UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1996
---------------
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 13, 1996
-------------------------------------- ---------------------------
Common Stock, par value $.05 per share 11,051,690
HAWKINS CHEMICAL, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page No.
----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance
Sheets - March 31, 1996 and
October 3, 1995.............................................. 3
Consolidated Condensed Statements
of Income-Three Months and Six Months
Ended March 31, 1996 and 1995 ............................... 4
Consolidated Condensed Statements of Cash Flow - Six Months
Ended March 31, 1996 and 1995 ............................... 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 4. Submission of Matters to a Vote of Securities Holders.......... 9
Item 6. Exhibits and Reports of Form 8-K .............................. 10
Financial Data Schedule.................................... Exhibit 27
2
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
HAWKINS CHEMICAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, 1996 October 1, 1995
-------------- ---------------
ASSETS (Unaudited) (Derived from Audited
financial statements)
Current assets:
Cash and cash equivalents........... $ 7,071,189 $ 9,906,107
Investments (fair value
approximates cost)................. 10,273,629 7,968,761
Accounts receivable-net............. 8,742,756 10,512,260
Note receivable..................... 169,730 208,943
Inventories......................... 5,824,884 8,663,959
Other current assets................ 1,777,221 1,647,660
Total current assets............ 33,859,409 38,907,690
------------ ------------
Property, plant and equipment-net..... 11,476,581 11,438,895
Note receivable-non current........... 1,830,212 715,045
Other assets.......................... 2,638,240 2,629,184
------------ ------------
Total $49,804,442 $53,690,814
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................... $ 5,253,080 $ 8,691,204
Current portion of long-term debt.. 56,008 52,344
Other current liabilities.......... 3,803,028 5,822,383
------------ ------------
Total current liabilities...... 9,112,116 14,565,931
------------ ------------
Long term debt....................... 572,453 628,461
------------ ------------
Deferred income taxes................ 386,800 377,800
------------ ------------
Shareholders' equity:
Common stock, par value $.05 per
share; issued and outstanding,
11,051,690 shares and 10,525,772
shares respectively............. 552,585 526,289
Additional paid-in capital...... 38,679,630 34,235,623
Retained earnings............... 500,858 3,356,710
------------ ------------
Total shareholders' equity... 39,733,073 38,118,622
------------ ------------
Total........................ $49,804,442 $53,690,814
------------ ------------
------------ ------------
See accompanying notes
3
HAWKINS CHEMICAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31 Six Months Ended March 31
1996 1995 1996 1995
------------- ------------- ------------- -------------
Net sales $18,439,067 $18,902,641 $35,862,051 $35,397,118
------------- ------------- ------------- -------------
Costs and expenses:
Cost of sales 14,585,730 14,928,367 28,245,041 27,785,095
Selling, general and administrative 2,083,759 1,953,278 4,045,670 3,831,077
Unusual and nonrecurring 750,000 750,000
------------- ------------- ------------- -------------
Total costs and expenses 16,669,489 17,631,645 32,290,711 32,366,172
------------- ------------- ------------- -------------
Income from operations 1,769,578 1,270,996 3,571,340 3,030,946
------------- ------------- ------------- -------------
Other income (deductions):
Interest income 231,995 241,373 490,495 433,588
Interest expense (13,686) (13,750) (26,509) (27,489)
Miscellaneous 41,817 1,176 70,890 23,764
------------- ------------- ------------- -------------
Total other income (deductions) 260,126 228,799 534,876 429,863
Income from continuing operations before income taxes 2,029,704 1,499,795 4,106,216 3,460,809
Provision for income taxes from continuing operations 811,900 601,800 1,646,700 1,389,900
------------- ------------- ------------- -------------
Income from continuing operations 1,217,804 897,995 2,459,516 2,070,909
Discontinued Operations:
Income (loss) from operations of Tessman
Seed, Inc. (less applicable income
taxes of $0, ($8,600), $0,($46,500), respectively) (12,972) (69,905)
Loss on disposal of assets of Tessman
Seed, Inc. (less applicable income taxes of $214,200) (321,266) (321,266)
------------- ------------- ------------- -------------
Income (loss) from discontinued operations 0 (334,238) 0 (391,171)
------------- ------------- ------------- -------------
Net income $ 1,217,804 $ 563,757 $ 2,459,516 $ 1,679,738
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average number of shares outstanding 11,051,690 11,051,690 11,051,690 11,051,690
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Earnings per common share
Continuing operations $0.11 $0.08 $0.22 $0.19
Discontinued operations 0 (0.03) 0 (0.04)
------------- ------------- ------------- -------------
Total $0.11 $0.05 $0.22 $0.15
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
See accompanying notes
4
