**UNITEDSTATES SECURITIES AND EXCHANGE COMMISSIONWashington, D. C. 20549**

**FORM 10-K**

**ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

**Forthe Fiscal Year Ended April 2, 2006**

**CommissionFile No. 0-7647**

**HAWKINS,INC.**(Exact Name of Registrant as specified in its Charter)

| **MINNESOTA**                                          |   | **41-0771293**                        |
|--------------------------------------------------------|--------|---------------------------------------|
| (State of  Incorporation)                              |   | (I.R.S. Employer  Identification No.) |
|                                                   |   |                                  |
| **3100  East Hennepin Avenue, Minneapolis, Minnesota** |   | **55413**                             |
| (Address of  Principal Executive Offices)              |   | (Zip Code)                            |

 

**(612)331-6910**(Registrant’s Telephone Number, Including Area Code)

Securities registeredpursuant to Section 12(b) of the Act: NONE

Securities registeredpursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $.05PER SHARE

Indicate by check mark if the registrant is a well-known seasonedissuer, as defined in Rule 405 of the Securities Act.

YES         o            NO          x

Indicate by check mark if the registrant is not required to file reportspursuant to Section 13 or Section 15(d) of the Act.

YES         o            NO          x

Indicate by checkmark whether the Registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding twelve months (or for such shorter period that the Registrant wasrequired to file such reports) and (2) has been subject to such filingrequirements for the past 90 days.               Yes  x    No   o

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-Kis not contained herein, and will not be contained, to the best of theRegistrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the ExchangeAct. (Check one):

Large Accelerated Filer  o   Accelerated Filer  x        Non-AcceleratedFiler  o

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).

YES         o            NO          x

The aggregatemarket value of voting stock held by non-affiliates of the Registrant on September 30,2005 (the last business day of the Registrant’s most recently completed secondfiscal quarter) was $107,208,280 based upon the closing sale price for Hawkins, Inc.’scommon stock on that date as reported by The NASDAQ Stock Market, excluding allshares held by officers and directors of the Registrant and by the Trustees ofthe Registrant’s Employee Stock Ownership Plan and Trust.

As of June 1,2006, the Registrant had 10,171,496 shares of common stock outstanding.

**DOCUMENTSINCORPORATED BY REFERENCE**

 

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Part III ofthis Annual Report on Form 10-K incorporates by referenceinformation (to the extent specific sections are referred to herein) from theRegistrant’s Proxy Statement for its 2006 Annual Meeting of Shareholders to beheld August 3, 2006.

PART I

ITEM 1.                                                    BUSINESS

(a)                                  GENERALDEVELOPMENT OF THE BUSINESS. Hawkins, Inc. was incorporated in Minnesotain 1955 and has its principal executive offices at 3100 East Hennepin Avenue,Minneapolis, Minnesota. As used in this Annual Report on Form 10-K,except where otherwise stated or indicated by the content, “Hawkins,” “we,” “theCompany,” “our,” or “the Registrant” means Hawkins, Inc. and itspredecessors.

(b)                                 FINANCIALINFORMATION ABOUT INDUSTRY SEGMENTS. The Company’s principal business is theformulation, blending and distribution of bulk and specialty chemicals, whichit conducts in three principal segments: Water Treatment, Industrial andPharmaceutical. Financial information regarding these segments is reported inthe Company’s audited financial statements. See Items 7 and 8 below.

(c)                                  NARRATIVEDESCRIPTION OF THE BUSINESS.

(i)                                     PRODUCTSAND MARKETS. The Company’s business is conducted in three segments, WaterTreatment, Industrial and Pharmaceutical, which are more fully described below:

(A)                              WATERTREATMENT. The Water Treatment segment specializes in providing equipment,chemicals and solutions to problems for potable water, municipal and industrialwastewater, industrial process water and non-residential swimming pool water.The Water Treatment Group has warehouses in twelve cities and utilizes aDriver/Technician/Salesperson approach in supplying products and service tocustomers in Minnesota, Wisconsin, Iowa, North Dakota, South Dakota, Nebraska,Illinois, Michigan, Montana, Kansas and Wyoming. In December 2000,operations in the Minneapolis/St. Paul area relocated to a new 59,000square-foot facility, “the Red Rock facility.” The Red Rock facility, locatedon the Mississippi River in St. Paul, Minnesota, has improved operationalefficiencies, as the Water Treatment operations are now located at the facilitywhere several key products are produced and the consolidated warehouse spacehas reduced the amount of time required to load trucks between deliveries.

(B)                                INDUSTRIAL.The Industrial segment specializes in providing industrial chemicals andservices to the energy, electronics, chemical processing, pulp and paper,medical device and plating industries. In addition, the Industrial segmentprovides products and services to food manufacturers and processing plants. TheIndustrial segment also manufactures and sells certain food grade products,including the Cheese-Phos® liquid phosphate product and other blended products,none of which are material to the Company. This segment conducts its businessprimarily through distribution centers and terminal operations.

The Industrial segment receives, stores anddistributes various chemicals in bulk, including liquid caustic soda,phosphoric acid, potassium hydroxide and aqua ammonia; manufactures sodiumhypochlorite (bleach) and agricultural products; repackages water treatmentchemicals; and performs custom blending of certain chemicals for customersaccording to customer formulas. The Industrial segment operates liquid causticsoda barge terminals to receive shipments during the period the MississippiRiver is open to barge traffic (approximately April 1 through November 15).During the remainder of the year, the Company relies on stockpiles, as well assupplies shipped in by railroad tank car. Pursuant to operating agreements ithas with other chemical companies, the Company receives and stores liquidcaustic soda and other chemicals at its two terminal sites, Hawkins Terminal 1and Terminal 2. Terminal 1 and Terminal 2 are located on opposite sides of theMississippi River in St. Paul, Minnesota. In September 2001, a 1.5million-gallon caustic soda storage tank was completed at the Red Rockfacility, allowing it to serve as an additional terminal for bulk chemicals.Historically, the property on which the Red Rock facility is located has notbeen subject to flooding when Terminals 1 and 2 were not usable due to highwater, and the facility was not affected by the most recent flooding in 2001.

The Industrial segmentalso includes a manufacturing, blending and sales distribution center forindustrial chemicals, food grade chemicals, high-purity electronic chemicalsand laboratory chemicals and supplies. Bulk industrial chemicals are generallyrepackaged and sold in smaller quantities to the Company’s customers. Sales areconcentrated primarily in Wisconsin, Minnesota, northern Iowa, and North andSouth Dakota. The principal

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products are acids andalkalis and industrial and food grade salts. The Industrial segment alsospecializes in sales to the plating and electronic industries, relying on aspecially trained sales staff that works directly with customers on theirsurface finishing needs.

(C)                                PHARMACEUTICAL.The Pharmaceutical segment specializes in providing pharmaceutical chemicals topharmacies and small-scale pharmaceutical manufacturers. This segment conductsthe majority of its business through one warehouse located at the principalexecutive site. The Pharmaceutical segment’s sales are primarily focusedthroughout the United States.

(ii)                                  NEWPRODUCTS. The Company did not have any significant new products during thefiscal year ended April 2, 2006.

(iii)                               RAWMATERIALS. The Company has approximately 300 suppliers, including many of themajor chemical producers in the United States, of which approximately 20account for a majority of the Company’s purchases. The Company typically haswritten distributorship agreements or supply contracts with its suppliers thatare renewed from time to time. Although there is no assurance that any contractor understanding with any supplier will not be terminated in the foreseeablefuture, most of the products purchased can be obtained from alternative sourcesshould existing relationships be terminated.

(iv)                              PATENTS,TRADEMARKS, LICENSES, FRANCHISES, AND CONCESSIONS. There are no patents,trademarks, licenses, franchises or concessions that are currently material tothe successful operation of the Company’s business.

(v)                                 SEASONALASPECTS. The Water Treatment segment has historically experienced higher salesduring the April to September timeframe, which is due primarily to anincrease in chemicals used by municipal water treatment facilities.

(vi)                              WORKINGCAPITAL ITEMS. As a bulk distributor of chemicals, the Company is required tocarry significant amounts of inventory to meet rapid delivery requirements ofcustomers. Working capital requirements vary on a seasonal basis as a result ofthe seasonality of the water treatment business.

(vii)                           DEPENDENCEON LIMITED NUMBER OF CUSTOMERS. No single customer represents more thanapproximately 5% of the Company’s sales, but the loss of our five largestcustomers could have a material adverse effect on the Company’s results ofoperations. Aggregate sales to the Company’s five largest customers were $16.9million and $13.2 million for the fiscal years ended April 2, 2006 and April 3,2005, respectively. Additionally, no single customer represents 10% or more ofthe Water Treatment, Industrial or Pharmaceutical segment sales.

(viii)                        BACKLOG.Backlog is not material to an understanding of the Company’s business.

(ix)                                GOVERNMENTCONTRACTS. No material portion of the Company’s business is subject torenegotiation of profits or termination of contracts at the election of anystate or federal governmental subdivision or agency.

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(x)                                   COMPETITIVECONDITIONS. The Company operates in a competitive industry and competes withproducers, distributors and sales agents offering chemicals equivalent tosubstantially all of the products handled by the Company. Many such producersand distributors are substantially larger than the Company. No one competitor,however, is dominant in the Company’s market.

(xi)                                RESEARCHAND DEVELOPMENT. The Company devotes resources to research and development on aproject basis as the need arises. During the fiscal year ended April 2,2006, expenditures for research and development were not material to theCompany’s business.

(xii)                             ENVIRONMENTALMATTERS. The Company is primarily a compounder and distributor, rather than amanufacturer, of chemical products. As such, compliance with current federal,state and local provisions regarding discharge of materials into theenvironment, or otherwise relating to the protection of the environment, is notanticipated to have any material effects upon the capital expenditures,earnings or competitive position of the Company. The Company does not currentlyanticipate making any material capital expenditures for environmental controlfacilities during fiscal 2007.

(xiii)                          EMPLOYEES.The Company had 235 employees as of April 2, 2006.

(d)                                 FINANCIALINFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES. Because theCompany deals primarily in one geographic area of the United States, abreakdown of sales, profitability or assets attributable to differentgeographic areas is not meaningful to an understanding of the Company’sbusiness.

(e)                                  AVAILABLEINFORMATION. We have made available, free of charge, through our Internetwebsite (http:// www.hawkinsinc.com) our Annual Reports on Form 10-K,Quarterly Reports on Form 10-Q, Current Reports on Form 8-K,and if applicable, amendments to those reports, as soon as reasonablypracticable after we electronically file such materials with, or furnish themto, the Securities and Exchange Commission. Reports of beneficial ownershipfiled by our directors and executive officers pursuant to Section 16(a) ofthe 1934 Act are also available on our website. We are not including theinformation contained on our website as part of, or incorporating it byreference into, this Annual Report on Form 10-K.

ITEM 1A.                                           RISKFACTORS

*You should consider carefully thefollowing risks when reading the information, including the financialinformation, contained in this Annual Report on Form 10-K.*

***Ourinability to pass through increases in costs and expenses for raw materials andenergy, on a timely basis or at all, could have a material adverse effect onthe margins of our products.***

We areexperiencing significant increases in the cost of raw materials. We generallyattempt to pass changes in the prices of raw materials and energy to ourcustomers, but we may be unable to or be delayed in doing so. Our inability topass through price increases or any limitation or delay in our passing throughprice increases could adversely affect our profit margins. In addition toraising prices, raw material suppliers may extend lead times or limit supplies.Constraints on the supply or delivery of critical raw materials could disruptour operations and adversely affect the performance of our business.

Additionally, ourprofit margins may be reduced due to the cyclical nature of commodity chemicalprices. The cyclicality of commodity chemical markets, such as caustic soda,primarily results from changes in the balance between supply and demand and thelevel of general economic activity. The Company cannot predict with anycertainty whether the markets for its commodity chemicals will favorably impactthe Company’s operations or whether the Company will experience losses due toexcess production resulting in oversupply and lower prices.

***Weface competition from other chemical companies, which places downward pressureon the prices and margins of our products.***

We operate in ahighly competitive marketplace, competing primarily against a number ofchemical companies. Competition is based on several key criteria, includingproduct performance and quality, product price, product availability andsecurity of supply, responsiveness of product development in cooperation withcustomers and customer service. Some of our competitors are larger than we areand may have greater financial resources. These competitors may also be able tomaintain significantly greater operating and financial flexibility than we do.As a result, these competitors may be better able to withstand changes inconditions within our industry, changes in the prices of raw materials andenergy, and changes in general economic conditions. Additionally, competitors’pricing decisions could compel us to decrease our prices, which could adverselyaffect our margins and profitability. Our ability to maintain or increase ourprofitability is, and will continue to be, dependent upon our ability to offsetdecreases in the prices and margins of our products by improving productionefficiency and volume, shifting to higher margin chemical products and improvingexisting products through innovation and research and development. If we areunable to do so or to otherwise maintain our competitive position, we couldlose market share to our competitors.

***Ourbusiness, and in particular our water treatment segment, is subject toseasonality and weather conditions, which could adversely affect our results ofoperations.***

The WaterTreatment segment of our business is seasonal, as higher sales are incurredfrom April through September due to increased water usage. Demand is affectedby weather conditions as either higher or lower than normal precipitation mayaffect usage. We cannot assure you that seasonality or weather conditions willnot have a material adverse affect on our results of operations and financialcondition.

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***Costsand difficulties in connection with our new enterprise resource planning systemcould have a material adverse effect on our results of operations.***

We are in theprocess of implementing a new enterprise resource planning (ERP) systemthroughout our company and have experienced some delays, extra costs andinefficiency. Because ERP systems are highly complex, implementation and thetransition to the new system has been costly and may initially result inadditional unexpected cost or difficulties, including failure or inefficientoperation of the new system. A failure in the new system could impair ourability to access certain business and financial information. In addition, wemay experience difficulties in the transition to our new ERP system that couldaffect our internal control systems, processes and procedures. Should weexperience such difficulties as a result of our new ERP system, our business,financial condition and results of operations could be materially adverselyaffected.

***Ourbusiness is subject to hazards common to chemical businesses, any of whichcould interrupt our production and adversely affect our results of operations.***

Our business issubject to hazards common to chemical manufacturing, storage, handling and transportation,including explosions, fires, inclement weather, natural disasters, mechanicalfailure, unscheduled downtime, transportation interruptions, remediation,chemical spills, discharges or releases of toxic or hazardous substances orgases and other risks. These hazards can cause personal injury and loss oflife, severe damage to or destruction of property and equipment, and environmentalcontamination. In addition, the occurrence of material operating problems atour facilities due to any of these hazards may diminish our ability to meet ouroutput goals. Accordingly, these hazards and their consequences could have amaterial adverse effect on our operations as a whole, including our results ofoperations and cash flows, both during and after the period of operational difficulties.

***Ourbusiness is subject to risks stemming from natural disasters, which couldinterrupt our production and adversely affect our results of operations.***

Natural disasters havethe potential of interrupting our operations and damaging our properties, whichcould adversely affect our business. Since 1963, flooding of the MississippiRiver has required the Company’s terminal operations to be temporarily shiftedout of its buildings four times, the most recent being in the spring of 2001. Thishad a negative impact on earnings in the third quarter of fiscal 2001 ofapproximately $200,000. No assurance can be given that flooding will not recuror that there will not be material damage or interruption to the Company’soperations in the future from flooding. In September 2001, a 1.5 million-galloncaustic soda storage tank was completed at the Red Rock facility, allowing itto serve as an additional terminal for bulk chemicals. Historically, the propertyon which the Red Rock facility is located has not been subject to flooding whenTerminals 1 and 2, located on opposite sides of the Mississippi River in St.Paul, Minnesota, were not usable due to high water, and the facility was notaffected by the most recent flooding in 2001. The Company believes the impactof future flooding, if any, will be reduced as the Red Rock Facility isexpected to allow the Company to continue normal shipping to customers duringperiods of high water levels.

***Downturnsin our customers’ cyclical industries could adversely affect our sales andprofitability.***

Downturns in thebusinesses that use our chemicals will adversely affect our sales. Many of our customersare in industries that are cyclical in nature and sensitive to changes ingeneral economic conditions. Historically, downturns in general economicconditions have resulted in diminished product demand and lower average sellingprices, and we may experience similar problems in the future. A decline in economicconditions in our customers’ cyclical industries may have a material adverse effecton our sales and profitability.

***Changesin our customers’ products can reduce the demand for our chemicals.***

Our chemicals areused for a broad range of applications by customers. Changes in our customers’products or processes may enable our customers or reduce the consumption of thechemicals that we provide or make our chemicals unnecessary. Customers may alsofind alternative materials or processes that no longer require our products.Consequently, it is important that we develop new products to replace the salesof products that mature and decline in use.

***Weincur substantial costs in order to comply with the extensive environmental,health and safety laws and regulations.***

In thejurisdictions in which we operate, we are subject to numerous federal, stateand local environmental, health and safety laws and regulations, includingthose governing the discharge of pollutants into the air and water, themanagement and disposal of hazardous substances and wastes. Ongoing compliancewith such laws and regulations is an important consideration for us and weincur substantial capital and operating costs in our compliance efforts.Governmental laws have become increasingly strict in recent years. We expectthis trend to continue and anticipate that compliance will continue to requireincreased capital expenditures and operating costs.

***Violationsof environmental, health and safety laws and regulations may subject us tofines, penalties and other liabilities and may require us to change certain businesspractices.***

If we violateenvironmental, health and safety laws or regulations, in addition to beingrequired to correct such violations, we can be held liable in administrative, civilor criminal proceedings for substantial fines and other sanctions could beimposed that could disrupt or limit our operations. Liabilities associated withthe investigation and cleanup of hazardous substances, as well as personalinjury, property damages or natural resource damages arising out of suchhazardous substances, may be imposed in many situations without regard to violationsof laws or regulations or other fault, and may also be imposed jointly andseverally (so that a responsible party may be held liable for more than its shareof the losses involved, or even the entire loss). Such liabilities may also beimposed on many different entities with a relationship to the hazardoussubstances at issue, including, for example, entities that formerly owned oroperated the property affected and entities that arranged for the disposal ofhazardous substances at the affected property, as well as entities thatcurrently own 

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or operate such property.Such liabilities can be difficult to identify and the extent of any suchliabilities can be difficult to predict. We use, and in the past have used,hazardous substances at many of our facilities, and we have in the past, andmay in the future, be subject to claims relating to exposure to hazardousmaterials and the associated liabilities may be material. We also havegenerated, and continue to generate, hazardous wastes at a number of ourfacilities. The nature of our business exposes us to risks of liability underthese laws and regulations due to the production, storage, use, transportationand sale of materials that can cause contamination or personal injury ifreleased into the environment.

