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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, 1999
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 August 12, 1999
-------------------------------------- ------------------------------
Common Stock, par value $.05 per share 10,951,281
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HAWKINS CHEMICAL, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Balance Sheets - June 30, 1999 and September 27, 1998... 3
Condensed Statements of Income - Three Months and Nine Months
Ended June 30, 1999 and 1998 .................................. 4
Condensed Statements of Cash Flow - Nine Months
Ended June 30, 1999 and 1998.................................... 5
Notes to Condensed Financial Statements........................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 7-9
Item 3. Quantitative and Qualitative Disclosures about Market Risk......... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................. 10
Item 6. Exhibits and Reports on Form 8-K................................... 11
Exhibit Index...................................................... 12
Financial Data Schedule............................................ 13
2
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PART I. FINANCIAL INFORMATION
Item I. Financial Statements
HAWKINS CHEMICAL, INC.
CONDENSED BALANCE SHEETS
June 30, 1999 September 27, 1998
------------- ------------------
(Unaudited) (Derived from audited
financial statements)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 2,664,858 $ 3,197,015
Investments available-for-sale................................................ 17,251,752 14,543,929
Trade receivables-net......................................................... 10,969,182 11,436,690
Notes receivable.............................................................. 291,513 271,027
Inventories................................................................... 6,933,495 10,816,460
Other current assets.......................................................... 1,547,020 1,848,662
------------------ ---------------
Total current assets...................................................... 39,657,820 42,113,783
Property, plant and equipment-net............................................... 18,839,709 18,423,489
Notes receivable-non current.................................................... 2,925,227 3,302,923
Other assets.................................................................... 2,727,456 2,695,280
------------------ ---------------
Total $ 64,150,212 $ 66,535,475
------------------ ---------------
------------------ ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade........................................................ $4,644,445 $4,970,341
Current portion of long-term debt............................................. 95,362 89,123
Dividends payable............................................................. 1,147,090
Other current liabilities..................................................... 3,485,021 5,414,051
------------------ ---------------
Total current liabilities................................................. 8,224,828 11,620,605
Long-term debt.................................................................. 328,040 423,402
Deferred income taxes........................................................... 1,017,500 1,011,500
Commitments and contingencies...................................................
Shareholders' equity:
Common stock, par value $.05 per share; issued and
outstanding, 10,951,281 and 11,450,895 shares respectively................ 547,564 572,545
Additional paid-in capital.................................................. 40,129,749 41,960,535
Retained earnings........................................................... 13,902,531 10,946,888
------------------ ---------------
Total shareholders' equity............................................... 54,579,844 53,479,968
------------------ ---------------
Total $ 64,150,212 $ 66,535,475
------------------ ---------------
------------------ ---------------
</TABLE>
See accompanying Notes to Condensed Financial Statements.
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HAWKINS CHEMICAL, INC.
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended June 30 Nine Months Ended June 30
1999 1998 1999 1998
-------------- -------------- --------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales ............................ $ 24,959,934 $ 25,719,653 $ 71,034,944 $ 70,703,030
Cost of sales ........................ (18,353,963) (19,537,731) (53,999,756) (54,514,634)
------------ ------------ ------------ ------------
Gross profit ......................... 6,605,971 6,181,922 17,035,188 16,188,396
Selling, general and administrative .. (2,894,343) (2,805,881) (7,900,237) (7,526,496)
Litigation settlement reimbursement .. 97,708 2,851,708
------------ ------------ ------------ ------------
Income from operations ............... 3,809,336 3,376,041 11,986,659 8,661,900
Other income (deductions):
Interest income ................... 276,843 301,764 826,914 963,513
Interest expense .................. (9,211) (11,181) (27,656) (32,722)
Miscellaneous ..................... (4,444) 16,823 (28,921) 50,608
------------ ------------ ------------ ------------
Total other income (deductions) 263,188 307,406 770,337 981,399
------------ ------------ ------------ ------------
Income before income taxes ........... 4,072,524 3,683,447 12,756,996 9,643,299
Provision for income taxes ........... (1,631,800) (1,454,200) (5,101,300) (3,799,500)
------------ ------------ ------------ ------------
Net income ........................... $ 2,440,724 $ 2,229,247 $ 7,655,696 $ 5,843,799
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average number of shares
outstanding ........................ 10,991,611 11,603,895 11,192,820 11,603,895
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Earnings per share - basic
and diluted........................ $0.22 $0.19 $0.68 $0.50
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See accompanying Notes to Condensed Financial Statements.
