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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

 

 

ý

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

 

 

 

For the quarterly period ended September 30, 2004

 

 

 

OR

 

 

 

o

 

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, INC.

(Exact name of registrant as specified in its charter)

 

MINNESOTA

 

41-0771293

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

3100 EAST HENNEPIN AVENUE, MINNEAPOLIS, MINNESOTA 55413

 (Address of principal executive offices, including 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     ý     NO     o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

 

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.

 

CLASS

 

OUTSTANDING AT NOVEMBER 9, 2004

 

Common Stock, par value $.05 per share

 

10,257,341

 

 

 



 

HAWKINS, INC.

INDEX TO FORM 10-Q

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements:

 

 

 

 

 

Condensed Balance Sheets – September 30, 2004 and March 28, 2004

 

 

 

 

 

Condensed Statements of Income - Three and Six Months Ended September 30, 2004 and 2003

 

 

 

 

 

Condensed Statements of Cash Flows - Six Months Ended September 30, 2004 and 2003

 

 

 

 

 

Notes to Condensed Financial Statements

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

 

 

 

Item 4.

Controls and Procedures

 

 

 

 

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

 

 

 

 

Item 6.

Exhibits

 

 

 

 

Signatures

 

 

 

 

 

Exhibit Index

 

 

 

2



 

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

 

HAWKINS, INC.

CONDENSED BALANCE SHEETS

 

 

 

 

 

MARCH 28,
2004

 

 

 

SEPTEMBER 30,
2004

 

(DERIVED FROM
AUDITED
FINANCIAL

 

 

 

(UNAUDITED)

 

STATEMENTS)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

4,518,079

 

$

1,558,969

 

Investments available-for-sale

 

22,088,047

 

22,364,439

 

Trade receivables—net

 

11,578,109

 

11,308,851

 

Inventories

 

11,752,663

 

8,887,081

 

Prepaid expenses and other current assets

 

1,712,034

 

3,566,891

 

Total current assets

 

51,648,932

 

47,686,231

 

 

 

 

 

 

 

PROPERTY, PLANT AND EQUIPMENT—net

 

31,411,930

 

29,532,485

 

 

 

 

 

 

 

INTANGIBLE ASSETS—less accumulated amortization of
$1,726,614 and $1,584,871, respectively

 

2,636,435

 

2,778,178

 

 

 

 

 

 

 

OTHER ASSETS

 

2,434,110

 

2,620,011

 

 

 

$

88,131,407

 

$

82,616,905

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable – trade

 

$

6,974,169

 

$

4,752,049

 

Dividends payable

 

1,846,321

 

1,839,004

 

Other current liabilities

 

6,372,566

 

6,417,231

 

Total current liabilities

 

15,193,056

 

13,008,284

 

 

 

 

 

 

 

OTHER LONG-TERM LIABILITIES

 

15,854

 

89,133

 

 

 

 

 

 

 

DEFERRED INCOME TAXES

 

1,564,343

 

1,614,843

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

 

Common stock, par value $.05 per share; 10,257,341 and 10,216,688 shares
issued and outstanding

 

512,867

 

510,834

 

Additional paid-in capital

 

38,224,758

 

37,747,492

 

Unearned compensation

 

(438,747

)

 

Accumulated other comprehensive income

 

120,218

 

196,328

 

Retained earnings

 

32,939,058

 

29,449,991

 

Total shareholders’ equity

 

71,358,154

 

67,904,645

 

 

 

$

88,131,407

 

$

82,616,905

 

 

See accompanying notes to condensed financial statements.

 

3



 

HAWKINS, INC.

CONDENSED STATEMENTS OF INCOME

 

 

 

THREE MONTHS ENDED
SEPTEMBER 30

 

SIX MONTHS ENDED
SEPTEMBER 30

 

 

 

2004

 

2003

 

2004

 

2003

 

 

 

(UNAUDITED)

 

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

28,631,601

 

$

28,645,014

 

$

58,587,419

 

$

57,711,881

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

20,313,977

 

20,282,707

 

41,684,319

 

40,913,441

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

8,317,624

 

8,362,307

 

16,903,100

 

16,798,440

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

4,724,648

 

4,405,588

 

8,929,493

 

8,598,243

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

3,592,976

 

3,956,719

 

7,973,607

 

8,200,197

 

 

 

 

 

 

 

 

 

 

 

Investment income

 

140,608

 

190,854

 