***Wecould be subject to damages based on claims brought against us by our customersor lose customers as a result of the failure of our products to meet certainquality specifications.***

Our productsprovide important performance attributes to our customers’ products. If aproduct fails to perform in a manner consistent with quality specifications orhas a shorter useful life than guaranteed, a customer could seek replacement ofthe product or damages for costs incurred as a result of the product failing toperform as expected. A successful claim or series of claims against us couldhave a material adverse effect on our financial condition and results ofoperations could result in a loss of one or more customers.

***Theinsurance that we maintain may not fully cover all potential exposures.***

We maintainproperty, business interruption and casualty insurance but such insurance maynot cover all risks associated with the hazards of our business and is subjectto limitations, including deductibles and maximum liabilities covered. We mayincur losses beyond the limits, or outside coverage, of our insurance policies,including liabilities for environmental remediation. In addition, from time totime, various types of insurance for companies in the specialty chemicalindustry have not been available on commercially acceptable terms or, in somecases, have not been available at all. In the future, we may not be able toobtain coverage at current levels, and our premiums may increase significantlyon coverage that we maintain.

***If weare unable to retain key personnel or attract new skilled personnel, it couldhave an adverse effect on our business.***

The unanticipateddeparture of any key member of our management team could have an adverse effecton our business. In addition, because of the specialized and technical natureof our business, our future performance is dependent on the continued serviceof, and on our ability to attract and retain, qualified management, scientific,technical, marketing and support personnel.

***Wemay not be able to consummate future acquisitions or integrate futureacquisitions into our business, which could result in unanticipated expensesand losses.***

As part of ourbusiness growth strategy, we have acquired businesses in the past and maypursue acquisitions in the future. Our ability to pursue this strategy will belimited by our ability to identify appropriate acquisition candidates and ourfinancial resources, including available cash and borrowing capacity. Theexpense incurred in consummating acquisitions, the time it takes to integratean acquisition or our failure to integrate businesses successfully, couldresult in unanticipated expenses and losses. Furthermore, we may not be able torealize any of the anticipated benefits from acquisitions.

To the extent thisstrategy is pursued, the process of integrating acquired operations into ourexisting operations may result in unforeseen operating difficulties and mayrequire significant financial resources that would otherwise be available forthe ongoing development or expansion of existing operations. Some of the risksassociated with the integration of acquisitions include, among many others,potential disruption of our ongoing business and distraction of management; unforeseenclaims and liabilities; unforeseen adjustments; charges and write-offs; difficultyin conforming the acquired business’ standards, processes, procedures andcontrols with our operations; challenges arising from the increased scope,geographic diversity and complexity of our operations.

***The occurrenceor threat of extraordinary events, including domestic and internationalterrorist attacks, may disrupt our operations and decrease demand for ourproducts.***

Chemical-relatedassets may be at greater risk of future terrorist attacks than other possible targetsin the United States. Federal legislation is under consideration that couldimpose new site security requirements, specifically on chemical facilities,which may increase our overhead expenses.

New federalregulations have already been adopted to increase the security of thetransportation of hazardous chemicals in the United States. We believe we havemet these requirements but additional federal and local regulations that limitthe distribution of hazardous materials are being considered. We ship and receivematerials that are classified as hazardous. Bans on movement of hazardousmaterials through certain cities could affect the efficiency of our logisticaloperations. Broader restrictions on hazardous material movements could lead toadditional investment to produce hazardous raw materials and change where andwhat products we provide.

The occurrence ofextraordinary events, including future terrorist attacks and the outbreak ofescalation of hostilities, cannot be predicted, and their occurrence can beexpected to continue to affect negatively the economy in general, andspecifically the markets for our products. The resulting damage from a directattack on our assets, or assets used by us, could include loss of life andproperty damage. In addition, available insurance coverage may not besufficient to cover all of the damage incurred or, if available, may beprohibitively expensive.

ITEM 1B.                                             UNRESOLVEDSTAFF COMMENTS

None.

ITEM 2.                                                     PROPERTIES

The Company ownsits principal location, which consists of approximately 11 acres of land inMinneapolis, Minnesota, with six buildings containing a total of 177,000 squarefeet of office and warehouse space. The Company’s principal office is locatedin one of these buildings, at 3100 East Hennepin Avenue. As of April 2,2006, the Company has installed sprinkler systems in substantially all of itswarehouse facilities for fire protection. The Company carries insurancecovering the replacement of property damaged by fire or flood. ThePharmaceutical segment occupies approximately 13,000 square feet of office andwarehouse space within this location.

                As noted above, in December 2000 the Companycompleted the Red Rock facility, which consists of a 59,000 square-footbuilding located on approximately 10 acres of land. This facility has outsidestorage capacity of approximately 1.5 million gallons for the storage of liquidcaustic soda, as well as numerous smaller tanks for storing and mixingchemicals. The land is leased from the Port Authority of the City of St. Paul,Minnesota through July 31, 2029 for a basic rent plus an amount based onthe annual tonnage unloaded at the site. The basic rent and annual tonnage rentwere renegotiated August 1, 2004 and are to be renegotiated every fiveyears.

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In addition to thefacilities described above, the Company’s other facilities are described below.These facilities, together with those described above, are adequate andsuitable for the purposes they serve. Unless noted, each facility is owned andis fully utilized by the Company.

|                 | ** ** | ** **              | ** ** | ** **                    | ** ** | **Approx.**     |
|-----------------|------------|-------------------------|------------|-------------------------------|------------|-----------------|
| **Segment**     | ** ** | ** **              | ** ** | **Location**                  | ** ** | **Primary Use** | ** ** | **Square Feet** |
|            |       |                    |       |                          |       |            |
| Industrial      |       | St.  Paul, MN (1)       |       | Office,  Warehouse and Garage |       | 32,000          |
|            |       | St.  Paul, MN (2)       |       | Office                        |       | 3,000           |
| Water Treatment |       | Fargo,  ND (3)          |       | Office  and Warehouse         |       | 22,800          |
|            |       | Fond  du Lac, WI        |       | Warehouse                     |       | 20,300          |
|            |       | Washburn,  ND           |       | Office  and Warehouse         |       | 14,000          |
|            |       | Billings,  MT           |       | Office  and Warehouse         |       | 9,300           |
|            |       | Sioux  Falls, SD (4)    |       | Warehouse                     |       | 27,200          |
|            |       | Rapid  City, SD         |       | Warehouse                     |       | 9,500           |
|            |       | Willow  Springs, IL (2) |       | Warehouse                     |       | 2,400           |
|            |       | Superior,  WI           |       | Office  and Warehouse         |       | 17,000          |
|            |       | Slater,  IA             |       | Warehouse                     |       | 8,700           |
|            |       | Lincoln,  NE (2)        |       | Office  and Warehouse         |       | 6,500           |
|            |       | Eldridge, IA            |       | Office and  Warehouse         |       | 6,000           |
|                 |            |                         |            |                               |            |                 |  |  |

 

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(1)             TheCompany’s terminal operations, located at two sites on opposite sides of theMississippi River, are made up of three buildings, nine outside storage tankswith a total capacity of approximately 8,900,000 gallons for the storage ofliquid caustic soda, as well as numerous smaller tanks for storing and mixingchemicals. The land is leased from the Port Authority of the City of St. Paul,Minnesota for a basic rent plus an amount based on the annual tonnage unloadedat each site. The applicable leases run until December 31, 2008, at whichtime the Company has an option to renew the leases for an additional five-yearperiod on the same terms and conditions subject to renegotiation of rent. TheCompany also has options to renew these leases for additional successivefive-year renewal periods (extending until 2018) for which the rent may beadjusted pursuant to the rental renegotiation provisions contained in theleases.

(2)             Thisfacility is leased from a third party.

(3)             Part ofthis facility is leased to a third party (9,400 square feet).

(4)             Part ofthis facility is leased to a third party (8,900 square feet).

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ITEM 3.          LEGALPROCEEDINGS

Not Applicable.

ITEM 4.                                                     SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

Not Applicable.

EXECUTIVE OFFICERS OF THEREGISTRANT

The executive officers ofthe Company, their ages and offices held, as of June 1, 2006 are set forthbelow:

| Name                 | ** ** | ** ** | ** ** | **Age**                                                            | ** ** | **Office** |
|----------------------|------------|------------|------------|--------------------------------------------------------------------|------------|------------|
|                 |       |       |       |                                                               |
| John R. Hawkins      |       | 54         |       | Chief Executive Officer                                            |
|                 |       |       |       |                                                               |
| Marvin E. Dee        |       | 57         |       | Vice President, Chief  Financial Officer, Secretary, and Treasurer |
|                 |       |       |       |                                                               |
| Keenan A.  Paulson   |       | 56         |       | Vice President — Water  Treatment Group                       |
|                 |       |       |       |                                                               |
| John R. Sevenich     |       | 48         |       | Vice President —  Industrial Group                            |
|                 |       |       |       |                                                               |
| Daniel E.  Soderlund |       | 43         |       | Vice President — Pharmaceutical Group                         |

 

John R. Hawkinshas been the Company’s Chief Executive Officer since February 2000 and wasChairman of the Board from February 2000 to September 2005. He wasPresident and Chief Operating Officer from December 1998 to February 2000and was Secretary from 1991 to December 1999. He was an Executive VicePresident from 1997 to December 1998 and Vice President of Sales from 1987to 1997.

Marvin E. Dee hasbeen the Company’s Vice President and Chief Financial Officer since September 1999and its Secretary and Treasurer since December 1999. He was the ChiefFinancial Officer of Nath Companies from 1997 to September 1999, the VicePresident of Finance and Treasurer of Tricord Systems, Inc. from 1993 to1997 and Senior Director of Accounting of NordicTrack, Inc. in 1993 andthe Controller of NordicTrack from 1991 to 1992.

Keenan A. Paulsonhas been the Company’s Vice President — Water Treatment Group since May 2000.Prior to attaining this position, Ms. Paulson held various positionsduring her 34-year career with the Company, most recently as its WaterTreatment General Manager.

John R. Sevenichhas been the Company’s Vice President — Industrial Group since May 2000.He was the Business Unit Manager of Manufacturing from 1998 to May 2000and was a Sales Representative with the Company from 1989 to 1998.

Daniel E.Soderlund has been the Company’s Vice President — Pharmaceutical Group sinceMay 2000. He was the Business Unit Manager of Pharmaceuticals fromApril 1999 to May 2000 and was a Sales Representative with theCompany from 1992 to April 1999.

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PART II
| ITEM 5. |   | MARKET FOR THE COMPANY’S COMMON EQUITY, RELATED  SHAREHOLDER MATTERS, AND |
|---------|--------|--------------------------------------------------------------------------------|
|    |   | ISSUER PURCHASES OF EQUITY SECURITIES                                          |

 

| Quarterly Stock Data | ** ** | ** ** | ** ** | **High** | ** ** | **Low** | ** ** |
|--------------------------------|------------|------------|------------|----------|------------|---------|------------|
|                           |       |       |       |     |       |
| Fiscal 2006                    |       |       |       |     |       |
| 4th Quarter               |       | $          | 14.380     |     | $          | 13.500  |       |
| 3rd Quarter               |       | 16.240     |       | 12.950   |       |
| 2nd Quarter               |       | 14.230     |       | 11.900   |       |
| 1st Quarter               |       | 12.500     |       | 11.910   |       |
|                           |       |       |       |     |       |
| Fiscal 2005                    |       |       |       |     |       |
| 4th Quarter               |       | $          | 12.150     |     | $          | 11.650  |       |
| 3rd Quarter               |       | 12.250     |       | 11.710   |       |
| 2nd Quarter               |       | 12.050     |       | 11.640   |       |
| 1st Quarter               |       | 12.450     |       | 11.810   |       |

 

| Cash Dividends | ** ** | ** ** | ** ** | **Declared** | ** ** | **Paid** | ** ** |
|---------------------|------------|------------|------------|--------------|------------|----------|------------|
|                |       |       |       |         |       |
| Fiscal 2007         |       |       |       |         |       |
| 1st Quarter    |       |       |       | $            | .20        |     |
|                |       |       |       |         |       |
| Fiscal 2006         |       |       |       |         |       |
| 4th Quarter    |       | $          | .20        |         |       |     |
| 3rd Quarter    |       |       |       | $            | .20        |     |
| 2nd Quarter    |       | $          | .20        |         |       |     |
| 1st Quarter    |       |       |       | $            | .18        |     |
|                |       |       |       |         |       |
| Fiscal 2005         |       |       |       |         |       |
| 4th Quarter    |       | $          | .18        |         |       |     |
| 3rd Quarter    |       |       |       | $            | .18        |     |
| 2nd Quarter    |       | $          | .18        |         |       |     |
| 1st Quarter    |       |       |       | $            | .18        |     |

 

The Company’scommon shares are traded on The NASDAQ Stock Market under the symbol “HWKN.”The price information represents closing sale prices as reported by The NASDAQStock Market. As of April 2, 2006, there were approximately 605 registeredcommon shareholders, which includes nominees or broker dealers holding stock onbehalf of an estimated 1,375 beneficial owners.

The Company firststarted paying cash dividends in 1985 and has done so consecutively since thattime. Future dividend levels will be dependent upon Hawkins’ results ofoperations, financial position, cash flows and other factors, and will beevaluated by the Hawkins’ Board of Directors.

9

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**ITEM6.**                                                     SELECTED FINANCIAL DATA
| ** **

** **                       | ** ** | **Fiscal Year  Ended  April 2,  2006** | ** **  | **Fiscal Year  Ended  April 3,  2005** | ** ** | **Fiscal Year  Ended  March 28,  2004** | ** ** | **Fiscal Year  Ended  March 30,  2003** | ** **  | **Six-Month  Transitional  Period Ended  March 31,  2002** | ** ** | **Fiscal Year  Ended  September 30,  2001** | ** ** |
|----------------------------------------------|------------|--------------------------------------------------|-------------|--------------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------|-------------|----------------------------------------------------------------------|------------|-------------------------------------------------------|------------|
| Sales                                        |       | $                                                | 143,331,250 |                                             | $          | 115,280,312                                       |       | $                                                 | 107,028,131 |                                                                 | $          | 104,004,611                                           |       | $ | 49,868,179 |   | $ | 107,931,668 |   |
|                                         |       |                                             |        |                                             |       |                                              |       |                                              |        |                                                                 |       |                                                  |       |
| Gross margin                                 |       | 33,219,142                                       |        | 29,606,185                                       |       | 27,974,289                                        |       | 27,957,852                                        |        | 11,535,706                                                           |       | 24,297,587                                            |       |
|                                         |       |                                             |        |                                             |       |                                              |       |                                              |        |                                                                 |       |                                                  |       |
| Net income                                   |       | 8,886,153                                        |        | 8,092,009                                        |       | 5,751,884                                         |       | 8,430,172                                         |        | 3,083,771                                                            |       | 7,117,578                                             |       |
|                                         |       |                                             |        |                                             |       |                                              |       |                                              |        |                                                                 |       |                                                  |       |
| Basic and  diluted earnings per common share |       | .87                                              |        | .79                                              |       | .56                                               |       | .83                                               |        | .30                                                                  |       | .69                                                   |       |
|                                         |       |                                             |        |                                             |       |                                              |       |                                              |        |                                                                 |       |                                                  |       |
| Cash dividends  declared per common share    |       | .40                                              |        | .36                                              |       | .36                                               |       | .33                                               |        | .15                                                                  |       | .30                                                   |       |
|                                         |       |                                             |        |                                             |       |                                              |       |                                              |        |                                                                 |       |                                                  |       |
| Cash dividends paid  per common share        |       | .38                                              |        | .36                                              |       | .36                                               |       | .30                                               |        | .15                                                                  |       | .30                                                   |       |
|                                         |       |                                             |        |                                             |       |                                              |       |                                              |        |                                                                 |       |                                                  |       |
| Total assets                                 |       | 94,056,734                                       |        | 87,658,118                                       |       | 82,616,905                                        |       | 81,098,739                                        |        | 71,487,133                                                           |       | 74,868,121                                            |       |
|                                         |       |                                             |        |                                             |       |                                              |       |                                              |        |                                                                 |       |                                                  |       |
| Long-term debt                               |       |                                             |        |                                             |       |                                              |       |                                              |        |                                                                 |       | 116,823                                               |       |
|                                              |            |                                                  |             |                                                  |            |                                                   |            |                                                   |             |                                                                      |            |                                                       |            |  |  |  |  |  |  |

 

The Company changed itsfiscal year end from the Sunday closest to September 30 to the Sundayclosest to March 31, beginning after a six-month transitional period endedon March 31, 2002. The change in year-end better matches the Company’sannual reporting process to its natural business cycles.
| ITEM 7. |   | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF  OPERATIONS |
|---------|--------|----------------------------------------------------------------------------------------------|

** **

**FORWARD-LOOKING INFORMATION**

The informationcontained in this Annual Report on Form 10-K for the year ended April 2,2006 contains statements that we believe to be “forward-looking statements”within the meaning of the Private Securities Litigation Reform Act of 1995, andwithin the meaning of Section 27A of the Securities Act of 1933, asamended, and Section 21E of the Securities Exchange Act of 1934, asamended. Forward-looking statements give our current expectations or forecastsof future events. Forward-looking statements generally can be identified by theuse of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,”“anticipate,” “believe,” “project,” or “continue,” or the negative thereof orsimilar words. From time to time, we also may provide oral or writtenforward-looking statements in other materials we release to the public. Any orall of our forward-looking statements in this Annual Report on Form 10-Kand in any public statements we make could be materially different from actualresults. They can be affected by assumptions we might make or by known orunknown risks or uncertainties, including those described in Item 1A “RiskFactors” and other factors disclosed throughout this Annual Report on Form 10-Kand the Company’s other filings with the Securities and Exchange Commission.Consequently, we cannot guarantee any forward-looking statements and undertakeno obligation to revise any forward-looking statements in order to reflectevents or circumstances that may arise after the date of this Annual Report on Form 10-K.Investors are cautioned not to place undue reliance on any forward-lookingstatements. Investors should also understand that it is not possible to predictor identify all factors that might affect actual results and should notconsider these factors to be a complete statement of all potential risks anduncertainties. We assume no obligation and disclaim any duty to update theforward-looking statements in this Annual Report on Form 10-K or anyother public statement.