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HAWKINS CHEMICAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30
-----------------------------------------
1999 1998
----------------- ----------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... $ 7,655,696 $ 5,843,799
Depreciation and amortization...................... 1,465,723 1,357,843
Deferred income taxes.............................. (12,800) 122,000
Other.............................................. (79,499) (79,715)
Changes in certain current assets and liabilities.. 2,415,989 (3,504,210)
---------------- ---------------
Net cash provided by operating activities 11,445,109 3,739,717
---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment......... (1,834,620) (4,075,939)
Purchases and sales of investments-net............. (2,707,823) (2,410,955)
Payments received on notes receivable.............. 357,210 234,643
---------------- ---------------
Net cash used in investing activities (4,185,233) (6,252,251)
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid................................. (2,814,622) (2,204,740)
Acquisition and retirement of stock................. (4,888,288)
Debt repayment...................................... (89,123) (59,928)
---------------- ---------------
Net cash used in financing activities (7,792,033) (2,264,668)
---------------- ---------------
DECREASE IN CASH AND CASH EQUIVALENTS (532,157) (4,777,202)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,197,015 8,065,021
----------------- ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,664,858 $ 3,287,819
---------------- ---------------
---------------- ---------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest............................. $ 40,897 $ 45,502
---------------- ---------------
---------------- ---------------
Cash paid for income taxes......................... $ 4,113,666 $ 4,624,487
---------------- ---------------
---------------- ---------------
</TABLE>
See accompanying Notes to Condensed Financial Statements.
5
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HAWKINS CHEMICAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Prior to December 30, 1998, the basis of the financial statements presented
included the accounts of Hawkins Chemical, Inc. and its wholly owned
subsidiary, Hawkins Water Treatment Group, Inc. (the Company). All
significant inter-company transactions and balances have been eliminated.
Effective December 30, 1998 the subsidiary was merged into Hawkins
Chemical, Inc.
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions for Form 10-Q and,
accordingly, do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements.
These statements should be read in conjunction with the financial
statements and footnotes included in the Company's Annual Report on Form
10-K for the year ended September 27, 1998, previously filed with the
Securities and Exchange Commission. In the opinion of management, the
accompanying unaudited condensed financial statements contain all
adjustments necessary to present fairly the Company's financial position
and the results of its operations and cash flows for the periods presented.
All adjustments made to the interim financial statements were of a normal
recurring nature.
Effective September 28, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." For the
periods presented, comprehensive income is the same as net income.
The accounting policies followed by the Company are set forth in Note 1 to
the Company's financial statements in the 1998 Hawkins Chemical, Inc.
Annual Report on Form 10-K, which is incorporated by this reference filed
with the Securities and Exchange Commission on December 28, 1998.
2. The results of operations for the period ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the full
year.
3. Inventories, principally valued by the LIFO method, are less than current
cost by approximately $1,274,000 at June 30, 1999. Inventory consists
principally of finished goods. Inventory quantities fluctuate during the
year. No material amounts of interim liquidation of inventory quantities
have occurred that are not expected to be replaced by year-end.
4. During 1995, the Company had a fire in the office/warehouse of The Lynde
Company, a former wholly owned subsidiary. Through the end of the fiscal
year ended September 27, 1998, the Company had paid approximately
$2,728,000 in settlement and legal costs in connection with the Company's
defense of a lawsuit filed against it as a result of the fire. The
Company's insurers denied coverage and refused to defend the lawsuit. In
the first quarter of fiscal 1999, the Company prevailed against its
insurers to recover the legal and settlement costs in connection with the
1995 warehouse fire. Through the nine-month period ended June 30, 1999, the
Company has received $2,851,708, of which $97,708 was received during the
third quarter, which covers substantially all of its settlement and legal
costs. The umbrella insurer has agreed to defend and indemnify the Company
on remaining claims under the Settlement Agreement up to and in accordance
with its policy limits of $5,000,000. The Company's results of operations
for the first nine months of fiscal 1999 include $2,851,708 associated with
this settlement.
