**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D. C. 20549**

 

**FORM 10-K**

 

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

 

**Forthe Fiscal Year Ended April 3, 2005**

 

**CommissionFile No. 0-7647**

 

**HAWKINS,INC.**

(Exact Name of Registrant asspecified 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 registered pursuant to Section 12(b) of the Act: **NONE**

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

 

Indicate by check mark whether the Registrant(1) has filed all reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding twelve months (or forsuch shorter period that the Registrant was required to file such reports) and (2) hasbeen subject to such filing requirements for the past 90 days. Yes  ý  No   o

 

Indicate by check mark if disclosure ofdelinquent filers pursuant to Item 405 of Regulation S-K is not containedherein, and will not be contained, to the best of the Registrant’s knowledge,in definitive proxy or information statements incorporated by reference in Part IIIof this Form 10-K or any amendment to this Form 10-K.  o

 

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

| YES |   | ý |   | NO |   | o |
|-----|--------|--------|--------|----|--------|---|

 

The aggregate market value of voting stockheld by non-affiliates of the Registrant on September 30, 2004 (the lastbusiness day of the Registrant’s most recently completed second fiscal quarter)was $93,857,362 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, 2005, the Registrant had10,257,341 shares of common stock outstanding.

 

**DOCUMENTSINCORPORATED BY REFERENCE**

 

Part III of this Annual Report on Form 10-Kincorporates by reference information (to the extent specific sections arereferred to herein) from the Registrant’s Proxy Statement for its 2005 AnnualMeeting of Shareholders to be held August 4, 2005.

 

 

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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, exceptwhere 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® liquidphosphate product (discussed more fully in paragraph (iv) below) and otherblended products, none of which are material to the Company. This segmentconducts its business primarily through distribution centers and terminaloperations.

 

The Industrialsegment receives, stores and distributes various chemicals in bulk, includingliquid caustic soda, phosphoric acid, potassium hydroxide and aqua ammonia;manufactures sodium hypochlorite (bleach) and agricultural products; repackageswater treatment chemicals; and performs custom blending of certain chemicalsfor customers according to customer formulas. The Industrial segment operatesliquid caustic soda barge terminals to receive shipments during the period theMississippi River 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 Industrialsegment also includes a manufacturing, blending and sales distribution centerfor industrial chemicals, food grade chemicals, high-purity electronicchemicals and laboratory chemicals and supplies. Bulk industrial chemicals aregenerally repackaged and sold in smaller quantities to the Company’s customers.Sales are concentrated primarily in Wisconsin, Minnesota, northern Iowa, andNorth and South Dakota. The principal products are acids and alkalis andindustrial and food grade salts. The Industrial segment also specializes insales to the plating and electronic industries, relying on a specially trainedsales staff that works directly with customers on their surface finishingneeds.

 

(C)                                PHARMACEUTICAL.The Pharmaceutical segment specializes in providing pharmaceutical chemicals topharmacies and small-scale pharmaceutical manufacturers. On May 26, 2000,the Company completed 

 

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the acquisition of certain assets of St. Mary’sChemicals, Inc. d.b.a. Universal Chemicals. Universal Chemicals, aMinnesota-based company, was engaged in the business of marketing, selling, anddistributing pharmaceutical chemicals to pharmacies and pharmacywholesalers.  This segment conducts themajority 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 3, 2005.

 

(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. The Company has, however,obtained a patent on a liquid form of sodium phosphate for use in the processedfood industry, as described below. The patent was granted on October 17,1995 and will expire on November 8, 2013. The Company’s patentedCheese-Phos®, a two-component liquid sodium phosphate, is stored at roomtemperature. Other competing liquid sodium phosphates must be stored atelevated temperatures to prevent crystallization because they are singlecomponent. Liquid delivery systems, in general, are more economical than drydelivery systems and are easier to automate, measure, monitor and control. As atwo-component liquid process, Cheese-Phos®, when mixed with varied amounts ofsodium hydroxide, can create all of the ratios of sodium phosphates thatprocess cheese makers use. This minimizes inventories for producers.Cheese-Phos® has not, and is not expected to, materially increase the Company’ssales or profits.

 

(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 its five largestcustomers could have a material adverse effect on the Company’s results ofoperations. Aggregate sales to the Company’s five largest customers were $13.2million and $11.9 million for the fiscal years ended April 3, 2005 and March 28,2004, 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.

 

(x)                                   COMPETITIVECONDITIONS. The Company operates in a competitive industry and competes withproducers, distributors and sales agents offering chemicals equivalent to allof the products handled by the Company. Many such producers and distributorsare substantially larger than the Company. No one competitor, however, isdominant in the Company’s market. Price and service are the principal factorsaffecting competition in the industry.

 

(xi)                                RESEARCHAND DEVELOPMENT. The Company does not have a formal research and developmentfunction. Employees are assigned to research and development projects as the needarises. During the fiscal year ended April 3, 2005, expenditures forresearch and development were not material to the Company’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 2006.

 

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(xiii)                          EMPLOYEES.The Company had 217 employees as of April 3, 2005.

 

(d)                                 FINANCIALINFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES. Because theCompany deals primarily in one geographic area of the United States, a breakdownof sales, profitability or assets attributable to different geographic areas isnot meaningful to an understanding of the Company’s business.

 

(e)                                  AVAILABLE INFORMATION. We have madeavailable, free of charge, through our Internet website (http:// www.hawkinsinc.com) our Annual Reports on Form 10-K,Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and ifapplicable, amendments to those reports, as soon as reasonably practicableafter we electronically file such materials with, or furnish them to, theSecurities and Exchange Commission. Reports of beneficial ownership filed byour directors and executive officers pursuant to Section 16(a) of the1934 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 2.                                                     PROPERTIES.

 

The Company owns its principal location,which consists of approximately 11 acres of land in Minneapolis, Minnesota,with six buildings containing a total of 160,000 square feet of office andwarehouse space. The Company’s principal office is located in one of thesebuildings, at 3100 East Hennepin Avenue. As of April 3, 2005, the Companyhas installed sprinkler systems in substantially all of its warehousefacilities for fire protection. The Company carries insurance covering thereplacement of property damaged by fire or flood. The Pharmaceutical segmentoccupies approximately 13,000 square feet of office and warehouse space withinthis location.

 

As noted above, in December 2000 theCompany completed 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.

 

In addition to the facilities describedabove, the Company’s other facilities are described below. These facilities,together with those described above, are adequate and suitable for the purposesthey serve. Unless noted, each facility is owned and is fully utilized by theCompany.

 
| **Segment**     | ** ** | **Location**            | ** ** | **Primary Use**              | ** ** | **Approx.  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  (4)       |       | Office and Warehouse         |       | 14,000                   |       |
|            |       | Billings, MT            |       | Office and Warehouse         |       | 9,300                    |       |
|            |       | Sioux Falls,  SD (5)    |       | Warehouse                    |       | 18,000                   |       |
|            |       | Rapid City,  SD         |       | Warehouse                    |       | 3,600                    |       |
|            |       | 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         |       | 5,400                    |       |
|            |       | Eldridge, IA            |       | Office and Warehouse         |       | 6,000                    |       |

 

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(1)                                TheCompany’s terminal operations are located at two sites on opposite sides of theMississippi River, made up of three buildings, nine outside storage tanks witha total capacity of approximately 8,900,000 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 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 (5,000 square feet).

 

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(4)                                Part ofthis facility is leased to a third party (2,500 square feet).

(5)                                Part ofthis facility is leased to a third party (6,000 square feet).

 

ITEM 3.                                                     LEGALPROCEEDINGS.

 

In the fourthquarter of fiscal 2004, the Company paid $3.0 million to resolve a personalinjury lawsuit encaptioned *Chavarria et al v. Hawkins, Inc.,Panorama Compounding Pharmacy, and Valley Drug and Compounding, et al*that arose from the alleged mislabeling of certain inventory the Companypurchased in connection with its acquisition of St. Mary’s Chemicals, Inc.(d/b/a Universal Chemicals) in May 2000. Pursuant to the terms of the settlement, the Company denied allliability and reserved its right to pursue indemnification and contributionfrom third parties.  In July 2004,the Company filed suit in Hennepin County, Minnesota against the formerprincipals of Universal Chemicals, seeking indemnification for the costs theCompany incurred in defending and resolving the prior litigation.

 

On June 23,2005, the Company and the former Universal Chemicals principals (the “defendants”)executed a settlement agreement in full and final resolution of the Company’sclaims, as well as any claims the defendants may have or may have had againstthe Company.  The settlement agreementrequires the defendants to surrender to the Company 75,358 shares of theCompany’s common stock, which they received as consideration for the May 2000acquisition.  The agreement alsoterminates the non-competition provisions of the Company’s agreements with thedefendants, relieving the Company of the obligation to pay $500,000 to thedefendants over the next five years as consideration for these provisions.  The settlement agreement calls for theparties to execute mutual releases and a stipulation of dismissal.

 

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

 

Not Applicable.

 

EXECUTIVE OFFICERS OF THE REGISTRANT

 

The executive officers of the Company, their ages and offices held, asof June 1, 2005 are set forth below:

 
| **Name**            | ** ** | **Age** | ** ** | **Office**                                                         |
|---------------------|------------|---------|------------|--------------------------------------------------------------------|
|                |       |    |       |                                                               |
| John R. Hawkins     |       | 53      |       | Chairman of the Board and Chief Executive  Officer                 |
|                |       |    |       |                                                               |
| Marvin E. Dee       |       | 56      |       | Vice President, Chief Financial Officer,  Secretary, and Treasurer |
|                |       |    |       |                                                               |
| Keenan A. Paulson   |       | 55      |       | Vice President - Water Treatment Group                             |
|                |       |    |       |                                                               |
| John R. Sevenich    |       | 47      |       | Vice President - Manufacturing and  Specialty Products             |
|                |       |    |       |                                                               |
| Daniel E. Soderlund |       | 42      |       | Vice President – Pharmaceuticals                              |

 

John R. Hawkins has been the Company’sChairman and Chief Executive Officer since February 16, 2000. 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 has been the Company’s VicePresident and Chief Financial Officer since September 1999 and itsSecretary and Treasurer since December 1999. He was the Chief FinancialOfficer of Nath Companies from 1997 to September 1999, the Vice Presidentof Finance and Treasurer of Tricord Systems, Inc. from 1993 to 1997 andSenior Director of Accounting of NordicTrack, Inc. in 1993 and the Controllerof NordicTrack from 1991 to 1992.

 

Keenan A. Paulson has been the Company’s VicePresident - Water Treatment Group since May 2000. Prior to attaining thisposition, Ms. Paulson held various positions during her 33-year careerwith the Company, most recently as its Water Treatment General Manager.

 

John R. Sevenich has been the Company’s VicePresident - Manufacturing and Specialty Products since May 2000. He wasthe Business Unit Manager of Manufacturing from 1998 to May 2000 and was aSales Representative with the Company from 1989 to 1998.

 

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Daniel E. Soderlund has been the Company’sVice President - Pharmaceuticals since May 2000. He was the Business UnitManager of Pharmaceuticals from April 1999 to May 2000 and was aSales Representative with the Company from 1992 to April 1999.

 

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PART II

 

ITEM 5.                                                     MARKETFOR THE COMPANY’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS, AND ISSUERPURCHASES OF EQUITY SECURITIES.

 
| **Quarterly Stock Data** | ** ** | **High** | ** ** | **Low** | ** ** |
|--------------------------|------------|----------|------------|---------|------------|
|                     |       |     |       |    |       |
| 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  |       |
|                     |       |     |       |    |       |
| Fiscal 2004              |       |     |       |    |       |
| 4th Quarter              |       | $        | 13.650     |    | $          | 11.600 |   |
| 3rd Quarter              |       | 13.900   |       | 12.620  |       |
| 2nd Quarter              |       | 12.970   |       | 10.280  |       |
| 1st Quarter              |       | 11.350   |       | 9.035   |       |

 
| **Cash Dividends** | ** ** | **Declared** | ** ** | **Paid** | ** ** |
|--------------------|------------|--------------|------------|----------|------------|
|               |       |         |       |     |       |
| Fiscal 2006        |       |         |       |     |       |
| 1st Quarter        |       |         |       | $        | .18        |   |
|               |       |         |       |     |       |
| Fiscal 2005        |       |         |       |     |       |
| 4th Quarter        |       | $            | .18        |     |       |   |
| 3rd Quarter        |       |         |       | $        | .18        |   |
| 2nd Quarter        |       | $            | .18        |     |       |   |
| 1st Quarter        |       |         |       | $        | .18        |   |
|               |       |         |       |     |       |
| Fiscal 2004        |       |         |       |     |       |
| 4th Quarter        |       | $            | .18        |     |       |   |
| 3rd Quarter        |       |         |       | $        | .18        |   |
| 2nd Quarter        |       | $            | .18        |     |       |   |
| 1st Quarter        |       |         |       | $        | .18        |   |

 

The Company’s common shares are traded on TheNasdaq Stock Market under the symbol “HWKN.” The price information representsclosing sale prices as reported by The Nasdaq Stock Market. As of April 3,2005, there were approximately 635 registered common shareholders, whichincludes nominees or broker dealers holding stock on behalf of an estimated1,725 beneficial owners.

 

The Company first started paying cashdividends in 1985 and has done so consecutively since that time. Futuredividend levels will be dependent upon Hawkins’ results of operations,financial position, cash flows and other factors, and will be evaluated by theHawkins Board of Directors.