**GENERAL**

The following is adiscussion and analysis of our financial condition and results of operationsfor the Company’s fiscal years ended April 2, 2006, April 3, 2005 andMarch 28, 2004. This discussion should be read in conjunction with theFinancial Statements and Notes to Financial Statements included in ITEM 8of this Annual Report on Form 10-K.

 

10

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**OVERALL SUMMARY**

Sales for thefiscal year ended April 2, 2006 were $143,331,250 versus $115,280,312 forthe fiscal year ended April 3, 2005 and $107,028,131 for the fiscal yearended March 28, 2004. Net income for the fiscal year ended April 2,2006 was $8,886,153, or $.87 per share, compared to $8,092,009, or $.79 pershare, for the fiscal year ended April 3, 2005 and $5,751,884, or $.56 pershare, for the fiscal year ended March 28, 2004.

The following table setsforth the percentage relationship of certain items to sales for the periodindicated:

 
| ** **                                    | ** ** | **Fiscal**                  | ** ** | **Fiscal**                  | ** ** | **Fiscal**                   | ** ** |
|-----------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|------------------------------|------------|
| ** **                                    | ** ** | **Year Ended**         | ** ** | **Year Ended**         | ** ** | **Year Ended**          | ** ** |
| ** **                                    | ** ** | **April 2, 2006** | ** ** | **April 3, 2005** | ** ** | **March 28, 2004** | ** ** |
|                                          |       |                        |       |                        |       |                         |       |
| Sales                                         |       | 100.0                       | %          | 100.0                       | %          | 100.0                        | %          |
| Cost of sales                                 |       | (76.8                       | )%         | (74.3                       | )%         | (73.9                        | )%         |
| Gross margin                                  |       | 23.2                        | %          | 25.7                        | %          | 26.1                         | %          |
| Selling, general  and administrative expenses |       | (15.0                       | )%         | (15.7                       | )%         | (15.7                        | )%         |
| Litigation  settlement                        |       | .7                          | %          | —                      |       | (2.8                         | )%         |
| Income from  operations                       |       | 8.9                         | %          | 10.0                        | %          | 7.6                          | %          |
| Investment  income                            |       | .6                          | %          | 1.0                         | %          | .8                           | %          |
| Income before  income taxes                   |       | 9.5                         | %          | 11.0                        | %          | 8.4                          | %          |
| Provision for  income taxes                   |       | (3.3                        | )%         | (3.9                        | )%         | (3.0                         | )%         |
| Net income                                    |       | 6.2                         | %          | 7.0                         | %          | 5.4                          | %          |

 

**SALES**

**Sales increased $28,050,938, or24.3%, to $143,331,250 for the fiscal year ended April 2, 2006 as comparedto sales of $115,280,312for the fiscal year ended April 3, 2005. Sales of bulk chemicals,including caustic soda, were approximately 35.1% of sales compared to 33.3% inthe previous year. All three operating segments contributed to the increase insales. Industrial segment sales increased $20,062,330, or 31.3%, to $84,192,397,Water Treatment segment sales increased $7,417,284, or 17.9%, to $48,946,914and Pharmaceutical segment sales increased $571,324, or 5.9%, to $10,191,939.The increase in the Industrial segment sales was primarily due to improvedsales across several product lines combined with selling price increasesrelated to material cost increases, including caustic soda, in comparison tothe prior year. Caustic soda volumes sold were comparable to the prior year.Water Treatment segment sales increases were attributable to selling priceincreases connected with material cost increases and successful expansion ofexisting product lines in comparison to the prior year. Increased volumes alongseveral existing product lines drove the increase in Pharmaceutical segmentsales.**

Sales increased$8,252,181, or 7.7%, to $115,280,312 for the fiscal year ended April 3,2005 as compared to sales of $107,028,131 for the fiscal year ended March 28,2004. Sales of bulk chemicals, including caustic soda, were approximately 33.3%of sales compared to 33.7% in the previous year. All three operating segmentscontributed to the increase in sales. Industrial segment sales increased$4,816,838, or 8.1%, to $64,130,067, Water Treatment segment sales increased$2,248,481, or 5.7%, to $41,529,630 and Pharmaceutical segment sales increased$1,186,862, or 14.1%, to $9,620,615. The increase in the Industrial segmentsales was driven by improved sales along several product lines and an increasein the cost and selling price of caustic soda in comparison to the prior year. Duringthe fiscal year ended April 3, 2005 there was a decrease in caustic sodavolumes sold, which was offset by increases in selling prices associated withincreases in the cost of caustic soda. Although the Water Treatment segment waschallenged by cooler summer conditions during the second quarter of fiscal 2005in comparison to the prior year, sales increased due to increased volumes inexisting product lines and successful expansion of existing product lines.Increased volumes along several existing product lines drove the increase inPharmaceutical segment sales.

**GROSS MARGIN**

Gross margin, as apercentage of sales, was 23.2% for the fiscal year ended April 2, 2006compared to 25.7% for the fiscal year ended April 3, 2005 and 26.1% forthe fiscal year ended March 28, 2004, respectively. The gross margindecreases are due to a number of variables as explained below.

**Industrial Segment**

Gross margin, as apercentage of sales, for the Industrial segment was 17.9% for the fiscal yearended April 2, 2006, 20.9% for the fiscal year ended April 3, 2005and 20.9% for the fiscal year ended March 28, 2004. The decrease for the fiscal year ended April 2,2006 as compared to the fiscal year ended April 3, 2005 relates to changesin the cost and selling price of caustic soda during fiscal 2005 and 2006,increased product costs, a highly competitive market environment, and changesin product mix along several product lines. Additionally, since we are on theLIFO method of valuing inventory, the increased caustic soda costs and thehigher cost 

 

 

11

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ofinventory on hand as of April 2, 2006 impacted gross margins. Grossmargins for the fiscal year ended April 3, 2005 were flat as compared tothe fiscal year ended March 28, 2004. The cost of caustic soda is normallysubject to fluctuations, which are expected to continue in future periods. TheCompany attempts to maintain relatively constant dollar margins as the cost ofcaustic soda increases or decreases. Therefore, the gross margin percentagewill decrease when the cost of the product is increasing and will increase whenthe cost of the product is decreasing.

**Water Treatment Segment**

Gross margin, as apercentage of sales, for the Water Treatment segment was 30.8% for the fiscalyear ended April 2, 2006, 31.3% for the fiscal year ended April 3,2005 and 32.6% for the fiscal year ended March 28, 2004. The decrease forthe fiscal year ended April 2, 2006 as compared to the fiscal year ended April 3,2005 was primarilyattributable to rising product costs, which to some extent, the Company wasunable to pass on to customers due to competitive pressures.Additionally, due to the LIFO method of valuing inventory, the margin wasnegatively impacted by higher inventory costs and changes in product mix ofinventory on hand as compared to the prior year.

Gross margin, as apercentage of sales, for the fiscal year ended April 3, 2005 decreased incomparison with the fiscal year ended March 28, 2004 as competitivepressures reduced margins on several products. Additionally, due to the LIFOmethod of valuing inventory, the margin was negatively impacted by higherinventory levels and changes in product mix of inventory on hand as compared tothe prior year.

**Pharmaceutical Segment**

Gross margin, as a percentage of sales, for thePharmaceutical segment was 30.4% for the fiscal year ended April 2, 2006,33.0% for the fiscal year ended April 3, 2005 and 33.0% for the fiscalyear ended March 28, 2004. The decrease for the fiscal year ended April 2,2006 as compared to the fiscal year ended April 3, 2005 related primarilyto an increase in operating costs for staffing increases to facilitate futuregrowth, changes in product mix and competitive pressures. Gross margins for thefiscal year ended April 3, 2005 were flat as compared to the fiscal yearended March 28, 2004.

**SELLING, GENERAL AND ADMINISTRATIVE**

Selling, generaland administrative expenses, as a percentage of sales, were 15.0% ($21,513,444)for the fiscal year ended April 2, 2006, 15.7% ($18,089,829) for the fiscalyear ended April 3, 2005 and 15.7% ($16,793,094) for the fiscal year endedMarch 28, 2004. Thedollar increases in fiscal 2006 were mainly due to increased sales staff, and,to a lesser extent, contractor fees associated with the Company’s efforts incomplying with the requirements of the Sarbanes-Oxley Act and the Company’simplementation of an Enterprise Resource Planning (ERP) system. Employeecompensation and benefits comprise the majority of the selling, general andadministrative expenditures. Additionally, in fiscal 2006 bad debt expenseincreased by $564,445 due primarily to the bankruptcy of a large customer andthe $176,000 impairment of intangible assets resulted in an increase inselling, general and administrative expenses.

**LITIGATION SETTLEMENTS**

In the fourth quarter of fiscal 2004, the Company paid $3.0 millionto resolve a personal injury lawsuit encaptioned *Chavarria et al v. Hawkins, Inc., Panorama Compounding Pharmacy,and Valley Drug and Compounding, et al* that arose from the allegedmislabeling of certain inventory the Company purchased in connection with itsacquisition of St. Mary’s Chemicals, Inc. (d/b/a Universal Chemicals) in May 2000.Pursuant to the terms of the settlement, the Company denied all liability andreserved its right to pursue indemnification and contribution from thirdparties. In July 2004, the Company filed suit in Hennepin County,Minnesota against the former principals of Universal Chemicals, seekingindemnification for the costs the Company incurred in defending and resolvingthe prior litigation.

On June 23, 2005, the Company and the former Universal Chemicalsprincipals (the “defendants”) executed a settlement agreement in full and finalresolution of the Company’s claims, as well as any claims the defendants mayhave or may have had against the Company. The settlement agreement required thedefendants to surrender to the Company 75,358 shares of the Company’s commonstock. The agreement also terminated the non-competition provisions of theCompany’s agreements with the defendants, relieving the Company of theobligation to pay $500,000 to the defendants over the next five years asconsideration for these provisions. The settlement agreement called for theparties to execute mutual releases and a stipulation of dismissal. Litigationsettlement income of $1,056,520 was recorded in the Pharmaceutical segmentduring the quarter ended September 30, 2005 as the Company received the75,358 shares and the executed final releases and stipulations.

 

12

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**INVESTMENT INCOME**

Investment incomedecreased $228,486 to $892,289 for the fiscal year ended April 2, 2006compared to $1,120,775 for the fiscal year ended April 3, 2005. Thisdecrease was primarily related to a $280,699 loss recognized due to other thantemporary declines in the market value of an investment. The decrease waspartially offset by higher returns on the Company’s cash equivalents andmarketable securities. The $295,086 increase in investment income for thefiscal year ended April 3, 2005 as compared to the fiscal year ended March 28,2004 was attributable to an increase in cash available for investment, and ahigher rate of return on the Company’s cash equivalents and marketablesecurities.

**PROVISION FOR INCOME TAXES**

The effectiveincome tax rate was 34.9% for the fiscal year ended April 2, 2006, 36.0%for the fiscal year ended April 3, 2005 and 36.1% for the fiscal yearended March 28, 2004. The decrease for the fiscal year ended April 2,2006 as compared to the fiscal years ended April 3, 2005 and March 28,2004 was primarily due to a tax benefit recognized for adjustments to deferredtax estimates and a benefit related to the deduction for qualified productionactivities.

**SELECTEDQUARTERLY FINANCIAL DATA**
| ** **                             | ** ** | **Fiscal Year Ended April 2, 2006 (Unaudited)** | ** ** |
|----------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                             | ** ** | **First**                                                                     | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
| ** **                             | ** ** | **Quarter Ended**                                                        | ** ** | **Quarter Ended** | ** ** | **Quarter Ended** | ** ** | **Quarter Ended** | ** ** |
| ** **                             | ** ** | **June 30, 2005**                                                   | ** ** | **September 30, 2005** | ** ** | **December 31, 2005** | ** ** | **April 2, 2006** | ** ** |
|                                   |       |                                                                          |       |   |   |   |   |   |   |
| Sales                                  |       | $                                                                             | 35,854,527 |   | $ | 36,643,242 |   | $ | 34,352,992 |   | $ | 36,480,489 |   |
| Gross margin                           |       | 9,885,658                                                                     |       | 8,794,953 |   | 7,219,615 |   | 7,318,916 |   |
| Net income                             |       | 2,749,486                                                                     |       | 3,000,919 |   | 1,827,264 |   | 1,308,484 |   |
| Basic and diluted   earnings per share |       | $                                                                             | .27        |   | $ | .29 |   | $ | .18 |   | $ | .13 |   |

 
| ** **                             | ** ** | **Fiscal Year Ended April 3, 2005 (Unaudited)** | ** ** |
|----------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                             | ** ** | **First**                                                                     | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
| ** **                             | ** ** | **Quarter Ended**                                                        | ** ** | **Quarter Ended** | ** ** | **Quarter Ended** | ** ** | **Quarter Ended** | ** ** |
| ** **                             | ** ** | **June 30, 2004**                                                   | ** ** | **September 30, 2004** | ** ** | **December 31, 2004** | ** ** | **April 3, 2005** | ** ** |
|                                   |       |                                                                          |       |   |   |   |   |   |   |
| Sales                                  |       | $                                                                             | 29,955,818 |   | $ | 28,631,601 |   | $ | 26,703,441 |   | $ | 29,989,452 |   |
| Gross margin                           |       | 8,585,476                                                                     |       | 8,317,624 |   | 6,939,014 |   | 5,764,071 |   |
| Net income                             |       | 2,929,304                                                                     |       | 2,406,084 |   | 1,773,124 |   | 983,497 |   |
| Basic and diluted   earnings per share |       | $                                                                             | .29        |   | $ | .24 |   | $ | .17 |   | $ | .10 |   |

 

**FINANCIAL CONDITION**

**LIQUIDITY**

Cash provided byoperations in the fiscal year ended April 2, 2006 was $9,457,722 comparedto $12,617,158 in the fiscal year ended April 3, 2005 and $7,411,596 inthe fiscal year ended March 28, 2004. The decrease in the fiscal yearended April 2, 2006 compared to the fiscal year ended April 3, 2005was due primarily to the timing of liability payments and an increase ininventory primarily associated with cost increases. The increase in the fiscalyear ended April 3, 2005 compared to the fiscal year ended March 28,2004 was due primarily to the timing of liability payments and the $3 millionlitigation settlement that was paid in fiscal 2004. These amounts werepartially offset by an increase in accounts receivable, primarily as a resultof the increase in sales.

Cash andinvestments available-for-sale of $25,790,392 at April 2, 2006 decreasedby $1,016,993 as compared with the $26,807,385 available as of April 3,2005, primarily because of changes in working capital accounts and highercapital expenditures. Cash equivalents consist of money market accounts andcertificates of deposit with an original maturity of three months or less.Investments available-for-sale consist of investment contracts with high-rated,stable insurance companies; marketable securities consisting of corporate andmunicipal bonds; U.S. Government agency securities and mutual funds carried atfair value. The Company’s investment objectives in order of importance are thepreservation of principal, maintenance of liquidity and rate of return. Thefixed income portfolio consists primarily of investment grade securities tominimize credit risk, and they generally mature within 

 

 

13

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10 years. TheCompany invests in mutual funds with characteristics similar to the fixedincome portfolio to enhance its investment portfolio diversification. TheCompany monitors the maturities of its investments to ensure that funding isavailable for anticipated cash needs. At April 2, 2006, $5,293,341 ofavailable-for-sale investments were classified as non-current assets as theywere determined to be temporarily impaired and have maturity dates of one yearor longer. These investments were not determined to be other-than-temporarilyimpaired as the Company has the intent and ability to hold these investmentsfor a period of time sufficient to allow a recovery of fair value. Expectedfuture cash flows from operations, cash equivalents and investments includedwithin current assets are expected to fund the Company’s short-term workingcapital needs.

As of April 2,2006, the Company had an investment portfolio of fixed income securities of$8,855,211, a mutual fund of $7,518,838, and $9,781,343 classified as cash andcash equivalents and variable rate securities. The fixed income securities,like all fixed income instruments, are subject to interest rate risk and willdecline in value if market interest rates increase. However, while the value ofthe investment may fluctuate in any given period, the Company intends to holdits fixed income investments until maturity. Consequently, the Company wouldnot expect to recognize an adverse impact on net income or cash flows or theamount ultimately realized on the investment. The value of the mutual fund,like all mutual funds, may increase or decrease due to market volatility. TheCompany recorded a loss of $280,699 in the fiscal year ended April 2, 2006due to declines in market value that were deemed other than temporary. Themutual fund held by the Company as of April 2, 2006 is a short-term bondfund that invests primarily in investment grade securities.

**CAPITAL EXPENDITURES**

Capitalexpenditures in the fiscal years ended April 2, 2006, April 3, 2005and March 28, 2004 were $6,948,010, $5,922,862, and $4,897,551,respectively. Significant capital expenditures during the fiscal year ended April 2,2006 consisted of approximately $2,000,000 for warehouse expansions includingnew equipment associated with the additional space, approximately $2,000,000for software and hardware data processing equipment associated with the Company’simplementation of an ERP system and approximately $1,200,000 for transportationequipment consisting primarily of new route sales trucks and tractor trailerdelivery trucks. We anticipate capital expenditures in fiscal 2007 to be comparablewith the three previous years and they will primarily relate to facilitiesimprovement projects and new route sales trucks.