5. During the nine-month period ended June 30, 1999, the Company acquired
through open market purchases and retired 499,614 shares of its common
stock for $4,888,288.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales decreased $759,719, or 3.0%, in the third quarter of this fiscal year
as compared to the same quarter a year ago, and increased $331,914, or 0.5%, in
the first nine months of fiscal 1999 as compared to the same period in fiscal
1998. The decrease in sales for the quarter is mainly attributable to selling
price decreases of a single, large-volume product (caustic soda) which was
partially offset by increased sales volumes in food additives, pharmaceuticals
and most other product lines. Also contributing to the sales decrease was the
above normal amount of rainfall in most of the areas we service. This decreased
the chemical sales to the water treatment plants, waste treatment plants and
municipal swimming pools that normally use large quantities of chemicals during
the summer months. Municipalities normally pump approximately three times as
much water in the summer months as in the winter months. Due to the heavier than
normal rainfall, many of the municipalities were pumping what we would consider
winter rates.
Gross margin, as a percentage of net sales, for the third quarter of this
fiscal year was 26.5% compared to 24.0% for the same quarter one year ago,
and 24.0% for the first nine months of this fiscal year, compared to 22.9%
for the first nine months of fiscal 1998. These increases were mainly due to
increased sales volumes in product lines which generally have a higher profit
margin. Also contributing to the gross margin percentage increase was the
decrease in the selling price of the single, large-volume product line
mentioned above, where both the selling price and cost of the product had
decreased from one year ago. The demand for this product does not fluctuate
materially as the cost and selling price increases or decreases. The Company
has generally been able to and expects to continue to adjust its selling
prices as the cost of materials and other expenses change, thereby
maintaining relatively stable dollar gross margins.
Selling, general and administrative expenses, as a percentage of net sales, for
the third quarter of fiscal 1999 were 11.6% compared to 10.9% for the same
quarter one year ago, and 11.1% for the first nine months of fiscal 1999 as
compared to 10.6% for the first nine months of fiscal 1998. Stated as a
percentage of the same period one year ago, the third quarter increase in such
expenses was 3.2%, or $88,462, and the nine-month increase was 5.0%, or
$373,741. These increases were mainly due to increased expenses for employee
compensation and benefits, which make up the majority of the selling, general
and administrative expenditures. Of the remaining expenses in this category, no
single item is more than 6% of the total. Most of these remaining expenses
fluctuate only slightly with sales.
During 1995, the Company had a fire in the office/warehouse of The Lynde
Company, a former wholly owned subsidiary. Through the end of the fiscal year
ended September 27, 1998, the Company had paid approximately $2,728,000 in
settlement and legal costs in connection with the Company's defense of a lawsuit
filed against it as a result of the fire. The Company's insurers denied coverage
and refused to defend the lawsuit. In the first quarter of fiscal 1999, the
Company prevailed against its insurers to recover the legal and settlement costs
in connection with the 1995 warehouse fire. Through the nine-month period ended
June 30, 1999, the Company has received $2,851,708, of which $97,708 was
received during the third quarter, which covers substantially all of its
settlement and legal costs. The umbrella insurer has agreed to defend and
indemnify the Company on remaining claims under the Settlement Agreement up to
and in accordance with its policy limits of $5,000,000. The Company's results of
operations for the first nine months of fiscal 1999 include $2,851,708
associated with this settlement.
Income from operations increased $433,295, or 12.8%, in the third quarter and
$3,324,759, or 38.4%, in the first nine months of fiscal 1999 as compared to the
same periods one year ago. The third quarter increase is primarily due to the
gross profit increase. The nine-month increase is primarily attributable to the
amounts received from the Company's insurers in connection with the 1995 fire
referred to in the previous paragraph.
Interest income decreased $24,921 in the third quarter of fiscal 1999 as
compared to the same quarter one year ago and $136,599 for the first nine months
of this fiscal year as compared to the same period one year ago. These decreases
are the result of investing a larger amount of the cash available for investment
in tax-free municipal bonds, which generally have a lower rate of return, since
earnings from them are not taxable for Federal income tax purposes. Interest
expense decreased slightly in the third quarter and the first nine months of
fiscal 1999 compared to the same periods one year ago due to the decline in the
amount of long-term debt outstanding. Other
7
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miscellaneous income (deductions) decreased as compared to the previous periods
due to a gain on the sale of land and building in 1998.