 

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ITEM 6.                                                     SELECTEDFINANCIAL DATA.

 
| ** **                                  | ** ** | ** **        | ** **  | ** **         | ** ** | ** **         | ** ** | **Six-Month**      | ** **  | ** **             | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|-------------------|-------------|--------------------|------------|--------------------|------------|--------------------|-------------|------------------------|------------|------------|------------|
| ** **                                  | ** ** | **Fiscal Year**   | ** **  | **Fiscal Year**    | ** ** | **Fiscal Year**    | ** ** | **Transitional**   | ** **  | ** **             | ** ** | ** ** | ** ** |
| ** **                                  | ** ** | **Ended**         | ** **  | **Ended**          | ** ** | **Ended**          | ** ** | **Period Ended**   | ** **  | **Fiscal Years Ended** | ** ** |
| ** **                                  | ** ** | **April 3,** | ** **  | **March 28,** | ** ** | **March 30,** | ** ** | **March 31,** | ** **  | **September**          | ** ** |
| ** **                                  | ** ** | **2005**          | ** **  | **2004**           | ** ** | **2003**           | ** ** | **2002**           | ** **  | **2001**               | ** ** | **2000**   | ** ** |
| ** **                                  | ** ** | ** **        | ** **  | ** **         | ** ** | ** **         | ** ** | ** **         | ** **  | ** **             | ** ** | ** ** | ** ** |
| Sales                                       |       | $                 | 115,280,312 |               | $          | 107,028,131        |       | $                  | 104,004,611 |                   | $          | 49,868,179 |       | $ | 107,931,668 |   | $ | 98,021,731 |   |
|                                        |       |              |        |               |       |               |       |               |        |                   |       |       |       |
| Gross Margin                                |       | 29,606,185        |        | 27,974,289         |       | 27,957,852         |       | 11,535,706         |        | 24,297,587             |       | 24,802,176 |       |
|                                        |       |              |        |               |       |               |       |               |        |                   |       |       |       |
| Net income                                  |       | 8,092,009         |        | 5,751,884          |       | 8,430,172          |       | 3,083,771          |        | 7,117,578              |       | 8,567,699  |       |
|                                        |       |              |        |               |       |               |       |               |        |                   |       |       |       |
| Basic and diluted earnings per common share |       | .79               |        | .56                |       | .83                |       | .30                |        | .69                    |       | .81        |       |
|                                        |       |              |        |               |       |               |       |               |        |                   |       |       |       |
| Cash dividends declared per common share    |       | .36               |        | .36                |       | .33                |       | .15                |        | .30                    |       | .32        |       |
|                                        |       |              |        |               |       |               |       |               |        |                   |       |       |       |
| Cash dividends paid per common share        |       | .36               |        | .36                |       | .30                |       | .15                |        | .30                    |       | .29        |       |
|                                        |       |              |        |               |       |               |       |               |        |                   |       |       |       |
| Total assets                                |       | 87,658,118        |        | 82,616,905         |       | 81,098,739         |       | 71,487,133         |        | 74,868,121             |       | 69,894,520 |       |
|                                        |       |              |        |               |       |               |       |               |        |                   |       |       |       |
| Long-term debt                              |       |              |        |               |       |               |       |               |        | 116,823                |       | 226,003    |       |
|                                             |            |                   |             |                    |            |                    |            |                    |             |                        |            |            |            |  |  |  |  |  |  |

 

The Company changed its fiscal year end from the Sunday closest to September 30to the Sunday closest to March 31, beginning after a six-monthtransitional period ended on March 31, 2002. The change in year-end bettermatches the Company’s annual reporting process to its natural business cycles.

 

ITEM 7.                                                     MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

FORWARD-LOOKING INFORMATION

 

The information contained in this AnnualReport on Form 10-K for the year ended April 3, 2005 containsstatements that we believe to be “forward-looking statements” within themeaning of the Private Securities Litigation Reform Act of 1995.Forward-looking statements give our current expectations or forecasts of futureevents. Forward-looking statements generally can be identified by the use offorward-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 below under “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 the following list to be a complete statement of all potential risksand uncertainties.

 

RISK FACTORS

 

In addition to specific factors which may bedescribed in connection with any of the Company’s forward-looking statements,factors which could cause actual results to differ materially include, but arenot limited to, the following items.

 

•                  Reducedprofit margins due to the cyclical nature of commodity chemical prices. Thecyclicality of commodity chemical markets, such as caustic soda, primarilyresults from changes in the balance between supply and demand and the level ofgeneral economic activity. The Company cannot predict with any certaintywhether the markets for its commodity chemicals will favorably impact theCompany’s operations or whether the Company will experience losses due toexcess production resulting in oversupply and lower prices.

 

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•                  Unforeseenliabilities arising from litigation, particularly liabilities that may arisefrom claims under environmental laws which may impose liability for the releaseof hazardous materials whether or not the Company had knowledge of or wasresponsible for such release.

 

•                  Changesin governmental and regulatory policies that affect the Company which mayentail significant cost increases relating to the handling, storage,transportation, treatment or disposal of hazardous materials.

 

•                  Increasedcompetition which could affect our ability to raise prices or successfullyenter certain markets.

 

•                  Changesin customer demand which may significantly reduce revenues and income.

 

•                  Changesin product costs or operating expenses which may reduce our operating margins.

 

•                  Unforeseenproblems in our ability to develop, introduce and gain market acceptance fornew products.

 

•                  Thefinancial condition of our customers and their ability to purchase our productsat comparable prices.

 

•                  Significantchanges in our business strategies, including acquisition, divestiture andrestructuring activities which may affect our ability to focus on operatingactivities or increase costs.

 

•                  Generaleconomic and political conditions, such as political instability or the rate ofeconomic growth in our principal geographic or product markets.

 

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

 

•                  Unforeseenor recurring operational problems or natural disasters at any of our facilitiescausing significant lost production and/or increased costs. Since 1963,flooding of the Mississippi River has required the Company’s terminaloperations to be temporarily shifted out of its buildings four times, the mostrecent being in the spring of 2001. This had a negative impact on earnings inthe third quarter of fiscal 2001 of approximately $200,000. No assurance can begiven that flooding will not recur or that there will not be material damage orinterruption to the Company’s operations in the future from flooding. In September 2001,a 1.5 million-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 Company believes the impact of future flooding, if any, will be reduced asthe Red Rock facility is expected to allow the Company to continue normal shippingto customers during periods of high water levels.

 

•                  Technologyrisks, such as failure to successfully implement new technology that will allowus to make process improvements to reduce costs or to analyze the business.

 

•                  Lossof senior management or other key personnel and our ability to hire suitablereplacements in a timely manner.

 

•                  Duringthe third quarter of fiscal 2005, the Company made the determination tocontinue to use its current operating system through the end of fiscal 2005 anduntil the implementation of the Company’s Enterprise Resource Planning (“ERP”)system is complete.  Management’sassessment of the effectiveness of the Company’s internal controls as of April 3,2005 that is included in this Form 10-K was made on the current operatingsystem and concludes that the internal control system was not operatingeffectively as of April 3, 2005. The Company has remediated or is currently in the process of remediatingthe material weaknesses that led to this conclusion. Effective internal controlsare important to the production of reliable financial reports and in helping toprevent financial fraud.  If, in thefuture, as a result of ineffective internal controls, the Company is unable toprovide reliable financial reports or prevent fraud, its business and operatingresults could be harmed, investors could lose confidence in its reportedfinancial information, and the trading price of the Company’s stock could dropsignificantly.

 

These factors are not exhaustive and new factors may emerge or existingfactors may change in a manner that impacts our business. We assume noobligation and disclaim any duty to update the forward-looking statements inthis Annual Report on Form 10-K or any other public statement.

 

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GENERAL

 

The following is a discussion and analysis ofour financial condition and results of operations for the Company’s fiscalyears ended April 3, 2005, March 28, 2004 and March 30, 2003.

 

OVERALL SUMMARY

 

Sales for the fiscal year ended April 3,2005 were $115,280,312 versus $107,028,131 for the fiscal year ended March 28,2004 and $104,004,611 for the fiscal year ended March 30, 2003. Net incomefor the fiscal year ended April 3, 2005 was $8,092,009, or $.79 per share,compared to $5,751,884, or $.56 per share, for the fiscal year ended March 28,2004 and $8,430,172, or $.83 per share, for the fiscal year ended March 30,2003. Return on average shareholders’ equity was 11.6% for the fiscal yearended April 3, 2005 compared to 8.6% for the fiscal year ended March 28,2004 and 13.4% for the fiscal year ended March 30, 2003. Book value pershare was $7.04 at April 3, 2005, $6.65 at March 28, 2004 and $6.43at March 30, 2003.

 

The following table sets forth the percentage relationship of certainitems to sales for the period indicated:

 
| ** **                                    | ** ** | **Fiscal  Year Ended  April 3, 2005** | ** ** | **Fiscal  Year Ended  March 28, 2004** | ** ** | **Fiscal  Year Ended  March 30, 2003** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                    | ** ** | ** **                                 | ** ** | ** **                                  | ** ** | ** **                                  | ** ** |
| Sales                                         |       | 100.0                                      | %          | 100.0                                       | %          | 100.0                                       | %          |
| Cost of sales                                 |       | (74.3                                      | )%         | (73.9                                       | )%         | (73.1                                       | )%         |
| Gross margin                                  |       | 25.7                                       | %          | 26.1                                        | %          | 26.9                                        | %          |
| Selling, general and administrative  expenses |       | (15.7                                      | )%         | (15.7                                       | )%         | (14.3                                       | )%         |
| Litigation settlement                         |       |                                       |       | (2.8                                        | )%         |                                        |       |
| Income from operations                        |       | 10.0                                       | %          | 7.6                                         | %          | 12.6                                        | %          |
| Investment income                             |       | 1.0                                        | %          | .8                                          | %          | .4                                          | %          |
| Income before income taxes                    |       | 11.0                                       | %          | 8.4                                         | %          | 12.9                                        | %          |
| Provision for income taxes                    |       | (3.9                                       | )%         | (3.0                                        | )%         | (4.8                                        | )%         |
| Net income                                    |       | 7.0                                        | %          | 5.4                                         | %          | 8.1                                         | %          |

 

SALES

 

Sales increased $8,252,181, or 7.7%, to$115,280,312 for the fiscal year ended April 3, 2005 as compared to salesof $107,028,131 for the fiscal year ended March 28, 2004. Sales of bulkchemicals, including caustic soda, were approximately 33.3% of sales comparedto 33.7% in the previous year. All three operating segments contributed to theincrease 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 segment sales was driven by improvedsales along several product lines and an increase in the cost and selling priceof caustic soda in comparison to the prior year.  During the fiscal year ended April 3,2005 there was a decrease in caustic soda volumes sold, which was offset byincreases in selling prices associated with increases in the cost of causticsoda. Although the Water Treatment segment was challenged by cooler summerconditions during the second quarter of fiscal 2005 in comparison to the prioryear, sales increased due to increased volumes in existing product lines andsuccessful expansion of existing product lines. Increased volumes along severalexisting product lines drove the increase in Pharmaceutical segment sales.

 

Sales increased $3,023,520, or 2.9%, to$107,028,131 for the fiscal year ended March 28, 2004 as compared to salesof $104,004,611 for the fiscal year ended March 30, 2003. Sales of bulkchemicals, including caustic soda, were approximately 33.7% of sales comparedto 31.9% in the previous year. The increase in sales in fiscal 2004 sales ascompared to fiscal 2003 was primarily driven by the Water Treatment segment, assales increased by $2,950,827, or 8.1%, in comparison to the prior year. Theincreases were primarily attributable to volume increases, due in part tofavorable summer weather conditions as compared to the prior year. Industrialsegment sales of $59,313,229 were flat as the combination of an approximately5.1% increase in caustic soda volumes sold and an increase in caustic sodaselling price that increased sales by approximately 1.4% was offset by adecrease in sales to customers in the telecommunication and circuit boardindustries.  Pharmaceutical segment salesof $8,433,753 were flat as compared to the prior year.

 

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GROSS MARGIN

 

Gross margin, as a percentage of sales, was25.7% for the fiscal year ended April 3, 2005 compared to 26.1% for thefiscal year ended March 28, 2004 and 26.9% for the fiscal year ended March 30,2003, respectively. The gross margin decreases are due to a number of variablesas explained below.

 

Industrial Segment

 

Gross margin, as a percentage of sales, forthe Industrial segment was 20.9% for the fiscal year ended April 3, 2005,20.9% for the fiscal year ended March 28, 2004 and 22.8% for the fiscalyear ended March 30, 2003. Gross margins for the fiscal year ended April 3,2005 were flat as compared to the fiscal year ended March 28, 2004. Thedecrease for the fiscal year ended March 28, 2004 as compared to thefiscal year ended March 30, 2003 relates partially to changes in the costand selling price of caustic soda during these periods and to the high level ofhigh cost inventory on hand at the end of the 2004 fiscal year’s barge shippingseason (October 2003). The Company attempts to maintain relativelyconstant dollar margins as the cost of caustic soda increases or decreases. Thecost of this product is normally subject to fluctuations, which are expected tocontinue in future periods. By maintaining relatively stable dollar margins, thegross margin percentage will decrease when the cost of the product isincreasing and will increase when the cost of the product is decreasing.Additionally, a highly competitive market environment prevented the Companyfrom passing on to its customers an approximately $600,000 increase in productcosts. Also, insurance expense increased by approximately $160,000, or 22.5%,and employee compensation and benefits increased by approximately $134,000 or4.9%.

 

Water Treatment Segment

 

Gross margin, as a percentage of sales, forthe Water Treatment segment was 31.3% for the fiscal year ended April 3,2005, 32.6% for the fiscal year ended March 28, 2004 and 32.7% for thefiscal year ended March 30, 2003. The decrease for the fiscal year ended April 3,2005 as compared to the fiscal year ended March 28, 2004 was partiallyattributable to competitive pressures which reduced margins on severalproducts. Additionally, due to the LIFO method of valuing inventory, the marginwas negatively impacted by higher levels and changes in product mix ofinventory on hand as compared to the prior year.

 

Gross margin, as a percentage of sales, forthe fiscal year ended March 28, 2004 was comparable with the fiscal yearended March 30, 2003 as the increase in sales, due primarily to favorableweather, was offset by higher operating costs. Additionally, in fiscal 2004 theCompany started to manufacture a product line internally that resulted in anincreased product margin of approximately $670,000. Offsetting this improvementin product margins was an increase in operating costs, including anapproximately $79,000, or 10.8%, increase in insurance expense and anapproximately $732,000, or 19.3%, increase in employee compensation andbenefits which includes an increase in commissions paid to route salespersonsfor the increase in product margins.

 

Pharmaceutical Segment

 

Gross margin, as a percentage of sales, for thePharmaceutical segment was 33.0% for the fiscal year ended April 3, 2005,33.0% for the fiscal year ended March 28, 2004 and 30.4% for the fiscalyear ended March 30, 2003. The increase for the fiscal years ended April 3,2005 and March 28, 2004 as compared to the fiscal year ended March 30,2003 related primarily to a better product mix.

