UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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
incorporation of organization) 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
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at February 13, 1996
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Common Stock, par value $.05 per share 10,525,772
HAWKINS CHEMICAL, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page No.
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PART I.FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets - December 31, 1995 and
October 1, 1995........................................... 3
Consolidated Condensed Statements of Income - Three
Months Ended December 31, 1995 and 1994................... 4
Consolidated Condensed Statements of Cash Flow - Three Months
Ended December 31, 1995 and 1994.......................... 5
Notes to Consolidated Condensed Financial Statements........... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 7-8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................... 9
Financial Data Schedule................................... Exhibit
27
2
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
HAWKINS CHEMICAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 OCTOBER 1, 1995
----------------- ---------------
ASSETS (Unaudited) (Derived from Audited
financial statements)
Current assets:
Cash and cash equivalents........................ $ 8,150,572 $ 9,906,107
Investments (fair value approximates cost)....... 8,066,318 7,968,761
Accounts receivable-net.......................... 9,643,018 10,512,260
Note receivable.................................. 208,943 208,943
Inventories...................................... 7,578,336 8,663,959
Other current assets............................. 995,431 1,647,660
--------------- -------------
Total current assets........................ 34,642,618 38,907,690
Property, plant and equipment-net..................... 12,469,561 11,438,895
Note receivable-non current........................... 695,045 715,045
Other assets.......................................... 2,632,644 2,629,184
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Total............................................ $50,439,868 $53,690,814
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--------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 5,747,597 $ 8,691,204
Current portion of long-term debt................ 56,008 52,344
Other current liabilities........................ 4,320,675 5,822,383
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Total current liabilities................... 10,124,280 14,565,931
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Long term debt........................................ 572,453 628,461
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Deferred income taxes................................. 382,800 377,800
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Shareholders' equity:
Common stock, par value $.05 per share; issued
and outstanding, 10,525,772 shares and
10,525,772 shares respectively................... 526,289 526,289
Additional paid-in capital....................... 34,235,623 34,235,623
Retained earnings................................ 4,598,423 3,356,710
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Total shareholders' equity.................. 39,360,335 38,118,622
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Total....................................... $50,439,868 $53,690,814
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--------------- -------------
See accompanying notes
3
HAWKINS CHEMICAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
December 31
1995 1994
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Net sales............................................. $17,422,984 $16,494,477
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Costs and expenses:
Cost of sales.................................... 13,659,310 12,856,728
Selling, general and administrative.............. 1,961,912 1,877,800
----------- -----------
Total costs and expenses.................... 15,621,222 14,734,528
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Income from operations................................ 1,801,762 1,759,949
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Other income (deductions):
Interest income.................................. 258,500 192,214
Interest expense................................. (12,823) (13,739)
Miscellaneous.................................... 29,073 22,590
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Total other income (deductions)............. 274,750 201,065
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Income from continuing operations before
income taxes........................................ 2,076,512 1,961,014
Provision for income taxes from continuing
operations.......................................... 834,800 788,100
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Income from continuing operations..................... 1,241,712 1,172,914
Discontinued Operations:
Loss from operations of Tessman Seed, Inc. (less
applicable income taxes of $0 and
($37,900), respectively)......................... 0 (56,933)
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Net income............................................ $ 1,241,712 $ 1,115,981
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Weighted average number of shares
outstanding........................................ 10,525,772 10,525,772
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----------- -----------
Earnings per common share:
Continuing operations............................ $0.12 $0.11
Discontinued operations.......................... 0.00 (0.00)
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Total....................................... $0.12 $0.11
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See accompanying notes
4
HAWKINS CHEMICAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED DECEMBER 31
-------------------------------
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................... $ 1,241,712 $ 1,115,981
Loss on discontinued operations of
Tessman Seed, Inc.............................. 56,933
Depreciation and amortization.................... 340,800 323,432
Deferred income taxes............................ 19,000
Other............................................ (19,659) (19,686)
Changes in certain current assets and
liabilities.................................... (1,096,417) (822,707)
Change in net assets of discontinued operations.. 77,433
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Net cash provided by operating activities... 466,436 750,386
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment....... (1,355,266) (737,633)
Purchases of investments......................... (97,557) (91,335)
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Net cash used in investing activities....... (1,452,823) (828,968)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid.............................. (736,804)
Debt repayment................................... (52,344) (48,919)
Payments received on note receivable............. 20,000
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Net cash used in financing activities....... (769,148) (48,919)
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DECREASE IN CASH AND CASH EQUIVALENTS................. (1,755,535) (127,501)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.......... 9,906,107 6,908,007
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CASH AND CASH EQUIVALENTS, END OF PERIOD.............. $ 8,150,572 $ 6,780,506
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest........................... $ 50,559 $ 53,994
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Cash paid for income taxes....................... $ 187,333 $ 162,000
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See accompanying notes
5
HAWKINS CHEMICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions for Form 10-Q and,
accordingly, do not include all information and footnotes required by generally
accepted accounting principles for complete financial statements. These
statements should be read in conjunction with the financial statements and
footnotes included in the Company's Annual Report on Form 10-K for the year
ended October 1, 1995, previously filed with the Commission. In the opinion of
management, the accompanying unaudited consolidated condensed financial
statements contain all adjustments necessary to present fairly the Company's
financial position and the results of its operations and cash flows for the
periods presented. All adjustments made to the interim financial statements
were of a normal recurring nature.