**DIVIDENDS**

We increased oursemi-annual cash dividend by 11.1% during the second quarter of fiscal 2006 to$0.20 per share from $0.18 per share. The Company first started paying cashdividends in 1985 and has done so each year since that time. Future dividendlevels will be dependent upon Hawkins’ results of operations, financialposition, cash flows and other factors, and will be evaluated by our Board ofDirectors.

**OFF-BALANCE SHEET ARRANGEMENTS**

The Company doesnot have any off-balance sheet arrangements.

**CONTRACTUAL OBLIGATIONS ANDCOMMERCIAL COMMITMENTS**

The followingtable provides aggregate information about our contractual payment obligationsand the periods in which payments are due:
| ** **                      | ** ** | **Payments due by period** | ** ** |
|---------------------------------|------------|-------------------------------------------|------------|
| **Contractual  Obligation**     | ** ** | ** **                                | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **More than  5 Years** | ** ** | **Total** | ** ** |
|                            |       |                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating lease  obligations    |       | $                                         | 227,232    |   | $ | 180,072 |   | $ | 185,523 |   | $ | 187,023 |   | $ | 187,023 |   | $ | 2,878,182 |   | $ | 3,845,055 |   |
| Purchase  obligations (1)  |       | 15,644,674                                |       | — |   | — |   | — |   | — |   | — |   | 15,644,674 |   |
| Total                           |       | $                                         | 15,871,906 |   | $ | 180,072 |   | $ | 185,523 |   | $ | 187,023 |   | $ | 187,023 |   | $ | 2,878,182 |   | $ | 19,489,729 |   |
|                                 |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)             TheCompany is committed to pay suppliers under the terms of open purchase ordersissued in the normal course of business. The Company does not purchase, orcommit to purchase, quantities in excess of normal usage or amounts that cannotbe used within one year.

**OUTLOOK**

Expected future cash flows from operations, coupled with the Company’sstrong financial position, put the Company in a position to fund both short andlong-term working capital and capital investment needs with internallygenerated funds. Management does not, therefore, anticipate the need to engagein significant financing activities in either the short or long term. If theneed to obtain 

 

 

14

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additionalcapital does arise, management is confident that the Company’s total debt tocapital ratio puts it in a position to obtain debt financing on favorableterms, however there are no assurances that this will occur.

Although management continually reviews opportunities to enhance thevalue of the Company through strategic acquisitions, other capital investmentsand strategic divestitures, no material commitments for such investments ordivestitures currently exist.

**CRITICAL ACCOUNTING POLICIES**

In preparingthe financial statements, the Company follows accounting principles generallyaccepted in the United States. The preparation of these financial statementsrequires the Company to make estimates and judgments that affect the reportedamounts of assets, liabilities, sales and expenses, and related disclosure ofcontingent assets and liabilities. The Company re-evaluates its estimates on anon-going basis. The Company’s estimates are based on historical experience andon various other assumptions that are believed to be reasonable under thecircumstances. Actual results may differ from these estimates under differentassumptions and conditions. The Company considers the following policies toinvolve the most judgment in the preparation of the Company’s financialstatements.

Revenue Recognition—TheCompany recognizes revenue when title passes to our customers, which occursprimarily when product has been shipped, if there is evidence that the customerhas agreed to purchase the products, performance has occurred, the price andterms of sale are fixed, and collection of the receivable is reasonablyassured.

Investments—Statement ofFinancial Accounting Standard (SFAS) No. 115, “Accounting for CertainInvestments in Debt and Equity Securities,” Securities and Exchange Commission(SEC) Staff Accounting Bulletin (SAB) 59, “Accounting for Noncurrent MarketableEquity Securities,” and FASB Staff Position (FSP) FAS No. 115-1 andFAS No. 124-1, “The Meaning of Other-Than-Temporary Impairment andIts Application to Certain Investments” provide guidance on determining when aninvestment is other-than-temporarily impaired. Investments are reviewedquarterly for indicators of other-than-temporary impairment. This determinationrequires significant judgment. In making this judgment, we evaluate, amongother factors, the duration and extent to which the fair value of an investmentis less than its cost; the general market conditions, including factors such asindustry and sector performance, rating agency actions, and our intent andability to hold the investment. Investments with an indicator are furtherevaluated to determine the likelihood of a significant adverse effect on thefair value and amount of the impairment as necessary. If market, industryand/or investee conditions deteriorate, we may incur future impairments.

Allowance for DoubtfulAccounts—Accounts receivable are reduced by an allowance for amounts that maybecome uncollectible in the future. Substantially all of the Company’sreceivables are due from customers located in the United States. The estimatedallowance for doubtful accounts is based upon the age of the outstandingreceivables and the payment history and credit worthiness of each customer.Management evaluates the adequacy of the reserve for doubtful accounts on aquarterly basis. There can be no assurance that our estimates will match actualamounts ultimately written off.

Inventories—Inventoriesare valued at the lower of cost or market. On a quarterly basis, managementassesses the inventory quantities on hand to estimated future usage and salesand, if necessary, writes down the value of inventory deemed obsolete or excessto market. Though management considers these reserves adequate and proper,changes in sales volumes due to unexpected economic or competitive conditionsare among the factors that could materially affect the adequacy of thisreserve.

LIFO Reserve—Inventoriesare primarily valued with cost being determined using the last-in, first-out(LIFO) method. We may incur significant fluctuations in our gross margins dueprimarily to changes in the cost of a single, large-volume component ofinventory. The price of this inventory component may vary depending on thebalance between supply and demand. Management reviews the LIFO reserve on aquarterly basis.

Impairment of Long-LivedAssets—We evaluate the carrying value of long-lived assets, includingintangible assets subject to amortization and property, plant, and equipment,when events and changes in circumstances warrant such a review, such asprolonged industry downturn or significant reductions in projected future cashflows. The carrying value of long-lived assets is considered impaired when theprojected future undiscounted cash flows from such assets are less than theircarrying value. In that event, a loss is recognized equal to the amount bywhich the carrying value exceeds the fair value of the long-lived assets. Significantjudgments and assumptions are required in the forecast of future operatingresults used in the preparation of the estimated future cash flows. Weperiodically review the appropriateness of the estimated useful lives of ourlong-lived assets. Changes in these estimates could have a material effect onthe assessment of long-lived assets.

Self Insurance—TheCompany purchases insurance for employee medical benefits with high deductibles.Third party insurance is carried for what is believed to be the major portionof potential exposures that would exceed the Company’s self-insured retentions.The Company has established a liability for potential uninsured claims. TheCompany considers factors such as known outstanding claims, historicalexperience, and other relevant factors in setting the liability. These reservesare monitored and adjusted when 

 

 

15

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warranted by changingcircumstances. Though management considers these balances adequate, asubstantial change in the number and/or severity of claims would result inmaterially different amounts for this item.

Income Taxes—In thepreparation of the Company’s financial statements, management calculates incometaxes. This includes estimating the current tax liability as well as assessingtemporary differences resulting from different treatment of items for tax andbook accounting purposes. These differences result in deferred tax assets andliabilities, which are recorded on the balance sheet. These assets andliabilities are analyzed regularly and management assesses the likelihood thatdeferred tax assets will be recovered from future taxable income. A valuationallowance is established to the extent that management believes that recoveryis not likely. Reserves are also established for potential and ongoing auditsof federal and state tax issues. The Company routinely monitors the potentialimpact of such situations and believes that it is properly reserved. Valuationsrelated to amounts owed and tax rates could be impacted by changes to taxcodes, changes in statutory tax rates, the Company’s future taxable incomelevels and the results of tax audits.

**RECENTLY ISSUED ACCOUNTINGPRONOUNCEMENTS**

See ITEM 8, Note 1 of the Notes to FinancialStatements for information pertaining to recently adopted accounting standardsor accounting standards to be adopted in the future.

**ITEM7A.**                                        QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKETRISK

At April 2,2006, the Company had an investment portfolio of fixed income securities of$8,855,211, a mutual fund of $7,518,838, investment contracts of $3,451,339 andcash and cash equivalents of $6,330,004. The fixed income securities, like all fixedincome instruments, are subject to interest rate risks and will decline invalue if market interest rates increase. However, while the value of theinvestment may fluctuate in any given period, the Company intends to hold itsfixed income investments until maturity. Consequently, the Company would notexpect to recognize an adverse impact on net income or cash flows during theholding period. The value of the mutual fund, like all mutual funds, mayincrease or decrease due to market volatility. The investment contracts arevariable rate insurance contracts that reset on a quarterly basis. Ahypothetical 1% change in rates would impact investment income by approximately$34,500, based upon the amount of variable rate insurance contracts held at April 2,2006. The Company adjusts the carrying value of its investments if animpairment occurs that is other than temporary.

The Company issubject to the risk inherent in the cyclical nature of commodity chemicalprices. However, the Company does not currently purchase forward contracts orotherwise engage in hedging activities with respect to the purchase ofcommodity chemicals. We generally attempt to pass changes in material prices toour customers, however, there are no assurances that we will be able to pass onthe increases in the future.

16

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ITEM 8.                  FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

To the Board of Directors and Shareholders ofHawkins, Inc.**Minneapolis, MN

We have audited the accompanying balancesheets of Hawkins, Inc. (the “Company”) as of April 2, 2006 and April 3,2005, and the related statements of income, shareholders’ equity, and cashflows for each of the three years in the period ended April 2, 2006. Thesefinancial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on the financial statements based onour audits.

We conducted our audits in accordance withthe standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statementspresent fairly, in all material respects, the financial position of Hawkins, Inc. as of April 2,2006 and April 3, 2005, and the results of their operations and their cashflows for each of the three years in the period ended April 2, 2006, inconformity with accounting principles generally accepted in the United Statesof America.

Wehave also audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the effectiveness of the Company’sinternal control over financial reporting as of April 2, 2006, based onthe criteria established in *InternalControl—Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission and our report dated June 13,2006 expressed an unqualified opinion on management’s assessment of theeffectiveness of the Company’s internal control over financial reporting and anunqualified opinion on the effectiveness of the Company’s internal control overfinancial reporting.

/s/ Deloitte & Touche LLP

Minneapolis, MNJune 13, 2006

17

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**HAWKINS, INC.BALANCE SHEETS**
| ** **                                                                                                                             | ** ** | **April 2,  2006** | ** ** | **April 3,  2005** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                                                                                                             | ** ** | ** **              | ** ** | ** **              | ** ** |
| **ASSETS**                                                                                                                             |       |                    |       |                    |       |
|                                                                                                                                   |       |                    |       |                    |       |
| CURRENT ASSETS:                                                                                                                        |       |                    |       |                    |       |
| Cash and cash  equivalents                                                                                                             |       | $                       | 6,330,004  |                    | $          | 4,564,790 |   |
| Investments  available-for-sale                                                                                                        |       | 14,167,047              |       | 6,672,521               |       |
| Trade  receivables - less allowance for doubtful accounts: 2006, $225,000; 2005,  $225,000                                             |       | 16,185,560              |       | 13,673,953              |       |
| Inventories                                                                                                                            |       | 10,449,671              |       | 8,587,610               |       |
| Prepaid expenses  and other current assets (Note 8)                                                                                    |       | 2,314,458               |       | 2,223,798               |       |
| Total current  assets                                                                                                                  |       | 49,446,740              |       | 35,722,672              |       |
|                                                                                                                                   |       |                    |       |                    |       |
| PROPERTY, PLANT, AND  EQUIPMENT:                                                                                                       |       |                    |       |                    |       |
| Land                                                                                                                                   |       | 1,349,805               |       | 808,491                 |       |
| Buildings and  improvements                                                                                                            |       | 30,080,775              |       | 28,430,587              |       |
| Machinery and  equipment                                                                                                               |       | 14,150,782              |       | 12,869,811              |       |
| Transportation  equipment                                                                                                              |       | 9,012,104               |       | 8,383,235               |       |
| Office furniture  and equipment including computer systems                                                                             |       | 9,594,885               |       | 7,263,198               |       |
|                                                                                                                                   |       | 64,188,351              |       | 57,755,322              |       |
| Less accumulated  depreciation                                                                                                         |       | 29,466,612              |       | 26,781,709              |       |
| Net property,  plant, and equipment                                                                                                    |       | 34,721,739              |       | 30,973,613              |       |
|                                                                                                                                   |       |                    |       |                    |       |
| OTHER ASSETS:                                                                                                                          |       |                    |       |                    |       |
| Intangible  assets — less accumulated amortization: 2006, $1,418,491; 2005, $1,870,719                                            |       | 2,064,542               |       | 2,492,330               |       |
| Long-term  investments                                                                                                                 |       | 5,658,341               |       | 16,085,074              |       |
| Other                                                                                                                                  |       | 2,165,372               |       | 2,384,429               |       |
| Total other  assets                                                                                                                    |       | 9,888,255               |       | 20,961,833              |       |
|                                                                                                                                   |       | $                       | 94,056,734 |                    | $          | 87,658,118 |   |
| ** **                                                                                                                             |       |                    |       |                    |       |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY**                                                                                         |       |                    |       |                    |       |
| ** **                                                                                                                             |       |                    |       |                    |       |
| CURRENT LIABILITIES:                                                                                                                   |       |                    |       |                    |       |
| Accounts  payable—trade                                                                                                           |       | $                       | 8,695,396  |                    | $          | 5,946,189 |   |
| Dividends  payable                                                                                                                     |       | 2,034,299               |       | 1,846,321               |       |
| Accrued payroll  and employee benefits                                                                                                 |       | 4,426,356               |       | 3,954,968               |       |
| Container  deposits                                                                                                                    |       | 990,267                 |       | 1,095,948               |       |
| Other accruals                                                                                                                         |       | 1,421,409               |       | 1,414,558               |       |
| Total current  liabilities                                                                                                             |       | 17,567,727              |       | 14,257,984              |       |
|                                                                                                                                   |       |                    |       |                    |       |
| OTHER LONG-TERM  LIABILITIES                                                                                                           |       | 127,644                 |       | 22,145                  |       |
|                                                                                                                                   |       |                    |       |                    |       |
| DEFERRED INCOME TAXES                                                                                                                  |       | 265,324                 |       | 1,178,422               |       |
|                                                                                                                                   |       |                    |       |                    |       |
| COMMITMENTS AND  CONTINGENCIES (Note 7)                                                                                                |       |                    |       |                    |       |
|                                                                                                                                   |       |                    |       |                    |       |
| SHAREHOLDERS’ EQUITY:                                                                                                             |       |                    |       |                    |       |
| Common stock;  authorized: 30,000,000 shares of $.05 par value; 10,171,496 and 10,257,341  shares issued and outstanding, respectively |       | 508,575                 |       | 512,867                 |       |
| Additional  paid-in capital                                                                                                            |       | 37,056,103              |       | 38,232,076              |       |
| Unearned  compensation                                                                                                                 |       |                    |       | (198,702                | )          |
| Accumulated  other comprehensive loss                                                                                                  |       | (125,754                | )          | (196,031                | )          |
| Retained  earnings                                                                                                                     |       | 38,657,115              |       | 33,849,357              |       |
| Total  shareholders’ equity                                                                                                       |       | 76,096,039              |       | 72,199,567              |       |
|                                                                                                                                   |       | $                       | 94,056,734 |                    | $          | 87,658,118 |   |
|                                                                                                                                   |       |                    |       |                    |       |

 

See accompanying notes to financial statements.

 

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**HAWKINS, INC.STATEMENTS OF INCOME**

** **
| ** **                                             | ** ** | **Fiscal  Year Ended  April 2, 2006** | ** **  | **Fiscal  Year Ended  April 3, 2005** | ** ** | **Fiscal  Year Ended  March 28, 2004** | ** ** |
|--------------------------------------------------------|------------|------------------------------------------------------|-------------|------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                             | ** ** | ** **                                           | ** **  | ** **                                           | ** ** | ** **                                            | ** ** |
| Sales                                                  |       | $                                                    | 143,331,250 |                                                 | $          | 115,280,312                                           |       | $ | 107,028,131 |   |
|                                                   |       |                                                 |        |                                                 |       |                                                  |       |
| Cost of sales                                          |       | (110,112,108                                         | )           | (85,674,127                                          | )          | (79,053,842                                           | )          |
|                                                   |       |                                                 |        |                                                 |       |                                                  |       |
| Gross margin                                           |       | 33,219,142                                           |        | 29,606,185                                           |       | 27,974,289                                            |       |
|                                                   |       |                                                 |        |                                                 |       |                                                  |       |
| Selling, general  and administrative expenses          |       | (21,513,444                                          | )           | (18,089,829                                          | )          | (16,793,094                                           | )          |
|                                                   |       |                                                 |        |                                                 |       |                                                  |       |
| Litigation  settlement (Note 7)                        |       | 1,056,520                                            |        |                                                 |       | (3,000,000                                            | )          |
|                                                   |       |                                                 |        |                                                 |       |                                                  |       |
| Income from  operations                                |       | 12,762,218                                           |        | 11,516,356                                           |       | 8,181,195                                             |       |
|                                                   |       |                                                 |        |                                                 |       |                                                  |       |
| Investment  income                                     |       | 892,289                                              |        | 1,120,775                                            |       | 825,689                                               |       |
|                                                   |       |                                                 |        |                                                 |       |                                                  |       |
| Income before  income taxes                            |       | 13,654,507                                           |        | 12,637,131                                           |       | 9,006,884                                             |       |
|                                                   |       |                                                 |        |                                                 |       |                                                  |       |
| Provision for  income taxes                            |       | (4,768,354                                           | )           | (4,545,122                                           | )          | (3,255,000                                            | )          |
|                                                   |       |                                                 |        |                                                 |       |                                                  |       |
| Net income                                             |       | $                                                    | 8,886,153   |                                                 | $          | 8,092,009                                             |       | $ | 5,751,884 |   |
|                                                   |       |                                                 |        |                                                 |       |                                                  |       |
| Weighted average  number of shares outstanding-basic   |       | 10,199,194                                           |        | 10,216,688                                           |       | 10,216,688                                            |       |
|                                                   |       |                                                 |        |                                                 |       |                                                  |       |
| Weighted average  number of shares outstanding-diluted |       | 10,211,834                                           |        | 10,222,669                                           |       | 10,216,688                                            |       |
|                                                   |       |                                                 |        |                                                 |       |                                                  |       |
| Earnings per  share - basic and diluted                |       | $                                                    | .87         |                                                 | $          | .79                                                   |       | $ | .56 |   |
|                                                   |       |                                                 |        |                                                 |       |                                                  |       |
| Cash dividends declared  per common share              |       | $                                                    | .40         |                                                 | $          | .36                                                   |       | $ | .36 |   |

 

See accompanying notes tofinancial statements.