336,781

 

413,392

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

3,733,584

 

4,147,573

 

8,310,388

 

8,613,589

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

1,327,500

 

1,556,000

 

2,975,000

 

3,230,000

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

2,406,084

 

$

2,591,573

 

$

5,335,388

 

$

5,383,589

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding – basic

 

10,216,688

 

10,216,688

 

10,216,688

 

10,216,688

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding – diluted

 

10,217,793

 

10,216,688

 

10,217,234

 

10,216,688

 

 

 

 

 

 

 

 

 

 

 

Earnings per share - basic and diluted

 

$

0.24

 

$

0.25

 

$

0.52

 

$

0.53

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.18

 

$

0.18

 

$

0.18

 

$

0.18

 

 

See accompanying notes to condensed financial statements.

 

4



 

HAWKINS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

 

 

 

SIX MONTHS ENDED
SEPTEMBER 30

 

 

 

2004

 

2003

 

 

 

(UNAUDITED)

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income

 

$

5,335,388

 

$

5,383,589

 

Reconciliation to cash flows:

 

 

 

 

 

Depreciation and amortization

 

1,573,558

 

1,452,008

 

Restricted stock compensation expense

 

40,552

 

 

(Gain) loss from property disposals

 

(31,565

)

47,329

 

Changes in operating accounts (requiring) providing cash:

 

 

 

 

 

Trade receivables

 

(269,258

)

(216,092

)

Inventories

 

(2,865,582

)

(2,162,321

)

Accounts payable

 

2,222,120

 

539,110

 

Other liabilities

 

(117,944

)

(245,742

)

Other

 

1,838,670

 

742,249

 

 

 

 

 

 

 

Net cash provided by operating activities

 

7,725,939

 

5,540,130

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Additions to property, plant and equipment

 

(3,349,878

)

(1,767,785

)

Purchases of investments

 

(8,297,515

)

(2,393,015

)

Sale of investments

 

8,547,297

 

4,281,966

 

Proceeds from property disposals

 

70,183

 

29,800

 

Payments received on notes receivable

 

102,088

 

94,325

 

 

 

 

 

 

 

Net cash (used in) provided by investing activities

 

(2,927,825

)

245,291

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Cash dividends paid

 

(1,839,004

)

(1,839,004

)

 

 

 

 

 

 

Net cash used in financing activities

 

(1,839,004

)

(1,839,004

)

 

 

 

 

 

 

INCREASE IN CASH AND CASH EQUIVALENTS

 

2,959,110

 

3,946,417

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

1,558,969

 

1,353,720

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

4,518,079

 

$

5,300,137

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

 

 

 

Issuance of restricted stock

 

$

479,299

 

$

 

Cash paid for income taxes

 

$

1,079,798

 

$

2,533,498

 

 

See accompanying notes to condensed financial statements.

 

5



 

HAWKINS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

 

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 fiscal year ended March 28, 2004, previously filed with the Securities and Exchange Commission (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 Company’s Annual Report on Form 10-K for the fiscal year ended March 28, 2004 filed with the Commission on June 10, 2004.

 

2.                                       The results of operations for the period ended September 30, 2004 are not necessarily indicative of the results that may be expected for the full year.

 

3.                                       Certain reclassifications have been made to the prior year’s financial statements to conform to the current year presentation. Such reclassifications had no effect on net income or shareholders’ equity as previously reported.

 

4.                                       Inventories, principally valued by the LIFO method, are less than current cost by approximately $777,000 at September 30, 2004.  Inventory consists principally of finished goods.

 

5.                                       The Company has two reportable segments: Industrial and Water Treatment.  Reportable segments are defined by product and type of customer.  Each segment is responsible for the sales, marketing and development of its products and services.  The segments do not have separate accounting, administration, customer service or purchasing functions.