LIQUIDITY AND CAPITAL RESOURCES
For the nine-month period ended June 30, 1999, cash flows from operations were
$11,445,109. This amount was $7,705,392 higher than cash provided by operations
during the same period one year ago, due mainly to an increase in net income and
to changes in certain current assets and liability accounts discussed below.
During the nine-month period ended June 30, 1999, the Company invested
$1,834,620 in property and equipment additions and increased investments
available-for-sale by $2,707,823.
Accounts receivable and accounts payable decreased during the first nine
months of fiscal 1999. These decreases are typical for the first nine months
of our fiscal year. Inventories decreased due mainly to lower quantities and
costs of the single, large-volume product (caustic soda). The Company expects
to restore these quantities by fiscal year end. Other current assets
decreased due to a reduction in prepaid income taxes that existed at fiscal
year end. Other current liabilities decreased as a result of the payment of
benefit plan accruals that existed at fiscal year end. The Company did not
issue any securities during the nine-month period ended June 30, 1999.
Through open market purchases, the Company acquired and retired 165,249 shares
of common stock for $1,482,716 during the quarter ended June 30, 1999 and
499,614 shares of common stock for $4,888,288 during the nine-month period ended
June 30, 1999.
The cash flows from operations, combined with the Company's strong cash
position, puts the Company in a position to fund both short and long-term
working capital and capital investment needs with internally generated funds.
Management does not, therefore, anticipate the need to engage in significant
financing activities in either the short or long-term. If the need to obtain
additional capital does arise, however, management is confident that the
Company's total debt-to-capital ratio puts it in a position to issue either debt
or equity securities on favorable terms.
Although management continually reviews opportunities to enhance the value of
the Company through strategic acquisitions, other capital investments and
strategic divestitures, no material commitments for such investments or
divestitures currently exist. Until appropriate investment opportunities are
identified, the Company will continue to invest excess cash in conservative
investments pursuant to an investment policy adopted by the Board of Directors.
The policy directs investment in short-term and mid-term fixed income
instruments earning a market rate of interest without assuming undue risk of
principal. Primary objectives are preservation of principal, maintenance of
liquidity, and rate of return. Cash equivalents consist of short-term
certificates of deposit and investments consist of relatively low-risk
investment and annuity contracts with highly rated, stable insurance companies,
and marketable securities consisting of investment grade municipal securities,
all of which are carried at cost which approximates fair value. All cash
equivalents are highly liquid and are available upon demand. There are some
penalties associated with the early liquidation of the Company's investment and
annuity contracts.
Other than as discussed above, management is not aware of any matters that have
materially affected the first nine months of fiscal 1999, 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.
YEAR 2000 COMPLIANCE
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, 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 $534,300 has been spent through June 30, 1999 to upgrade
the Company's primary IT systems, IT infrastructure, shipping system 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.
8
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The Company has completed the majority of its hardware, software and equipment
testing for Year 2000 compliance. Testing included, but was not limited to,
corporate IT systems, IT infrastructure, security systems, telephone systems,
manufacturing and laboratory equipment, and timekeeping systems. The Company is
currently in the final stage of its testing process and is scheduled to complete
all testing by September 1999. 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
issue 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 is
developing third party contingency plans as it identifies partners evidencing
inadequate Year 2000 preparations. Contingency plans 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 which 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, 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.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 131, "Disclosures 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. In accordance with
SFAS No. 131, the segment disclosure, if any, will be included in the Company's
Form 10-K for the year ending October 3, 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. In July 1999, the FASB issued SFAS No. 137
delaying the effective date of SFAS No. 133 for one year, for fiscal years
beginning after June 15, 2000. Management has not yet determined the effects
SFAS No. 133 will have on its financial position or the results of its
operations.
