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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 MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________to _____________________
Commission file number 0-7647
HAWKINS CHEMICAL, INC.
----------------------
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0771293
--------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
3100 EAST HENNEPIN AVENUE, MINNEAPOLIS, MINNESOTA 55413
-------------------------------------------------------
(Address of principal executive offices) Zip Code
(612) 331-6910
--------------
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MAY 11, 2000
-------------------------------------- ---------------------------
Common Stock, par value $.05 per share 10,488,081
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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 - March 31, 2000 and October 3, 1999................................... 3
Condensed Statements of Income - Three and Six Months Ended March 31, 2000 and 1999............. 4
Condensed Statements of Cash Flows - Three and Six Months Ended March 31, 2000 and 1999......... 5
Notes to Condensed Financial Statements......................................................... 6-7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 8-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................... 12
Item 4. Submission of Matters to a Vote of Securities Holders........................................... 12
Item 6. Exhibits and Reports on Form 8-K................................................................ 13
Exhibit Index................................................................................... 14
Financial Data Schedule......................................................................... 15
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
HAWKINS CHEMICAL, INC.
CONDENSED BALANCE SHEETS
MARCH 31, 2000 OCTOBER 3, 1999
-------------- ---------------
(Unaudited) (Derived from audited
financial statements)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................... $ 524,852 $ 4,778,174
Investments available-for-sale ............................... 17,274,849 17,424,700
Trade receivables-net ........................................ 11,081,688 11,329,211
Notes receivable ............................................. 318,308 301,920
Inventories .................................................. 7,478,294 8,379,228
Prepaid expenses and other ................................... 2,337,338 2,536,448
----------- -----------
Total current assets ..................................... 39,015,329 44,749,681
Property, plant and equipment-net .............................. 21,403,241 18,664,999
Notes receivable-noncurrent .................................... 2,534,809 2,844,220
Other assets ................................................... 2,766,848 2,740,927
----------- -----------
Total ........................................................ $65,720,227 $68,999,827
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................. $ 4,652,642 $ 5,032,268
Current portion of long-term debt ............................ 102,037 95,362
Dividends payable ............................................ 1,793,820 1,314,154
Other current liabilities .................................... 3,405,731 4,838,635
----------- -----------
Total current liabilities ................................ 9,954,230 11,280,419
Long-term debt ................................................. 226,003 328,040
Deferred income taxes .......................................... 1,034,950 1,029,950
Other long-term liabilities .................................... 638,445 786,202
Commitments and contingencies .................................. -- --
Shareholders' equity:
Common stock, par value $.05 per share; issued and
outstanding, 10,551,881 and 10,951,281 shares respectively 527,594 547,564
Additional paid-in capital ................................. 38,666,188 40,129,749
Retained earnings .......................................... 14,672,817 14,897,903
----------- -----------
Total shareholders' equity .............................. 53,866,599 55,575,216
----------- -----------
Total $65,720,227 $68,999,827
=========== ===========
</TABLE>
See accompanying Notes to Condensed Financial Statements.
3
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HAWKINS CHEMICAL, INC.