 

REPORTABLE SEGMENTS

 

INDUSTRIAL

 

WATER
TREATMENT

 

TOTAL

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED SEPTEMBER 30, 2004

 

 

 

 

 

 

 

Sales

 

$

16,701,204

 

$

11,930,397

 

$

28,631,601

 

Gross margin

 

4,036,142

 

4,281,482

 

8,317,624

 

Income from operations

 

834,038

 

2,758,938

 

3,592,976

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED SEPTEMBER 30, 2003

 

 

 

 

 

 

 

Sales

 

$

16,525,608

 

$

12,119,406

 

$

28,645,014

 

Gross margin

 

4,044,521

 

4,317,786

 

8,362,307

 

Income from operations

 

1,274,119

 

2,682,600

 

3,956,719

 

 

 

 

 

 

 

 

 

SIX MONTHS ENDED SEPTEMBER 30, 2004

 

 

 

 

 

 

 

Sales

 

$

34,817,320

 

$

23,770,099

 

$

58,587,419

 

Gross margin

 

8,373,054

 

8,530,046

 

16,903,100

 

Income from operations

 

2,438,923

 

5,534,684

 

7,973,607

 

 

 

 

 

 

 

 

 

SIX MONTHS ENDED SEPTEMBER 30, 2003

 

 

 

 

 

 

 

Sales

 

$

34,362,349

 

$

23,349,532

 

$

57,711,881

 

Gross margin

 

8,468,939

 

8,329,501

 

16,798,440

 

Income from operations

 

2,992,086

 

5,208,111

 

8,200,197

 

 

6.                                       During the six months ended September 30, 2004, the Company issued 40,653 shares of restricted stock to certain employees of the Company. The restricted stock awards are recorded as compensation cost over the requisite vesting periods based on the market value on the date of grant. Unearned compensation cost on restricted stock awards is shown as a reduction to shareholders’ equity.

 

6



 

 

ITEM 2.                        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

FORWARD-LOOKING INFORMATION

 

The information contained in this Quarterly Report on Form 10-Q for the period ended September 30, 2004 contains statements that we believe to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give our current expectations or forecasts of future events. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “project,” or “continue,” or the negative thereof or similar words. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public.  Any or all of our forward-looking statements in this Quarterly Report on Form 10-Q and in any public statements we make could be materially different from actual results. They can be affected by assumptions we might make or by known or unknown risks or uncertainties, including those described below under “Risk Factors” and other factors disclosed throughout this Quarterly Report on Form 10-Q and the Company’s other filings with the Securities and Exchange Commission.  Consequently, we cannot guarantee any forward-looking statements and undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may arise after the date of this Quarterly Report on Form 10-Q. Investors are cautioned not to place undue reliance on any forward-looking statements.  Investors should also understand that it is not possible to predict or identify all factors that may affect actual results and should not consider the risk factors listed below to be a complete statement of all potential risks and uncertainties.

 

RISK FACTORS

 

In addition to specific factors which may be described in connection with any of the Company’s forward-looking statements, factors which could cause actual results to differ materially include, but are not limited to, the following items.

 

                  Reduced profit margins due to the cyclical nature of commodity chemical prices.  The cyclicality of commodity chemical markets, such as caustic soda, primarily results from changes in the balance between supply and demand and the level of general economic activity.  The Company cannot predict with any certainty whether the markets for its commodity chemicals will favorably impact the Company’s operations or whether the Company will experience losses due to excess production resulting in oversupply and lower prices.

 

                  Unforeseen liabilities arising from litigation, particularly liabilities that may arise from claims under environmental laws which may impose liability for the release of hazardous materials whether or not the Company had knowledge of or was responsible for such release.

 

                  Changes in governmental and regulatory policies that affect the Company which may entail significant cost increases relating to the handling, storage, transportation, treatment or disposal of hazardous materials.

 

                  Increased competition which could affect our ability to raise prices or successfully enter certain markets.

 

                  Changes in customer demand which may significantly reduce revenues and income.

 

                  Changes in product costs or operating expenses which may reduce our operating margins.

 

                  The financial condition of our customers and their ability to purchase our products at comparable prices.

 

                  Unforeseen problems in our ability to develop, introduce and gain market acceptance for new products.

 

                  Significant changes in our business strategies, including acquisition, divestiture and restructuring activities which may affect our ability to focus on operating activities or increase costs.

 

                  General economic and political conditions, such as political instability or the rate of economic growth in the Company’s principal geographic or product markets.

 

7



 

                  Changes in operating factors, such as our ability to make continued improvements in distribution efficiencies and inventory risks due to shifts in market demand.

 

                  Unforeseen or recurring operational problems or natural disasters at any of our facilities causing significant lost production and/or increased costs.

 

                  Technology risks, such as the failure to successfully implement new technology that will allow us to make process improvements to reduce costs or to analyze the business.

 

                  Loss of senior management or other key personnel and the Company’s ability to hire suitable replacements in a timely manner.