 

19

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**HAWKINS, INC.STATEMENTS OF SHAREHOLDERS’ EQUITY**
| ** **                                        | ** ** | ** **            | ** ** | ** **  | ** ** | ** **     | ** ** | ** **       | ** ** | ** **        | ** ** | **Accumulated**        | ** ** | ** ** | ** ** |
|---------------------------------------------------|------------|-----------------------|------------|-------------|------------|----------------|------------|------------------|------------|-------------------|------------|------------------------|------------|------------|------------|
| ** **                                        | ** ** | ** **            | ** ** | ** **  | ** ** | **Additional** | ** ** | ** **       | ** ** | ** **        | ** ** | **Other**              | ** ** | **Total**  | ** ** |
| ** **                                        | ** ** | **Common Stock** | ** ** | **Paid-in** | ** ** | **Unearned**   | ** ** | **Retained**     | ** ** | **Comprehensive** | ** ** | **Shareholders’** | ** ** |
| ** **                                        | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Compensation** | ** ** | **Earnings**      | ** ** | **Income (Loss)** | ** ** | **Equity** | ** ** |
| BALANCE—March 30, 2003                  |       | 10,216,688            |       | $           | 510,834    |           | $          | 37,747,492       |       | $                 | —     |                   | $          | 27,376,115 |       | $ | 79,063 |   | $ | 65,713,504 |   |
| Cash dividends                                    |       |                  |       |        |       |           |       |             |       | (3,678,008        | )          |                   |       | (3,678,008 | )          |
| Comprehensive income:                             |       |                  |       |        |       |           |       |             |       |              |       |                   |       |       |       |
| Unrealized gain on investments available for sale |       |                  |       |        |       |           |       |             |       |              |       | 117,265                |       | 117,265    |       |
| Net income                                        |       |                  |       |        |       |           |       |             |       | 5,751,884         |       |                   |       | 5,751,884  |       |
| Comprehensive income                              |       |                  |       |        |       |           |       |             |       |              |       |                   |       | 5,869,149  |       |
| BALANCE—March 28, 2004                  |       | 10,216,688            |       | 510,834     |       | 37,747,492     |       |             |       | 29,449,991        |       | 196,328                |       | 67,904,645 |       |
| Cash dividends                                    |       |                  |       |        |       |           |       |             |       | (3,692,643        | )          |                   |       | (3,692,643 | )          |
| Restricted stock issued                           |       | 40,653                |       | 2,033       |       | 484,584        |       | (486,617         | )          |              |       |                   |       | —     |       |
| Amortization of unearned compensation             |       |                  |       |        |       |           |       | 287,915          |       |              |       |                   |       | 287,915    |       |
| Comprehensive  income:                            |       |                  |       |        |       |           |       |             |       |              |       |                   |       |       |       |
| Unrealized loss on investments available for sale |       |                  |       |        |       |           |       |             |       |              |       | (392,359               | )          | (392,359   | )          |
| Net income                                        |       |                  |       |        |       |           |       |             |       | 8,092,009         |       |                   |       | 8,092,009  |       |
| Comprehensive income                              |       |                  |       |        |       |           |       |             |       |              |       |                   |       | 7,699,650  |       |
| BALANCE—April 3, 2005                   |       | 10,257,341            |       | 512,867     |       | 38,232,076     |       | (198,702         | )          | 33,849,357        |       | (196,031               | )          | 72,199,567 |       |
| Cash dividends                                    |       |                  |       |        |       |           |       |             |       | (4,078,395        | )          |                   |       | (4,078,395 | )          |
| Shares surrendered for payroll taxes              |       | (10,487               | )          | (524        | )          | (123,221       | )          |             |       |              |       |                   |       | (123,745   | )          |
| Litigation settlement                             |       | (75,358               | )          | (3,768      | )          | (1,052,752     | )          |             |       |              |       |                   |       | (1,056,520 | )          |
| Amortization of unearned compensation             |       |                  |       |        |       |           |       | 198,702          |       |              |       |                   |       | 198,702    |       |
| Comprehensive  income:                            |       |                  |       |        |       |           |       |             |       |              |       |                   |       |       |       |
| Unrealized gain on investments available for sale |       |                  |       |        |       |           |       |             |       |              |       | 70,277                 |       | 70,277     |       |
| Net income                                        |       |                  |       |        |       |           |       |             |       | 8,886,153         |       |                   |       | 8,886,153  |       |
| Comprehensive income                              |       |                  |       |        |       |           |       |             |       |              |       |                   |       | 8,956,430  |       |
| BALANCE—April 2,  2006                  |       | 10,171,496            |       | $           | 508,575    |           | $          | 37,056,103       |       | $                 | —     |                   | $          | 38,657,115 |       | $ | (125,754 | ) | $ | 76,096,039 |   |

 

Seeaccompanying notes to financial statements.

20

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**HAWKINS, INC.STATEMENTS OF CASH FLOWS**
| ** **                                                | ** ** | **Fiscal**                  | ** ** | **Fiscal**                  | ** ** | **Fiscal**                   | ** ** |
|-----------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|------------------------------|------------|
| ** **                                                | ** ** | **Year Ended**         | ** ** | **Year Ended**         | ** ** | **Year Ended**          | ** ** |
| ** **                                                | ** ** | **April 2, 2006** | ** ** | **April 3, 2005** | ** ** | **March 28, 2004** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES: |       |                        |       |                        |       |                         |       |
| Net income                                                |       | $                           | 8,886,153  |                        | $          | 8,092,009                    |       | $ | 5,751,884 |   |
| Reconciliation  to cash flows:                            |       |                        |       |                        |       |                         |       |
| Depreciation and amortization                             |       | 3,688,448                   |       | 4,522,861                   |       | 2,992,104                    |       |
| Deferred income taxes                                     |       | (953,694                    | )          | 23,033                      |       | 270,612                      |       |
| Restricted stock compensation expense                     |       | 198,702                     |       | 287,915                     |       |                         |       |
| Adjustment of notes receivable reserve                    |       |                        |       | (658,134                    | )          |                         |       |
| Impairment of intangibles                                 |       | 176,000                     |       |                        |       |                         |       |
| Impairment of investments                                 |       | 280,699                     |       |                        |       |                         |       |
| Earnings on other assets                                  |       |                        |       | (6,854                      | )          | (41,642                      | )          |
| (Gain) loss from property disposals                       |       | (159,192                    | )          | 134,439                     |       | 69,716                       |       |
| Litigation settlement                                     |       | (1,056,520                  | )          |                        |       |                         |       |
| Changes  in operating accounts (using) providing cash:    |       |                        |       |                        |       |                         |       |
| Trade receivables                                         |       | (2,511,607                  | )          | (2,365,102                  | )          | (55,280                      | )          |
| Inventories                                               |       | (1,862,061                  | )          | 299,471                     |       | 511,257                      |       |
| Accounts payable                                          |       | 2,128,099                   |       | 1,194,140                   |       | (1,102,671                   | )          |
| Accrued liabilities                                       |       | 466,599                     |       | (18,745                     | )          | 69,502                       |       |
| Other                                                     |       | 176,096                     |       | 1,112,125                   |       | (1,053,886                   | )          |
| Net cash provided by operating activities                 |       | 9,457,722                   |       | 12,617,158                  |       | 7,411,596                    |       |
|                                                      |       |                        |       |                        |       |                         |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                    |       |                        |       |                        |       |                         |       |
| Additions to property, plant, and equipment               |       | (6,948,010                  | )          | (5,922,862                  | )          | (4,897,551                   | )          |
| Purchase of investments                                   |       | (2,069,866                  | )          | (11,491,472                 | )          | (8,506,919                   | )          |
| Sale and maturities of investments                        |       | 4,822,151                   |       | 11,201,957                  |       | 9,630,392                    |       |
| Proceeds from property disposals                          |       | 236,492                     |       | 110,283                     |       | 53,250                       |       |
| Payments received on notes receivable                     |       | 157,142                     |       | 176,083                     |       | 192,489                      |       |
| Net cash used in investing activities                     |       | (3,802,091                  | )          | (5,926,011                  | )          | (3,528,339                   | )          |
|                                                      |       |                        |       |                        |       |                         |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                    |       |                        |       |                        |       |                         |       |
| Cash dividends paid                                       |       | (3,890,417                  | )          | (3,685,326                  | )          | (3,678,008                   | )          |
| Net cash used in financing activities                     |       | (3,890,417                  | )          | (3,685,326                  | )          | (3,678,008                   | )          |
|                                                      |       |                        |       |                        |       |                         |       |
| NET INCREASE IN CASH AND CASH EQUIVALENTS                 |       | 1,765,214                   |       | 3,005,821                   |       | 205,249                      |       |
|                                                      |       |                        |       |                        |       |                         |       |
| CASH AND CASH  EQUIVALENTS—                          |       |                        |       |                        |       |                         |       |
| Beginning of period                                       |       | 4,564,790                   |       | 1,558,969                   |       | 1,353,720                    |       |
|                                                      |       |                        |       |                        |       |                         |       |
| CASH AND CASH  EQUIVALENTS—                          |       |                        |       |                        |       |                         |       |
| End of period                                             |       | $                           | 6,330,004  |                        | $          | 4,564,790                    |       | $ | 1,558,969 |   |
|                                                      |       |                        |       |                        |       |                         |       |
| SUPPLEMENTAL DISCLOSURES  OF CASH FLOW INFORMATION—  |       |                        |       |                        |       |                         |       |
| Issuance of restricted stock                              |       | $                           |       |                        | $          | 486,617                      |       | $ |   |   |
| Cash paid during the year for income taxes                |       | $                           | 5,608,626  |                        | $          | 3,374,364                    |       | $ | 3,897,997 |   |
| Noncash  investing activities—                       |       |                        |       |                        |       |                         |       |
| Capital expenditures in accounts payable                  |       | $                           | 461,577    |                        | $          | 214,644                      |       | $ | 367,566 |   |
|                                                      |       |                        |       |                        |       |                         |       |

See accompanying notes tofinancial statements.

 

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**HAWKINS, INC.NOTES TO FINANCIAL STATEMENTS**

**1.****                                      NATUREOF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES**

***Nature of Business*—**Hawkins, Inc. (the “Company”)has three reportable segments: Industrial, Water Treatment and Pharmaceutical.The Industrial segment specializes in providing industrial chemicals andservices to the energy, electronics, and plating industries. In addition, theIndustrial segment provides products and services to food manufacturers andprocessing plants. The Water Treatment segment specializes in providing waterand waste-water treatment equipment, chemicals and service to municipal andindustrial customers. The Pharmaceutical segment specializes in providingpharmaceutical chemicals to pharmacies and small-scale pharmaceuticalmanufacturers.

***Fiscal Year*—**The Company’s fiscal year is a 52/53-week year ending on theSunday closest to March 31. The fiscal year ended April 2, 2006 was a52-week year, April 3, 2005 was a 53-week year, and the fiscalyear ended March 28, 2004 was 52-week year.

***Estimates*—**The preparation of financial statementsin conformity with accounting principles generally accepted in the UnitedStates of America (“generally accepted accounting principles”) requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the reported period. Actual results could differ from thoseestimates.

***Revenue Recognition*—** The Company recognizesrevenue when title passes to our customers, which occurs primarily when producthas been shipped, if there is evidence that the customer has agreed to purchasethe products, performance has occurred, the price and terms of sale are fixed,and collection of the receivable is reasonably assured.

***Shipping and Handling—***All shipping and handlingamounts billed to customers are included in revenues. Costs incurred related toshipping and handling are included in costs of sales.

***Cash Equivalents*—**Cash equivalents include allliquid debt instruments (primarily cash funds, money market accounts andcertificates of deposit) purchased with an original maturity of three months orless. The balances maintained at financial institutions may, at times, exceedfederally insured limits.

***Investments*—***Held-to-maturity securities*consistof debt securities, which the Company has the intent and ability to hold tomaturity and are valued at amortized historical cost. Under certain circumstances(including the deterioration of the issuer’s creditworthiness or a change intax law or statutory or regulatory requirements), securities held-to-maturitymay be sold or transferred to another portfolio.

*Available-for-sale securities*consistof debt and equity securities that will be held for indefinite periods of time,including securities that may be sold in response to changes in market interestor prepayment rates, needs for liquidity, or changes in the availability oryield of alternative investments. These securities are valued at current marketvalue, with the resulting unrealized holding gains and losses excluded fromearnings and reported, net of tax, as a separate component of shareholders’equity until realized. Available-for-sale securities are included in currentassets if their market value exceeds its amortized cost and are available tofund current operations. Available-for-sale securities whose market value isless than its amortized cost that have not been identified as other-than-temporarilyimpaired are classified as current assets if the security matures in less thanone year and are classified as non-current assets if the security matures inone year or longer. Available-for-sale securities with a market value of$5,293,341 and $15,570,000 were classified as non-current at April 2, 2006and April 3, 2005, respectively.

All securities with gross unrealized losses are subjected to theCompany’s process for identifying other-than-temporary impairments. The Companywrites down to fair value securities that it deems to be other-than-temporarilyimpaired in the period the securities are deemed to be impaired. The initialindicator of impairment is a sustained decline in market price below theamortized cost of the investment. On a case-by-case basis, the Companyconsiders the length of time and the extent to which market value has been lessthan cost, the cause of the price decline, the extent to which the pricedecline is due to the general level of interest rates or other issuer specificfactors, the issuer’s financial condition and ability to make future paymentsin a timely manner, and the Company’s investment horizon. A loss of $280,699was recorded in the fiscal year ended April 2, 2006 due to declines inmarket value that were deemed other than temporary. The Company does not engagein trading activities.

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***Inventories*—**Inventories, consisting primarily offinished goods, are primarily valued at the lower of cost or net realizablevalue, with cost being determined using the last-in, first-out (“LIFO”) method.The Pharmaceutical segment’s inventory cost is determined using the first-in,first-out (“FIFO”) method, which represents approximately 12% and 16% of thetotal FIFO inventory balance at April 2, 2006 and April 3, 2005,respectively.

***Property, Plant and Equipment*—**Property is statedat cost and depreciated over the lives of the assets, using both straight-lineand declining-balance methods. Estimated lives are: 10 to 50 years forbuildings and improvements; 3 to 15 years for machinery and equipment; 3 to 10years for transportation equipment; and 3 to 10 years for office furniture andequipment.

***Intangible Assets*—**Intangible assets consistprimarily of customer lists, trademarks, and trade names acquired in previousbusiness acquisitions. The values assigned to the intangible assets are beingamortized primarily over 15 years. As of April 2, 2006, the Company hadnet intangible assets of $2,064,542. During the fiscal year ended April 2,2006 the Company determined that the intangible assets associated with theacquisition of Industrial Chemical and Equipment Company in 1993, an assetgroup within the Industrial segment, were impaired based on undiscounted cashflow calculations. The undiscounted cash flow calculations took into considerationthe business outlook over the remaining useful life for this asset group. Thesum of expected future cash flows was less than the carrying amount of theintangible assets. The impairment amount was $176,000, which also representedthe net book value of the intangible assets at that time. The amount of theimpairment is included within Selling, General and Administrative expense inthe Statement of Income for the fiscal year ended April 2, 2006. Amortizationexpense was $251,788 during the fiscal year ended April 2, 2006, $285,848during the fiscal year ended April 3, 2005, and $283,485 during the fiscalyear ended March 28, 2004. The estimated amortization expense for each ofthe next five years is approximately $225,000 per year.

***Recoverability of Long-Lived Assets*—**The Companyreviews its long-lived assets whenever events or changes in circumstancesindicate the carrying amount of the assets may not be recoverable. The Companydetermines potential impairment by comparing the carrying value of the assetswith expected net cash flows expected to be provided by operating activities ofthe business or related products. Should the sum of the expected future netcash flows be less than the carrying value, the Company would determine whetheran impairment loss should be recognized. An impairment loss would be measuredby comparing the amount by which the carrying value exceeds the fair value ofthe asset based on market value that is based on the discounted cash flowsexpected to be generated by the asset.

***Income Taxes*—**The Company follows Statement ofFinancial Accounting Standards (SFAS) No. 109, “Accounting for IncomeTaxes.” Under SFAS No. 109, the deferred tax assets and liabilities arerecognized based on differences between the financial statements and the taxbases of assets and liabilities using presently enacted tax rates.

***Earnings Per Share*—**Basic and diluted earnings pershare are computed by dividing net income by the weighted average number ofcommon shares outstanding.

***Management Agreement*—**During fiscal 2006, theCompany entered into a consulting agreement with a member of its Board ofDirectors to provide consulting services for certain strategic projects.Consulting fees of $35,000 were expensed in fiscal 2006.

***Concentrations of Credit Risk*—**Financialinstruments which potentially subject the Company to a concentration of creditrisk principally consist of investments available-for-sale and tradereceivables. The Company sells its principal products to a large number ofcustomers in many different industries. To reduce credit risk, the Companyroutinely assesses the financial strength of its customers. The Company investsits excess cash balances in certificate of deposits with original maturities ofthree months or less and a money market account at a single financialinstitution.

At April 2, 2006, the Company also had an investment portfolio offixed income securities and a mutual fund, excluding $9,781,343 of thoseclassified as cash and cash equivalents and variable rate securities, of$8,855,211 and $7,518,838, respectively. The fixed income securities, like allfixed income instruments, are subject to interest rate risk and will decline invalue if market interest rates increase. However, the Company has the abilityto hold its fixed income investments until maturity and therefore the Companywould not expect to recognize an adverse impact on net income or cash flows.The value of the mutual fund, like all mutual funds, may increase or decreasedue to market volatility. The mutual fund held by the Company as of April 2,2006 is a short-term bond fund that invests primarily in investment gradesecurities. During the fiscal year ended April 2, 2006, a loss of $280,699was recognized due to other than temporary declines in market value.