HAWKINS CHEMICAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED MARCH 31
1996 1995
------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 2,459,516 $ 1,679,738
Loss on disposal of assets of
Tessman Seed, Inc..................... 0 321,266
Loss on discontinued operations of
Tessman Seed, Inc..... ............... 0 69,905
Unusual and nonrecurring charge....... 0 750,000
Depreciation and amortization......... 679,734 652,849
Deferred income taxes................. 14,000 (262,000)
Other................................. (155,453) (44,091)
Changes in certain current assets and
liabilities........................... (1,091,722) (486,839)
------------ ------------
Net cash provided by
operating activities 1,906,075 2,680,828
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment............................. (1,779,211) (1,358,945)
Purchase of
investments........................... (2,304,868) (187,524)
Cash received on sale of land and
building.............................. 108,188 0
Cash received on sale of assets and
business of Tessman Seed, Inc......... 0 100,000
------------ ------------
Net cash used in investing activities (3,975,891) (1,446,469)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid................... (736,804)
Debt repayment........................ (52,344) (48,919)
Payments received on note receivable.. 24,046
------------ ------------
Net cash used in financing activities (765,102) (48,919)
------------ ------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (2,834,918) 1,185,440
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 9,906,107 6,895,341
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,071,189 $ 8,080,781
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest................ $ 53,562 $ 56,111
------------ ------------
------------ ------------
Cash paid for income taxes............ $ 2,102,326 $ 1,404,000
------------ ------------
------------ ------------
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 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 March 31, 1996 are not
necessarily indicative of the results that may be expected for the full year.
3. Effective January 1, 1996, the Company sold property which was previously
rented to a former subsidiary for $1,208,000. At closing the Company received
$108,000 and a contract for deed for $1,100,000. The contract for deed requires
monthly payments of $9,201, including interest at 8% per annum, for eight years.
On January 1, 2004, the remaining unpaid principal balance is due.
4. Inventories, principally valued by the LIFO method, are less than current
cost by approximately $1,676,200 at March 31, 1996. 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.
5. Earnings per common share are based upon the weighted average number of
shares outstanding after giving retroactive effect to a 5% stock dividend
declared February 7, 1996 to shareholders of record at the close of business on
March 29, 1996. Cash dividends accrued of $845,065 are included in accounts
payable at March 31, 1996.
6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
CONTINUING OPERATIONS
Net sales decreased $463,574 (2.5%) in the second quarter of this fiscal year as
compared to the same quarter a year ago, and increased $464,933 (1.3%) in the
first six months of fiscal 1996 as compared to the same period in fiscal 1995.
The decrease in the quarter was primarily due to the extremely cold weather
conditions during the quarter. Some of our customers either had limited
operations or had to close down temporarily, thereby decreasing their volumes.
Also contributing to the sales decrease was 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 low, decreasing profit
margin. Although total sales dollars will decrease in the third and fourth
quarters because of this change, management does not expect a material adverse
impact on gross margin as a percentage of net sales. The decrease in sales was
also due to a slight decrease in the selling price of a single, large-volume
product. The increase in sales for the six-month period ended March 31, 1996
was due to volume increases in most of the Company's divisions and subsidiaries,
which was partially offset by the above. Selling prices of the single,
large-volume product are expected to decrease in the last six months of this
fiscal year, but with the Mississippi River now open to accept barge shipments,
management anticipates more competitive pricing, which is expected to enable the
Company to maintain historical profit margins.
Gross margin, as a percentage of net sales, for the second quarter of this
fiscal year was 20.9% compared to 21.0% for the same quarter one year ago, and
21.2% for the first six months of fiscal 1996 as compared to 21.5% for the first
six months of fiscal 1995. The slight decreases are due to the decrease in
selling prices partially offset by the reduction of lower margin sales to mass
merchandisers previously mentioned. 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 second quarter of fiscal 1996 were 11.3% compared to 10.3% for the same
quarter one year ago, and 11.3% for the first six months of fiscal 1996 as
compared to 10.8% for the first six months of fiscal 1995. These increases were
mainly due to increased employee compensation and benefits.
