** **

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D. C. 20549**

 

**FORM 10-KT**

 

**TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**

**SECURITIES EXCHANGE ACT OF 1934**

 

**For thetransition period from October 1, 2001 to March 31, 2002**

** **

**CommissionFile No. 0-7647**

 

**HAWKINS, INC.**

(Exact Name of Registrantas specified in its Charter)

 

| **MINNESOTA**                                          |   | **41-0771293**                        |
|--------------------------------------------------------|--------|---------------------------------------|
| (State of  Incorporation)                              |   | (I.R.S. Employer  Identification No.) |
|                                                   |   |                                  |
| **3100  East Hennepin Avenue, Minneapolis, Minnesota** |   | **55413**                             |
| (Address of Principal  Executive Offices)              |   | (Zip Code)                            |
|                                                   |   |                                  |
| **(612)  331-6910**                                    |
| (Registrant's Telephone  Number, Including Area Code)  |

 

Securities 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 reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding twelve months (or for such shorter period that theRegistrant was required to file such reports) and (2) has been subject to suchfiling requirements for the past 90 days. Yes   ý  No   o

 

Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of Regulation S-K is not contained herein, and will not be contained,to the best of Registrant's knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-KT or anyamendment to this Form 10-KT   ý

 

The aggregate market value of voting stock held by nonaffiliates of theRegistrant on May 31, 2002, was $73,634,804 (based upon the last reportedsale price 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.  The number of shares outstanding of theRegistrant's common stock on May 31, 2002 was 10,216,688.

 

**DOCUMENTSINCORPORATED BY REFERENCE**

 

Part III of this Report on Form 10-KT incorporates by referenceinformation (to the extent specific sections are referred to herein) from theRegistrant's Proxy Statement for its Six-Month Transitional Period Ended March31, 2002 Meeting of Shareholders to be held August 14, 2002.

 

 

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CAUTIONARY STATEMENTREGARDING

FUTURE RESULTS ANDFORWARD-LOOKING STATEMENTS

 

The future results of the Company, including resultsreflected in any forward-looking statement made by or on behalf of the Company,will be impacted by a number of important factors.  Words such as “may,” “will,” “expect,” “believe,” “anticipate,”“estimate,” or “continue” or comparable terminology are intended to identifyforward-looking statements. Forward-looking statements, by their nature, involve substantial risksand uncertainties.

 

PART I

 

ITEM 1.                 BUSINESS.

 

(a)           GENERALDEVELOPMENT OF THE BUSINESS.  TheCompany was incorporated in Minnesota in 1955. In fiscal 1998, the Company combined three of its former subsidiaries,Feed-Rite Controls, Inc., Mon-Dak Chemical, Inc., Dakota Chemical, Inc. and itsArrowhead Chemical Division together to form a single wholly-owned subsidiaryknown as Hawkins Water Treatment Group, Inc. (HWTG).  In fiscal 1999, the Company merged HWTG into the Company.  During fiscal 2000, the Company acquiredcertain assets of St. Mary’s Chemicals, Inc. (discussed more fully in paragraph(i) below).  In fiscal 2001, the Companychanged its corporate name to Hawkins, Inc., reflecting the fact the Companyhas expanded its original business from the distribution of chemicals.

 

(b)           FINANCIALINFORMATION ABOUT INDUSTRY SEGMENTS. The Company’s principal business is the formulation, blending anddistribution of bulk and specialty chemicals, which it conducts in twoprincipal segments: Water Treatment and Industrial.  Financial information regarding these segments is reported in theCompany’s audited financial statements. See Items 7 and 8 below.

 

(c)           NARRATIVEDESCRIPTION OF THE BUSINESS.