***Derivative Instruments and Hedging Activities*—**Infiscal 2001, the Company adopted SFAS No. 133, “Accounting for DerivativeInstruments and Hedging Activities,” as amended by SFAS No. 138, “Accountingfor Certain Derivative Instruments and Certain Hedging Activities.” SFAS No. 133establishes accounting and reporting standards for derivative instruments andfor hedging activities. It requires that all derivatives, including thoseembedded in other contracts, be recognized as either assets or liabilities andthat those financial instruments be measured at fair value. The accounting forchanges in the fair value of derivatives depends on their intended use anddesignation. Management has reviewed the requirements of SFAS No. 133 andhas determined that the Company has no freestanding or embedded derivatives.All contracts that contain provisions meeting the definition of a derivativealso meet the requirements of, and have been 

23

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designated as, normal purchases and sales. The Company’s policy is tonot use freestanding derivatives and to not enter into contracts with termsthat cannot be designated as normal purchases or sales.

***Risk and Uncertainties*—**There are noconcentrations of business transacted with a particular customer or suppliernor concentrations of sales from a particular service or geographic area thatwould severely impact the Company in the near term.

***Accounting Pronouncements*—** In September 2004,the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 04-10,“Applying Paragraph 19 of FASB Statement No. 131, Disclosures aboutSegments of an Enterprise and Related Information (SFAS No. 131), inDetermining Whether to Aggregate Operating Segments That Do Not Meet theQuantitative Thresholds.”  Issue No. 04-10 clarifies thecriteria for aggregating an operating segment that does not meet all of theaggregation criteria in paragraph 17 of SFAS No. 131, but also falls belowthe quantitative criteria that would dictate that the segment be reportedseparately. The consensus reached would enable an entity to aggregate two ormore segments that have similar economic characteristics and share a majorityof the aggregation criteria in paragraph 17 of SFAS No. 131. Issue No. 04-10is to be applied by retroactive restatement of previous periods. Adoption ofIssue No. 04-10 did not have an impact on our operating results andfinancial condition.

In November 2004, the FASB issued SFAS No. 151, “InventoryCosts.”  This statement amends Chapter 4of Accounting Research Bulletin (ARB) No. 43 to clarify the accounting forabnormal amounts of idle facility expense, freight, handling costs and wastedmaterial (spoilage), as well as requiring that allocation of fixed productionoverheads to the costs of conversion be based on the normal capacity of theproduction facilities. The provisions of this statement are effective forinventory costs incurred during fiscal years beginning after June 15,2005. The new standard, effective for the Company starting on April 3,2006 is not expected to have a material impact on operating results orfinancial condition.

During December 2004, the FASB issued SFAS No. 123 (Revised2004), “Share-Based Payment” (SFAS 123R), which amends SFAS No. 123, “Accountingfor Stock-Based Compensation” and SFAS No. 95, “Statement of Cash Flows.” SFAS No. 123R requires all companies to measure compensation cost for allshare-based payments (including employee stock options) at fair value, and iseffective for public companies for annual periods beginning after June 15,2005. This new standard may be adopted in one of two ways — the modifiedprospective transition method or the modified retrospective transition method. Thenew standard, effective for the Company starting on April 3, 2006 is notexpected to have a material impact on operating results or financial condition.

In December 2004, the FASB issued SFAS No. 153,*“*Exchanges of NonmonetaryAssets — An Amendment of APB Opinion No. 29, Accounting forNonmonetary Transactions.”   SFAS No. 153 eliminates theexception from fair value measurement for nonmonetary exchanges of similarproductive assets in paragraph 21(b) of APB Opinion No. 29, “Accountingfor Nonmonetary Transactions,” and replaces it with an exception for exchangesthat do not have commercial substance. SFAS No. 153 specifies that anonmonetary exchange has commercial substance if the future cash flows of theentity are expected to change significantly as a result of the exchange.SFAS No. 153 is effective for the fiscal periods beginning after June 15,2005 and is required to be adopted by us on April 3, 2006. The adoption ofSFAS No. 153 is not expected to have a material impact on ourfinancial position, results of operations or cash flow.

In March 2005, the FASB issued FASB Interpretation (FIN) No. 47,“Accounting for Conditional Asset Retirement Obligations.” This Interpretationclarifies the term conditional asset retirement obligation as used in SFAS No. 143,“Accounting for Asset Retirement Obligations,” and requires a liability to berecorded for a conditional obligation if the fair value of the obligation canbe reasonably estimated. FIN 47 maintains the notion of a liability beingrecognized when a legal obligation exists, but clarifies the timing of accrualrecognition. This Interpretation is effective for fiscal years ending after December 15,2005. See Note 7.

In June 2005,the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,”a replacement of APB Opinion No. 20, “Accounting Changes,” and SFAS No. 3,“Reporting Accounting Changes.” SFAS 154 changes the requirements related toaccounting for and reporting of a change in accounting principle. ThisStatement applies to all voluntary changes in accounting principles and changesrequired by a new accounting pronouncement, in the unusual instance that thepronouncement does not include specific transition provisions. SFAS No. 154requires retrospective application of changes in accounting principles to priorperiods’ financial statements versus the previous guidance which allowed therecording of the impact of an accounting change in the current period’s netincome as a cumulative effect adjustment. SFAS No. 154 is effective forfiscal years beginning after December 15, 2005. The Company will applythis literature in the event of changes in accounting principle and error corrections.

In June 2005, the EITF reached a consensus on Issue No. 05-6,“Determining the Amortization Period for Leasehold Improvements Purchased afterLease Inception or Acquired in a Business Combination.” Issue No. 05-6clarifies the amortization period of leasehold improvements that are placed inservice significantly after and not contemplated at the beginning of the leaseterm. The consensus reached would enable an entity to amortize leaseholdimprovements that are 

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placed in service significantly after and not contemplated at or nearthe beginning of the lease term over the shorter of the useful life of theassets or a term that includes required lease periods and renewal periods thatare deemed to be reasonably assured at the date the leasehold improvements arecapitalized. The EITF clarified that the consensus in this Issue does not applyto preexisting leasehold improvements. The adoption of this EITF did not have amaterial impact to the Company’s operating results or financial condition.

In November 2005, the FASB issued Staff Position FAS 115-1and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and ItsApplication to Certain Investments” (FAS 115-1), which providesguidance on determining when investments in certain debt and equity securitiesare considered impaired, whether that impairment is other-than-temporary, andon measuring such impairment loss. FAS 115-1 also includesaccounting considerations subsequent to the recognition of an other-thantemporary impairment and requires certain disclosures about unrealized lossesthat have not been recognized as other-than-temporary impairments. The Companyis required to apply FAS 115-1 to reporting periods beginning after December 15,2005. Adoption of FAS 115-1 did not have a material impact on ouroperating results and financial condition.

**2.****                                      INVESTMENTS**

The amortized cost and fair value by maturity as of April 2, 2006are as follows:

 

|                                 | ** ** | **Held-to-Maturity** | ** ** | **Available-for-Sale** | ** ** |
|---------------------------------|------------|----------------------|------------|------------------------|------------|
| ** **                      | ** ** | **Amortized**        | ** ** | **Fair**               | ** ** | **Amortized** | ** ** | **Fair** | ** ** |
| ** **                      | ** ** | **Cost**             | ** ** | **Value**              | ** ** | **Cost** | ** ** | **Value** | ** ** |
| Within 1 Year:                  |       |                 |       |                   |       |   |   |   |   |
| Fixed Income Securities         |       | $                    | —     |                   | $          | — |   | $ | 3,235,680 |   | $ | 3,196,870 |   |
| Investment Contracts            |       |                 |       |                   |       | 3,451,339 |   | 3,451,339 |   |
| Within 1 Year                   |       |                 |       |                   |       | 6,687,019 |   | 6,648,209 |   |
|                            |       |                 |       |                   |       |   |   |   |   |
| 1-5 Years                       |       |                 |       |                   |       | 4,896,777 |   | 4,751,563 |   |
| 5-10 Years                      |       | 250,000              |       | 259,760                |       |   |   |   |   |
| After 10 Years                  |       | 115,000              |       | 121,084                |       | 564,008 |   | 541,778 |   |
| Equity Securities - Mutual Fund |       |                 |       |                   |       | 7,518,838 |   | 7,518,838 |   |
|                            |       | $                    | 365,000    |                   | $          | 380,844 |   | $ | 19,666,642 |   | $ | 19,460,388 |   |

 

The amortized cost and fair value of investment securitiesavailable-for-sale as of April 2, 2006 and April 3, 2005 were asfollows:

|                                                                     | ** ** | **April 2, 2006** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                          | ** ** | ** **                  | ** ** | **Gross** | ** ** | **Gross** | ** ** | ** ** | ** ** |
| ** **                                                          | ** ** | **Amortized**               | ** ** | **Unrealized** | ** ** | **Unrealized** | ** ** | **Fair** | ** ** |
| ** **                                                          | ** ** | **Cost**                    | ** ** | **Gains** | ** ** | **Losses** | ** ** | **Value** | ** ** |
| Fixed Income  Securities:                                           |       |                        |       |   |   |   |   |   |   |
| U.S. Corporate Securities                                           |       | $                           | 7,172,034  |   | $ | — |   | $ | (156,856 | ) | $ | 7,015,178 |   |
| U.S. Government Agency Securities                                   |       | 1,524,431                   |       | — |   | (49,398 | ) | 1,475,033 |   |
| States and Political Subdivisions                                   |       | —                      |       | — |   | — |   | — |   |
| Total Fixed Income Securities                                       |       | $                           | 8,696,465  |   | $ | — |   | $ | (206,254 | ) | $ | 8,490,211 |   |
| Marketable  Equity Securities -  Mutual Fund - Short-term Bond Fund |       | $                           | 7,518,838  |   | $ | — |   | $ | — |   | $ | 7,518,838 |   |
| Total Equity  Securities                                            |       | $                           | 7,518,838  |   | $ | — |   | $ | — |   | $ | 7,518,838 |   |

 

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|                                                                      | ** ** | **April 3, 2005** | ** ** |
|----------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                           | ** ** | ** **                  | ** ** | **Gross** | ** ** | **Gross** | ** ** | ** ** | ** ** |
| ** **                                                           | ** ** | **Amortized**               | ** ** | **Unrealized** | ** ** | **Unrealized** | ** ** | **Fair** | ** ** |
| ** **                                                           | ** ** | **Cost**                    | ** ** | **Gains** | ** ** | **Losses** | ** ** | **Value** | ** ** |
| Fixed Income  Securities:                                            |       |                        |       |   |   |   |   |   |   |
| U.S. Corporate Securities                                            |       | $                           | 7,466,486  |   | $ | 13,467 |   | $ | (136,925 | ) | $ | 7,343,028 |   |
| U.S. Government Agency Securities                                    |       | 2,133,674                   |       | 630 |   | (37,590 | ) | 2,096,714 |   |
| States and Political Subdivisions                                    |       | 1,418,643                   |       | 788 |   | (661 | ) | 1,418,770 |   |
| Total Fixed  Income Securities                                       |       | $                           | 11,018,803 |   | $ | 14,885 |   | $ | (175,176 | ) | $ | 10,858,512 |   |
| Marketable  Equity Securities -  Mutual Fund - Short-term Bond Funds |       | $                           | 8,185,015  |   | $ | 19,362 |   | $ | (166,102 | ) | $ | 8,038,275 |   |
| Total Equity Securities                                              |       | $                           | 8,185,015  |   | $ | 19,362 |   | $ | (166,102 | ) | $ | 8,038,275 |   |

 

Additionally, the Company’s available-for-sale investments includeinvestment contracts with highly rated, stable insurance companies of$3,451,339 and $3,345,808 as of April 2, 2006 and April 3, 2005,respectively with fair values that approximate amortized cost. Proceeds fromthe sale of investments were $4,822,151, $11,201,957 and $9,630,392 for thefiscal years ended April 2, 2006, April 3, 2005 and March 28,2004, respectively. The Company recorded a loss of $280,699 in the fiscal yearended April 2, 2006 due to declines in fair value of a mutual fund thatwas deemed other than temporary. The mutual fund held as of April 2, 2006is a short-term bond fund that invests primarily in investment grade securities.Realized gains and losses were not material for the fiscal years ended April 3,2005 and March 28, 2004.

The following table provides the gross unrealized losses and fairvalue, aggregated by investment category, and the length of time the individualsecurities have been in a continuous unrealized loss position at April 2,2006 and April 3, 2005:

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|                                    | ** ** | **April 2, 2006**            | ** ** |
|------------------------------------|------------|----------------------------------------|------------|
| ** **                         | ** ** | ** **                             | ** ** | ** ** | ** ** | **Equal to or Greater** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                         | ** ** | **Less Than 12 Months** | ** ** | **Than 12 Months** | ** ** | **Total** | ** ** | **Total** | ** ** |
| ** **                         | ** ** | **Fair**                               | ** ** | **Unrealized** | ** ** | **Fair** | ** ** | **Unrealized** | ** ** | **Fair** | ** ** | **Unrealized** | ** ** |
| ** **                         | ** ** | **Value**                              | ** ** | **Losses** | ** ** | **Value** | ** ** | **Losses** | ** ** | **Value** | ** ** | **Losses** | ** ** |
| Fixed Income Securities:           |       |                                   |       |   |   |   |   |   |   |   |   |   |   |
| U.S. Corporate Securities          |       | $                                      | 1,109,963  |   | $ | (23,774 | ) | $ | 5,905,215 |   | (133,082 | ) | $ | 7,015,178 |   | $ | (156,856 | ) |
| U.S. Government Agency Securities  |       | 390,755                                |       | (3,185 | ) | 1,084,278 |   | (46,213 | ) | 1,475,033 |   | (49,398 | ) |
| States and Political Subdivisions  |       | —                                 |       | — |   | — |   | — |   | — |   | — |   |
| Total Fixed Income Securities      |       | $                                      | 1,500,718  |   | $ | (26,959 | ) | $ | 6,989,493 |   | $ | (179,295 | ) | $ | 8,490,211 |   | $ | (206,254 | ) |
|                               |       |                                   |       |   |   |   |   |   |   |   |   |   |   |
| Marketable Equity  Securities:     |       |                                   |       |   |   |   |   |   |   |   |   |   |   |
| Mutual Fund - Short-term Bond Fund |       | $                                      | —     |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
| Total Equity  Securities           |       | $                                      | —     |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   |

 

 

|                                    | ** ** | **April 3, 2005**            | ** ** |
|------------------------------------|------------|----------------------------------------|------------|
| ** **                         | ** ** | ** **                             | ** ** | ** ** | ** ** | **Equal to or Greater** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                         | ** ** | **Less Than 12 Months** | ** ** | **Than 12 Months** | ** ** | **Total** | ** ** | **Total** | ** ** |
| ** **                         | ** ** | **Fair**                               | ** ** | **Unrealized** | ** ** | **Fair** | ** ** | **Unrealized** | ** ** | **Fair** | ** ** | **Unrealized** | ** ** |
| ** **                         | ** ** | **Value**                              | ** ** | **Losses** | ** ** | **Value** | ** ** | **Losses** | ** ** | **Value** | ** ** | **Losses** | ** ** |
| Fixed Income  Securities:          |       |                                   |       |   |   |   |   |   |   |   |   |   |   |
| U.S. Corporate Securities          |       | $                                      | 6,228,618  |   | $ | (120,716 | ) | $ | 543,137 |   | $ | (16,209 | ) | $ | 6,771,755 |   | $ | (136,925 | ) |
| U.S. Government Agency Securities  |       | 1,249,048                              |       | (24,556 | ) | 711,911 |   | (13,034 | ) | 1,960,959 |   | (37,590 | ) |
| States and Political Subdivisions  |       | 1,012,314                              |       | (661 | ) | — |   | — |   | 1,012,314 |   | (661 | ) |
| Total Fixed Income  Securities     |       | $                                      | 8,489,980  |   | $ | (145,933 | ) | $ | 1,255,048 |   | $ | (29,243 | ) | $ | 9,745,028 |   | $ | (175,176 | ) |
|                               |       |                                   |       |   |   |   |   |   |   |   |   |   |   |
| Marketable Equity  Securities:     |       |                                   |       |   |   |   |   |   |   |   |   |   |   |
| Mutual Fund - Short-term Bond Fund |       | $                                      | 7,490,034  |   | $ | (166,102 | ) | $ | — |   | $ | — |   | $ | 7,490,034 |   | $ | (166,102 | ) |
| Total Equity Securities            |       | $                                      | 7,490,034  |   | $ | (166,102 | ) | $ | — |   | $ | — |   | $ | 7,490,034 |   | $ | (166,102 | ) |

 

There were 51 and 52 investments in an unrealized loss position as of April 2,2006 and April 3, 2005, respectively. The Company believes that theunrealized losses in the investment portfolio are the result of increases inmarket interest rates and not from the deterioration in the creditworthiness ofthe issuer. The majority of the investments have contractual terms, which donot permit the issuer to settle the securities at a price less than theamortized cost of the investment. The U.S. Government agency securities areguaranteed by an agency of the U.S. Government and the obligations of the stateand political subdivisions are general obligations of public entities. TheCompany has the ability and intent to hold these investments until a recoveryof fair value. The Company does not consider these investments to beother-than-temporarily impaired. The mutual fund held by the Company as of April 2,2006 is a short-term bond fund that invests primarily in investment gradesecurities. As of April 2, 2006, a loss of $280,699 has been recognizeddue to other than temporary declines in market value.

 

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**3.****                                      INVENTORIES**

Inventories at April 2, 2006 and April 3, 2005 consisted ofthe following:

|                              | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|------------------------------|------------|------------|------------|------------|------------|
|                         |       |       |       |       |       |
| Finished goods  (FIFO basis) |       | $          | 14,308,515 |       | $          | 11,079,390 |   |
| LIFO reserve                 |       | (3,858,844 | )          | (2,491,780 | )          |
| Net inventory                |       | $          | 10,449,671 |       | $          | 8,587,610 |   |

 

Inventories valued under the LIFO method at April 2, 2006 and April 3,2005 were $12,493,488 and $9,251,434, respectively. The balance of theinventory was valued under the FIFO method.