 

GENERALAND ADMINISTRATIVE

 

Selling, general and administrative expenses,as a percentage of sales, were 15.7% ($18,089,829) for the fiscal year ended April 3,2005, 15.7% ($16,793,094) for the fiscal year ended March 28, 2004 and14.3% ($14,890,640) for the fiscal year ended March 30, 2003. Theincreases were primarily attributable to $800,000 and $536,000 for the fiscalyears ended April 3, 2005 and March 28, 2004, respectively, inconsulting fees associated with the Company’s efforts to comply with therequirements of the Sarbanes-Oxley Act and to the Company’s implementation ofan ERP system. The Company will continue to incur additional expenses,including expenses for additional staffing and outside professional services,to implement the ERP system and continue meeting the requirements of theSarbanes-Oxley Act.

 

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LITIGATION SETTLEMENTS

 

In the fourthquarter of fiscal 2004, the Company paid $3.0 million to resolve a personalinjury lawsuit encaptioned *Chavarria et al v. Hawkins, Inc.,Panorama Compounding Pharmacy, and Valley Drug and Compounding, et al*that arose from the alleged mislabeling of certain inventory the Companypurchased in connection with its acquisition of St. Mary’s Chemicals, Inc.(d/b/a Universal Chemicals) in May 2000. Pursuant to the terms of the settlement, the Company denied allliability and reserved its right to pursue indemnification and contributionfrom 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 theformer Universal Chemicals principals (the “defendants”) executed a settlementagreement in full and final resolution of the Company’s claims, as well as anyclaims the defendants may have 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, which they received as consideration for the May 2000acquisition.  The agreement alsoterminates the non-competition provisions of the Company’s agreements with thedefendants, relieving the Company of the obligation to pay $500,000 to the defendantsover the next five years as consideration for these provisions.  The settlement agreement calls for theparties to execute mutual releases and a stipulation of dismissal.

 

INVESTMENT INCOME

 

Investment income increased $295,086 to$1,120,775 for the fiscal year ended April 3, 2005 compared to $825,689for the fiscal year ended March 28, 2004. This increase was primarily related to an increase in cash available forinvestment, and a higher rate of return on the Company’s cash equivalents andmarketable securities. The $458,640 increase in investment income for thefiscal year ended March 28, 2004 as compared to the fiscal year ended March 30,2003 was attributable to an increase in cash available for investment and to a$370,000 loss recognized in the fiscal year ended March 30, 2003 due todeclines in market value on investments which were deemed other than temporary.

 

PROVISION FOR INCOME TAXES

 

The effective income tax rate was 36.0% forthe fiscal year ended April 3, 2005, 36.1% for the fiscal year ended March 28,2004 and 37.2% for the fiscal year ended March 30, 2003. The effectiveincome tax rate for the fiscal year ended April 3, 2005 was comparable tothe fiscal year ended March 28, 2004. The decrease for the fiscal yearended March 28, 2004 as compared to the fiscal year ended March 30,2003 was primarily due to a decrease in income before income taxes.

 

INFLATION

 

Inflation did not have a significant impacton the Company during the fiscal years ended April 3, 2005, March 28,2004, and March 30, 2003, as selling prices have generally been adjustedas the cost of materials and other expenses have changed. On occasion, slightfluctuations in the cost of a single, large-volume product have not beenreflected in the selling price of that product.

 

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SELECTED QUARTERLY FINANCIALDATA

 
| ** **                           | ** ** | **Fiscal Year Ended April 3, 2005 (Unaudited)** | ** ** |
|--------------------------------------|------------|------------------------------------------------------|------------|
| ** **                           | ** ** | **First  Quarter Ended  July 1, 2004**          | ** ** | **Second  Quarter Ended  September 30, 2004** | ** ** | **Third  Quarter Ended  December 31, 2004** | ** ** | **Fourth  Quarter Ended  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 |   |

 
| ** **                                  | ** ** | **Fiscal Year Ended March 28, 2004 (Unaudited)** | ** ** |
|---------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                  | ** ** | **First  Quarter Ended  July 1, 2003**           | ** ** | **Second  Quarter Ended  September 30, 2003** | ** ** | **Third  Quarter Ended  December 31, 2003** | ** ** | **Fourth  Quarter Ended  March 28, 2004** | ** ** |
| ** **                                  | ** ** | ** **                                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Sales                                       |       | $                                                     | 29,066,867 |   | $ | 28,645,014 |   | $ | 24,951,807 |   | $ | 24,364,443 |   |
| Gross margin                                |       | 8,436,133                                             |       | 8,362,307 |   | 5,894,706 |   | 5,281,143 |   |
| Net income (loss)                           |       | 2,792,016                                             |       | 2,591,573 |   | 1,162,837 |   | (794,542 | ) |
| Basic and diluted earnings (loss) per share |       | $                                                     | .27        |   | $ | .25 |   | $ | .11 |   | $ | (.08 | ) |

 

FINANCIAL CONDITION

 

LIQUIDITY

 

Cash provided by operations in the fiscalyear ended April 3, 2005 was $12,617,158 compared to $7,411,596 in thefiscal year ended March 28, 2004 and $14,589,108 in the fiscal year ended March 30,2003. The increase in the fiscal year ended April 3, 2005 compared to thefiscal year ended March 28, 2004 was due to the timing of liabilitypayments and the $3 million litigation settlement that was paid in fiscal 2004.These amounts were partially offset by an increase in accounts receivable,primarily as a result of the increase in sales. The decrease in the fiscal yearended March 28, 2004 compared to the fiscal year ended March 30, 2003was due to the decrease in net income, including the $3 million litigationsettlement, the timing of liability payments, and year-over-year variances intax payments.

 

Cash and investments available-for-sale of$26,807,385 at April 3, 2005 increased by $2,883,977 as compared with the$23,923,408 available as of March 28, 2004, primarily because of cashgenerated by operations in excess of capital expenditures and dividendpayments. Cash equivalents consist of money market accounts and certificates ofdeposit with an original maturity of three months or less. Investmentsavailable-for-sale consist of investment contracts with high-rated, stableinsurance 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.  The fixed income portfolio consists primarilyof investment grade securities to minimize credit risk, and they generallymature within 10 years.  The Companyinvests in mutual funds with characteristics similar to the fixed incomeportfolio to enhance its investment portfolio diversification. The Companymonitors the maturities of its investments to ensure that funding is available foranticipated cash needs. At April 3, 2005, $15,570,000 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 determinedto be other-than-temporarily impaired as the Company has the intent and abilityto hold these investments for a period of time sufficient to allow a recoveryof fair value. Expected future cash flows from operations, cash equivalents andinvestments included within current assets are expected to fund the Company’sshort-term working capital needs.

 

As of April 3, 2005, the Company had aninvestment portfolio of fixed income securities of $11,373,512 and mutual fundsof $8,038,275, excluding $7,910,598 classified as cash and cash equivalents andvariable rate securities. The fixed income securities, like all fixed incomeinstruments, are subject to interest rate risk and will decline in value ifmarket interest rates increase. However, while the value of the investment mayfluctuate in any given period, the Company intends to hold its fixed incomeinvestments until 

 

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maturity. Consequently, the Company would not expect to recognize anadverse impact on net income or cash flows or the amount ultimately realized onthe investment. The value of the mutual funds, like all mutual funds, mayincrease or decrease due to market volatility. The Company recorded a loss of$370,000 in the fiscal year ended March 30, 2003 due to declines in marketvalue that were deemed other than temporary. The mutual funds held by theCompany as of April 3, 2005 consist of short-term bond funds that investprimarily in investment grade securities.

 

CAPITAL EXPENDITURES

 

Capital expenditures in the fiscal yearsended April 3, 2005, March 28, 2004 and March 30, 2003 were$5,922,862, $4,897,551, and $2,348,124, respectively. Capital expendituresduring the fiscal year ended April 3, 2005 consisted of $3,100,000 foroffice furniture and equipment primarily related to software and hardware dataprocessing equipment associated with the Company’s implementation of an ERPsystem, $1,440,000 for machinery and equipment, $250,000 for land, buildingsand improvements, and $1,144,000 for transportation equipment. We anticipatecapital expenditures in fiscal 2006 to be approximately $6.5 million primarilyrelated to implementation of the ERP system, new route sales trucks, warehouseadditions, and general maintenance projects.

 

COMMON STOCK REPURCHASES

 

The Company did not acquire any common stockduring the fiscal years ended April 3, 2005, March 28, 2004, and March 30,2003.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

The Company does not have any off-balancesheet arrangements.

 

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

 

The following table provides aggregateinformation about our contractual payment obligations and the periods in whichpayments are due:

 
| ** **                    | ** ** | **Payments due by period** | ** ** |
|-------------------------------|------------|----------------------------|------------|
| **Contractual Obligation**    | ** ** | **2006**                   | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **More than  5 Years** | ** ** | **Total** | ** ** |
| ** **                    | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Operating lease obligations   |       | $                          | 246,684    |   | $ | 224,115 |   | $ | 180,072 |   | $ | 185,523 |   | $ | 187,023 |   | $ | 3,065,205 |   | $ | 4,088,622 |   |
| Purchase obligations (1) |       | 12,448,747                 |       | — |   | — |   | — |   | — |   | — |   | 12,448,747 |   |
| Total                         |       | $                          | 12,695,431 |   | $ | 224,115 |   | $ | 180,072 |   | $ | 185,523 |   | $ | 187,023 |   | $ | 3,065,205 |   | $ | 16,537,369 |   |

 

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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, coupledwith the Company’s strong financial position, put the Company in a position tofund both short and long-term working capital and capital investment needs withinternally generated funds. Management does not, therefore, anticipate the needto engage in significant financing activities in either the short or long term.If the need to obtain additional capital does arise, however, management isconfident that the Company’s total debt to capital ratio puts it in a positionto obtain debt financing on favorable terms.

 

The Company will continue to incursignificant expenditures in fiscal 2006 associated with the implementation ofthe ERP system and to meet the requirements of the Sarbanes-Oxley Act. Fiscal2006 expenses, including incremental information technology expenses andoutside professional services, are expected to be consistent with theadditional fiscal 2005 expense of approximately $1.7 million.

 

Although management continually reviews opportunitiesto enhance the value of the Company through strategic acquisitions, othercapital investments and strategic divestitures, no material commitments forsuch investments or divestitures currently exist.

 

Other than as discussed above, management isnot aware of any trends or other matters that have not materially affectedresults in the fiscal year ended April 3, 2005 but are expected to have amaterial effect on future periods.

 

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CRITICAL ACCOUNTING POLICIES

 

In preparing the financial statements, theCompany follows accounting principles generally accepted in the United States.The preparation of these financial statements requires the Company to makeestimates and judgments that affect the reported amounts of assets,liabilities, sales and expenses, and related disclosure of contingent assetsand liabilities. The Company re-evaluates its estimates on an on-going basis.The Company’s estimates are based on historical experience and on various otherassumptions that are believed to be reasonable under the circumstances. Actualresults may differ from these estimates under different assumptions andconditions. The Company considers the following policies to involve themost judgment in the preparation of the Company’s financial statements.

 

Revenue Recognition - The Company recognizes revenue when the producthas been shipped to the customer if there is evidence that the customer hasagreed to purchase the products, performance has occurred, the price and termsof sale are fixed, and collection of the receivable is reasonably assured.

 

Investments –**Statementof Financial Accounting Standard (SFAS) No. 115, “Accounting for CertainInvestments in Debt and Equity Securities,” and Securities and ExchangeCommission (SEC) Staff Accounting Bulletin (SAB) 59, “Accounting for NoncurrentMarketable Equity Securities,” provide guidance on determining when aninvestment is other-than-temporarily impaired. Investments are reviewed quarterly for indicators ofother-than-temporary impairment. This determination requires significantjudgment.  In making this judgment, weevaluate, among other factors, the duration and extent to which the fair valueof an investment is less than its cost; the general market conditions,including factors such as industry and sector performance, rating agencyactions, and our intent and ability 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, industry and/or investeeconditions deteriorate, we may incur future impairments.

 

Allowance for Doubtful Accounts - Accounts receivable are reduced by anallowance for amounts that may become uncollectible in the future.Substantially all of the Company’s receivables are due from customers locatedin the United States. The estimated allowance for doubtful accounts is basedupon the age of the outstanding receivables and the payment history and creditworthiness of each customer. Management evaluates the adequacy of the reservefor doubtful accounts on a quarterly basis.

 

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

 

Impairment of Long-Lived Assets –**Weevaluate the carrying value of long-lived assets, including intangible assetssubject to amortization and property, plant, and equipment, when events andchanges in circumstances warrant such a review. 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 isrecognized equal to the amount by which the carrying value exceeds the fairvalue of the long-lived assets.  Weperiodically review the appropriateness of the estimated useful lives of ourlong-lived assets.

 

Income Taxes – In the preparation of the Company’s financialstatements, management calculates income taxes. This includes estimating current tax liability as well as assessingtemporary differences resulting from different treatment of items for tax andbook accounting purposes.  Thesedifferences result in deferred tax assets and liabilities, which are recordedon 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 valuation allowance is established to theextent that management believes that recovery is not likely.  Reserves are also established for potentialand ongoing audits of federal and state tax issues.  The Company routinely monitors the potentialimpact of such situations and believes that it is properly reserved.  Valuations related to amounts owed and taxrates could be impacted by changes to tax codes, changes in statutory taxrates, the Company’s future taxable income levels and the results of taxaudits.

 

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

On March 31, 2004, the FinancialAccounting Standards Board  (FASB)ratified Emerging Issues Task Force Issue No. 03-1, “The Meaning ofOther-Than-Temporary Impairment and Its Application to Certain Investments” (“EITFNo. 03-1”), which provides guidance on recognizing other-than-temporaryimpairments on certain investments. EITF No. 03-1 is effective forother-than-temporary impairment evaluations for investments accounted for underSFAS No. 115, “Accounting for Certain Investments in Debt and EquitySecurities,” as well as non-marketable equity securities accounted for underthe cost method for reporting periods beginning after June 15, 2004. EITF No. 03-1requires that investments which have declined in value must be recorded asother-than-temporarily impaired unless the Company can assert and demonstrateits intention to hold the security for a period of time sufficient to allow fora recovery of fair value up to or beyond the cost of the investment, whichmight mean maturity. EITF No. 03-1 also requires disclosures assessing theability and intent to hold investments in instances in which an investordetermines that an investment with a fair value less than cost is notother-than-temporarily impaired. EITF No. 03-1 does not suspend thecurrent requirements for 

 

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other-than-temporary impairments under Staff Accounting Bulletin No. 59.In September 2004, the FASB issued Proposed Staff Position EITF Issue No. 03-1-a,“Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1,”which provides further guidance regarding this issue. In September 2004,the FASB also issued Proposed Staff Position EITF Issue No. 03-1-1, “EffectiveDate of Paragraphs 10-20 of EITF No. 03-1,” which defers the effectivedate of certain paragraphs of EITF Issue No. 03-1. The Company adopted theinitial portions of EITF 03-01 in December 2003. The adoption of theremaining portions is not expected to have a material impact on our results ofoperations or financial condition.

