Hawkins - 10-Q quarterly report FY

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

HAWKINS, INC.
 (Exact name of registrant as specified in its charter)

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      ý         NO       o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

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HAWKINS, INC.
INDEX TO FORM 10-Q

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PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

HAWKINS, INC.
CONDENSED BALANCE SHEETS

See accompanying notes to condensed financial statements.

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HAWKINS, INC.
CONDENSED STATEMENTS OF INCOME

See accompanying notes to condensed financial statements.

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HAWKINS, INC.
CONDENSED STATEMENTS OF CASH FLOWS

See accompanying notes to condensed financial statements.

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HAWKINS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS

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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.

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RESULTS OF OPERATIONS

Sales decreased $907,063, or 3.2%, in the three months ended September 30, 2002, and $2,602,818, or 4.5%, in the six months ended September 30, 2002 as compared to the same respective periods in 2001. The Industrial segment decreased $908,907 and $2,804,901, respectively, in the three and six-month periods ended September 30, 2002 as compared to the same respective periods in 2001. These decreases were mainly attributable to selling price decreases of a single, large-volume product (caustic soda), which was partially offset by increased sales volumes in several other product lines. The Water Treatment segment sales were flat in the three month period ended September 30, 2002 as compared to the comparable period one year ago and had an increase of $202,083 in the six months ended September 30, 2002 as compared to the six months ended September 30, 2001. The increase is due to both increased sales volumes and selling prices.

Gross margin, as a percentage of sales, for the three and six months ended September 30, 2002 was 28.8% and 28.6%, respectively, compared to 23.7% and 24.1%, respectively, for the comparable periods in 2001. For the Industrial segment, gross margin, as a percentage of sales, was 24.9% for the three months ended September 30, 2002 compared to 19.9% in the prior year and 24.5% for the six months ended September 30, 2002 compared to 20.2% for the comparable period in 2001. These increases are mainly due to improved margins in most product lines and to fluctuations in the cost and selling price of caustic soda. During 2001, the cost and selling price of caustic soda was decreasing and has been increasing during 2002. Due to the large quantities of caustic soda inventory that are maintained to meet customer requirements and because the Company is on the LIFO method of valuing inventories, any cost fluctuations can impact gross margins. The Company attempts to maintain relatively constant dollar margins as the cost of caustic soda increases or decreases. The cost of this product is normally subject to fluctuations, which are expected to continue in future periods. By maintaining relatively stable dollar margins, the gross margin percentage will decrease when the cost of the product is increasing and will increase when the cost of the product is decreasing. The Company has generally been able to, and expects to continue to, adjust its selling price as the cost of materials and other expenses changes. Gross margin, as a percentage of sales, for the Water Treatment segment was 35.0% for the three months ended September 30, 2002 compared to 30.0% in the comparable period of 2001 and 35.2% for the six-month period ended September 30, 2002 compared to 31.0% for the comparable period of 2001. These increases are primarily attributable to the fluctuations in caustic soda prices mentioned above and to increased sales in product lines that have a higher gross margin percentage.

Selling, general and administrative expenses for the three and six month periods ended September 30, 2002 increased $139,658 and $89,578, respectively, as compared to the comparable periods in 2001. Selling, general and administrative expenses are expected to remain at similar levels for the remainder of fiscal 2003 as these expenses, excluding employee compensation and related benefits, are relatively fixed in nature and vary only slightly with sales fluctuations.

INTEREST INCOME

Interest income increased during the three and six-month periods ended September 30, 2002 as compared to the same respective periods in 2001. The increases were primarily due to fluctuations in cash available for investment and higher returns on the Company’s cash equivalents and available for sale securities, which consist primarily of money market accounts, municipal bonds, mutual funds, and annuity contracts.

LIQUIDITY AND CAPITAL RESOURCES

For the six-month period ended September 30, 2002, cash provided by operations was $10,259,559 compared to $4,274,684 for the six-month period ended September 30, 2001. This increase was due primarily to fluctuations in inventory values and quantities and the increase in net income.

Cash and investments available-for-sale increased by $7,955,587 from March 31, 2002 to $22,466,230 as of September 30, 2002. The increase was primarily attributable to cash generated by operations in excess of capital expenditures and financing uses. Cash equivalents consist of money market accounts at a financial institution. Investments consist of investment contracts with high-rated, stable insurance companies, marketable securities consisting of variable rate municipal bonds and mutual funds carried at fair value. Investments are highly liquid and are available upon demand generally with only a minor penalty.