 

(i)            PRODUCTS AND MARKETS.  The Company’s business is conducted in itstwo segments, Water Treatment and Industrial, which are more fully describedbelow:

 

(A)          WATER TREATMENT.  The Water Treatment segment specializes inproviding water and wastewater treatment equipment and chemicals, as well ashelping customers find solutions to systems problems in Minnesota, Wisconsin,Iowa, North Dakota, South Dakota, Nebraska, Illinois, Michigan, Montana andWyoming.  It also distributes theCompany’s products to its customers. The Water Treatment operations in the Minneapolis/St. Paul arearelocated to a new 59,000 square-foot facility, “the Red Rock facility,” inDecember 2000.  The Red Rock facility,located on the Mississippi River in St. Paul, Minnesota, has improvedoperational efficiencies, as the Water Treatment operations are now located atthe facility where several key products are produced and the consolidatedwarehouse space has reduced the amount of time required to load trucks betweendeliveries.

 

(B)           INDUSTRIAL.  The Industrial segment specializes in providing industrialchemicals and services to the energy, electronics, chemical processing, pulpand paper, medical device and plating industries.  In addition, the Industrial segment provides products andservices to food manufacturers and processing plants.  The Industrial segment also distributes a variety ofpharmaceutical products and sells certain food grade products, including theCheese-Phos(R) liquid phosphate product (discussed more fully in paragraph (iv)below) and other blended products, none of which are material to theCompany.  This segment conducts itsbusiness primarily through terminal operations and sales.

 

The Industrial segmentreceives, stores and distributes various chemicals in bulk, including liquidcaustic soda, phosphoric acid and aqua ammonia; manufactures sodiumhypochlorite (bleach); repackages liquid chlorine; and performs custom blendingof certain chemicals for customers according to customer formulas.  The Industrial segment operates liquidcaustic soda barge terminals to receive shipments during the period theMississippi River is open to barge traffic (approximately April 1 throughNovember 15).  During the remainder ofthe year the Company relies on stockpiles, as well as supplies shipped in byrailroad tank car.  Approximately 80% ofthe terminal operations business is related to liquid caustic soda.  Pursuant to operating agreements it has withother chemical companies, the Company also receives, stores and ships liquidcaustic soda and other chemicals at the Hawkins “Terminal 1” location and its“Terminal 2” site, which is located across the river and downstream fromTerminal 1.  The chlorine repackagingand bleach manufacturing operations, formerly located at Terminal 1, were movedto the Red Rock facility during fiscal 2001.

 

2

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Since 1963, flooding ofthe Mississippi River has required the Company’s Terminal operations to betemporarily shifted out of its buildings four times, the most recent being inthe spring of 2001.  From approximatelyApril 12, 2001 to May 8, 2001, the areas around the terminals were flooded,preventing shipments to and from these locations.  The terminals themselves were not flooded as the facilities wereadequately protected by dikes.  Additionally,the high water interrupted barge traffic on the Mississippi River and nocaustic soda barges were received from the closing of the river in the fall of2000 until the end of May 2001.  Nosubstantial interruptions to sales resulted from the flooding as trucks andrailroad tank cars were used as an alternative means of supply.  However, the Company incurred additionalshipping, labor, and other costs and was not able to pass through all of thesecosts to its customers.  This had anegative impact on earnings in the third quarter of fiscal 2001 ofapproximately $200,000.  No assurancecan be given that flooding will not recur or that there will not be materialdamage or interruption to the Company’s operations in the future fromflooding.  In September 2001, a 1.5million gallon caustic soda storage tank was completed at the Red Rock facilityallowing it to serve as an additional terminal for bulk chemicals.  Historically, the property on which the RedRock facility is located has not been subject to flooding when Terminals 1 and2 were not usable due to high water and the facility was not affected by theflooding in 2001.  The Company expectsthe impact of future flooding, if any, will be reduced as the new Red Rockfacility is expected to allow the Company to continue normal shipping tocustomers during periods of high water levels.