 

In September 2004, the EITF reached aconsensus on Issue No. 04-10, “Applying Paragraph 19 of FASB Statement No. 131,Disclosures about Segments of an Enterprise and Related Information (SFAS No. 131),in Determining Whether to Aggregate Operating Segments That Do Not Meet theQuantitative Thresholds.”  Issue No. 04-10 clarifies the criteria foraggregating an operating segment that does not meet all of the aggregationcriteria in paragraph 17 of SFAS No. 131, but also falls below thequantitative criteria that would dictate that the segment be reported separately. The consensus reached would enable an entity to aggregate two or more segmentsthat have similar economic characteristics and share a majority of theaggregation criteria in paragraph 17 of SFAS No. 131.  Although IssueNo. 04-10 was to be effective immediately, in November 2004 the EITFdelayed the implementation of this issue in order to have its effective datecoincide with a related FASB Staff Position (FSP), which will clarify themeaning of similar economic characteristics.  Issue No. 04-10 is tobe applied by retroactive restatement of previous periods.  Adoption ofIssue No. 04-10 is not expected to have an impact on our operating resultsand financial condition.

 

In November 2004, the FASB issued SFAS No. 151,“Inventory Costs.”  This statement amendsChapter 4 of ARB No. 43 to clarify the accounting for abnormal amounts ofidle facility expense, freight, handling costs and wasted material (spoilage),as well as requiring that allocation of fixed production overheads to the costsof conversion be based on the normal capacity of the productionfacilities.  The provisions of thisstatement are effective for inventory costs incurred during fiscal yearsbeginning after June 15, 2005, and the Company is currently assessing theimpact of SFAS No. 151 on our operating results and financial condition.

 

During December 2004, the FASB issuedSFAS No. 123 (Revised 2004), “Share-Based Payment” (SFAS 123R), whichamends SFAS No. 123, “Accounting for Stock-Based Compensation” and SFAS95, “Statement of Cash Flows.”  SFAS 123R requires all companies tomeasure compensation cost for all share-based payments (including employeestock options) at fair value, and will be effective for public companies forinterim or annual periods beginning after June 15, 2005.  This newstandard may be adopted in one of two ways – the modified prospectivetransition method or the modified retrospective transition method.  TheCompany does not expect there to be any impact from the accounting change onour financial position and results of operations.

 

In December 2004, the FASB issued SFAS No. 153,“Exchanges of Nonmonetary Assets.”  Thisstatement amends Accounting Principles Board (APB) Opinion No. 29 toimprove financial reporting by eliminating certain narrow differences betweenthe FASB’s and the International Accounting Standards Board’s (IASB) existingaccounting standards for nonmonetary exchanges of similar productiveassets.  The provisions of this statementshall be prospectively applied and are effective for nonmonetary assetexchanges occurring in fiscal periods beginning after June 15, 2005. TheCompany is currently assessing the impact of SFAS No. 153 on our operatingresults and financial condition.

 

ITEM 7A.                                           QUANTITATIVEAND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

 

At April 3, 2005, the Company had aninvestment portfolio of fixed income securities of $11,373,512, mutual funds of$8,038,275, investment contracts of $3,345,808 and cash and cash equivalents of$4,564,790.  The fixed income securities,like all fixed income instruments, are subject to interest rate risks and willdecline in value if market interest rates increase.  However, while the value of the investmentmay fluctuate in any given period, the Company intends to hold its fixed incomeinvestments until maturity. Consequently, the Company would not expect to recognize an adverseimpact on net income or cash flows during the holding period.  The value of the mutual funds, like allmutual funds, may increase or decrease due to market volatility.  The investment contracts are variable rateinsurance contracts that reset on a quarterly basis. A hypothetical 1% changein rates would impact investment income by approximately $33,000, based uponthe amount of variable rate insurance contracts held at April 3, 2005. TheCompany adjusts the carrying value of its investments if an impairment occursthat is other than temporary.

 

The Company is subject to the risk inherentin the cyclical nature of commodity chemical prices. However, the Company doesnot currently purchase forward contracts or otherwise engage in hedgingactivities with respect to the purchase of commodity chemicals.

 

16

----

 

ITEM 8.                                                     FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA.

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

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

 

Wehave audited the accompanying balance sheets of Hawkins, Inc. (the “Company”)as of April 3, 2005 and March 28, 2004, and the related statements ofincome, shareholders’ equity, and cash flows for each of the three years in theperiod ended April 3, 2005.  These financial statements are theresponsibility of the Company’s management.  Our responsibility is toexpress an opinion on these financial statements based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States).  Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation.  We believe thatour audits provide a reasonable basis for our opinion.

 

Inour opinion, such financial statements present fairly, in all materialrespects, the financial position of Hawkins, Inc. as of April 3, 2005and March 28, 2004, and the results of its operations and its cash flowsfor each of the three fiscal years in the period ended April 3, 2005, 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 3, 2005, based oncriteria established in *InternalControl—Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission and our report dated June 29,2005 expressed an unqualified opinion on management’s assessment of theeffectiveness of the Company’s internal control over financial reporting and anadverse opinion on the effectiveness of the Company’s internal control overfinancial reporting because of a material weaknesses.

 
| /s/ Deloitte &  Touche LLP |   |
|------------------------------------------|--------|
|                                     |
|                                     |
| Minneapolis,  MN                         |
| June 29, 2005                       |

 

17

----

 

**HAWKINS, INC.**

**BALANCE SHEETS**

 
| ** **                                                                                                                             | ** ** | **April 3,  2005** | ** ** | **March 28,  2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|--------------------------|------------|
| ** **                                                                                                                             |       |                    |       |                     |       |
| **ASSETS**                                                                                                                             |       |                    |       |                     |       |
| ** **                                                                                                                             |       |                    |       |                     |       |
| CURRENT ASSETS:                                                                                                                        |       |                    |       |                     |       |
| Cash and cash equivalents                                                                                                              |       | $                       | 4,564,790  |                     | $          | 1,558,969 |   |
| Investments available-for-sale                                                                                                         |       | 6,672,521               |       | 21,313,923               |       |
| Trade receivables - less allowance for  doubtful accounts: 2005, $225,000; 2004, 275,000                                               |       | 13,673,953              |       | 11,308,851               |       |
| Inventories                                                                                                                            |       | 8,587,610               |       | 8,887,081                |       |
| Prepaid expenses and other current assets (Note  7)                                                                                    |       | 2,223,798               |       | 3,566,891                |       |
| Total current assets                                                                                                                   |       | 35,722,672              |       | 46,635,715               |       |
|                                                                                                                                   |       |                    |       |                     |       |
| PROPERTY, PLANT, AND EQUIPMENT:                                                                                                        |       |                    |       |                     |       |
| Land                                                                                                                                   |       | 808,491                 |       | 793,491                  |       |
| Buildings and improvements                                                                                                             |       | 28,430,587              |       | 28,377,593               |       |
| Machinery and equipment                                                                                                                |       | 12,869,811              |       | 12,087,543               |       |
| Transportation equipment                                                                                                               |       | 8,383,235               |       | 7,919,585                |       |
| Office furniture and equipment including  computer systems                                                                             |       | 7,263,198               |       | 4,215,690                |       |
|                                                                                                                                   |       | 57,755,322              |       | 53,393,902               |       |
| Less accumulated depreciation                                                                                                          |       | 26,781,709              |       | 23,861,417               |       |
| Net property, plant, and equipment                                                                                                     |       | 30,973,613              |       | 29,532,485               |       |
|                                                                                                                                   |       |                    |       |                     |       |
| OTHER ASSETS:                                                                                                                          |       |                    |       |                     |       |
| Intangible assets – less accumulated  amortization: 2005, $1,870,719; 2004, $1,584,871                                            |       | 2,492,330               |       | 2,778,178                |       |
| Long-term investments                                                                                                                  |       | 16,085,074              |       | 1,775,516                |       |
| Other                                                                                                                                  |       | 2,384,429               |       | 1,895,011                |       |
| Total other assets                                                                                                                     |       | 20,961,833              |       | 6,448,705                |       |
|                                                                                                                                   |       | $                       | 87,658,118 |                     | $          | 82,616,905 |   |
|                                                                                                                                   |       |                    |       |                     |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                          |       |                    |       |                     |       |
|                                                                                                                                   |       |                    |       |                     |       |
| CURRENT LIABILITIES:                                                                                                                   |       |                    |       |                     |       |
| Accounts payable—trade                                                                                                            |       | $                       | 5,946,189  |                     | $          | 4,752,049 |   |
| Dividends payable                                                                                                                      |       | 1,846,321               |       | 1,839,004                |       |
| Accrued payroll and employee benefits                                                                                                  |       | 3,954,968               |       | 3,629,800                |       |
| Container deposits                                                                                                                     |       | 1,095,948               |       | 1,495,294                |       |
| Other accruals                                                                                                                         |       | 1,414,558               |       | 1,292,137                |       |
| Total current liabilities                                                                                                              |       | 14,257,984              |       | 13,008,284               |       |
|                                                                                                                                   |       |                    |       |                     |       |
| OTHER LONG-TERM LIABILITIES                                                                                                            |       | 22,145                  |       | 89,133                   |       |
|                                                                                                                                   |       |                    |       |                     |       |
| DEFERRED INCOME TAXES                                                                                                                  |       | 1,178,422               |       | 1,614,843                |       |
|                                                                                                                                   |       |                    |       |                     |       |
| COMMITMENTS AND CONTINGENCIES (Note 6)                                                                                                 |       |                    |       |                     |       |
|                                                                                                                                   |       |                    |       |                     |       |
| SHAREHOLDERS’ EQUITY:                                                                                                             |       |                    |       |                     |       |
| Common stock; authorized: 30,000,000 shares  of $.05 par value; 10,257,341 and 10,216,688 shares issued and outstanding,  respectively |       | 512,867                 |       | 510,834                  |       |
| Additional paid-in capital                                                                                                             |       | 38,232,076              |       | 37,747,492               |       |
| Unearned compensation                                                                                                                  |       | (198,702                | )          |                     |       |
| Accumulated other comprehensive (loss)  income                                                                                         |       | (196,031                | )          | 196,328                  |       |
| Retained earnings                                                                                                                      |       | 33,849,357              |       | 29,449,991               |       |
| Total shareholders’ equity                                                                                                        |       | 72,199,567              |       | 67,904,645               |       |
|                                                                                                                                   |       | $                       | 87,658,118 |                     | $          | 82,616,905 |   |

 

See accompanying notes to financial statements.

 

18

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**HAWKINS, INC.STATEMENTS OF INCOME**

 
| ** **                                             | ** ** | **Fiscal  Year Ended  April 3, 2005** | ** **  | **Fiscal  Year Ended  March 28, 2004** | ** ** | **Fiscal  Year Ended  March 30, 2003** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------------|-------------|---------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                             | ** ** | ** **                                 | ** **  | ** **                                  | ** ** | ** **                                  | ** ** |
| Sales                                                  |       | $                                          | 115,280,312 |                                        | $          | 107,028,131                                 |       | $ | 104,004,611 | ** ** |
|                                                   |       |                                       |        |                                        |       |                                        |       |
| Cost of sales                                          |       | (85,674,127                                | )           | (79,053,842                                 | )          | (76,046,759                                 | )          |
|                                                   |       |                                       |        |                                        |       |                                        |       |
| Gross margin                                           |       | 29,606,185                                 |        | 27,974,289                                  |       | 27,957,852                                  |       |
|                                                   |       |                                       |        |                                        |       |                                        |       |
| Selling, general and administrative  expenses          |       | (18,089,829                                | )           | (16,793,094                                 | )          | (14,890,640                                 | )          |
|                                                   |       |                                       |        |                                        |       |                                        |       |
| Litigation settlement (Note 6)                         |       |                                       |        | (3,000,000                                  | )          |                                        |       |
|                                                   |       |                                       |        |                                        |       |                                        |       |
| Income from operations                                 |       | 11,516,356                                 |        | 8,181,195                                   |       | 13,067,212                                  |       |
|                                                   |       |                                       |        |                                        |       |                                        |       |
| Investment income                                      |       | 1,120,775                                  |        | 825,689                                     |       | 367,049                                     |       |
|                                                   |       |                                       |        |                                        |       |                                        |       |
| Interest expense                                       |       |                                       |        |                                        |       | (4,089                                      | )          |
|                                                   |       |                                       |        |                                        |       |                                        |       |
| Income before income taxes                             |       | 12,637,131                                 |        | 9,006,884                                   |       | 13,430,172                                  |       |
|                                                   |       |                                       |        |                                        |       |                                        |       |
| Provision for income taxes                             |       | (4,545,122                                 | )           | (3,255,000                                  | )          | (5,000,000                                  | )          |
|                                                   |       |                                       |        |                                        |       |                                        |       |
| Net income                                             |       | $                                          | 8,092,009   |                                        | $          | 5,751,884                                   |       | $ | 8,430,172 |   |
|                                                   |       |                                       |        |                                        |       |                                        |       |
| Weighted average number of shares  outstanding -basic  |       | 10,216,688                                 |        | 10,216,688                                  |       | 10,216,688                                  |       |
|                                                   |       |                                       |        |                                        |       |                                        |       |
| Weighted average number of shares  outstanding-diluted |       | 10,222,669                                 |        | 10,216,688                                  |       | 10,216,688                                  |       |
|                                                   |       |                                       |        |                                        |       |                                        |       |
| Earnings per share - basic and diluted                 |       | $                                          | .79         |                                        | $          | .56                                         |       | $ | .83 |   |
|                                                   |       |                                       |        |                                        |       |                                        |       |
| Cash dividends declared per common share               |       | $                                          | .36         |                                        | $          | .36                                         |       | $ | .30 |   |

 

See accompanying notes to financial statements.