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Expected future cash flows from operations, coupled with the Company’s strong financial 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 obtain debt financing 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.

Other than as discussed above, management is not aware of any matters that have materially affected the first six months of fiscal 2003, 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.

MARKET RISK

At September 30, 2002, the Company had an investment portfolio of fixed income securities of $13,046,373 and mutual funds of $5,744,227, excluding $5,065,799 of those classified as cash and cash equivalents and variable rate securities. The fixed income securities, like all fixed income instruments, are subject to interest rate risks and will decline in value if market interest rates increase.  However, while the value of the investment may fluctuate in any given period, the Company intends to hold its fixed income investments until maturity. Consequently, the Company would not expect to recognize an adverse impact on net income or cash flows or on the amount ultimately realized on the investment. The value of the mutual funds, like all mutual funds, may increase or decrease due to market volatility. The Company intends to continue to hold the mutual funds until it has a need to liquidate the investments and does not anticipate a present need to liquidate the investment. Therefore, the Company would not expect a material adverse impact on net income or cash flows or the amount ultimately realized on the investment.

CRITICAL ACCOUNTING POLICIES

Accounting policies whose application may have a significant effect on the reported results of operations and financial position of the Company, and that can require judgments by management that affect their application, include Statement of Financial Accounting Standards (SFAS) No. 5, “Accounting for Contingencies” and SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

SFAS No. 5 requires management judgments regarding the probability and estimated amount of possible future contingent liabilities, including legal matters. SFAS No. 144 requires judgments regarding future operating or disposition plans for marginally performing assets and estimates of expected realizable values for assets to be sold. Other accounting policies that are significant to the Company include the following:

Revenue Recognition — The Company recognizes revenue when the product has been shipped to the customer if there is evidence that the customer has agreed to purchase the products, delivery and performance has occurred, the price and terms of sale are fixed and collection of the receivable is expected.

Allowance for Doubtful Accounts — Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. Substantially all of the Company’s receivables are due from customers located in the United States. The estimated allowance for doubtful accounts is based upon the age of the outstanding receivables and the payment history and credit worthiness of each customer. Management evaluates the adequacy of the reserve for doubtful accounts on a quarterly basis.

Inventories — Inventories are valued at the lower of cost or market. On a quarterly basis, management assesses the inventory quantities on hand to estimated future usage and sales and, if necessary, writes down the value of inventory deemed obsolete or excess to market.

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Property, Plant and Equipment — Property, plant and equipment are stated at cost and depreciated over the lives of the assets using both the straight-line and declining balance methods. Major replacements and improvements are capitalized, while maintenance and repairs, which do not improve or extend the useful lives of the respective assets are charged to operations. The assets and related accumulated depreciation accounts are adjusted for asset retirements and disposals with the resulting gain or loss, if any, recorded in the Statement of Income at the time of disposal.

The Company’s policies for these matters, which are described in Note 1 to the financial statements in the Company’s Report on Form 10-KT for the six-month transitional period ended March 31, 2002 filed with the Securities and Exchange Commission on June 27, 2002, are in accordance with generally accepted accounting principles. Management believes that their application results in a fair presentation in the financial statements of the Company’s operating results and financial position.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

As of the date of this filing, the Company was not involved in any pending legal proceedings other than ordinary routine litigation incidental to its business.

Item 4. Controls and Procedures and Submission of Matters to a Vote of Security Holders

(a)         Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures within 90 days of the filing date of this quarterly report, and, based on their evaluation, our principal executive officer and principal financial officer have concluded that these controls and procedures are effective. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

Disclosure controls and procedures are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

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(b)        Submission of Matters to a Vote of Security Holders

A meeting of the shareholders of the Company was held on August 14, 2002.

The following is a tabulation of the results of votes cast on the matters voted upon at the meeting of the shareholders:

PROPOSAL 1:  Election of Directors.  All of management’s nominees for director were elected with the following votes:  

Item 6. Exhibits and Reports on Form 8-K

(a)         Exhibits

Exhibit 99.1       Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 99.2       Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 (b)       Reports on Form 8-K.

             None

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.

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CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, John R. Hawkins, Chief Executive Officer certify that:

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CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Marvin E. Dee, Chief Financial Officer certify that:

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