 

The Industrial segmentalso includes a sales distribution center for industrial chemicals, laboratorychemicals and laboratory supplies.  Bulkindustrial chemicals are generally repackaged and sold in smaller quantities tothe Company’s customers.  Sales areconcentrated primarily in Wisconsin, Minnesota, northern Iowa and North andSouth Dakota.  Among the principalchemicals handled are water purification and pollution control chemicals (suchas chlorine) and industrial chemicals (such as anhydrous ammonia, aluminumsulphate, hydrofluosilicic acid, soda ash, phosphates, muriatic acid, aquaammonia, sulfuric acid and liquid caustic soda).  It also specializes in sales to the plating and electronicindustries, for which it relies on a specially trained sales staff that worksdirectly with customers on their plating and other processes.

 

On May 26, 2000, theCompany completed the acquisition of certain assets of St. Mary's Chemicals,Inc. d.b.a. Universal Chemicals. Universal Chemicals, a Minnesota-basedcompany, was engaged in the business of marketing, selling, and distributingpharmaceutical chemicals to pharmacies and pharmacy wholesalers.  On May 26, 2000, the Company alsoentered into a five-year employment agreement with one of the previous ownersand consulting agreements with the other two previous owners of UniversalChemicals.  The employment agreement andconsulting agreements contain performance bonuses and non-compete provisions.  The agreements are based on UniversalChemicals’ operating results, as defined, for five years after the acquisitiondate and has a maximum payout of $3,520,000. The non-compete provisions extend for a period of five years after thetermination of the employment or consulting agreements, and require annualpayments of $100,000 to $200,000 depending on Universal Chemicals’ operatingresults, as defined in the agreements, for five years after the terminationdate.

 

(ii)           NEW PRODUCTS.  The Company did not have any significant newproducts during the six-month transitional period from October 1, 2001 to March31, 2002.

 

(iii)          RAW MATERIALS.  The Company’s segments have approximately300 suppliers, including many of the major chemical producers in the UnitedStates, of which approximately 20 account for a majority of the Company’spurchases.  The Company’s segmentstypically have written distributorship agreements or supply contracts with itssuppliers that are renewed from time to time. Although there is no assurance that any contract or understanding withany supplier will not be terminated in the foreseeable future, most of thebasic chemicals purchased can be obtained from alternative sources shouldexisting relationships be terminated.

 

(iv)          PATENTS, TRADEMARKS, LICENSES,FRANCHISES, AND CONCESSIONS.  There areno patents, trademarks, licenses, franchises or concessions that are currentlymaterial to the successful operation of the Company’s business.  The Company has, however, obtained a patenton a liquid form of sodium phosphate for use in the processed food industry, asdescribed below; the patent was granted on October 17, 1995 and will expire onNovember 8, 2013.

 

Process cheese producersare increasingly moving away from dry forms of sodium ortho phosphates toliquid versions.  The advantages of theliquid form include delivery by pumping, greater measurement accuracy andconsistency in finished product and the elimination of undissolved chemicaldust and the disposal of empty chemical bags. The major drawback of the liquid sodium phosphates currently being usedin the cheese processing industry is that it must be stored at between 130 and160 degrees Fahrenheit to prevent crystallization.  Expensive heated storage and steam heated piping is necessary tomaintain required temperatures.  Back-upgenerators must also be installed as safeguards against product cooling andsolidifying in case of a plant power outage.

 

3

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The Company’s patentedCheese-Phos(R) liquid sodium phosphate, which can be stored at room temperature,offers all the advantages of a liquid sodium phosphate product, but eliminatesthe need for high-heat delivery systems. Cheese-Phos(R) has not and is not expected to materially increase theCompany’s sales or profits.

 

(v)           SEASONAL ASPECTS.  The Water Treatment segment has historicallyexperienced higher sales during the April to September timeframe, which is dueprimarily to an increase in chemicals used by municipal water treatmentfacilities.

 

(vi)          WORKING CAPITAL ITEMS.  As a bulk distributor of chemicals, theCompany is required to carry significant amounts of inventory to meet rapiddelivery requirements of customers. Working capital requirements vary on a seasonal basis as a result of theseasonality of the water treatment business.