 

                  The Company is currently implementing an Enterprise Resource Planning (ERP) system. The ERP system implementation is critical for the Company to make its internal control certifications required by the end of fiscal 2005 pursuant to Section 404 of the Sarbanes-Oxley Act.  The Company's implementation of its ERP system, originally targeted for October of 2004, is currently scheduled for the latter part of the fourth quarter of fiscal 2005. The timing of the implementation makes it likely that the Company will not be able to make an unqualified certification regarding the Company's internal controls pursuant to Section 404 of the Sarbanes-Oxley Act at the end of fiscal 2005.

 

These factors are not exhaustive and new factors may emerge or existing factors may change in a manner that impacts our business. We assume no obligation and disclaim any duty to update the forward-looking statements in this Quarterly Report on Form 10-Q or any other public statement.

 

RESULTS OF OPERATIONS

 

The following table sets forth the percentage relationship of certain items to sales for the period indicated (in thousands, except percentages):

 

 

 

THREE MONTHS ENDED
SEPTEMBER 30, 2004

 

SIX MONTHS ENDED
SEPTEMBER 30, 2004

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

28,632

 

100.0

%

$

58,587

 

100.0

%

Cost of sales

 

20,314

 

70.9

 

41,684

 

71.1

 

Gross margin

 

8,318

 

29.1

 

16,903

 

28.9

 

Selling, general and administrative expenses

 

4,725

 

16.5

 

8,929

 

15.2

 

Income from operations

 

3,593

 

12.5

 

7,974

 

13.6

 

Investment income

 

141

 

0.5

 

337

 

0.6

 

Income before income taxes

 

3,734

 

13.0

 

8,310

 

14.2

 

Provision for income taxes

 

1,328

 

4.6

 

2,975

 

5.1

 

Net income

 

$

2,406

 

8.4

%

$

5,335

 

9.1

%

 

 

 

THREE MONTHS ENDED
SEPTEMBER 30, 2003

 

SIX MONTHS ENDED
SEPTEMBER 30, 2003

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

28,645

 

100.0

%

$

57,712

 

100.0

%

Cost of sales

 

20,283

 

70.8

 

40,913

 

70.9

 

Gross margin

 

8,362

 

29.2

 

16,798

 

29.1

 

Selling, general and administrative expenses

 

4,406

 

15.4

 

8,598

 

14.9

 

Income from operations

 

3,957

 

13.8

 

8,200

 

14.2

 

Investment income

 

191

 

0.7

 

413

 

0.7

 

Income before income taxes

 

4,148

 

14.5

 

8,614

 

14.9

 

Provision for income taxes

 

1,556

 

5.4

 

3,230

 

5.6

 

Net income

 

$

2,592

 

9.0

%

$

5,384

 

9.3

%

 

8



 

Sales remained relatively flat at $28,631,601 for the three months ended September 30, 2004, and increased $875,538, or 1.5%, in the six months ended September 30, 2004 as compared to the same periods a year ago.  Industrial segment sales increased by $175,596 in the three months ended September 30, 2004 and increased by $454,971 in the six-month period ended September 30, 2004 as compared to the same respective periods in 2003.  The Industrial segment increase in sales was related to slight improvements along several product lines compared to the prior year and the continued integration of new products.  There was an approximate 13% decrease in caustic soda volumes sold, which was offset by an increase in caustic soda selling prices.  Water Treatment segment sales decreased by $189,009 in the three month ended September 30, 2004 and increased $420,567 in the six-month period ended September 30, 2004, as compared to the same periods in 2003.  The Water Treatment segment was challenged by cooler summer conditions during the current three-month period in comparison to the prior year, however this was offset by increased sales in existing product lines and successful expansion of new product lines for the six-month period ending September 30, 2004 as compared to the prior year.

 

Gross margin, as a percentage of sales, for the three and six months ended September 30, 2004 was 29.1% and 28.9%, respectively, compared to 29.2% and 29.1%, respectively, for the comparable periods of 2003.  For the Industrial segment, gross margin, as a percentage of sales, was 24.2% for the three months ended September 30, 2004 compared to 24.5% in the prior year and 24.0% for the six months ended September 30, 2004 compared to 24.6% for the comparable period in 2003.  These fluctuations relate to changes in the cost and selling price of caustic soda during fiscal 2004 and 2005 and a highly competitive market environment.  Changes in product mix in all product lines also contributed to the fluctuations in gross margin.  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.  Gross margin, as a percentage of sales, for the Water Treatment segment was 35.9% for the three months ended September 30, 2004 compared to 35.6% in the comparable period of 2003 and 35.9% for the six-month period ended September 30, 2004 compared to 35.7% for the comparable period of 2003.

