in 1997 and
$750,000 in 1995 were recorded to cover legal fees and settlement costs in
connection with the Company's defense of a lawsuit filed against it as a result
of the fire. As of September 27, 1998, the Company has paid approximately
$2,728,000 in settlement and legal costs. Most of the claimants have now been
paid under a settlement agreement and the Company believes those claims
remaining will be covered by the Company's umbrella insurer as to the cost of
defense and claims payment. The Company's insurer denied coverage and refused to
defend the lawsuit. At September 27, 1998 the Company was in litigation against
its insurers to recover the legal and settlement costs (see Note 10).
In addition, the Company is involved in various legal actions arising from the
normal course of business. Management is of the opinion that any judgement or
settlement resulting from pending or threatened litigation would not have a
material adverse effect on the financial position, results of operations or cash
flows of the Company.
<PAGE>
9. INCOME TAXES
The provisions (benefits) for income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal - current $3,316,868 $4,143,883 $3,011,755
States - current 1,167,300 1,099,687 799,010
Deferred 751,000 (307,800) 159,876
----------------------------------------
Total $5,235,168 $4,935,770 $3,970,641
----------------------------------------
</TABLE>
A reconciliation of the provision for income taxes, based on income from
continuing operations, to the applicable federal statutory income tax rate of
35% is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax $ 4,707,163 $ 4,454,190 $ 3,656,468
State income taxes, net of federal
deduction 770,418 687,454 549,531
Tax-exempt income (122,876) (108,856) (97,325)
Other, net (119,537) (97,018) (138,033)
----------------------------------------
Total $ 5,235,168 $ 4,935,770 $ 3,970,641
----------------------------------------
</TABLE>
The tax effects of items comprising the Company's net deferred tax asset
(liability) are as follows:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------
<S> <C> <C>
Current deferred taxes:
Trade receivables $ 150,000 $ 154,000
Inventory 411,000 750,000
Accruals 164,500 544,000
---------------------------
Total* $ 725,500 $ 1,448,000
---------------------------
Noncurrent deferred taxes:
Gain on sale of
The Lynde Company $ (399,500) $ (456,000)
Property basis difference (612,000) (527,000)
---------------------------
Total $(1,011,500) $ (983,000)
---------------------------
</TABLE>
*Included in prepaid expenses and other on the consolidated balance sheets.
10. SUBSEQUENT EVENT
Subsequent to the end of fiscal 1998, the Company has prevailed against its
insurers in connection with the 1995 warehouse fire at The Lynde Company, a
former wholly owned subsidiary. The Company has received payment of $2,728,000,
which covers substantially all of its settlement and legal costs from 1995
through September 27, 1998. The Company's results of operations for its first
fiscal quarter of 1999 will include $2,728,000 associated with this settlement.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Hawkins Chemical, Inc.:
We have audited the accompanying consolidated balance sheets of Hawkins
Chemical, Inc. and its subsidiary (the Company) as of September 27, 1998 and
September 28, 1997 and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended September 27, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Hawkins Chemical, Inc. and its
subsidiary at September 27, 1998 and September 28, 1997 and the results of their
operations and their cash flows for each of the three years in the period ended
September 27, 1998 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
December 3, 1998
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended September 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales from continuing operations $ 94,722,511 $ 87,745,980 $ 80,886,062 $ 83,332,624 $ 71,423,471
- ---------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 8,213,869 7,790,487 6,476,410 5,723,963 5,044,410
- ---------------------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per common share
from continuing operations .71 .67 .56 .49 .44
- ---------------------------------------------------------------------------------------------------------------------------------
Cash dividends declared per common share .20 .18 .15 .19 .11
- ---------------------------------------------------------------------------------------------------------------------------------
Cash dividends paid per common share .19 .16 .14 .19 .11
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets 66,535,475 63,652,616 56,487,356 53,690,814 45,974,984
- ---------------------------------------------------------------------------------------------------------------------------------
Long-term debt 423,402 512,525 572,453 628,461 680,805
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
All per share data has been restated to reflect the 5% stock dividends in
1997, 1996 and 1994 and the 10% stock dividend in 1995.