FORWARD-LOOKING STATEMENTS
THE INFORMATION CONTAINED IN THIS FORM 10-Q INCLUDES FORWARD-LOOKING STATEMENTS
AS DEFINED IN SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
THESE FORWARD-LOOKING STATEMENTS INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES,
INCLUDING DEMAND FROM MAJOR CUSTOMERS, COMPETITION, CHANGES IN PRODUCT OR
CUSTOMER MIX OR REVENUES, CHANGES IN PRODUCT COSTS AND OPERATING EXPENSES AND
OTHER FACTORS DISCLOSED THROUGHOUT THIS REPORT. THE
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ACTUAL RESULTS THAT THE COMPANY ACHIEVES MAY DIFFER MATERIALLY FROM ANY
FORWARD-LOOKING STATEMENTS DUE TO SUCH RISKS AND UNCERTAINTIES. THE COMPANY
UNDERTAKES NO OBLIGATION TO REVISE ANY FORWARD-LOOKING STATEMENTS IN ORDER TO
REFLECT EVENTS OR CIRCUMSTANCES THAT MAY ARISE AFTER THE DATE OF THIS REPORT.
READERS ARE URGED TO CAREFULLY REVIEW AND CONSIDER THE VARIOUS DISCLOSURES MADE
BY THE COMPANY IN THIS REPORT AND IN THE COMPANY'S OTHER REPORTS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION THAT ATTEMPT TO ADVISE INTERESTED PARTIES OF
THE RISKS AND UNCERTAINTIES THAT MAY AFFECT THE COMPANY'S FINANCIAL CONDITION
AND RESULTS OF OPERATION.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At June 30, 1999, the Company had an investment portfolio of fixed income
securities of $2,309,414, excluding $19,529,673 of those classified as cash and
cash equivalents and variable rate securities. These securities, like all fixed
income instruments, are subject to interest rate risk and will decline in value
if market interest rates increase. However, the Company has the ability to hold
its fixed income investments until maturity and therefore the Company would not
expect to recognize an adverse impact in income or cash flows.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As of the date of this filing, the Registrant was not involved in any pending
legal proceedings to which the Registrant was a party or of which any property
of the Registrant was the subject other than ordinary routine litigation
incidental to their business, except as follows:
LYNDE COMPANY WAREHOUSE FIRE. On March 1, 1995, the Company 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 entered
into a class settlement agreement with the class, pursuant to which the
Registrant 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 gave 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. Since the beginning of fiscal 1999, the Registrant has been
reimbursed for substantially all of its settlement and litigation expenses.
Hawkins' umbrella insurer has agreed to defend and indemnify Hawkins on
remaining claims under the Settlement Agreement up to and in accordance
with its policy limits of $5,000,000.
10
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The following exhibits are included with this Quarterly Report on Form 10-Q
(or incorporated by reference) as required by Item 601 of Regulation S-K.
Exhibit No. Description of Exhibit
----------------- --------------------------------------------------
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the fiscal quarter
ended June 30, 1999.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HAWKINS CHEMICAL, INC.
BY /s/ Howard M. Hawkins
----------------------------------------
Howard M. Hawkins, Treasurer
(Chief Financial and Accounting Officer)
Dated: August 12, 1999
<PAGE>
EXHIBIT INDEX
The following exhibits are included with this Quarterly Report on Form 10-Q (or
incorporated by reference) as required by Item 601 of Regulation S-K.
Exhibit No. Description of Exhibit Page No.
----------------- --------------------------------- ------------
27 Financial Data Schedule 12
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-03-1999
<PERIOD-START> SEP-27-1998
<PERIOD-END> JUN-30-1999
<CASH> 2,664,858
<SECURITIES> 17,251,752
<RECEIVABLES> 11,227,529
<ALLOWANCES> 258,347
<INVENTORY> 6,933,495
<CURRENT-ASSETS> 39,657,820
<PP&E> 34,251,492
<DEPRECIATION> 15,411,783
<TOTAL-ASSETS> 64,150,212
<CURRENT-LIABILITIES> 8,224,829
<BONDS> 328,040
0
0
<COMMON> 547,564
<OTHER-SE> 54,032,280
<TOTAL-LIABILITY-AND-EQUITY> 64,150,212
<SALES> 71,034,944
<TOTAL-REVENUES> 71,034,944
<CGS> 53,999,756
<TOTAL-COSTS> 53,999,756
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,656
<INCOME-PRETAX> 12,756,996
<INCOME-TAX> 5,101,300
<INCOME-CONTINUING> 7,655,696
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,655,696
<EPS-BASIC> .68
<EPS-DILUTED> .68
</TABLE>