 

Selling, general and administrative expenses, as a percentage of sales, for the three and six months ended September 30, 2004 were 16.5% and 15.2%, respectively, compared to 15.4% and 14.9% for the comparable periods a year ago.  The Company will continue to incur expenses associated with the Company’s efforts to comply with the requirements of the Sarbanes-Oxley Act and for the Company’s investment in an Enterprise Resource Planning system, including expenses for additional staffing and outside professional services.  Employee compensation and benefits comprise the majority of the selling, general and administrative expenditures.

 

INVESTMENT INCOME

 

Investment income decreased by $76,611 for the six months ended September 30, 2004, compared to the same period one year ago.  The decrease was primarily due to a realized loss on an investment that was sold during the current quarter that was reinvested in an investment that is expected to have a higher rate of return.

 

PROVISION FOR INCOME TAXES

 

The effective income tax rate was 35.6% for the three months ended September 30, 2004 and 35.8% for six months ended September 30, 2004 compared to 37.5% for the three and six months ended September 30, 2003.

 

LIQUIDITY AND CAPITAL RESOURCES

 

For the six-month period ended September 30, 2004, cash provided by operations was $7,725,939 compared to $5,540,130 for the same period one year ago.  Fluctuations in timing of vendor payments, year over year variances in tax payments, and an increase in net income were principally responsible for the increase in cash provided by operating activities.

 

Cash used in investing activities increased by $3,173,116 primarily due to an increase in property, plant, and equipment additions and the reinvestment of additional cash during the six-month period ended September 30, 2004 compared to the prior year.  This

 

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reinvestment of cash resulted in a $1,639,169 increase in cash used in investing activities compared to one year ago. The Company had an additional $1,582,093 in property and equipment purchases during the six-month period ended September 30, 2004 compared to the same period one year ago.  Capital expenditures during the six months ended September 30, 2004 consisted primarily of expenditures related to the Company’s implementation of an Enterprise Resource Planning system and the purchase of four water treatment trucks. Anticipated capital expenditures in the second half of fiscal 2005 are expected to be approximately $2.5 million, which are primarily related to implementation of the Enterprise Resource Planning system, new route sales trucks and general maintenance projects.

 

Cash and investments available-for-sale increased by $2,682,718 from March 28, 2004 to $26,606,126 as of September 30, 2004.  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 and certificates of deposit at a financial institution. Investments consist of investment contracts with highly-rated, stable insurance companies, marketable securities consisting of municipal bonds, U.S. Government agency securities and mutual funds carried at fair value. Investments are highly liquid and are available upon demand generally with a minor penalty.

 

At September 30, 2004, the Company had an investment portfolio of fixed income securities of $11,375,687 and mutual funds of $9,964,185, excluding $5,897,898 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 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.

 

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 at September 30, 2004 puts it in a position to obtain debt financing on favorable terms.

 

Management regularly reviews opportunities to enhance the value of the Company through strategic acquisitions, other capital investments and strategic divestitures; and at this time, no material commitments for such investments or divestitures exist. Until appropriate investment opportunities are identified, the Company will invest excess cash in conservative investments.

 

The Company will continue to incur significant expenditures in fiscal 2005 associated with the implementation of the Enterprise Resource Planning system and to meet the requirements of the Sarbanes-Oxley Act. Fiscal 2005 expenses in these areas, including additional staffing and outside professional services, are expected to significantly exceed the additional fiscal 2004 expense of approximately $750,000 relating to these items.

 

Other than as discussed above, management is not aware of any matters that have materially affected the Company’s financial results for the six months ended September 30, 2004, nor is management aware of other matters not affecting this period but are expected to have a material effect on future periods.

 

CRITICAL ACCOUNTING POLICIES

 

The significant accounting policies followed by the Company are set forth in Note 1 to the Company’s financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended March 28, 2004. The accounting policies used in preparing the Company’s interim fiscal 2005 financial statements are the same as those described in the Company’s Annual Report.

 

In preparing the financial statements, the Company follows accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. The Company re-evaluates its estimates on an on-going basis. The Company’s estimates are based on historical experience and on various other assumptions that are

 

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believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions. The Company believes its critical accounting policies are those related to:

 

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, 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 to market the value of inventory deemed obsolete or excess.