 

19

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**HAWKINS, INC.STATEMENTS OF SHAREHOLDERS’ EQUITY****                           **

 
| ** **                                                       | ** ** | ** **       | ** ** | ** **           | ** ** | ** **                 | ** ** | ** **             | ** ** | ** **                       | ** ** | **Accumulated**                | ** ** | ** ** | ** ** |
|------------------------------------------------------------------|------------|------------------|------------|----------------------|------------|----------------------------|------------|------------------------|------------|----------------------------------|------------|--------------------------------|------------|------------|------------|
| ** **                                                       | ** ** | ** **       | ** ** | **Additional**       | ** ** | ** **                 | ** ** | ** **             | ** ** | **Other**                        | ** ** | **Total**                      | ** ** |
| ** **                                                       | ** ** | **Common Stock** | ** ** | **Paid-in  Capital** | ** ** | **Unearned  Compensation** | ** ** | **Retained  Earnings** | ** ** | **Comprehensive  Income (Loss)** | ** ** | **Shareholders’  Equity** | ** ** |
| **Shares**                                                       | ** ** | **Amount**       |
| ** **                                                       | ** ** | ** **       | ** ** | ** **           | ** ** | ** **                 | ** ** | ** **             | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** |
| BALANCE—March 31,  2002                                |       | 10,216,688       |       | $                    | 510,834    |                       | $          | 37,747,492             |       |                             |       | $                              | 22,317,637 |       | $          | (145,528 | ) | $ | 60,430,435 |   |
|                                                             |       |             |       |                 |       |                       |       |                   |       |                             |       |                           |       |       |       |
| Cash dividends                                                   |       |             |       |                 |       |                       |       |                   |       | (3,371,694                       | )          |                           |       | (3,371,694 | )          |
| Comprehensive  income:                                           |       |             |       |                 |       |                       |       |                   |       |                             |       |                           |       |       |       |
| Unrealized loss  on investments available for sale               |       |             |       |                 |       |                       |       |                   |       |                             |       | (8,509                         | )          | (8,509     | )          |
| Adjustment for  impairment of investments included in net income |       |             |       |                 |       |                       |       |                   |       |                             |       | 233,100                        |       | 233,100    |       |
| Net income                                                       |       |             |       |                 |       |                       |       |                   |       | 8,430,172                        |       |                           |       | 8,430,172  |       |
| Comprehensive  income                                            |       |             |       |                 |       |                       |       |                   |       |                             |       |                           |       | 8,654,763  |       |
|                                                             |       |             |       |                 |       |                       |       |                   |       |                             |       |                           |       |       |       |
| 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   | )                                |       |                           |       |       | 0          |   |
| 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 |   |
|                                                                  |            |                  |            |                      |            |                            |            |                        |            |                                  |            |                                |            |            |            |  |  |  |  |  |  |  |  |

 

Seeaccompanying notes to financial statements.

 

20

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**HAWKINS, INC.STATEMENTS OF CASH FLOWS**

 
| ** **                                               |   | **Fiscal  Year Ended  April 3, 2005** |      | **Fiscal  Year Ended  March 28, 2004** |   | **Fiscal  Year Ended  March 30, 2003** |   |
|----------------------------------------------------------|--------|--------------------------------------------|-----------|---------------------------------------------|--------|---------------------------------------------|--------|
| ** **                                               |   | ** **                                 |      | ** **                                  |   | ** **                                  |   |
| **CASH FLOWS FROM OPERATING  ACTIVITIES:**               |   | ** **                                 |      | ** **                                  |   | ** **                                  |   |
| Net income                                               |   | $                                          | 8,092,009 |                                        | $      | 5,751,884                                   |   | $ | 8,430,172 |   |
| Reconciliation to cash flows:                            |   |                                       |      |                                        |   |                                        |   |
| Depreciation and amortization                            |   | 4,522,861                                  |      | 2,992,104                                   |   | 2,958,975                                   |   |
| Deferred income taxes                                    |   | 23,033                                     |      | 270,612                                     |   | (121,770                                    | )      |
| Restricted stock compensation expense                    |   | 287,915                                    |      |                                        |   |                                        |   |
| Adjustment of notes receivable reserve                   |   | (658,134                                   | )    |                                        |   |                                        |   |
| Impairment of investments                                |   |                                       |      |                                        |   | 370,000                                     |   |
| Earnings on other assets                                 |   | (6,854                                     | )    | (41,642                                     | )      | (72,929                                     | )      |
| Loss from property disposals                             |   | 134,439                                    |      | 69,716                                      |   | 34,713                                      |   |
| Changes in operating accounts (using) providing  cash:   |   |                                       |      |                                        |   |                                        |   |
| Trade receivables                                        |   | (2,365,102                                 | )    | (55,280                                     | )      | (590,763                                    | )      |
| Inventories                                              |   | 299,471                                    |      | 511,257                                     |   | (797                                        | )      |
| Accounts payable                                         |   | 1,194,140                                  |      | (1,102,671                                  | )      | 1,758,900                                   |   |
| Accrued liabilities                                      |   | (18,745                                    | )         | 69,502                                      |   | 2,079,348                                   |   |
| Other                                                    |   | 1,112,125                                  |      | (1,053,886                                  | )      | (256,741                                    | )      |
| Net cash provided by operating activities                |   | 12,617,158                                 |      | 7,411,596                                   |   | 14,589,108                                  |   |
|                                                     |   |                                       |      |                                        |   |                                        |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                    |   |                                       |      |                                        |   |                                        |   |
| Additions to property, plant, and equipment              |   | (5,922,862                                 | )         | (4,897,551                                  | )      | (2,348,124                                  | )      |
| Purchase of investments                                  |   | (11,491,472                                | )         | (8,506,919                                  | )      | (21,395,228                                 | )      |
| Sale and maturities of investments                       |   | 11,201,957                                 |      | 9,630,392                                   |   | 6,022,000                                   |   |
| Proceeds from property disposals                         |   | 110,283                                    |      | 53,250                                      |   | 59,150                                      |   |
| Payments received on notes receivable                    |   | 176,083                                    |      | 192,489                                     |   | 269,122                                     |   |
| Net cash used in investing activities                    |   | (5,926,011                                 | )         | (3,528,339                                  | )      | (17,393,080                                 | )      |
|                                                     |   |                                       |      |                                        |   |                                        |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                    |   |                                       |      |                                        |   |                                        |   |
| Cash dividends paid                                      |   | (3,685,326                                 | )         | (3,678,008                                  | )      | (3,065,380                                  | )      |
| Debt repayment                                           |   |                                       |      |                                        |   | (116,823                                    | )      |
| Net cash used in financing activities                    |   | (3,685,326                                 | )         | (3,678,008                                  | )      | (3,182,203                                  | )      |
|                                                     |   |                                       |      |                                        |   |                                        |   |
| NET INCREASE (DECREASE) IN CASH AND CASH  EQUIVALENTS    |   | 3,005,821                                  |      | 205,249                                     |   | (5,986,175                                  | )      |
|                                                     |   |                                       |      |                                        |   |                                        |   |
| CASH AND CASH EQUIVALENTS—                          |   |                                       |      |                                        |   |                                        |   |
| Beginning of period                                      |   | 1,558,969                                  |      | 1,353,720                                   |   | 7,339,895                                   |   |
|                                                     |   |                                       |      |                                        |   |                                        |   |
| CASH AND CASH EQUIVALENTS—                          |   |                                       |      |                                        |   |                                        |   |
| End of period                                            |   | $                                          | 4,564,790 |                                        | $      | 1,558,969                                   |   | $ | 1,353,720 |   |
|                                                     |   |                                       |      |                                        |   |                                        |   |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW  INFORMATION— |   |                                       |      |                                        |   |                                        |   |
| Issuance of restricted stock                             |   | $                                          | 486,617   |                                        | $      |                                        |   | $ |   |   |
| Cash paid during the year for:                           |   |                                       |      |                                        |   |                                        |   |
| Income taxes                                             |   | $                                          | 3,374,364 |                                        | $      | 3,897,997                                   |   | $ | 5,106,724 |   |
| Interest                                                 |   | $                                          |      |                                        | $      |                                        |   | $ | 8,177 |   |

 

See accompanying notes to financial statements.

 

21

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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 andPharmaceutical. 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, chemicals and service tomunicipal and industrial customers. The Pharmaceutical segment specializes inproviding pharmaceutical chemicals to pharmacies and small-scale pharmaceuticalmanufacturers.

 

***Fiscal Year*—**The Company’s fiscal year is a 52/53-weekyear ending on the Sunday closest to March 31. The fiscal year ended April 3,2005 was a 53-week year and the fiscal years ended March 28, 2004 and March 30,2003 were 52-week years.

 

***Estimates*—**Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America (“generally acceptedaccounting principles”) requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reported period.Actual results could differ from those estimates.

 

***Revenue Recognition*—**TheCompany recognizes revenue when the product has been shipped to the customer ifthere is evidence that the customer has agreed to purchase the products,performance has occurred, the price and terms of sale are fixed, and collectionof the receivable is expected.

 

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

 

***Cash Equivalents*—**Cashequivalents include all liquid debt instruments (primarily cash funds, moneymarket accounts and certificates of deposit) purchased with an originalmaturity of three months or less. The balances maintained at financialinstitutions may, at times, exceed federally 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 certaincircumstances (including the deterioration of the issuer’s creditworthiness ora change in tax law or statutory or regulatory requirements), securitiesheld-to-maturity may be sold or transferred to another portfolio.

 

*Available-for-salesecurities*consist of debt and equity securities thatwill be held for indefinite periods of time, including securities that may besold in response to changes in market interest or prepayment rates, needs forliquidity, or changes in the availability or yield of alternative investments.These securities are valued at current market value, with the resultingunrealized holding gains and losses excluded from earnings and reported, net oftax, as a separate component of shareholders’ equity until realized.  Available-for-sale securities are included incurrent assets if their market value exceeds its amortized cost and areavailable to fund current operations. Available-for-sale securities whosemarket value is less than its amortized cost that have not been identified asother-than-temporarily impaired are classified as current assets if thesecurity matures in less than one year and are classified as non-current assetsif the security matures in one year or longer. Available-for-sale securities with a market value of $15,570,000 and$1,050,516 were classified as non-current at April 3, 2005 and March 28,2004, respectively.

 

All securities with gross unrealized lossesare subjected to the Company’s process for identifying other-than-temporaryimpairments. The Company writes down to fair value securities that it deems tobe other-than-temporarily impaired in the period the securities are deemed tobe impaired. The initial indicator of impairment is a sustained decline inmarket price below the amortized cost of the investment. On a case-by-casebasis, the Company considers the length of time and the extent to which marketvalue has been less than cost, the cause of the price decline, the extent towhich the price decline is due to the general level of interest rates or otherissuer specific factors, the issuer’s financial condition and ability to makefuture payments in a timely manner, and the Company’s investment horizon. Aloss of $370,000 was recorded in the fiscal year ended March 30, 2003 dueto declines in market value that were deemed other than temporary. The Companydoes not engage in trading activities.

 

***Inventories*—**Inventories,consisting primarily of finished goods, are primarily valued at the lower ofcost or net realizable value, with cost being determined using the last-in,first-out (“LIFO”) method.  ThePharmaceutical segment’s inventory cost 

 

22

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is determined using the first-in, first-out (“FIFO”)method, which represents approximately 19% and 22% of the total FIFO inventorybalance at April 3, 2005 and March 28, 2004, respectively.

 

***Property, Plant and Equipment*—**Propertyis stated at cost and depreciated over the lives of the assets, using bothstraight-line and declining-balance methods. Estimated lives are: 10 to 50years for buildings and improvements; 3 to 15 years for machinery andequipment; 3 to 10 years for transportation equipment; and 3 to 10 years foroffice furniture and equipment.

 

***Intangible Assets*—**Intangibleassets consist primarily of customer lists, trademarks, and trade namesacquired in previous business acquisitions. The values assigned to theintangible assets are being amortized primarily over 15 years. As of April 3,2005, the Company had net intangible assets of $2,492,330. Amortization expensewas $285,848 during the fiscal year ended April 3, 2005 and $283,485during the fiscal years ended March 28, 2004 and March 30, 2003. Theestimated amortization expense for each of the next five years is approximately$284,000 per year.

 

***Recoverability of Long-LivedAssets*—**The Company reviews its long-lived assetswhenever events or changes in circumstances indicate the carrying amount of theassets may not be recoverable. The Company determines potential impairment bycomparing the carrying value of the assets with expected net cash flowsexpected to be provided by operating activities of the business or relatedproducts. Should the sum of the expected future net cash flows be less than thecarrying value, the Company would determine whether an impairment loss shouldbe recognized. An impairment loss would be measured by comparing the amount bywhich the carrying value exceeds the fair value of the asset based on marketvalue that is based on the discounted cash flows expected to be generated bythe asset.

 

***Income Taxes*—**TheCompany follows Statement of Financial Accounting Standards (SFAS) No. 109,“Accounting for Income Taxes.” Under SFAS No. 109, the deferred tax assetsand liabilities are recognized based on differences between the financialstatements and the tax bases of assets and liabilities using presently enactedtax rates.

 

***Earnings Per Share*—**Basicand diluted earnings per share are computed by dividing net income by theweighted average number of common shares outstanding.

 

***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 3, 2005, the Company also hadan investment portfolio of fixed income securities and mutual funds, excluding$7,910,598 of those classified as cash and cash equivalents and variable ratesecurities, of $11,373,512 and $8,038,275, respectively. The fixed incomesecurities, like all fixed income instruments, are subject to interest raterisk and will decline in value if market interest rates increase. However, theCompany has the ability to hold its fixed income investments until maturity andtherefore the Company would not expect to recognize an adverse impact on netincome or cash flows. The value of mutual funds, like all mutual funds, mayincrease or decrease due to market volatility.

 

***Derivative Instruments andHedging Activities*—**In fiscal 2001, the Companyadopted SFAS No. 133, “Accounting for Derivative Instruments and HedgingActivities,” as amended by SFAS No. 138, “Accounting for CertainDerivative 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 designated as, normal purchasesand sales. The Company’s policy is to not use freestanding derivatives and tonot enter into contracts with terms that cannot be designated as normalpurchases or sales.

 

***Risk and Uncertainties*—**Thereare no concentrations of business transacted with a particular customer orsupplier nor concentrations of sales from a particular service or geographicarea that would severely impact the Company in the near term.