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended March 31 Six Months Ended March 31
2000 1999 2000 1999
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales ................................... $ 22,747,374 $ 22,763,885 $ 44,373,743 $ 46,075,010
Cost of sales ............................... (17,360,474) (17,522,076) (34,014,491) (35,645,793)
------------ ------------ ------------ ------------
Gross profit ................................ 5,386,900 5,241,809 10,359,252 10,429,217
Selling, general and administrative ......... (2,741,606) (2,490,377) (5,302,465) (5,005,894)
Litigation settlement reimbursement ......... -- -- -- 2,754,000
------------ ------------ ------------ ------------
Income from operations ...................... 2,645,294 2,751,432 5,056,787 8,177,323
Other income (deductions):
Interest income .......................... 274,371 269,009 561,727 550,071
Interest expense ......................... (7,545) (9,213) (15,106) (18,445)
Miscellaneous ............................ 16,370 (46,390) 30,869 (24,477)
------------ ------------ ------------ ------------
Total other income (deductions) ...... 283,196 213,406 577,490 507,149
------------ ------------ ------------ ------------
Income before income taxes .................. 2,928,490 2,964,838 5,634,277 8,684,472
Provision for income taxes .................. (1,153,800) (1,176,100) (2,219,900) (3,469,500)
------------ ------------ ------------ ------------
Net income .................................. $ 1,774,690 $ 1,788,738 $ 3,414,377 $ 5,214,972
============ ============ ============ ============
Weighted average number of shares outstanding 10,635,938 11,218,686 10,750,723 11,291,792
============ ============ ============ ============
Earnings per share - basic and diluted ...... $ 0.17 $ 0.16 $ 0.32 $ 0.46
============ ============ ============ ============
</TABLE>
See accompanying Notes to Condensed Financial Statements.
4
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HAWKINS CHEMICAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended March 31
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2000 1999
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(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................................... $ 3,414,377 $ 5,214,972
Depreciation and amortization ................................................... 1,004,033 889,049
Deferred income taxes ........................................................... 45,000 210,000
Other ........................................................................... (57,469) (54,620)
Changes in certain current assets and liabilities ............................... (652,720) 1,914,854
----------- -----------
Net cash provided by operating activities 3,753,221 8,174,255
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment ...................................... (3,710,727) (1,056,388)
Purchases of investments ........................................................ (350,149) (2,631,436)
Sale of investments ............................................................. 500,000 --
Payments received on notes receivable ........................................... 293,023 281,851
----------- -----------
Net cash used in investing activities (3,267,853) (3,405,973)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid ............................................................. (1,314,154) (1,147,090)
Acquisition and retirement of stock ............................................. (3,329,174) (3,405,572)
Debt repayment .................................................................. (95,362) (89,123)
----------- -----------
Net cash used in financing activities (4,738,690) (4,641,785)
----------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,253,322) 126,497
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,778,174 3,197,015
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 524,852 $ 3,323,512
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest .......................................................... $ 34,658 $ 40,897
=========== ===========
Cash paid for income taxes ...................................................... $ 2,885,510 $ 2,383,500
=========== ===========
</TABLE>
See accompanying Notes to Condensed Financial Statements.
5
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HAWKINS CHEMICAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions for Form 10-Q and,
accordingly, do not include all information and footnotes required by
generally accepted accounting principles for complete financial
statements. These statements should be read in conjunction with the
financial statements and footnotes included in the Company's Annual Report
on Form 10-K for the year ended October 3, 1999, previously filed with the
Commission. In the opinion of management, the accompanying unaudited
condensed financial statements contain all adjustments necessary to
present fairly the Company's financial position and the results of its
operations and cash flows for the periods presented. All adjustments made
to the interim financial statements were of a normal recurring nature.
The accounting policies followed by the Company are set forth in Note 1 to
the Company's financial statements in the 1999 Hawkins Chemical, Inc.
Annual Report which is incorporated by reference in the Form 10-K filed
with the Commission on January 3, 2000.
2. The results of operations for the period ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the full
year.
3. Inventories, principally valued by the LIFO method, are less than current
cost by approximately $770,000 at March 31, 2000. Inventory consists
principally of finished goods. Inventory quantities fluctuate during the
year. No material amounts of interim liquidation of inventory quantities
have occurred that are not expected to be replaced by year-end.
4. Cash dividends in the amount of $1,314,154 were paid on October 12, 1999.
On February 16, 2000, the Board of Directors declared a semi-annual cash
dividend of $.15 per share and a special one-time cash dividend of $.02 per
share. Both were payable April 14, 2000 to shareholders of record at the
close of business March 31, 2000.