In fiscal 2006 the LIFO reserve increased by $1,367,064. The increasein the LIFO reserve was caused by a significant increase in the cost of asingle, large-volume component of inventory and increases in inventory costs ingeneral. During the fiscal years ended April 2, 2006, April 3, 2005and March 28, 2004, the Company liquidated certain LIFO inventory layersthat were at lower costs than current costs. The impact of the liquidation oncost of sales was approximately $200,000 for the fiscal year ended April 3,2005 and was not material for the fiscal years ended April 2, 2006 and March 28,2004.

**4.****                                      NOTESRECEIVABLE**

The Company has three notes receivable related to the sales of TessmanSeed, Inc., certain land and a building, and The Lynde Company. At April 2,2006 and April 3, 2005, the net balances outstanding on the notesreceivable were $2,098,164 and $2,255,306, respectively. The current portion of$170,184 and $157,142 at April 2, 2006 and April 3, 2005,respectively, are included within prepaid expenses and other current assets andthe remaining balances are included within other assets. The notes receivablebear interest at 8% and are due in equal monthly installments of $36,204through September 1, 2010 at which time the remaining unpaid balance of$1,213,163 is due. Land and a building, and a personal guarantee secure thenotes receivable. The Company reassesses the collectability of thesereceivables periodically and has determined that a reserve is not necessary at April 2,2006 and April 3, 2005.

**5.****                                      COMPREHENSIVEINCOME**

Comprehensive income and its components, netof tax, were as follows:

|                                                          | ** ** | **2006** | ** ** | **2005** | ** ** | **2004**  | ** ** |
|----------------------------------------------------------|------------|----------|------------|----------|------------|-----------|------------|
|                                                     |       |     |       |     |       |      |       |
| Net income                                               |       | $        | 8,886,153  |     | $          | 8,092,009 |       | $ | 5,751,884 |   |
| Available-for-sale  investments unrealized gain/(loss)** |       | 70,277   |       | (392,359 | )          | 117,265   |       |
| Comprehensive Income                                     |       | $        | 8,956,430  |     | $          | 7,699,650 |       | $ | 5,869,149 |   |

 

** The 2006 amountincludes a reclassification adjustment for losses included in net income of$93,914, net of tax.

 

**6.****                                      PENSIONAND EMPLOYEE STOCK OWNERSHIP PLANS**

The Company has a defined contribution pension plan coveringsubstantially all of its non-bargaining employees. Pension expense for thefiscal years ended April 2, 2006, April 3, 2005 and March 28,2004 were $1,937,499, $1,688,240, and $1,606,085, respectively. Contributionsare made at the discretion of the Board of Directors subject to a maximumamount allowed under the Internal Revenue Code. The Company’s cost for thepension plan was determined as 15% of each employee’s covered compensation inthe fiscal years ended April 2, 2006, April 3, 2005 and March 28,2004. Amounts charged to pension expense and contributed to unionmulti-employer pension plans (not included in the above amounts) were notmaterial. It is the Company’s policy to fund all pension costs accrued.

The Company has an employee stock ownership plan covering substantiallyall of its non-bargaining employees. Contributions are made at the discretionof the Board of Directors subject to a maximum amount allowed under theInternal Revenue Code. Contributions for the fiscal years ended April 2,2006, April 3, 2005 and March 28, 2004 were $613,274, $564,558, and$544,189, respectively.

The Company has an employee stock purchase plan covering substantiallyall of its employees. A Company contribution of 75% of each employee’s contribution,up to a maximum of $375 per month, is made on a monthly basis. Contributionsfor the fiscal years ended April 2, 2006, April 3, 2005 and March 28,2004 were $525,874, $469,198, and $435,393, respectively.

During the fiscal year ended April 3,2005, the Company issued 40,653 shares of restricted stock to certain employeesof the Company. The restricted stock awards are recorded as compensation costover the requisite vesting periods based on the

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market value on the date of grant. Unearnedcompensation cost on restricted stock awards is shown as a reduction toshareholders’ equity. Restricted stock expense for the fiscal years ended April 2,2006 and April 3, 2005 were $198,702 and $287,915, respectively. There wasno restricted stock expense in the fiscal year ended March 28, 2004.

The Company does not currently offer any other significantpost-retirement or post-employment benefits.

**7.****                                      COMMITMENTSAND CONTINGENCIES**

***Leases*—**TheCompany has various operating leases for trucks and land and buildings on whichsome of its operations are located. Future minimum lease payments due underoperating leases with an initial term of one year or more at April 2, 2006are $227,232 in 2007, $180,072 in 2008, $185,523 in 2009, $187,023 in 2010,$187,023 in 2011, and $2,878,182 thereafter. Total rental expense for thefiscal years ended April 2, 2006, April 3, 2005, and March 28,2004 were as follows:

 

|                      | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------|------------|----------|------------|----------|------------|----------|------------|
|                 |       |     |       |     |       |     |       |
| Minimum rentals      |       | $        | 287,888    |     | $          | 243,960  |       | $ | 179,908 |   |
| Contingent rentals   |       | 73,776   |       | 65,639   |       | 42,931   |       |
| Total rental expense |       | $        | 361,664    |     | $          | 309,599  |       | $ | 222,839 |   |

 

***Litigation*—**In the fourth quarter of fiscal 2004, the Company paid $3.0 million toresolve a personal injury lawsuit encaptioned *Chavarria etal v. Hawkins, Inc., Panorama Compounding Pharmacy, and Valley Drug andCompounding, et al* that arose from the alleged mislabeling ofcertain inventory the Company purchased in connection with its acquisition ofSt. Mary’s Chemicals, Inc. (d/b/a Universal Chemicals) in May 2000. Pursuantto the terms of the settlement, the Company denied all liability and reservedits right to pursue indemnification and contribution from third parties. In July 2004,the Company filed suit in Hennepin County, Minnesota against the former principalsof Universal Chemicals, seeking indemnification for the costs the Companyincurred in defending and resolving the prior litigation.

On June 23, 2005, the Company and the former Universal Chemicalsprincipals (the “defendants”) executed a settlement agreement in full and finalresolution of the Company’s claims, as well as any claims the defendants mayhave or may have had against the Company. The settlement agreement requires thedefendants to surrender to the Company 75,358 shares of the Company’s commonstock. The agreement also terminates the non-competition provisions of theCompany’s agreements with the defendants, relieving the Company of theobligation to pay $500,000 to the defendants over the next five years asconsideration for these provisions. The settlement agreement calls for theparties to execute mutual releases and a stipulation of dismissal. Litigationsettlement income of $1,056,520 was recorded in the Pharmaceutical segmentduring the fiscal year ended April 2, 2006 as the Company received 75,358shares and the executed final releases and stipulations.

The Company is involved in various legal actions arising from thenormal course of business. Management is of the opinion that any judgment orsettlement resulting from pending or threatened litigation would not have amaterial adverse effect on the financial position, results of operations orcash flows of the Company.

***Asset Retirement Obligations —***TheCompany has two leases of land, and at the end of the lease term (currently2018 if the leases are not renewed), the Company has a specified amount of timeto remove the property and buildings. At the end of the specified amount oftime, anything that remains on the land becomes the property of the lessor, andthe lessor has the option to either maintain the property or remove theproperty at the Company’s expense. The Company has not been able to reasonablyestimate the fair value of the asset retirement obligations, primarily due tothe combination of the following factors: the leases do not expire in the nearfuture; the Company has a history of extending the leases with the lessor andcurrently intends to do so at expiration of this lease period; the lessor doesnot have a history of terminating leases with its tenants; and because it ismore likely than not that the buildings will have value at the end of the leaselife and therefore, may not be removed by either the lessee or the lessor. Therefore,in accordance with SFAS No. 143, “Accountingfor Asset Retirement Obligations,” and FASB Interpretation 47, “Accountingfor Conditional Asset Retirement Obligations- an interpretation of FASBStatement No. 143,” the Company has not recorded an asset retirementobligation as of April 2, 2006. The Company will continue to monitor thefactors surrounding the requirement to record an asset retirement obligationand will recognize the fair value of a liability in the period in which it isincurred and a reasonable estimate can be made.

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**8.****                                      INCOMETAXES**

The provisions for incometaxes are as follows:

 

|                      | ** ** | **Fiscal Year  Ended  April 2,  2006** | ** ** | **Fiscal Year  Ended  April 3,  2005** | ** ** | **Fiscal Year  Ended  March 28,  2004** | ** ** |
|----------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **           | ** ** | ** **                                       | ** ** | ** **                                       | ** ** | ** **                                        | ** ** |
| Federal—current |       | $                                                | 4,483,064  |                                             | $          | 3,578,342                                         |       | $ | 2,351,497 |   |
| State—current   |       | 1,126,697                                        |       | 943,747                                          |       | 632,891                                           |       |
| Deferred             |       | (841,407                                         | )          | 23,033                                           |       | 270,612                                           |       |
| Total provision      |       | $                                                | 4,768,354  |                                             | $          | 4,545,122                                         |       | $ | 3,255,000 |   |

 

Reconciliations of theprovisions for income taxes, based on income from continuing operations, to theapplicable federal statutory income tax rate of 35% are listed below. Includedwithin “Other” below for the fiscal year ended April 2, 2006 is a $363,000tax benefit recognized due to adjustments to deferred tax estimates.

 

|                                               | ** ** | **Fiscal Year  Ended  April 2,  2006** | ** ** | **Fiscal Year  Ended  April 3,  2005** | ** ** | **Fiscal Year  Ended  March 28,  2004** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                    | ** ** | ** **                                       | ** ** | ** **                                       | ** ** | ** **                                        | ** ** |
| Statutory  federal income tax                 |       | $                                                | 4,779,077  |                                             | $          | 4,422,996                                         |       | $ | 3,152,409 |   |
| State income  taxes, net of federal deduction |       | 621,195                                          |       | 648,194                                          |       | 506,730                                           |       |
| Tax-exempt  income                            |       | (10,408                                          | )          | (27,634                                          | )          | (83,458                                           | )          |
| ESOP dividend  deduction on allocated shares  |       | (226,214                                         | )          | (209,578                                         | )          | (221,447                                          | )          |
| Domestic  production deduction                |       | (70,000                                          | )          |                                             |       |                                              |       |
| Other—net                                |       | (325,296                                         | )          | (288,856                                         | )          | (99,234                                           | )          |
| Total                                         |       | $                                                | 4,768,354  |                                             | $          | 4,545,122                                         |       | $ | 3,255,000 |   |

 

The tax effects of itemscomprising the Company’s net deferred tax asset (liability) as of April 2,2006 and April 3, 2005 are as follows:

 

|                                      | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|--------------------------------------|------------|------------|------------|------------|------------|
| ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current deferred  taxes:             |       |       |       |       |       |
| Trade receivables                    |       | $          | 87,750     |       | $          | 87,750 |   |
| Inventory                            |       | 439,766    |       | 415,692    |       |
| Accruals                             |       | 266,047    |       | 262,806    |       |
| Other                                |       | (7,803     | )          | 121,703    |       |
| Total*                               |       | $          | 785,760    |       | $          | 887,951 |   |
|                                 |       |       |       |       |       |
| Noncurrent  deferred taxes:          |       |       |       |       |       |
| Excess of tax over book depreciation |       | $          | (539,398   | )          | $          | (1,224,157 | ) |
| Unrealized loss on investments       |       | 80,500     |       | 111,000    |       |
| Gain on sale of The Lynde Company    |       |       |       | (72,393    | )          |
| Capital loss carryforward            |       | 109,473    |       |       |       |
| Other                                |       | 84,101     |       | 7,128      |       |
| Total                                |       | $          | (265,324   | )          | $          | (1,178,422 | ) |
|                                 |       |       |       |       |       |

 

* Included in prepaid expenses and other currentassets on the balance sheet.

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**9.****                                      ST.MARY’S CHEMICALS, INC. ACQUISITION**

On May 26, 2000, the Company completed the acquisition of certainassets of St. Mary’s Chemicals, Inc. d.b.a. Universal Chemicals. UniversalChemicals, a Minnesota-based company, was engaged in the business of marketing,selling, and distributing pharmaceutical chemicals to pharmacies and pharmacywholesalers. The Company also entered into a five-year employment agreementwith one of the previous owners of Universal Chemicals and consultingagreements with the other two previous owners of Universal Chemicals. Theemployment agreement and consulting agreements contained performance bonusesand noncompete provisions. The employment and consulting agreements haveexpired and the noncompete provisions were terminated as part of the settlementof indemnification litigation against the previous owners (see Note 7).

**10.****                               SEGMENTINFORMATION**

The Company has three reportable segments: Industrial, Water Treatmentand Pharmaceutical. The Industrial segment specializes in providing industrialchemicals and services to the energy, electronics, and plating industries. Inaddition, the Industrial segment provides products and services to foodmanufacturers and processing plants. The Water Treatment segment specializes inproviding water and waste-water treatment equipment and chemicals and inhelping customers find solutions to system problems. The Pharmaceutical segmentspecializes in providing pharmaceutical chemicals to pharmacies and small-scalepharmaceutical manufacturers.

The accounting policies of the segments are the same as those describedin the summary of significant accounting policies. Product costs and expensesfor each segment are based on actual costs incurred along with cost allocationof shared and centralized functions. The Company evaluates performance based onprofit or loss from operations before income taxes not including nonrecurringgains and losses. Reportable segments are defined by product and type ofcustomer. Segments are responsible for the sales, marketing and development oftheir products and services. The segments do not have separate accounting,administration, customer service or purchasing functions. Sales are primarilywithin the United States and all assets are located within the United States.

| Reportable Segments               | ** ** | ** ** | ** ** | **Industrial** | ** ** | **Water  Treatment** | ** ** | **Pharmaceutical**** | ** ** | **Total** | ** ** |
|----------------------------------------|------------|------------|------------|----------------|------------|----------------------|------------|----------------------|------------|-----------|------------|
| Fiscal Year  Ended April 2, 2006: |       |       |       |           |       |                 |       |                 |       |
| Sales                                  |       | $          | 84,192,397 |           | $          | 48,946,914           |       | $                    | 10,191,939 |      | $          | 143,331,250 |   |
| Cost of sales                          |       | 69,160,512 |       | 33,859,254     |       | 7,092,342            |       | 110,112,108          |       |
| Income from operations                 |       | $          | 2,367,035  |           | $          | 8,770,739            |       | $                    | 1,624,444  |      | $          | 12,762,218 |   |
|                                   |       |       |       |           |       |                 |       |                 |       |
| Identifiable  assets*                  |       | $          | 42,170,943 |           | $          | 17,587,618           |       | $                    | 5,761,116  |      | $          | 65,519,677 |   |

 

*                    Unallocatedassets consisting primarily of cash and cash equivalents, investments, andprepaid expenses were $28,537,057 at April 2, 2006.

**             ThePharmaceutical segment recorded $1,056,520 in pretax gain from the litigationsettlement during fiscal 2006.

| Fiscal Year Ended  April 3, 2005: |   |       |       |       |   |       |   |       |      |
|---------------------------------------------|--------|------------|------------|------------|--------|------------|--------|------------|-----------|
| Sales                                       |   | $          | 64,130,067 |       | $      | 41,529,630 |   | $          | 9,620,615 |   | $ | 115,280,312 |   |
| Cost of sales                               |   | 50,713,339 |       | 28,512,805 |   | 6,447,983  |   | 85,674,127 |      |
| Income from operations                      |   | $          | 3,372,624  |       | $      | 7,516,673  |   | $          | 627,059   |   | $ | 11,516,356 |   |
|                                        |   |       |       |       |   |       |   |       |      |
| Identifiable  assets*                       |   | $          | 35,667,914 |       | $      | 16,384,456 |   | $          | 5,930,442 |   | $ | 57,982,812 |   |

 

*                    Unallocatedassets consisting primarily of cash and cash equivalents, investments, andprepaid expenses were $29,675,306 at April 3, 2005.

| Fiscal Year Ended  March 28, 2004: |   |       |       |       |   |       |   |       |       |
|----------------------------------------------|--------|------------|------------|------------|--------|------------|--------|------------|------------|
| Sales                                        |   | $          | 59,313,229 |       | $      | 39,281,149 |   | $          | 8,433,753  |   | $ | 107,028,131 |   |
| Cost of sales                                |   | 46,928,930 |       | 26,475,965 |   | 5,648,947  |   | 79,053,842 |       |
| Income (loss) from operations                |   | $          | 3,395,421  |       | $      | 7,225,199  |   | $          | (2,439,425 | ) | $ | 8,181,195 |   |
|                                         |   |       |       |       |   |       |   |       |       |
| Identifiable  assets*                        |   | $          | 34,942,225 |       | $      | 13,566,741 |   | $          | 5,770,884  |   | $ | 54,279,850 |   |

 

*                    Unallocatedassets consisting primarily of cash and cash equivalents, investments, andprepaid expenses were $28,337,055 at March 28, 2004.

**             ThePharmaceutical segment recorded $3,000,000 in pretax loss from the litigationsettlement during fiscal 2004.

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**ITEM9.**                                                     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ONACCOUNTING AND FINANCIAL DISCLOSURE.

Not Applicable.

**ITEM9A.**                                           CONTROLS AND PROCEDURES.

**Evaluationof disclosure controls and procedures**

The Company conducted anevaluation, under the supervision and with the participation of the Company’smanagement, including the Chief Executive Officer and Chief Financial Officer,of the effectiveness of the design and operation of its disclosure controls andprocedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of theend of the period covered by this report. Based on this evaluation the ChiefExecutive Officer and Chief Financial Officer concluded that as of April 2,2006, the disclosure controls and procedures for Hawkins, Inc. wereeffective to ensure that information required to be disclosed in reports itfiles or submits under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in SEC rules and forms.

**Management’s Report on InternalControl Over Financial Reporting**

Themanagement of Hawkins, Inc. (the “Company”) is responsible forestablishing and maintaining adequate internal control over financial reportingas defined in Rules 13a-15(f) and 15d-15(f) underthe Exchange Act. Our internal control system was designed to ensure thatmaterial information regarding our operations is made available to managementand the board of directors to provide them reasonable assurance that thepublished financial statements are fairly presented. There are limitationsinherent in any internal control, such as the possibility of human error andthe circumvention or overriding of controls. As a result, even effectiveinternal controls can provide only reasonable assurance with respect tofinancial statement preparation. As conditions change over time so toomay the effectiveness of internal controls.