 

***Accounting Pronouncements*—**On March 31, 2004, the Financial Accounting Standards Board (FASB)ratified Emerging Issues Task Force Issue No. 03-1, “The Meaning ofOther-Than-Temporary Impairment and Its Application to Certain Investments” (“EITFNo. 03-1”), which provides guidance on recognizing other-than-temporaryimpairments on certain investments. EITF No. 03-1 is effective forother-than-temporary impairment evaluations for investments accounted for underSFAS No. 115, “Accounting for Certain Investments in Debt and EquitySecurities,” as well as non-marketable equity securities accounted for underthe cost method for reporting periods beginning after June 15, 2004. EITF No. 03-1requires 

 

23

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that investments which have declined in valuemust be recorded as other-than-temporarily impaired unless the Company canassert and demonstrate its intention to hold the security for a period of timesufficient to allow for a recovery of fair value up to or beyond the cost ofthe investment, which might mean maturity. EITF No. 03-1 also requiresdisclosures assessing the ability and intent to hold investments in instancesin which an investor determines that an investment with a fair value less thancost is not other-than-temporarily impaired. EITF No. 03-1 does notsuspend the current requirements for other-than-temporary impairments underStaff Accounting Bulletin No. 59. In September 2004, the FASB issuedProposed Staff Position EITF Issue No. 03-1-a, “Implementation Guidancefor the Application of Paragraph 16 of EITF Issue No. 03-1,” whichprovides further guidance regarding this issue. In September 2004, theFASB also issued Proposed Staff Position EITF Issue No. 03-1-1, “EffectiveDate of Paragraphs 10-20 of EITF No. 03-1,” which defers the effectivedate of certain paragraphs of EITF Issue No. 03-1. The Company adopted theinitial portions of EITF 03-01 in December 2003. The adoption of theremaining portions is not expected to have a material impact on our results ofoperations or financial condition.

 

In September 2004, the EITF reached aconsensus on Issue No. 04-10, “Applying Paragraph 19 of FASB Statement No. 131,Disclosures about Segments of an Enterprise and Related Information (SFAS No. 131),in Determining Whether to Aggregate Operating Segments That Do Not Meet theQuantitative Thresholds.”  Issue No. 04-10 clarifies the criteria foraggregating an operating segment that does not meet all of the aggregationcriteria in paragraph 17 of SFAS No. 131, but also falls below thequantitative criteria that would dictate that the segment be reportedseparately.  The consensus reached would enable an entity to aggregate twoor more segments that have similar economic characteristics and share amajority of the aggregation criteria in paragraph 17 of SFAS No. 131. Although Issue No. 04-10 was to be effective immediately, in November 2004the EITF delayed the implementation of this issue in order to have itseffective date coincide with a related FASB Staff Position (FSP), which willclarify the meaning of similar economic characteristics.  Issue No. 04-10is to be applied by retroactive restatement of previous periods.  Adoptionof Issue No. 04-10 is not expected to have an impact on our operatingresults and financial condition.

 

In November 2004, the FASB issued SFAS No. 151,“Inventory Costs.”  This statement amendsChapter 4 of ARB No. 43 to clarify the accounting for abnormal amounts ofidle facility expense, freight, handling costs and wasted material (spoilage),as well as requiring that allocation of fixed production overheads to the costsof conversion be based on the normal capacity of the productionfacilities.  The provisions of thisstatement are effective for inventory costs incurred during fiscal yearsbeginning after June 15, 2005, and the Company is currently assessing theimpact of SFAS No. 151 on our operating results and financial condition.

 

During December 2004, the FASB issuedSFAS No. 123 (Revised 2004), “Share-Based Payment” (SFAS 123R), whichamends SFAS No. 123, “Accounting for Stock-Based Compensation” and SFAS95, “Statement of Cash Flows.”  SFAS 123R requires all companies tomeasure compensation cost for all share-based payments (including employee stockoptions) at fair value, and will be effective for public companies for interimor annual periods beginning after June 15, 2005.  This new standardmay be adopted in one of two ways – the modified prospective transition methodor the modified retrospective transition method.  The Company does notexpect there to be an affect from the accounting change on its financialposition and results of operations.

 

In December 2004, the FASB issued SFAS No. 153,“Exchanges of Nonmonetary Assets.”  Thisstatement amends Accounting Principles Board (APB) Opinion No. 29 toimprove financial reporting by eliminating certain narrow differences betweenthe FASB’s and the International Accounting Standards Board’s (IASB) existingaccounting standards for nonmonetary exchanges of similar productiveassets.  The provisions of this statementshall be prospectively applied and are effective for nonmonetary assetexchanges occurring in fiscal periods beginning after June 15, 2005. TheCompany is currently assessing the impact of SFAS No. 153 on its operatingresults and financial condition.

 

***Reclassifications*—**Certain reclassifications have beenmade to prior year amounts to conform to the current year presentation. Suchreclassifications had no effect on net income or shareholders’ equity aspreviously reported.

 

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**2.****                                      INVESTMENTS**

 

The amortized cost and fair value by maturityas of April 3, 2005 are shown below:

 
| ** **              | ** ** | **Held-to-Maturity** | ** ** | **Available-for-Sale** | ** ** |
|-------------------------|------------|----------------------|------------|------------------------|------------|
| ** **              | ** ** | **Amortized  Cost**  | ** ** | **Fair  Value**        | ** ** | **Amortized  Cost** | ** ** | **Fair  Value** | ** ** |
| ** **              | ** ** | ** **           | ** ** | ** **             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Within 1 Year           |       |                 |       |                   |       |   |   |   |   |
| Fixed Income Securities |       | $                    | —     |                   | $          | — |   | $ | 2,634,323 |   | $ | 2,642,718 |   |
| Investment Contracts    |       | —               |       | —                 |       | 1,405,134 |   | 1,405,134 |   |
| Within 1 Year           |       | —               |       | —                 |       | 4,039,457 |   | 4,047,852 |   |
|                    |       |                 |       |                   |       |   |   |   |   |
| 1-5 Years               |       |                 |       |                   |       |   |   |   |   |
| Fixed Income Securities |       | 150,000              |       | 151,650                |       | 7,149,262 |   | 6,995,953 |   |
| Investment Contracts    |       | —               |       | —                 |       | 1,940,674 |   | 1,940,674 |   |
| 1 - 5 Years             |       | 150,000              |       | 151,650                |       | 9,089,936 |   | 8,936,627 |   |
|                    |       |                 |       |                   |       |   |   |   |   |
| 5-10 Years              |       | 100,000              |       | 108,417                |       | — |   | — |   |
| After 10 Years          |       | 265,000              |       | 281,620                |       | 1,235,218 |   | 1,219,841 |   |
| Equity Securities       |       | —               |       | —                 |       | 8,185,015 |   | 8,038,275 |   |
|                    |       |                 |       |                   |       |   |   |   |   |
|                    |       | $                    | 515,000    |                   | $          | 541,687 |   | $ | 22,549,626 |   | $ | 22,242,595 |   |

 

The amortized cost and fair value ofinvestment securities available-for-sale as of April 3, 2005 and March 28,2004 were as follows:

 
| ** **                          | ** ** | **April 3, 2005** | ** ** |
|-------------------------------------|------------|------------------------|------------|
| ** **                          | ** ** | **Amortized  Cost**    | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  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 |   |

 

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| ** **                          | ** ** | **March 28, 2004** | ** ** |
|-------------------------------------|------------|-------------------------|------------|
| ** **                          | ** ** | **Amortized  Cost**     | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
| Bonds:                              |       |                    |       |   |   |   |   |   |   |
| U.S. Corporate Securities           |       | $                       | 4,553,918  |   | $ | 65,689 |   | $ | (102 | ) | $ | 4,619,505 |   |
| U.S. Government Agency Securities   |       | 2,087,680               |       | 7,967 |   | (11,365 | ) | 2,084,282 |   |
| States and Political Subdivisions   |       | 3,243,785               |       | 32,979 |   | (24 | ) | 3,276,740 |   |
|                                |       |                    |       |   |   |   |   |   |   |
| Total Bonds                         |       | $                       | 9,885,383  |   | $ | 106,635 |   | $ | (11,491 | ) | $ | 9,980,527 |   |
|                                |       |                    |       |   |   |   |   |   |   |
| Marketable Equity Securities:       |       |                    |       |   |   |   |   |   |   |
| Mutual Fund - Short-term Bond Funds |       | $                       | 9,092,436  |   | $ | 51,168 |   | $ | — |   | $ | 9,143,604 |   |
|                                |       |                    |       |   |   |   |   |   |   |
| Total Equity Securities             |       | $                       | 9,092,436  |   | $ | 51,168 |   | $ | — |   | $ | 9,143,604 |   |

 

Additionally, the Company’s available-for-sale investments include investment contracts with highly rated, stableinsurance companies of $3,345,808 and $3,240,308 as of April 3, 2005 and March 28,2004, respectively with fair values that approximate amortized cost. Proceedsfrom the sale of investments were $11,201,957, $9,630,392 and $6,022,000 forthe fiscal years ended April 3, 2005, March 28, 2004 and March 30,2003, respectively. Realized gains and losses were not material for the fiscalyears ended April 3, 2005 and March 28, 2004. The Company recorded aloss of $370,000 in the fiscal year ended March 30, 2003 due to declinesin fair value of mutual funds that were deemed other than temporary. Thesemutual funds were divested during the fiscal year ended March 28, 2004 andas of April 3, 2005 mutual funds consist of short-term bond funds thatinvest primarily in investment grade securities.

 

The following table provides the grossunrealized losses and fair value, aggregated by investment category, and thelength of time the individual securities have been in a continuous unrealizedloss position at April 3, 2005 and March 28, 2004:

 

26

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| ** **                         | ** ** | **April 3, 2005**  | ** ** |
|------------------------------------|------------|-------------------------|------------|
| ** **                         | ** ** | **Less Than 12 Months** | ** ** | **Equal to or Greater  Than 12 Months** | ** ** | ** ** | ** ** | **Total** | ** ** |
| ** **                         | ** ** | **Fair  Value**         | ** ** | **Unrealized  Losses** | ** ** | **Fair  Value** | ** ** | **Unrealized  Losses** | ** ** | **Total  Fair Value** | ** ** | **Unrealized  Losses** | ** ** |
|                               |       |                    |       |   |   |   |   |   |   |   |   |   |   |
| Bonds:                             |       |                    |       |   |   |   |   |   |   |   |   |   |   |
| 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 Bonds                        |       | $                       | 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 | ) |

 
| ** **                         | ** ** | **March 28,  2004** | ** ** |
|------------------------------------|------------|--------------------------|------------|
| ** **                         | ** ** | **Less  Than 12 Months** |       | **Equal to  or Greater****Than 12 Months** |   |   |   | **Total** |   |
| ** **                         | ** ** | **Fair  Value**          | ** ** | **Unrealized  Losses** | ** ** | **Fair  Value** | ** ** | **Unrealized  Losses** | ** ** | **Total  Fair Value** | ** ** | **Unrealized  Losses** | ** ** |
|                               |       |                     |       |   |   |   |   |   |   |   |   |   |   |
| Bonds:                             |       |                     |       |   |   |   |   |   |   |   |   |   |   |
| U.S. Corporate Securities          |       | $                        | 299,898    |   | $ | (102 | ) | $ | — |   | $ | — |   | $ | 299,898 |   | $ | (102 | ) |
| U.S. Government Agency Securities  |       | 297,660                  |       | (2,340 | ) | 750,618 |   | (9,025 | ) | 1,048,278 |   | (11,365 | ) |
| States and Political Subdivisions  |       | 200,000                  |       | (24 | ) | — |   | — |   | 200,000 |   | (24 | ) |
|                               |       |                     |       |   |   |   |   |   |   |   |   |   |   |
| Total Bonds                        |       | $                        | 797,558    |   | $ | (2,466 | ) | $ | 750,618 |   | $ | (9,025 | ) | $ | 1,548,176 |   | $ | (11,491 | ) |
|                               |       |                     |       |   |   |   |   |   |   |   |   |   |   |
| Marketable Equity Securities:      |       |                     |       |   |   |   |   |   |   |   |   |   |   |
| Mutual Fund - Short-term Bond Fund |       | $                        | —     |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
|                               |       |                     |       |   |   |   |   |   |   |   |   |   |   |
| Total Equity Securities            |       | $                        | —     |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   |

 

There were 52 and 12 investments in anunrealized loss position as of April 3, 2005 and March 28, 2004,respectively. The Company believes that the unrealized losses in the investmentportfolio are the result of increases in market interest rates and not from thedeterioration in the creditworthiness of the issuer. The majority of theinvestments have contractual terms, which do not permit the issuer to settle thesecurities at a price less than the amortized cost of the investment. The U.S.Government agency securities are guaranteed by an agency of the U.S. Governmentand the obligations of the state and political subdivisions are generalobligations of public entities. The mutual funds held by the Company areinvested in securities with characteristics similar to the fixed incomeportfolio to enhance investment portfolio diversification. The Company has theability and intent to hold these investments until a recovery of fair value.The Company does not consider these investments to be other-than-temporarilyimpaired.

 

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**3.****                                      INVENTORIES**

 

Inventories at April 3, 2005 and March 28,2004 consisted of the following:

 
| ** **                  | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|-----------------------------|------------|------------|------------|------------|------------|
| ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Finished goods (FIFO basis) | ** ** | $          | 9,889,652  |       | $          | 9,289,560 |   |
| LIFO reserve                | ** ** | (1,302,042 | )          |       | (402,479   | ) |
| Net inventory               | ** ** | $          | 8,587,610  |       | $          | 8,887,081 |   |

 

Inventories valued under the LIFO method at April 3,2005 and March 28, 2004 were $8,061,696 and $7,152,123, respectively. Thebalance of the inventory was valued under the FIFO method.

 

In fiscal 2005, the LIFO reserve increased by$899,563.  The increase in the LIFOreserve was caused by a significant increase in the cost of a single,large-volume component of inventory. During the fiscal years ended April 3,2005, March 28, 2004 and March 30, 2003, the Company liquidated LIFOinventory layers that were at lower costs than current costs. The impact of theliquidation on cost of sales was approximately $200,000 for the fiscal yearended April 3, 2005 and was not material for the fiscal years ended March 28,2004 and March 30, 2003.