5. During the six months ended March 31, 2000, the Company acquired and
retired 399,400 shares of common stock for $3,329,174.
6. During 1995, the Company had a fire in the office/warehouse of The Lynde
Company, a former wholly owned subsidiary. The Company's insurers denied
coverage and refused to defend the lawsuit filed against it as a result of
the fire. 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. The Company received $2,754,000,
which covered substantially all of its settlement and legal costs. The
Company's income from operations for the first fiscal quarter of 1999
include the $2,754,000 recovery from its insurers. 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.
7. On May 11, 2000, the Company entered into an agreement in principle to
acquire certain assets of St. Mary's Chemicals, Inc. d.b.a. Universal
Chemicals for $3,300,000 ($2,700,000 in cash and $600,000 in the Company's
common stock). Universal Chemicals, a Minnesota-based company, is engaged
in the business of marketing, selling, and distributing pharmaceutical
chemicals to pharmacies and pharmacy wholesalers. Closing is expected in
late May 2000.
6
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The Company also agreed to enter into an employment agreement with one of
the owners of Universal Chemicals. The employment agreement is for five
years and contains performance bonus and non-compete provisions. The
performance bonus is based on the Pharmaceutical division's operating
results, as defined, for five years after the acquisition date and is
based on achieving a five-year aggregate EBIT (earnings before interest
expense and income taxes) greater than $6,600,000 and if EBIT reaches
$11,351,000 or greater, the performance bonus has a maximum payment of
$3,262,500.
The acquisition will be accounted for using the purchase method of
accounting, and the excess of purchase price over net assets acquired is
being amortized over 15 years using the straight-line method. The
operations of Universal Chemicals will be included in the Company's
statement of income beginning May 1, 2000. The pro forma effect of this
acquisition on sales, operating income, and earnings per share was not
significant.
8. The Company has two reportable segments: Industrial and Water Treatment.
Reportable segments are defined by product and type of customer. Segments
are responsible for the sales, marketing and development of their products
and services. The segments do not have separate accounting,
administration, customer service or purchasing functions. The information
for 1999 has been restated to conform to the 2000 presentation.
<TABLE>
<CAPTION>
REPORTABLE SEGMENTS INDUSTRIAL WATER TREATMENT TOTAL
<S> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 2000
Net sales................................... $ 16,534,254 $ 6,213,120 $ 22,747,374
Gross profit................................ 3,457,575 1,929,325 5,386,900
Operating income............................ 1,642,791 1,002,503 2,645,294
THREE MONTHS ENDED MARCH 31, 1999
Net sales................................... $ 16,745,745 $ 6,018,140 $ 22,763,885
Gross profit................................ 3,432,908 1,808,901 5,241,809
Operating income............................ 1,801,690 949,742 2,751,432
SIX MONTHS ENDED MARCH 31, 2000
Net sales.................................. $ 31,766,085 $ 12,607,658 $ 44,373,743
Gross profit............................... 6,444,604 3,914,648 10,359,252
Operating income........................... 2,910,203 2,146,584 5,056,787
SIX MONTHS ENDED MARCH 31, 1999
Net sales................................. $ 33,611,625 $ 12,463,385 $ 46,075,010
Gross profit.............................. 6,674,758 3,754,459 10,429,217
Operating income.......................... 3,359,144 2,064,179 5,423,323
<CAPTION>
SIX MONTHS ENDED MARCH 31,
2000 1999
PROFIT RECONCILIATION
Total income for reportable segments................................. $ 5,056,787 $ 5,423,323
Unallocated corporate income......................................... -- 2,754,000
--------- ---------
Total operating income............................................... $ 5,056,787 $ 8,177,323
========= =========
</TABLE>
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THE INFORMATION CONTAINED IN THIS FORM 10-Q INCLUDES FORWARD-LOOKING
STATEMENTS AS DEFINED IN SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED. FORWARD-LOOKING INFORMATION OR STATEMENTS INCLUDE STATEMENTS
ABOUT THE FUTURE OF THE INDUSTRIES REPRESENTED BY OUR OPERATING GROUPS,
STATEMENTS ABOUT OUR FUTURE BUSINESS PLANS AND STRATEGIES, THE TIMELINESS OF
PRODUCT INTRODUCTIONS AND DELIVERIES, EXPECTATIONS ABOUT INDUSTRY AND MARKET
GROWTH DEVELOPMENTS, EXPECTATIONS ABOUT OUR GROWTH AND PROFITABILITY AND
OTHER STATEMENTS THAT ARE NOT HISTORICAL IN NATURE. MANY OF THESE STATEMENTS
CONTAIN WORDS SUCH AS "MAY," "WILL," "BELIEVE," "INTEND," "ESTIMATE," OR
"CONTINUE" OR OTHER SIMILAR WORDS.