The unusual and nonrecurring charge in the second quarter and first six months
of fiscal 1995 of $750,000 was recorded to cover estimated settlement costs to
be incurred by the Company in connection with a lawsuit filed against the
Company.
Interest income decreased $9,378 in the second quarter of fiscal 1996 as
compared to the same quarter one year ago and increased $56,907 for the first
six months of this fiscal year as compared to the same period one year ago. The
second quarter decrease is due to increases in investments in income tax exempt
securities which generally have a lower pre-tax return than other taxable
investments, but have a higher after-tax return. The six month 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 in the first quarter.
Interest expense decreased slightly due mainly to the decline in long term debt.
DISCONTINUED OPERATIONS
In March 1995, the Company adopted a formal plan to discontinue operations of
Tessman Seed, which sold a wide range of horticulture and pest control products.
Effective March 1, 1995, the Company sold the inventory, equipment and
operations of Tessman. As a result of the purchase transaction, the Company
recorded a loss on the disposal in the second quarter of fiscal 1995 of
$321,266, net of taxes totaling $214,200, to write-down Tessman's assets to the
amount realized.
7
Revenues for Tessman for the quarter and six months ended March 31, 1995 were
$507,000 and $931,000, respectively. The loss for Tessman for the quarter and
six-month period ended March 31, 1995 was less than $.01 per share.
LIQUIDITY AND CAPITAL RESOURCES
For the six-month period ended March 31, 1996, cash flows from operations were
$1,906,075. This amount was lower than cash provided by operations during the
same period one year ago, due mainly to the changes in certain current assets
and liability accounts discussed below. During the six-month period ended March
31, 1996, the Company invested $1,779,211 in property and equipment additions
and added $2,304,868 to investments.
Accounts receivable, inventories and accounts payable decreased during the first
six months of fiscal 1996 due primarily to management's decision to discontinue
sales to mass merchandisers by The Lynde Company subsidiary, as discussed
previously. 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, 1996.
In January 1996, the Company sold property which was previously rented to a
former subsidiary for $1,208,000. At closing the Company received $108,000 and
a contract for deed for $1,100,000. The contract for deed requires monthly
payments of $9,201, including interest at 8% per annum, for eight years. On
January 1, 2004, the remaining unpaid principal balance is due.
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. The first half of the 1996 dividend was paid in October 1995
and the second half was paid in April 1996.
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 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. 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 six 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 4. Submission of matter to a vote of Security Holders.
a. The annual meeting of the shareholders of the Company was held on
February 7, 1996.
c. The following is a tabulation of the results of votes cast on the
matters noted upon at the annual meeting of the shareholders:
Approval to enlarge the Board of Directors to eleven seats:
Broker
For Against Abstain Non-Votes
--------- ------- ------- ---------
8,278,619 381,460 99,295 0
Election of Directors:
Broker
For Against Withheld Abstain Non-Votes
--------- ------- --------- ------- ---------
Howard J. Hawkins 8,638,505 0 120,869 0 0
Dean L. Hahn 8,638,868 0 120,506 0 0
Carl J. Ahlgren 8,584,225 0 175,149 0 0
Howard M. Hawkins 8,360,417 0 398,957 0 0
Norman P. Anderson 8,584,225 0 175,149 0 0
Donald L. Shipp 8,537,086 0 222,288 0 0
John S. McKeon 8,638,758 0 120,616 0 0
John R. Hawkins 8,365,032 0 394,342 0 0
S. Albert Diez Hanser 7,330,252 0 1,429,122 0 0
Duane Jergenson 8,357,121 0 402,253 0 0
Approval of Deloitte & Touche LLP as Independent Auditors:
Broker
For Against Abstain Non-Votes
--------- ------- ------- ---------
8,246,257 433,869 79,148 0
9
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The following exhibits are included with this Quarterly Report on Form 10-Q
(or incorporated by reference) as required by Item 601 of Regulation S-K.
Exhibit No. Description Page No.
----------- ----------------------- --------
27 Financial Data Schedule 11
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the fiscal quarter ended
March 31, 1996.
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: May 13, 1996
10
5
6-MOS
SEP-29-1996
OCT-02-1995
MAR-31-1996
7,071,189
10,273,629
8,742,756
0
5,824,884
33,859,409
11,476,581
0
49,804,442
9,112,116
0
0
0
552,585
39,180,488
49,804,442
35,862,051
35,862,051
28,245,041
32,290,711
0
0
26,509
4,106,216
1,646,700
2,459,516
0
0
0
2,459,516
.22
0