 

Property, Plant and Equipment - - Property, plant and equipment are stated at cost and depreciated over the lives of the assets using primarily the straight-line method. 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.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of its management, including the principal executive officer and principal financial officer, of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on this evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in the Company’s internal control over financial reporting during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

The annual meeting of the shareholders of the Company was held on August 17, 2004.  Proxies for the annual meeting were solicited pursuant to Regulation 14A of the Exchange Act.  There was no solicitation in opposition to the Board of Director nominees listed in the proxy statement and all of the nominees for director were elected with the following votes:

 

 

 

For

 

Withheld

 

Abstain

 

Broker
Non-votes

 

John R. Hawkins

 

8,455,812

 

731,599

 

0

 

0

 

Howard M. Hawkins

 

8,450,061

 

737,350

 

0

 

0

 

Dean L. Hahn

 

8,372,296

 

815,115

 

0

 

0

 

Donald L. Shipp

 

8,427,422

 

759,969

 

0

 

0

 

John S. McKeon

 

8,591,638

 

595,773

 

0

 

0

 

Duane M. Jergenson

 

8,551,884

 

635,527

 

0

 

0

 

G. Robert Gey

 

8,551,684

 

635,727

 

0

 

0

 

Daryl I. Skaar

 

8,549,577

 

637,834

 

0

 

0

 

 

The shareholders also voted to approve the Hawkins, Inc. 2004 Omnibus Stock Plan with the following votes:

 

For

 

Against

 

Abstain

 

Broker
Non-votes

 

4,841,636

 

745,444

 

1,228,256

 

2,372,075

 

 

ITEM 6.  EXHIBITS

 

Exhibit Index

 

 

 

 

 

 

 

Exhibit

 

Description

 

Method of Filing

 

3.1

 

Amended and Second Restated Articles of Incorporation as amended through February 27, 2001. (1)

 

Incorporated by Reference

 

3.2

 

Second Amended and Superseding By-Laws as amended through February 15, 1995. (2)

 

Incorporated by Reference

 

10.1

 

Hawkins, Inc. 2004 Omnibus Stock Plan. (3)

 

Incorporated by Reference

 

10.2

 

Form of Hawkins, Inc. 2004 Omnibus Stock Plan Restricted Stock Agreement.

 

Filed Electronically

 

31.1

 

Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.

 

Filed Electronically

 

31.2

 

Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.

 

Filed Electronically

 

32.1

 

Section 1350 Certification by Chief Executive Officer.

 

Filed Electronically

 

32.2

 

Section 1350 Certification by Chief Financial Officer.

 

Filed Electronically

 


(1)          Incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended September 30, 2001.

(2)          Incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended October 1, 1995.

(3)          Incorporated by reference to Appendix B to the Company’s Proxy Statement filed with the Securities and Exchange Commission on July 23, 2004.

 

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SIGNATURES

 

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, INC.

 

 

 

By:

/s/ Marvin E. Dee

 

 

 

 

 

Marvin E. Dee

 

 

 

 

Vice President, Chief Financial Officer, Secretary and Treasurer
(On behalf of the Registrant and as principal financial officer)

Dated: November 9, 2004

 

 

 

 

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Exhibit Index

 

Exhibit

 

Description

 

Method of Filing

3.1

 

Amended and Second Restated Articles of Incorporation as amended through February 27, 2001. (1)

 

Incorporated by Reference

3.2

 

Second Amended and Superseding By-Laws as amended through February 15, 1995. (2)

 

Incorporated by Reference

10.1

 

Hawkins, Inc. 2004 Omnibus Stock Plan. (3)

 

Incorporated by Reference

10.2

 

Form of Hawkins, Inc. 2004 Omnibus Stock Plan Restricted Stock Agreement.

 

Filed Electronically

31.1

 

Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.

 

Filed Electronically

31.2

 

Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.

 

Filed Electronically

32.1

 

Section 1350 Certification by Chief Executive Officer.

 

Filed Electronically

32.2

 

Section 1350 Certification by Chief Financial Officer.

 

Filed Electronically

 


(1)          Incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended September 30, 2001.

(2)          Incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended October 1, 1995.

(3)          Incorporated by reference to Appendix B to the Company’s Proxy Statement filed with the Securities and Exchange Commission on July 23, 2004.

 

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