THESE FORWARD-LOOKING STATEMENTS INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES,
INCLUDING DEMAND FROM MAJOR CUSTOMERS, COMPETITION, CHANGES IN PRODUCT OR
CUSTOMER MIX OR REVENUES, CHANGES IN PRODUCT COSTS AND OPERATING EXPENSES AND
OTHER FACTORS DISCLOSED THROUGHOUT THIS REPORT. THE ACTUAL RESULTS THAT THE
COMPANY ACHIEVES MAY DIFFER MATERIALLY FROM ANY FORWARD-LOOKING STATEMENTS
DUE TO SUCH RISKS AND UNCERTAINTIES. THE COMPANY UNDERTAKES NO OBLIGATION TO
REVISE ANY FORWARD-LOOKING STATEMENTS IN ORDER TO REFLECT EVENTS OR
CIRCUMSTANCES THAT MAY ARISE AFTER THE DATE OF THIS REPORT. READERS ARE URGED
TO CAREFULLY REVIEW AND CONSIDER THE VARIOUS DISCLOSURES MADE BY THE COMPANY
IN THIS REPORT AND IN THE COMPANY'S OTHER REPORTS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION THAT ATTEMPT TO ADVISE INTERESTED PARTIES OF THE
RISKS AND UNCERTAINTIES THAT MAY AFFECT THE COMPANY'S FINANCIAL CONDITION,
RESULTS OF OPERATIONS, AND CASH FLOWS, PARTICULARLY THE COMPANY'S ANNUAL
REPORT ON FORM 10-K, FILED WITH THE COMMISSION..
CONTINUING OPERATIONS
Net sales decreased $16,511, or .1%, in the second quarter of this fiscal
year, and $1,701,267, or 3.7%, in the first six months of this fiscal year as
compared to the comparable periods in fiscal 1999. The Industrial segment had
a decrease of $211,491 in the second quarter of this fiscal year as compared
to the second quarter of fiscal 1999 and $1,845,540 in the first six months
of fiscal 2000 as compared to the first six months of fiscal 1999. These
decreases were mainly attributable to selling price decreases of a single,
large-volume product (caustic soda), although these decreases were partially
offset by increased volumes in other product lines. The Water Treatment
segment had a sales increase of $194,980 in the second quarter of this fiscal
year as compared to the second quarter of fiscal 1999 and an increase of
$144,273 in the first six months of fiscal 2000 as compared to the first six
months of fiscal 1999. These increases are due mainly to increased sales
volumes.
The gross margin, as a percentage of net sales, for the second quarter of
fiscal 2000 was 23.7% compared to 23.0% for the second quarter of fiscal
1999, and was 23.3% for the first six months of fiscal 2000 compared to 22.6%
for the first six months of fiscal 1999. For the Industrial segment, gross
margin, as a percentage of sales, was 20.9% for the second quarter of fiscal
2000 compared to 20.5% for the second quarter of fiscal 1999 and 20.3% for
the first six months of this fiscal year compared to 19.9% for the first six
months of fiscal 1999. The Industrial segment's increases are mainly due to
decreases in both the selling price and cost of caustic soda compared to the
prior periods. 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. Gross margin, as a percentage of sales, for the
Water Treatment segment was 31.1% for the second quarter ended March 31, 2000
compared to 30.1% for the second quarter of fiscal 1999 and 31.0% for the
six-month period ended
8
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March 31, 2000 compared to 30.1% for the six-month period of fiscal 1999.