Aninternal control significant deficiency is a control deficiency, or combinationof control deficiencies, that adversely affects a company’s ability toinitiate, authorize, record, process, or report external financial datareliably in accordance with generally accepted accounting principles such thatthere is more than a remote likelihood that a misstatement of the company’sannual or interim financial statements that is more than inconsequential willnot be prevented or detected. An internal control material weakness is asignificant deficiency, or combination of significant deficiencies, that resultsin more than a remote likelihood that a material misstatement of the annual orinterim financial statements will not be prevented or detected.

Ourmanagement evaluated our internal control over financial reporting as of April 2,2006, based on the framework in Internal Control - Integrated Framework issuedby the Committee of Sponsoring Organizations (“COSO”) of the TreadwayCommission. Based on this assessment, our management concluded that ourinternal control over financial reporting was effective as of April 2,2006.

The Company’s independentregistered public accounting firm has issued an attestation report onmanagement’s assessment of the Company’s internal control over financialreporting. That report appears herein on page 33.
| /s/ JOHN R.  HAWKINS    | ** ** |       | ** ** | /s/ MARVIN E.  DEE      |   |
|-------------------------|------------|------------|------------|-------------------------|--------|
| John R. Hawkins         | ** ** | ** ** | ** ** | Marvin E. Dee           |   |
| Chief Executive Officer | ** ** | ** ** | ** ** | Chief Financial Officer |   |
| June 16, 2006      | ** ** | ** ** | ** ** | June 16, 2006      |   |

 

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**Changesin Internal Control**

The Company is responsible for establishing and maintainingadequate internal control over financial reporting. The Company’s internalcontrol system was designed to provide reasonable assurance to the Company’smanagement and the board of directors regarding the preparation and fairpresentation of published financial statements. All internal control systems,no matter how well designed, have inherent limitations. Therefore, even thosesystems determined effective can provide only reasonable assurance with respectto financial statement preparation and presentation.

As of April 3, 2005, the Company’s assessment ofthe effectiveness of its internal control over financial reporting identifiedmaterial weaknesses in the Company’s internal control over financial reportingin the financial close and reporting process. These material weaknesses ininternal control permitted (i) inadequate support of the account balancesfor the allowance for uncollectible note receivable, deferred tax liability andcustomer container deposits, and (ii) improper application of GAAP relatedto the selection and application of depreciation lives of certain fixed assetsand the amortization period of leasehold improvements for assets placed inservice in previous years. As discussed in prior filings with the SEC, theCompany identified and addressed the following remediation steps to address thematerial weaknesses:

·                  Weimplemented additional procedures within our financial close and reportingprocess to analyze for accuracy and adjust all material accounts on a timelybasis.

·                  Wehave updated our GAAP and other checklists to ensure guidance is current andcomplete.

·                  TheCompany currently has in place a policy that requires a review by the financedepartment of all new material contracts, including leases.

·                  Wehave evaluated and will continue to evaluate our financial organization todetermine the most appropriate and effective use of our current resources andto determine if additional resources are necessary to support the financialreporting process.

·                  Wehave assessed and will continue to assess the need for additional ongoingemployee training as it relates to the evolving financial reporting environmentand new emerging accounting issues.

There were no otherchanges in the Company’s internal control over financial reporting that occurredduring the fourth quarter ended April 2, 2006 that has materially affectedor is reasonably likely to materially affect the Company’s internal controlover financial reporting, as defined in Rule 13a-15(f) underthe Exchange Act.

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

To the Board of Directors and Shareholders ofHawkins, Inc.Minneapolis, MN

We have audited management’s assessment,included in the accompanying Management’s Report on Internal Controlover Financial Reporting included in Item 9A, that Hawkins, Inc. (the “Company”) maintained effective internalcontrol over financial reporting as of April 2, 2006, based on criteriaestablished in *Internal Control—IntegratedFramework*issued by the Committee of Sponsoring Organizations of theTreadway Commission. The Company’s management is responsible for maintainingeffective internal control over financial reporting and for its assessment ofthe effectiveness of internal control over financial reporting. Ourresponsibility is to express an opinion on management’s assessment and anopinion on the effectiveness of the Company’s internal control over financialreporting based on our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining an understandingof internal control over financial reporting, evaluating management’sassessment, testing and evaluating the design and operating effectiveness ofinternal control, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonablebasis for our opinions.

A company’s internal control over financialreporting is a process designed by, or under the supervision of, the company’sprincipal executive and principal financial officers, or persons performingsimilar functions, and effected by the company’s board of directors,management, and other personnel to provide reasonable assurance regarding thereliability of financial reporting and the preparation of

33

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financial statements for external purposes inaccordance with generally accepted accounting principles. A company’s internalcontrol over financial reporting includes those policies and procedures that (1) pertainto the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

Because of the inherent limitations ofinternal control over financial reporting, including the possibility ofcollusion or improper management override of controls, material misstatementsdue to error or fraud may not be prevented or detected on a timely basis. Also,projections of any evaluation of the effectiveness of the internal control overfinancial reporting to future periods are subject to the risk that the controlsmay become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment thatthe Company maintained effective internal control over financial reporting asof April 2, 2006, is fairly stated, in all material respects, based on thecriteria established in *InternalControl—Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission. Also in our opinion, the Companymaintained, in all material respects, effective internal control over financialreporting as of April 2, 2006, based on the criteria established in *Internal Control—Integrated Framework*issuedby the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States),**the financial statements and financialstatement schedule as of and for the year ended April 2, 2006, of theCompany and our reports dated June 13, 2006 expressed an unqualifiedopinion on those financial statements and financial statement schedule.

/s/ Deloitte &Touche LLP

Minneapolis, MNJune 13, 2006

**ITEM9B.**                                             OTHER INFORMATION

Not applicable

PART III

**ITEM10.**                                               DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.

The informationunder the captions “Election of Directors” and “Section 16(a) BeneficialOwnership Reporting Compliance” in the Proxy Statement for the 2006 AnnualMeeting of Shareholders is incorporated herein by this reference. Informationrequired under this item with respect to executive officers is contained in Part Iof this Form 10-K under the caption “Executive Officers of theRegistrant.”

We have adopted aCode of Business Conduct and Ethics that applies to all of our directors andemployees, including our principal executive officer, principal financialofficer, controller and other persons performing similar functions. We haveposted the Code of Business Conduct and Ethics on our website located athttp://www.hawkinsinc.com. We intend to post on our website any amendment to,or waiver from, a provision of our Code of Business Conduct and Ethics thatapplies to our principal executive officer, principal financial officer,controller and other persons performing similar functions within four businessdays following the date of such amendment or waiver.

**ITEM11.**                                               EXECUTIVE COMPENSATION.

The informationunder the caption “Compensation of Executive Officers and Directors” in theProxy Statement for the 2006 Annual Meeting of Shareholders is incorporatedherein by this reference.

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**ITEM 12.**                                               SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The informationunder the caption “Security Ownership of Management and Beneficial Ownership”and under the heading “Equity Compensation Plan Information” in the ProxyStatement for the 2006 Annual Meeting of Shareholders is incorporated herein bythis reference.

**ITEM13.**                                               CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The informationunder the captions “Election of Directors” and “Related Party Transactions” inthe Proxy Statement for the 2006 Annual Meeting of Shareholders is incorporatedherein by this reference.

**ITEM14.**                                               PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The informationunder the caption “Independent Auditors’ Fees” in the Proxy Statement for the2006 Annual Meeting of Shareholders is incorporated herein by this reference.

PART IV

**ITEM15.**                                               EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTSON FORM 8-K.

(a)(1)                    FINANCIALSTATEMENTS OF THE COMPANY.

The following financial statements of Hawkins, Inc. are filed aspart of this Annual Report on Form 10-K:

Report of Independent Registered Public Accounting Firm.

Balance Sheets at April 2, 2006 and April 3, 2005.

Statements of Income for the fiscal years ended April 2, 2006, April 3,2005 and March 28, 2004.

Statements of Shareholders’ Equity for the fiscal years ended April 2,2006, April 3, 2005 and March 28, 2004.

Statements of Cash Flows for the fiscal years ended April 2, 2006,April 3, 2005 and March 28, 2004.

Notes to Financial Statements.

(a)(2)                    FINANCIALSTATEMENT SCHEDULES OF THE COMPANY.

The additional financial data listed below is included as a schedule tothis Annual Report on Form 10-K and should be read in conjunctionwith the financial statements presented in Part II, Item 8. Schedules notincluded with this additional financial data have been omitted because they arenot required or the required information is included in the financialstatements or the notes.

Report of Independent Registered Public Accounting Firm.

The following financial statement schedule for the fiscal years ended April 2,2006, April 3, 2005 and March 28, 2004:

Schedule II - Valuation and Qualifying Accounts.

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(a)(3)                   EXHIBITS.
|        | **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        |       | Retirement Agreement  dated December 2, 1998 between the Company and Howard M. Hawkins.  (3) |       | Incorporated by  Reference          |
|   | 10.2        |       | Description of Director  Compensation Arrangements. (4)                                                |       | Incorporated by Reference |
|   | 10.3        |       | Description of  Consulting Arrangement with John S. McKeon. (5)                                        |       | Incorporated by  Reference          |
|   | 23.1        |       | Consent of Independent  Registered Public Accounting Firm.                                             |       | Filed Electronically                |
|   | 31.1        |       | Certification by Chief  Executive Officer pursuant to Rule 13a-14(a) of the Exchange  Act.   |       | Filed Electronically                |
|   | 31.2        |       | Certification by Chief  Financial Officer pursuant to Rule 13a-14(a) of the Exchange  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                |

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

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

(3)  Incorporated by reference to Exhibit 10.1to the Company’s Annual Report on Form 10-K for the year ended April 3,2005.

(4)  Incorporated by reference to Item 1.01 of theCompany’s Current Report on Form 8-K dated September 21, 2005and filed September 26, 2005.

(5)  Incorporated by reference to Item 1.01 of theCompany’s Current Report on Form 8-K dated May 3, 2006 andfiled May 8, 2006.

 

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SIGNATURES

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the Company has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized, on June 16, 2006.
|            |       | HAWKINS, INC. |
|------------|------------|---------------|
|       |       |          |   |   |
| ** ** | ** ** | By            | ** ** | /s/ JOHN R.  HAWKINS |
| ** ** | ** ** | ** **    | ** ** | John R. Hawkins, Chief Executive Officer |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has also beensigned below by the following persons on behalf of the Company and in thecapacities indicated on June 16, 2006.
|        |   | /s/ JOHN R.  HAWKINS                                                                                                                             |   |   |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |   | John R. Hawkins, Chief Executive Officer (Principal  Executive Officer) and Director                                                             |   |   |
|   |   |                                                                                                                                             |   |   |
|   |   | /s/ MARVIN E.  DEE                                                                                                                               |   |   |
|   |   | Marvin E. Dee, Chief Financial Officer, Vice  President, Secretary and Treasurer (Principal Financial  Officer and Principal Accounting Officer) |   |   |
|   |   |                                                                                                                                             |   |   |
|   |   | /s/ DEAN L.  HAHN                                                                                                                                |   |   |
|   |   | Dean L. Hahn, Director                                                                                                                           |   |   |
|   |   |                                                                                                                                             |   |   |
|   |   | /s/ DONALD L.  SHIPP                                                                                                                             |   |   |
|   |   | Donald L. Shipp, Director                                                                                                                        |   |   |
|   |   |                                                                                                                                             |   |   |
|   |   | /s/ HOWARD M.  HAWKINS                                                                                                                           |   |   |
|   |   | Howard M. Hawkins, Director                                                                                                                      |   |   |
|   |   |                                                                                                                                             |   |   |
|   |   | /s/ JOHN S.  MCKEON                                                                                                                              |   |   |
|   |   | John S. McKeon, Director                                                                                                                         |   |   |
|   |   |                                                                                                                                             |   |   |
|   |   | /s/ DUANE M.  JERGENSON                                                                                                                          |   |   |
|   |   | Duane M. Jergenson, Director                                                                                                                     |   |   |
|   |   |                                                                                                                                             |   |   |
|   |   | /s/ EAPEN  CHACKO                                                                                                                                |   |   |
|   |   | Eapen Chacko, Director                                                                                                                           |   |   |
|   |   |                                                                                                                                             |   |   |
|   |   | /s/ G. ROBERT  GEY                                                                                                                               |   |   |
|   |   | G. Robert Gey, Director                                                                                                                          |   |   |
|   |   |                                                                                                                                             |   |   |
|   |   | /s/ DARYL I.  SKAAR                                                                                                                              |   |   |
|   |   | Daryl I. Skaar, Director                                                                                                                         |   |   |

 

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

To the Board of Directors and Stockholders ofHawkins, Inc.Minneapolis, MN

Wehave audited the financial statements of Hawkins, Inc.(the “Company”) as of April 2, 2006 and April 3, 2005, and for eachof the three years in the period ended April 2, 2006, management’sassessment of the effectiveness of the Company’s internal control overfinancial reporting as of April 2, 2006, and the effectiveness of theCompany’s internal control over financial reporting as of April 2, 2006,and have issued our reports thereon dated June 13, 2006; such financialstatements and reports are included elsewhere in this Form 10-K. Ouraudits also included the financial statement schedule of the Company listed inItem 15(a)(2). This financial statement schedule is the responsibility of theCompany’s management. Our responsibility is to express an opinion based on ouraudits. In our opinion, such financial statement schedule, when considered inrelation to the basic financial statements taken as a whole, presents fairly,in all material respects, the information set forth therein.

/s/ Deloitte &Touche LLP

Minneapolis,MinnesotaJune 13, 2006

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**SCHEDULEII**

**HAWKINS, INC.**

**VALUATIONAND QUALIFYING ACCOUNTSFOR THE FISCAL YEARS ENDED APRIL 2, 2006, APRIL 3, 2005 AND MARCH 28,2004**
| ** **                                        | ** ** | ** **          | ** ** | **Additions**       | ** ** | ** **        | ** ** | ** **     | ** ** |
|---------------------------------------------------|------------|---------------------|------------|---------------------|------------|-------------------|------------|----------------|------------|
| ** **                                        | ** ** | **Balance at** | ** ** | **Charged to** | ** ** | **Charged**       | ** ** | ** **     | ** ** | ** ** | ** ** |
| ** **                                        | ** ** | **Beginning**       | ** ** | **Costs and**  | ** ** | **To Other** | ** ** | **Deductions** | ** ** | **Balance at** | ** ** |
| **Description**                                   | ** ** | ** **          | ** ** | **of Year**    | ** ** | **Expenses**      | ** ** | **Accounts**   | ** ** | **Write-Offs** | ** ** | **End of Year** | ** ** |
| ** **                                        | ** ** | ** **          | ** ** | ** **          | ** ** | ** **        | ** ** | ** **     | ** ** | ** ** | ** ** |
| Reserve deducted from  asset to which it applies: |       |                |       |                |       |              |       |           |       |   |   |
|                                              |       |                |       |                |       |              |       |           |       |   |   |
| Year Ended  April 2, 2006:                   |       |                |       |                |       |              |       |           |       |   |   |
| Allowance for  doubtful accounts                  |       | $                   | 225,000    |                | $          | 546,730           |       |           |       | $ | 546,730 |   | $ | 225,000 |   |
| Reserve for note  receivable                      |       | 0                   |       |                |       |              |       |           |       | 0 |   |
|                                              |       | $                   | 225,000    |                | $          | 546,730           |       |           |       | $ | 546,730 |   | $ | 225,000 |   |
|                                              |       |                |       |                |       |              |       |           |       |   |   |
| Year Ended  April 3, 2005:                   |       |                |       |                |       |              |       |           |       |   |   |
| Allowance for  doubtful accounts                  |       | $                   | 275,000    |                | $          | (17,715           | )          |           |       | $ | 32,285 |   | $ | 225,000 |   |
| Reserve for note  receivable                      |       | 658,134             |       |                |       |              |       | 658,134        |       | 0 |   |
|                                              |       | $                   | 933,134    |                | $          | (17,715           | )          |           |       | $ | 690,419 |   | $ | 225,000 |   |
|                                              |       |                |       |                |       |              |       |           |       |   |   |
| Year Ended  March 28, 2004:                  |       |                |       |                |       |              |       |           |       |   |   |
| Allowance for  doubtful accounts                  |       | $                   | 275,000    |                | $          | 47,432            |       |           |       | $ | 47,432 |   | $ | 275,000 |   |
| Reserve for note  receivable                      |       | 658,134             |       |                |       |              |       |           |       | 658,134 |   |
|                                              |       | $                   | 933,134    |                | $          | 47,432            |       |           |       | $ | 47,432 |   | $ | 933,134 |   |
|                                                   |            |                     |            |                     |            |                   |            |                |            |  |  |  |  |  |  |  |  |

 

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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 |        | Retirement Agreement  dated December 2, 1998 between the Company and Howard M. Hawkins. (3)       |       | Incorporated by  Reference |
| 10.2 |        | Description of Director  Compensation Arrangements. (4)                                                |       | Incorporated by  Reference |
| 10.3 |        | Description of  Consulting Arrangement with John S. McKeon. (5)                                        |       | Incorporated by  Reference |
| 23.1 |        | Consent of Independent  Registered Public Accounting Firm.                                             |       | Filed Electronically       |
| 31.1 |        | Certification by Chief  Executive Officer pursuant to Rule 13a-14(a) of the Exchange  Act.   |       | Filed Electronically       |
| 31.2 |        | Certification by Chief  Financial Officer pursuant to Rule 13a-14(a) of the Exchange  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       |

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

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

(3)             Incorporatedby reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-Kfor the year ended April 3, 2005.

(4)             Incorporatedby reference to Item 1.01 of the Company’s Current Report on Form 8-Kdated September 21, 2005 and filed September 26, 2005.

(5)             Incorporatedby reference to Item 1.01 of the Company’s Current Report on Form 8-Kdated May 3, 2006 and filed May 8, 2006.

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