SECURITIES MARKET MAKERS - Herzog, Heine, Geduld, Inc., New York, NY; John G.
Kinnard and Company, Inc., Minneapolis, MN; S.J.
Wolfe and Co., Dayton, OH
SUMMARY OF OPERATIONS BY QUARTER (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter Total Year
(DOLLARS IN THOUSANDS EXCEPT PER 1998 1997 1998 1997 1998 1997 1998 1997 1998 1997
SHARE DATA)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $22,667 $19,936 $22,316 $20,673 $25,720 $23,867 $24,020 $23,270 $94,723 $87,746
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 5,116 4,165 4,890 4,426 6,182 5,900 6,154 6,841 22,342 21,332
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 1,898 1,456 1,717 1,478 2,229 2,963 2,370 1,893 8,214 7,790
- ------------------------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per share .16 .13 .15 .13 .19 .26 .20 .16 .71 .67
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
QUARTERLY STOCK DATA
<TABLE>
<CAPTION>
High Low
- -------------------------------------------
<S> <C> <C>
Fiscal 1998
4th Quarter $12 1/8 $ 9 7/8
---------------------------------------
3rd Quarter 14 11 1/4
---------------------------------------
2nd Quarter 11 3/8 9 3/4
---------------------------------------
1st Quarter 12 3/4 9 1/2
---------------------------------------
Fiscal 1997
4th Quarter 10 1/4 7 7/8
---------------------------------------
3rd Quarter 9 6 1/2
---------------------------------------
2nd Quarter 7 6
---------------------------------------
1st Quarter 8 5 1/2
---------------------------------------
</TABLE>
The common stock of Hawkins Chemical, Inc. is as quoted on the NASDAQ National
Market System. The price information represents closing sale prices reported in
the NASDAQ/NMS Monthly Statistical Report. There were 786 common shareholder
accounts on September 27, 1998. The prices are adjusted to reflect the 5% stock
dividend that occurred on April 11, 1997.
<PAGE>
EXHIBIT 21.1
The following is a wholly owned subsidiary of the Registrant:
SUBSIDIARY STATE IN WHICH ORGANIZED
Hawkins Water Treatment Group, Inc. Minnesota
The financial statements of the predecessors of Hawkins Water Treatment
Group, Inc., Feed-Rite Controls, Inc., Mon-Dak Chemical, Inc., and Dakota
Chemical, Inc. (which predecessors were merged into a single entity now known
as Hawkins Water Treatment Group, Inc. following the end of fiscal 1997), are
consolidated with those of the Registrant.
Subsequent to September 27, 1998, Hawkins Water Treatment Group is being
merged into Registrant and will continue to operate as a division of
Registrant.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-41323 of Hawkins Chemical, Inc. and subsidiary (the "Company") on Form S-8
of our report dated December 3, 1998 incorporated by reference in the Annual
Report on Form 10-K for the Company for the year ended September 27, 1998.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
December 24, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-27-1998
<PERIOD-START> SEP-29-1997
<PERIOD-END> SEP-27-1998
<CASH> 3,197,015
<SECURITIES> 14,543,929
<RECEIVABLES> 11,815,416
<ALLOWANCES> 378,726
<INVENTORY> 10,816,460
<CURRENT-ASSETS> 42,113,783
<PP&E> 32,731,400
<DEPRECIATION> 14,307,911
<TOTAL-ASSETS> 66,535,475
<CURRENT-LIABILITIES> 11,620,605
<BONDS> 423,402
0
0
<COMMON> 572,545
<OTHER-SE> 52,907,423
<TOTAL-LIABILITY-AND-EQUITY> 66,535,475
<SALES> 94,722,511
<TOTAL-REVENUES> 94,722,511
<CGS> 72,380,576
<TOTAL-COSTS> 72,380,576
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,516
<INCOME-PRETAX> 13,449,037
<INCOME-TAX> 5,235,168
<INCOME-CONTINUING> 8,213,869
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,213,869
<EPS-PRIMARY> .71
<EPS-DILUTED> .71
</TABLE>