These increases are due to selling price increases in various product lines
resulting in increased profit margins.
Selling, general and administrative expenses as a percentage of net sales for
the second quarter of fiscal 2000 were 12.1% compared to 10.9% for the second
quarter of fiscal 1999, and 11.9% for the first six months of fiscal 2000
compared to 10.9% for the first six months of fiscal 1999. Stated as a
percentage of the same period one year ago, the second quarter increase in
such expenses was 10.1%, or $251,229, and the six-month increase was 5.9%, or
$296,571. These increases were mainly due to increases in the sales and
administrative staff and to increased employee compensation and benefit
costs, which comprise the majority of the selling, general and administrative
expenditures. Most of these remaining expenses fluctuate only slightly with
fluctuations in sales.
Income from operations decreased by $106,138, or 3.9%, in the second quarter
of fiscal 2000, and $3,120,536, or 38.2%, in the first six months of fiscal
2000 compared to the comparable periods of fiscal 1999. The second quarter
decrease is primarily due to the increased selling, general and
administrative expenses discussed above. The six-month decrease is primarily
attributable to the $2,754,000 recovery during fiscal 1999 from the Company's
insurers in connection with the 1995 fire at the Lynde Company, a former
wholly owned subsidiary. This insurance recovery covers substantially all of
its related settlement and legal costs previously incurred in the periods
prior to the payment. Also contributing to the six-month decrease are the
increased selling, general and administrative expenses.
OTHER INCOME
Interest income increased $5,362 in the second quarter of fiscal 2000 as
compared to the same quarter one year ago and $11,656 for the first six
months of this fiscal year as compared to the same six-month period one year
ago. These increases are due to a higher rate of return earned on cash
investments. Interest expense decreased slightly in the second quarter and
the first six months of fiscal 2000 compared to the same periods one year ago
due to the decline in the amount of long-term debt outstanding. Other
miscellaneous income (deductions) increased $62,760 for the second quarter
and $55,346 for the six-month periods ended March 31, 2000 compared to the
same periods one year ago.
LIQUIDITY AND CAPITAL RESOURCES
For the six-month period ended March 31, 2000, cash provided by operations
was $3,753,221 compared to $8,174,255 for the same period one-year ago. This
decrease was due mainly to the decrease in net income and changes in certain
current asset and liability accounts discussed in the next paragraph below.
The decrease in net income is primarily due to the $2,754,000 recovery
received in 1999 from the Company's insurers in connection with the 1995 fire
at the Lynde Company, a former wholly owned subsidiary. During the six months
ended March 31, 2000, the Company invested $3,710,727 in property and
equipment additions, which included approximately $2,140,000 for a new
building being constructed in St. Paul, Minnesota that will be occupied by
both the Industrial and Water Treatment segments.
Accounts receivable, inventories, and accounts payable decreased during the
first six months of fiscal 2000. Decreases in these accounts are typical for
the first six months of our fiscal year. Other current assets decreased
during the first six months of fiscal 2000 due to prepayments that existed at
October 3, 1999 currently being expensed. Other current liabilities decreased
as a result of the payment of benefit plan accruals that existed at fiscal
year end. The Company did not issue any securities during the six-month
period ended March 31, 2000.
9
<PAGE>
Through open market purchases, the Company acquired and retired 267,000
shares of common stock for $2,243,984 during the quarter ended March 31, 2000
and 399,400 shares of common stock for $3,329,174 during the six-month period
ended March 31, 2000.