 

**4.****                                      NOTESRECEIVABLE**

 

The Company has three notes receivablerelated to the sales of Tessman Seed, Inc., certain land and a building,and The Lynde Company. At April 3, 2005 and March 28, 2004, the netbalances outstanding on the notes receivable were $2,255,306 and $1,773,255,respectively. The current portion of $157,142 and $176,083 at April 3,2005 and March 28, 2004, respectively, are included within prepaidexpenses and other current assets and the remaining balances are includedwithin other assets. The notes receivable bear interest at 8% and are due inequal monthly installments of $36,204 through September 1, 2010 at whichtime the remaining unpaid balance of $1,213,163 is due. Land and a building,and a personal guarantee secure the notes receivable. The increase in theoutstanding balance is related to a decrease in the reserve the Companyrecorded in previous years due to uncertainty regarding the collectability ofthe notes receivable. The Company reassesses the collectability of thesereceivables periodically, and during the current year, the Company determinedthat the reserve was no longer necessary.

 

**5.****                                      PENSIONAND EMPLOYEE STOCK OWNERSHIP PLANS**

 

The Company has a defined contributionpension plan covering substantially all of its non-bargaining employees.Pension expense for the fiscal years ended April 3, 2005, March 28,2004 and March 30, 2003 were $1,688,240, $1,606,085, and $1,093,697,respectively. Contributions are made at the discretion of the Board ofDirectors subject to a maximum amount allowed under the Internal Revenue Code.The Company’s cost for the pension plan was determined as 15% of each employee’scovered compensation in the fiscal years ended April 3, 2005 and March 28,2004 and 11% in the fiscal year ended March 30, 2003. Amounts charged topension expense and contributed to union multi-employer pension plans (notincluded in the above amounts) were not material. It is the Company’s policy tofund all pension costs accrued.

 

The Company has an employee stock ownershipplan covering substantially all of its non-bargaining employees. Contributionsare made at the discretion of the Board of Directors subject to a maximumamount allowed under the Internal Revenue Code. Contributions for the fiscalyears ended April 3, 2005, March 28, 2004 and March 30, 2003were $564,558, $544,189, and $901,922, respectively.

 

During the fiscal year ended April 3, 2005, theCompany issued 40,653 shares of restricted stock to certain employees of theCompany. The restricted stock awards are recorded as compensation cost over therequisite vesting periods based on the market value on the date of grant.Unearned compensation cost on restricted stock awards is shown as a reductionto shareholders’ equity.  Restrictedstock expense for the fiscal year ended April 3, 2005 was $287,915.

 

The Company does not currently offer anypost-retirement benefits.

 

**6.****                                      COMMITMENTSAND CONTINGENCIES**

 

***Leases*—**The Company has various operatingleases for trucks and land and buildings on which some of its operations arelocated. Future minimum lease payments due under operating leases with aninitial term of one year or more at April 3, 2005 are $246,684 in 2006,$224,115 in 2007, $180,072 in 2008, $185,523 in 2009, $187,023 in 2010, and$3,065,205 thereafter. Total rental expense for the fiscal years ended April 3,2005, March 28, 2004 and March 30, 2003 were as follows:

 

28

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| ** **           | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------|------------|----------|------------|----------|------------|----------|------------|
|                 |       |     |       |     |       |     |       |
| Minimum rentals      |       | $        | 243,960    |     | $          | 179,908  |       | $ | 179,113 |   |
| Contingent rentals   |       | 65,639   |       | 42,931   |       | 41,524   |       |
| Total rental expense |       | $        | 309,599    |     | $          | 222,839  |       | $ | 220,637 |   |

 

***Litigation*—**In the fourth quarter offiscal 2004, the Company paid $3.0 million to resolve a personal injury lawsuitencaptioned *Chavarria et al v. Hawkins, Inc., PanoramaCompounding Pharmacy, and Valley Drug and Compounding, et al* thatarose from the alleged mislabeling of certain inventory the Company purchasedin connection with its acquisition of St. Mary’s Chemicals, Inc. (d/b/aUniversal Chemicals) in May 2000. Pursuant to the terms of the settlement, the Company denied allliability and reserved its right to pursue indemnification and contributionfrom third parties.  In July 2004,the Company filed suit in Hennepin County, Minnesota against the formerprincipals of Universal Chemicals, seeking indemnification for the costs theCompany incurred in defending and resolving the prior litigation.

 

On June 23, 2005, the Company and theformer Universal Chemicals principals (the “defendants”) executed a settlementagreement in full and final resolution of the Company’s claims, as well as anyclaims the defendants may have 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, which they received as consideration for the May 2000acquisition.  The agreement alsoterminates the non-competition provisions of the Company’s agreements with thedefendants, relieving the Company of the obligation to pay $500,000 to thedefendants over the next five years as consideration for these provisions.  The settlement agreement calls for the partiesto execute mutual releases and a stipulation of dismissal.  The proceeds from this settlement areexpected to be recorded in the financial statements during the 2006 fiscalyear.

 

The Company is involved in various legalactions arising from the normal course of business. Management is of theopinion that any judgment or settlement resulting from pending or threatenedlitigation would not have a material adverse effect on the financial position,results of operations or cash flows of the Company.

 

***Asset Retirement Obligations —***The Company has two leases of land, and atthe end of the lease term (currently 2018 if the leases are not renewed), theCompany has a specified amount of time to remove the property and buildings. Atthe end of the specified amount of time, anything that remains on the landbecomes the property of the lessor, and the lessor has the option to eithermaintain the property or remove the property 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 143, *Accounting for Asset Retirement Obligations,*the Company has not recorded an asset retirement obligation as of April 3,2005. The Company will continue to monitor the factors surrounding the requirementto record an asset retirement obligation and will recognize the fair value of aliability in the period in which it is incurred and a reasonable estimate canbe made.

 

**7.****                                      INCOMETAXES**

 

The provisions for income taxes are asfollows:

 
| ** **           | ** ** | **Fiscal Year  Ended  April 3,  2005** | ** ** | **Fiscal Year  Ended  March 28,  2004** | ** ** | **Fiscal Year  Ended  March 30,  2003** | ** ** |
|----------------------|------------|---------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
| ** **           | ** ** | ** **                                  | ** ** | ** **                                   | ** ** | ** **                                   | ** ** |
| Federal—current |       | $                                           | 3,578,342  |                                         | $          | 2,351,497                                    |       | $ | 4,057,347 |   |
| State—current   |       | 943,747                                     |       | 632,891                                      |       | 1,064,423                                    |       |
| Deferred             |       | 23,033                                      |       | 270,612                                      |       | (121,770                                     | )          |
| Total provision      |       | $                                           | 4,545,122  |                                         | $          | 3,255,000                                    |       | $ | 5,000,000 |   |

 

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Reconciliations of the provisions for incometaxes, based on income from continuing operations, to the applicable federalstatutory income tax rate of 35% are as follows:

 
| ** **                                    | ** ** | **Fiscal Year  Ended  April 3,  2005** | ** ** | **Fiscal Year  Ended  March 28,  2004** | ** ** | **Fiscal Year  Ended  March 30,  2003** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                    | ** ** | ** **                                  | ** ** | ** **                                   | ** ** | ** **                                   | ** ** |
| Statutory federal income tax                  |       | $                                           | 4,422,996  |                                         | $          | 3,152,409                                    |       | $ | 4,700,560 |   |
| State income taxes, net of federal  deduction |       | 648,194                                     |       | 506,730                                      |       | 702,552                                      |       |
| Tax-exempt income                             |       | (27,634                                     | )          | (83,458                                      | )          | (74,163                                      | )          |
| ESOP dividend deduction on allocated shares   |       | (209,578                                    | )          | (221,447                                     | )          | (226,373                                     | )          |
| Other—net                                |       | (288,856                                    | )          | (99,234                                      | )          | (102,576                                     | )          |
| Total                                         |       | $                                           | 4,545,122  |                                         | $          | 3,255,000                                    |       | $ | 5,000,000 |   |

 

The tax effects of items comprising theCompany’s net deferred tax asset (liability) as of April 3, 2005 and March 28,2004 are as follows:

 
| ** **                            | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|---------------------------------------|------------|------------|------------|------------|------------|
|                                  |       |       |       |       |       |
| Current deferred taxes:               |       |       |       |       |       |
| Trade receivables                     |       | $          | 87,750     |       | $          | 107,250 |   |
| Inventory                             |       | 415,692    |       | 620,062    |       |
| Restricted stock                      |       | 121,703    |       |       |       |
| Accruals                              |       | 262,806    |       | 391,093    |       |
| Total*                                |       | $          | 887,951    |       | $          | 1,118,405 |   |
|                                  |       |       |       |       |       |
| Noncurrent deferred taxes:            |       |       |       |       |       |
| Gain on sale of The Lynde Company     |       | $          | (72,393    | )          | $          | (147,941 | ) |
| Excess of tax over book depreciation  |       | (1,224,157 | )          | (1,348,902 | )          |
| Unrealized loss (gain) on investments |       | 111,000    |       | (118,000   | )          |
| Other                                 |       | 7,128      |       |       |       |
| Total                                 |       | $          | (1,178,422 | )          | $          | (1,614,843 | ) |

 

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*Included inprepaid expenses and other current assets on the balance sheet.

 

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

 

On May 26, 2000, the Company completedthe acquisition of certain assets of St. Mary’s Chemicals, Inc. d.b.a.Universal Chemicals. Universal Chemicals, a Minnesota-based company, wasengaged in the business of marketing, selling, and distributing pharmaceuticalchemicals to pharmacies and pharmacy wholesalers. The Company also entered intoa five-year employment agreement with one of the previous owners of UniversalChemicals and consulting agreements with the other two previous owners ofUniversal Chemicals. The employment agreement and consulting agreements containperformance bonuses and noncompete provisions. The agreements are based onUniversal Chemicals’ cumulative operating results, as defined in theagreements, for five years after the acquisition date and have a maximum payoutof $3,520,000. Based upon financial results through April 3, 2005, nopayment amount would be due. The noncompete provisions covered a period of fiveyears after the termination of the employment or consulting agreements, andrequire annual payments of $100,000 to $200,000 depending on UniversalChemicals’ operating results, as defined in the agreements, for five yearsafter the termination date. The noncompete provisions were terminated as partof the settlement of indemnification litigation against the previous owners(see Note 6).

 

**9.****                                      SEGMENTINFORMATION**

 

The Company has three reportable segments:Industrial, Water Treatment and Pharmaceutical. The Industrial segmentspecializes in providing industrial chemicals and services to the energy,electronics, and plating industries. In addition, the Industrial segmentprovides products and services to food manufacturers and processing plants. TheWater Treatment segment specializes in providing water and waste-water treatmentequipment and chemicals and in helping customers find solutions to systemproblems. The Pharmaceutical segment specializes in providing pharmaceuticalchemicals to pharmacies and small-scale pharmaceutical manufacturers.

 

30

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The accounting policies of the segments arethe same as those described in the summary of significant accounting policies.Product costs and expenses for each segment are based on actual costs incurredalong with cost allocation of shared and centralized functions. The Companyevaluates performance based on profit or loss from operations before incometaxes not including nonrecurring gains and losses. Reportable segments aredefined by product and type of customer. Segments are responsible for thesales, marketing and development of their products and services. The segmentsdo not have separate accounting, administration, customer service or purchasingfunctions.

 
| **Reportable Segments**               | ** ** | **Industrial** | ** ** | **Water  Treatment** | ** ** | **Pharmaceutical** | ** ** | **Total**  | ** ** |
|---------------------------------------|------------|----------------|------------|----------------------|------------|--------------------|------------|------------|------------|
| ** **                            | ** ** | ** **     | ** ** | ** **           | ** ** | ** **         | ** ** | ** ** | ** ** |
| 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 |       |
| Gross margin                          |       | 13,416,728     |       | 13,016,825           |       | 3,172,632          |       | 29,606,185 |       |
| 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 |   |

 

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* Unallocated assets consisting primarily ofcash and cash equivalents, investments, and prepaid expenses were $29,675,306at 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 | ** ** |
| Gross margin                      | ** ** | 12,384,299 |       | 12,805,184 |   | 2,784,806  |       | 27,974,289 | ** ** |
| 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 | ** ** |

 

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

 
| Fiscal Year Ended March 30, 2003: | ** ** | ** ** |       | ** ** |   | ** ** |   | ** ** |      |
|----------------------------------------|------------|------------|------------|------------|--------|------------|--------|------------|-----------|
| Sales                                  | ** ** | $          | 59,037,102 |       | $      | 36,330,322 |   | $          | 8,637,187 |   | $ | 104,004,611 |   |
| Cost of  sales                         | ** ** | 45,588,991 |       | 24,447,955 |   | 6,009,813  |   | 76,046,759 |      |
| Gross margin                           | ** ** | 13,448,111 |       | 11,882,367 |   | 2,627,374  |   | 27,957,852 |      |
| Income from  operations                | ** ** | 5,430,389  |       | 6,756,074  |   | 800,749    |   | 13,067,212 |      |
|                                   | ** ** |       |       |       |   |       |   |       |      |
| Identifiable  assets                   | ** ** | $          | 34,593,776 |       | $      | 13,122,105 |   | $          | 5,429,954 |   | $ | 53,145,835 |   |

 

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* Unallocatedassets consisting primarily of cash and cash equivalents, investments, andprepaid expenses were $27,952,904 at March 30, 2003.

 

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ITEM 9.                                                     CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

Not Applicable.

 

ITEM 9A.                                           CONTROLS AND PROCEDURES.

 

**Evaluation of disclosure controls andprocedures**

 

The Company conducted an evaluation, under the supervision and with theparticipation of the Company’s management, including the Chief ExecutiveOfficer and Chief Financial Officer, of the effectiveness of the design andoperation of its disclosure controls and procedures (as such term is defined inRules 13a-15(e) and 15d-15(e) under the Securities Exchange Actof 1934, as amended (the “Exchange Act”)) as of the end of the period coveredby this report. There are inherent limitations to the effectiveness of anysystem of disclosure controls and procedures, including the possibility ofhuman error and the circumvention or overriding of the controls and procedures.Accordingly, even effective disclosure controls and procedures can only providereasonable assurance of achieving their control objectives.  Due to thematerial weaknesses described below, the Chief Executive Officer and ChiefFinancial Officer concluded that the Company’s disclosure controls andprocedures were not effective as of the end of the period covered by thisreport in alerting them on a timely basis to material information relating tothe Company required to be included in the Company’s reports filed or submittedunder the Exchange Act. The Chief Executive Officer and Chief Financial Officerbelieve that, subsequent to April 3, 2005, the Company has remediated oris currently in process of remediating these deficiencies.