The accounting policies followed by the Company are set forth in Note 1 to the
Company's financial statements in the 1995 Hawkins Chemical, Inc. Annual Report
which is incorporated by reference to Form 10-K filed with the Commission on
December 28, 1995.
2. The results of operations for the period ended December 31, 1995 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 $1,833,435 at December 31, 1995. Inventory consists
principally of finished goods. Inventory quantities fluctuate during the year.
No material amounts of interim liquidation of inventory quantities have occurred
that are not expected to be replaced by year-end.
4. Earnings per common share and cash dividends per common share are based
upon the weighted average number of shares outstanding after giving retroactive
effect to a 10% stock dividend declared February 15, 1995 to shareholders of
record at the close of business on March 31, 1995. The dividend payment date
was April 12, 1995.
6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales increased $928,507, 5.6%, in the first quarter of this fiscal year as
compared to the same quarter a year ago. This increase is primarily due to
volume increases in most of the Company's divisions and subsidiaries.
The gross margin, as a percentage of net sales, for the first quarter of fiscal
1996 was 21.6% compared to 22.1% for the same quarter one year ago. This
decrease is attributable to the increased cost of a single large-volume product
and the increased costs of operations. The Company has generally been able to,
and expects to continue to, adjust its selling prices as the cost of materials
and other expenses change, thereby maintaining relatively stable gross margins.
Selling, general and administrative expenses, as a percentage of net sales, for
the first quarter of fiscal 1996 were 11.3% compared to 11.4% for the same
quarter one year ago. Most of the expenses in this category are fixed, with the
remaining expenses fluctuating only slightly with net sales.
Income from operations increased $41,813, 2.4%, in the first quarter of fiscal
1996, compared to fiscal 1995. This increase is primarily attributable to an
increase net sales, partially offset by a decrease in gross margin.
Interest income increased $66,286, 34.5%, compared to the same period one year
ago. This increase is due to an increase in the amount of cash available for
investments and to a higher rate of return earned on cash equivalents and
investments. Interest expense decreased slightly due to decline in long-term
debt.
LIQUIDITY AND CAPITAL RESOURCES
For the first quarter ended December 31, 1995, cash flows from operations were
$466,436. This amount was lower than cash provided by operations during the
same period one year ago, due mainly to the decreases in certain current assets
and liability accounts discussed below. During the three months ended December
31, 1995, the Company invested $1,355,266 in property and equipment additions
and added $97,577 to investments.
Accounts receivable and accounts payable decreased during the first three months
of fiscal 1995, which is normal for the first quarter of our fiscal year.
Inventory levels decreased due to management's decision to discontinue sales to
mass merchandisers by The Lynde Company subsidiary, as that business involved
high volumes and high inventory levels with a very low profit margin. Other
current assets decreased due to the receipt of insurance proceeds during the
firsts quarter of fiscal 1996. Other current liabilities decreased at quarter
end and is the result of the payment of benefit plan accruals that existed at
fiscal year end. The Company did not issue any securities during the quarter
ended December 31, 1995.
Since 1985, the Company has been paying an annual cash dividend each year. In
the fourth quarter of fiscal 1995 this was changed to a semi-annual cash
dividend policy, of which the first half of the 1996 dividend was paid in
October 1995.
7
The cash flows from operations, coupled with the Company's strong cash position,
puts the Company in a position to fund both short and long-term working capital
and capital investment needs with internally generated funds. Management does
not, therefore, anticipate the need to engage in significant financing
activities in either the short or long-term. If the need to obtain additional
capital does arise, however, management is confident that the Company's total
debt to capital ratio puts the Company in a position to issue both debt and
equity securities on favorable terms.
Although management continually reviews opportunities to enhance the value of
the Company through strategic acquisitions, other capital investments and
strategic divestitures, no material commitments for such investments or
divestitures currently exist. Until appropriate investment opportunities are
identified, the Company will continue to invest excess cash in conservative
investments. Cash equivalents consist of short-term certificates of deposit and
investments consist of low-risk investment contracts with highly rated, stable
insurance companies, and marketable securities consisting of investment grade
municipal securities, all of which are carried at fair value which approximates
cost. All cash equivalents and investments are highly liquid and are available
upon demand with a minor penalty.
Other than as discussed above, management is not aware of any matters that have
materially affected the first three months of fiscal 1996, 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.
8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The following exhibits are included with this Quarterly Report on Form 10-Q
(or incorporated by reference) as required by Item 601 of Regulation S-K.
Exhibit No. Description Page No.
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27 Financial Data Schedule 10
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the fiscal quarter ended
December 31, 1995.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HAWKINS CHEMICAL, INC.
BY --------------------------------
Howard M. Hawkins, Treasurer
(Chief Financial and Accounting
Officer)
Dated: February 13, 1996
9
5
3-MOS
SEP-29-1996
OCT-02-1995
DEC-31-1995
8,150,572
8,066,318
9,643,018
0
7,578,336
34,642,618
12,469,561
0
50,439,868
10,124,280
0
0
0
526,289
38,834,046
50,439,868
17,422,984
17,422,984
13,659,310
15,621,222
0
0
12,823
2,076,512
834,800
1,241,712
0
0
0
1,241,712
12
0