Cash flows from operations, coupled with the Company's strong cash position,
puts the Company in a position to fund both short and long-term working
capital and capital investment needs with internally generated funds.
Management does not, therefore, anticipate the need to engage in significant
financing activities in either the short or long-term. If the need to obtain
additional capital does arise, however, management is confident that the
Company's total debt to capital ratio puts it in a position to issue debt on
favorable terms.
On May 11, 2000, the Company entered into an agreement in principle to
acquire certain assets of St. Mary's Chemicals, Inc. d.b.a. Universal
Chemicals for $3,300,000 ($2,700,000 in cash and $600,000 in the Company's
common stock). Universal Chemicals, a Minnesota-based company, is engaged in
the business of marketing, selling, and distributing pharmaceutical chemicals
to pharmacies and pharmacy wholesalers. Closing is expected in late May 2000.
The Company also agreed to enter into an employment agreement with one of the
owners of Universal Chemicals. The employment agreement is for five years and
contains performance bonus and non-compete provisions. The performance bonus
is based on the Pharmaceutical division's operating results, as defined, for
five years after the acquisition date and is based on achieving a five-year
aggregate EBIT (earnings before interest expense and income taxes) greater
than $6,600,000 and if EBIT reaches $11,351,000 or greater, the performance
bonus has a maximum payment of $3,262,500.
The acquisition will be accounted for using the purchase method of
accounting, and the excess of purchase price over net assets acquired is
being amortized over 15 years using the straight-line method. The operations
of Universal Chemicals will be included in the Company's statement of income
beginning May 1, 2000. The pro forma effect of this acquisition on sales,
operating income, and earnings per share was not significant.
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, except that an additional amount of
approximately $1.8 million has been committed for the construction of a
facility in St. Paul on the Mississippi River. Until appropriate investment
opportunities are identified, the Company will continue to invest excess cash
in conservative investments. Cash equivalents include all liquid debt
instruments (primarily cash funds 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 classified as
available-for-sale securities consist of insurance contracts and variable
rate marketable securities (primarily municipal bonds and annuity contracts)
that will be held for indefinite periods of time, including securities that
may be sold in response to changes in market interest or prepayment rates,
needs for liquidity or changes in the availability or yield of alternative
investments. These securities are carried at market value, which approximates
cost.
Other than as discussed above, management is not aware of any matters that
have materially affected the first six months of fiscal 2000, or are expected
to materially affect future periods, nor is management aware of other matters
not affecting this period that are expected to materially affect future
periods.
10
<PAGE>
YEAR 2000 COMPLIANCE
In previous filings, the Company has discussed the Year 2000 computer systems
issue and the Company's efforts and expenditures to plan for and prevent or
remediate any related problems. As of the filing date of this Form 10-Q, the
Company's business operations have not been materially impacted by Year 2000
matters. The Company has not expended any additional amounts on Year 2000
issues since January 2000, although the Company continues to maintain,
upgrade and replace its systems as needed in the ordinary course of business.
The Company will continue to monitor its critical computer applications and
those of its significant suppliers and customers and will promptly address
any latent Year 2000 matters that may arise, although management does not
currently anticipate any material problems.
MARKET RISK
At March 31, 2000, the Company had an investment portfolio of fixed income
securities of approximately $2,200,861, excluding $17,628,665 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.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 requires
companies to record derivatives on the balance sheet as assets and
liabilities, measured at fair value. Gains or losses resulting from changes
in the values of those derivatives would be accounted for depending on the
use of the derivative and whether it qualifies for hedge accounting. In July
1999, the FASB issued SFAS No. 137 delaying the effective date of SFAS No.
133 for one year to fiscal years beginning after June 15, 2000, with earlier
adoption encouraged. Management has not yet determined the effects SFAS No.
133 will have on its financial position or the results of its operations. The
Company will be required to adopt SFAS No. 133 in fiscal 2001.