 

32

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**Management’s Report on Internal Control OverFinancial Reporting**

 

The management 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) under the ExchangeAct.  The Company’s internal controlsystem is designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for externalpurposes in accordance with accounting principles generally accepted in theUnited States (GAAP).

 

Because of inherent limitations, internal control over financialreporting may not prevent or detect misstatements.  Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

Management has assessed the effectiveness of the Company’s internalcontrol over financial reporting as of April 3, 2005.  In making this assessment, management usedthe criteria established in *Internal Control –Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO). As defined by the PublicCompany Accounting Oversight Board’s Auditing Standard No. 2, a materialweakness is a control deficiency, or combination of control deficiencies, thatresulted in more than a remote likelihood that a material misstatement of ourannual or interim financial statements would not be prevented or detected.

 

Our assessment identified the following material weaknesses in thefinancial close and reporting process:

 

•                  Inadequatesupport of the account balances for the allowance for uncollectible notereceivable, deferred tax liability and customer container deposits; and

•                  Improperapplication of GAAP related to the selection and application of depreciationlives of certain fixed assets and the amortization period of leaseholdimprovements for assets placed in service in previous years.

 

As a result of the above deficiencies, certain accounting errorsoccurred and certain adjustments were recorded in the fourth quarter.  The impact of these adjustments was notmaterial to the financial statements. However, due to the actual misstatements, the potential for moresignificant misstatements, and the absence of other mitigating controls, thereis a more than remote likelihood that a material misstatement of the interimand annual financial statements would not be prevented or detected as a resultof each weakness.  As a result,management determined that these identified deficiencies were material weaknessesin internal control over financial reporting and has concluded that ourinternal control over financial reporting was not effective as of April 3,2005.

 

The Company’s independent registered public accounting firm has issuedan attestation report on management’s assessment of the Company’s internalcontrol over financial reporting.  Thatreport appears herein on page 34.

 

 
| /s/ John R. Hawkins     |   |                    | /s/ Marvin E. Dee |   |
|-------------------------|--------|-------------------------|-------------------|--------|
| John R. Hawkins         |   | Marvin E. Dee           |
| Chief Executive Officer |   | Chief Financial Officer |
| June 29, 2005      |   | June 29, 2005      |

 

33

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**Remediation of Material Weaknesses**

 

As discussed above, we have identified material weaknesses in ourinternal control over financial reporting. We have taken steps to address the specific deficiencies identifiedabove.  In addition, to remediate thematerial weaknesses in our internal control over financial reporting subsequentto year end, we have implemented or are in the process of implementing thefollowing actions, which are all expected to be completed by the end of thethird quarter except for the last item, which will be ongoing:

 

•                  Weare updating our GAAP and other checklists to ensure that guidance is currentand complete.

•                  Weare assessing the need for additional ongoing employee training as it relatesto the evolving financial reporting environment and new emerging accountingissues.

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

•                  Weare establishing procedures which require a review by the finance department ofall material contracts, including leases.

•                  We are evaluating our financialorganization to determine the most appropriate and effective use of our currentresources and to determine if additional resources are necessary to support thefinancial reporting process.

 

**Changes in Internal Control**

 

There were no changes in the Company’s internal control over financialreporting that occurred during the fourth quarter ended April 3, 2005 thathas materially affected or is reasonably likely to materially affect theCompany’s internal control over financial reporting.

 

**REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM**

 

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

 

We have audited management’s assessment, included in the accompanyingManagement’s Report on Internal Control over Financial Reporting, that Hawkins, Inc.(the “Company”) did not maintain effective internal control over financialreporting as of April 3, 2005, because of the effect of the materialweaknesses identified in management’s assessment based on criteria establishedin *Internal Control – Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission.The Company’s management is responsible for maintaining effective internalcontrol over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting. Our responsibility is to express anopinion on management’s assessment and an opinion on the effectiveness of theCompany’s internal control over financial reporting based on our audit.

 

We conducted our audit in accordance with the standards of the PublicCompany Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whethereffective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internalcontrol over financial reporting, evaluating management’s assessment, testingand evaluating the design and operating effectiveness of internal control, andperforming such other procedures as we considered necessary in thecircumstances. We believe that our audit provides a reasonable basis for ouropinions.

 

A company’s internal control over financial reporting is a processdesigned by, or under the supervision of, the company’s principal executive andprincipal financial officers, or persons performing similar functions, andeffected by the company’s board of directors, management, and other personnelto provide reasonable assurance regarding the reliability of financialreporting and the preparation of 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 directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have amaterial effect on the financial statements.

 

Because of theinherent limitations of internal control over financial reporting, includingthe possibility of collusion or improper management override of controls,material misstatements due to error or fraud may not be prevented or detectedon a timely basis. Also, projections of any evaluation of the effectiveness ofthe internal control over financial reporting to future periods are subject tothe risk that the controls may become inadequate because of changes inconditions, or that the degree of compliance with the policies or proceduresmay deteriorate.

 

A materialweakness is a significant deficiency, or combination of significantdeficiencies, that result in more than a remote likelihood that a materialmisstatement of the annual or interim financial statements will not beprevented or detected. The following material weaknesses have been identifiedand included in management’s assessment:

 

•                  Thecompany did not implement the procedures and review processes required in orderto ensure the allowance for uncollectible note receivable, deferred taxliability and customer container deposits were adequately supported; and,

 

•                  Thecompany’s controls related to the selection and application of useful lives ofcertain fixed assets and leasehold improvements capitalized in previous yearsdid not operate effectively.

 

Due to the actual misstatements, the potential for more significantmisstatements, and the absence of other mitigating controls, there is a morethan remote likelihood that a material misstatement of the interim and annualfinancial statements would not be prevented or detected as a result of eachweakness. The material weaknesses were considered in determining the nature,timing, and extent of audit tests applied in our audit of the financialstatements and financial statement schedule as of and for the year ended April 3,2005, of the Company and this report does not affect our reports on suchfinancial statements and financial statement schedule.

 

In our opinion, management’s assessment that the Company did notmaintain effective internal control over financial reporting as of April 3,2005, is fairly stated, in all material respects, based on the criteriaestablished in *Internal Control – Integrated Framework*issuedby the Committee of Sponsoring Organizations of the Treadway Commission. Alsoin our opinion, because of the effect of the material weaknesses describedabove on the achievement of the objectives of the control criteria, the Companyhas not maintained effective internal control over financial reporting as of April 3,2005, based on the criteria established in *Internal Control –Integrated Framework* issued by the Committee of Sponsoring Organizationsof the Treadway Commission.

 

We have alsoaudited, in accordance with the standards of the Public Company AccountingOversight Board (United States), the financial statements and financialstatement schedule as of and for the year ended April 3, 2005, of theCompany and our reports dated June 29, 2005 expressed an unqualifiedopinion on those financial statements and financial statement schedule.

 
| /s/ Deloitte & Touche LLP |   |
|------------------------------------|--------|
|                               |
| Minneapolis, MN                    |
| June 29, 2005                 |

 

34

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ITEM 9B. OTHER INFORMATION

 

Not applicable

 

PART III

 

ITEM 10.                                               DIRECTORSAND EXECUTIVE OFFICERS OF THE COMPANY.

 

The information under the captions “Electionof Directors” and “Section 16(a) Beneficial Ownership ReportingCompliance” in the Proxy Statement for the 2005 Annual Meeting of Shareholdersis incorporated herein by this reference. Information required under this itemwith respect to executive officers is contained in Part I of this Form 10-Kunder the caption “Executive Officers of the Registrant.”

 

We have adopted a Code of Business Conductand Ethics that applies to all of our directors and employees, including ourprincipal executive officer, principal financial officer, controller and otherpersons performing similar functions. We have posted the Code of BusinessConduct and Ethics on our website located at http://www.hawkinsinc.com. Weintend to post on our website any amendment to, or waiver from, a provision ofour Code of Business Conduct and Ethics that applies to our principal executiveofficer, principal financial officer, controller and other persons performingsimilar functions within four business days following the date of suchamendment or waiver.

 

ITEM 11.                                               EXECUTIVECOMPENSATION.

 

The information under the caption “Compensationof Executive Officers and Directors” in the Proxy Statement for the 2005 AnnualMeeting of Shareholders is incorporated herein by this reference.

 

ITEM 12.                                             SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS.

 

The information under the caption “SecurityOwnership of Management and Beneficial Ownership” and under the heading “EquityCompensation Plan Information” in the Proxy Statement for the 2005 AnnualMeeting of Shareholders is incorporated herein by this reference.

 

35

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ITEM 13.                                               CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS.

 

The information under the captions “Electionof Directors” and “Related Party Transactions” in the Proxy Statement for the2005 Annual Meeting of Shareholders is incorporated herein by this reference.

 

ITEM 14.                                               PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

The information under the caption “IndependentAuditors’ Fees” in the Proxy Statement for the 2005 Annual Meeting ofShareholders is incorporated herein by this reference.

 

PART IV

 

ITEM 15.                                               EXHIBITS,FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

 

(a)(1)                  FINANCIALSTATEMENTS OF THE COMPANY.

 

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

 

Report of Independent Registered PublicAccounting Firm.

 

Balance Sheets at April 3, 2005 and March 28,2004.

 

Statements of Income for the fiscal yearsended April 3, 2005, March 28, 2004 and March 30, 2003.

 

Statements of Shareholders’ Equity for thefiscal years ended April 3, 2005, March 28, 2004 and March 30,2003.

 

Statements of Cash Flows for the fiscal yearsended April 3, 2005, March 28, 2004 and March 30, 2003.

 

Notes to Financial Statements.

 

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

 

The additional financial data listed below isincluded as a schedule to this Annual Report on Form 10-K and shouldbe read in conjunction with the financial statements presented in Part II,Item 8. Schedules not included with this additional financial data have beenomitted because they are not required or the required information is includedin the financial statements or the notes.

 

Report of Independent Registered PublicAccounting Firm.

 

The following financial statement schedule forthe fiscal years ended April 3, 2005, March 28, 2004 and March 30,2003.

 

Schedule II - Valuation and QualifyingAccounts.

 

36

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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.          |       | Filed Electronically      |
| 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.

 

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SIGNATURES

 

Pursuant to the requirements of Section 13or 15(d) of the Securities Exchange Act of 1934, the Company has dulycaused this report to be signed on its behalf by the undersigned on July 1,2005.

 
|   | HAWKINS, INC. |
|--------|---------------|
|   | By            | /s/ John R. Hawkins |   |
|   |          | John R. Hawkins, Chief Executive Officer |

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, this report has also been signed below by thefollowing persons on behalf of the Company and in the capacities indicated on July 1,2005.

 

 
|   | /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/ G. Robert Gey                                                                                                                                |   |
|   | G. Robert Gey, Director                                                                                                                          |   |
|   |                                                                                                                                             |   |
|   | /s/ Daryl I. Skaar                                                                                                                               |   |
|   | Daryl I. Skaar, Director                                                                                                                         |   |

 

38

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**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

Tothe Board of Directors and Shareholders ofHawkins, Inc.**Minneapolis, Minnesota

 

Wehave audited the financial statements of Hawkins, Inc. (the “Company”) asof April 3, 2005 and March 28, 2004, and for each of the three yearsin the period ended April 3, 2005, management’s assessment of theeffectiveness of the Company’s internal control over financial reporting as of April 3,2005, and the effectiveness of the Company’s internal control over financialreporting as of April 3, 2005, and have issued our reports thereon dated June 29,2005 (our report expresses an adverse opinion on the effectiveness of internalcontrol over financial reporting because of material weaknesses); suchfinancial statements and reports are included elsewhere in this Form 10-K. Our audits also included the financial statement schedule of the Companylisted in Item 15(a)(2).  This financial statement schedule is theresponsibility of the Company’s management.  Our responsibility is toexpress an opinion based on our audits.  In our opinion, this financialstatement schedule, when considered in relation to the basic financialstatements taken as a whole, presents fairly, in all material respects, theinformation set forth therein.

 
| /s/ Deloitte & Touche LLP |   |
|------------------------------------|--------|
|                               |
| Minneapolis, Minnesota             |
| June 29, 2005                 |

 

 

**SCHEDULE II**

 

 

**HAWKINS, INC.**

 

**VALUATIONAND QUALIFYING ACCOUNTS**

**FOR THEFISCAL YEARS ENDED APRIL 3, 2005, MARCH 28, 2004 AND MARCH 30,2003**

 
| ** **                                        | ** ** | ** **                         | ** ** | **Additions**                       | ** ** | ** **                      | ** ** | ** **                 | ** ** |
|---------------------------------------------------|------------|------------------------------------|------------|-------------------------------------|------------|---------------------------------|------------|----------------------------|------------|
| **Description**                                   | ** ** | **Balance at  Beginning  of Year** | ** ** | **Charged to  Costs and  Expenses** | ** ** | **Charged  To Other  Accounts** | ** ** | **Deductions  Write-Offs** | ** ** | **Balance at  End of Year** | ** ** |
|                                              |       |                               |       |                                |       |                            |       |                       |       |   |   |
| Reserve deducted from asset to which it  applies: | ** ** | ** **                         | ** ** | ** **                          | ** ** | ** **                      | ** ** | ** **                 | ** ** | ** ** | ** ** |
| ** **                                        | ** ** | ** **                         | ** ** | ** **                          | ** ** | ** **                      | ** ** | ** **                 | ** ** | ** ** | ** ** |
| 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 | ** ** |
| ** **                                        | ** ** | ** **                         | ** ** | ** **                          | ** ** | ** **                      | ** ** | ** **                 | ** ** | ** ** | ** ** |
| Year Ended March 30, 2003:                   | ** ** | ** **                         | ** ** | ** **                          | ** ** | ** **                      | ** ** | ** **                 | ** ** | ** ** | ** ** |
| Allowance for doubtful accounts                   |       | $                                  | 300,000    |                                | $          | 18,051                          |       |                       |       | $ | 43,051 | ** ** | $ | 275,000 | ** ** |
| Reserve for note receivable                       |       | 658,134                            |       |                                | ** ** | ** **                      | ** ** | ** **                 | ** ** | 658,134 | ** ** |
|                                              |       | $                                  | 958,134    |                                | $          | 18,051                          |       |                       | ** ** | $ | 43,051 | ** ** | $ | 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           |       | Filed Electronically      |
| 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)          Incorporated byreference to Exhibit 3.1 to the Company’s Annual Report on Form 10-Kfor the year ended September 30, 2001.

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

 

40

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