11
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As of the date of this filing, the Registrant was not involved in any pending
legal proceedings other than ordinary routine litigation incidental to their
business, except as follows:
LYNDE COMPANY WAREHOUSE FIRE. The settlement agreement (the "Settlement
Agreement") relating to the class action, DONNA M. COOKSEY, ET AL. V.
HAWKINS CHEMICAL, INC. AND THE LYNDE COMPANY ("Cooksey"), brought in March
1995 against the Company and its former subsidiary, for damages alleged to
be caused by a fire at an office/warehouse facility used by the former
subsidiary, was approved by the court on January 30, 1998. Pursuant to the
Settlement Agreement, the Company agreed to pay certain of the plaintiffs'
costs and expenses as well as certain compensation to the class. In
October 1998 the Company obtained a judgment against its primary and
umbrella insurers obligating both insurers to defend the Company in
connection with the Cooksey lawsuit. The two insurers subsequently settled
with the Company by reimbursing it $2,754,000 for substantially all
amounts incurred in defending and settling the Cooksey action. Less than
12 claimants remain who have not yet resolved their claims under the
Settlement Agreement. The Registrant anticipates that the defense and
payment of these remaining claims, which are subject to arbitration, will
be covered by its umbrella insurer.
Item 4. Submission of matters to a vote of Security Holders.
The annual meeting of the shareholders of the Company was held on February
16, 2000.
The following is a tabulation of the results of votes cast on the matters
voted upon at the annual meeting of the shareholders:
PROPOSAL 1: Election of Directors. All of management's nominees for
director were elected with the following votes:
<TABLE>
<CAPTION>
Broker
For Against Withheld Abstain Non-votes
------------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Dean L. Hahn 7,839,502 0 277,026 0 0
G. Robert Gey 7,854,660 0 261,868 0 0
Howard M. Hawkins 7,901,647 0 214,881 0 0
Donald L. Shipp 7,708,684 0 407,844 0 0
John S. McKeon 7,851,096 0 265,432 0 0
John R. Hawkins 7,858,422 0 258,106 0 0
Duane Jergenson 7,854,660 0 261,868 0 0
Kurt R. Norman 7,686,275 0 430,253 0 0
</TABLE>
12
<PAGE>
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.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
--------------- -----------------------------------------------------------------------
<S> <C>
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the fiscal quarter ended
MARCH 31, 2000.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HAWKINS CHEMICAL, INC.
BY /s/ Marvin E. Dee
----------------------------------------
Marvin E. Dee, Vice President, Chief
Financial Officer, Secretary, Treasurer
Dated: May 11, 2000
13
<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.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Page
No.
--------------- ------------------------------------------ ------------
<S> <C> <C>
27 Financial Data Schedule 15
</TABLE>
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-01-2000
<PERIOD-START> OCT-04-1999
<PERIOD-END> MAR-31-2000
<CASH> 524,852
<SECURITIES> 17,274,849
<RECEIVABLES> 11,463,173
<ALLOWANCES> 381,485
<INVENTORY> 7,478,294
<CURRENT-ASSETS> 39,015,329
<PP&E> 38,065,282
<DEPRECIATION> 16,662,041
<TOTAL-ASSETS> 65,720,227
<CURRENT-LIABILITIES> 9,954,230
<BONDS> 226,003
527,594
0
<COMMON> 0
<OTHER-SE> 53,339,005
<TOTAL-LIABILITY-AND-EQUITY> 65,720,227
<SALES> 44,373,743
<TOTAL-REVENUES> 44,373,743
<CGS> 34,014,491
<TOTAL-COSTS> 34,014,491
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,106
<INCOME-PRETAX> 5,634,277
<INCOME-TAX> 2,219,900
<INCOME-CONTINUING> 3,414,377
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,414,377
<EPS-BASIC> .32
<EPS-DILUTED> .32
</TABLE>