 

(vii)         DEPENDENCE ON LIMITED NUMBER OFCUSTOMERS.  No one customer representsmore than approximately five percent of the Company’s sales, but the loss ofits five largest customers could have a material adverse effect on the Company’sresults of operations.  Additionally, noone customer represents 10% or more of either the Water Treatment segment orIndustrial segment sales.

 

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

 

(ix)           GOVERNMENT CONTRACTS.  No material portion of the Company’sbusiness is subject to renegotiation of profits or termination of contracts atthe election of any state or federal governmental subdivision or agency.

 

(x)            COMPETITIVE CONDITIONS.  The Company operates in a competitiveindustry and competes with producers, distributors and sales agents offeringchemicals equivalent to all of the products handled by the Company.  Many such producers and distributors havesubstantially more business and are substantially larger than the Company.  No one competitor, however, is dominant inthe Company’s market.  Price and serviceare the principal factors affecting competition in the industry.

 

(xi)           RESEARCH AND DEVELOPMENT.  The Company does not have a formal researchand development function.  Employees areassigned to research and development projects as the need arises.  During the six-month transitional periodfrom October 1, 2001 to March 31, 2002, expenditures for research anddevelopment were negligible and not material to the Company’s business.

 

(xii)          ENVIRONMENTAL MATTERS.  The Company is primarily a compounder anddistributor, rather than a manufacturer, 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 effect upon the capital expenditures, earningsor competitive position of the Company. The Company does not currently anticipate making any material capitalexpenditures for environmental control facilities during fiscal 2003.

 

(xiii)         EMPLOYEES.  The number of persons employed by the Company as of March 31,2002 was 200.

 

(d)           FINANCIALINFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES.  Because the Company deals primarily in onegeographic area of the United States, a breakdown of sales, profitability orassets attributable to different geographic areas is not meaningful to anunderstanding of the Company's business.

 

ITEM 2.                 PROPERTIES.

 

The Company owns its principal location, whichconsists of approximately 11 acres of land in Minneapolis, Minnesota, with sixbuildings containing a total of 160,000 square feet of office and warehousespace.  The Company’s principal officeis located in one of these buildings, at 3100 East Hennepin Avenue.  The other buildings house the rest of theCompany’s operations.  As of the datehereof, the Company has installed sprinkler systems in substantially all of itswarehouse facilities for fire protection. The Company carries insurance covering the replacement of propertydamaged by fire or flood.

 

As noted above, in December 2000 the Company completedthe new Red Rock facility, which consists of a 59,000 square foot buildinglocated on approximately 10 acres of land. This facility has outside storage capacity of approximately 1.5 milliongallons for the storage of liquid caustic soda, as well as numerous smallertanks for storing and mixing chemicals. 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 the site through May 31, 2029. The basic rent and annual tonnage rent are to be renegotiated every fiveyears beginning June 1, 2004.

 

4

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In addition to the facilities described above, theCompany’s other facilities are described below.  These facilities, together with those described above, areadequate and suitable for the purposes they 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 (4)    |   | Warehouse                     |   | 20,300                   |   |
|            |   | Washburn, ND           |   | Office and Warehouse          |   | 14,000                   |   |
|            |   | Billings, MT           |   | Office and Warehouse          |   | 6,000                    |   |
|            |   | Sioux Falls, SD (5)    |   | Warehouse                     |   | 18,000                   |   |
|            |   | Rapid City, SD         |   | Warehouse                     |   | 3,600                    |   |
|            |   | Willow Springs, IL (2) |   | Warehouse                     |   | 2,000                    |   |
|            |   | Superior, WI           |   | Office and Warehouse          |   | 17,000                   |   |
|            |   | Slater, IA             |   | Warehouse                     |   | 8,700                    |   |
|            |   | Lincoln, NE (2)        |   | Office and Warehouse          |   | 5,400                    |   |

 

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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 mixing chemicals.  The land is leased from the Port Authorityof the City of St. Paul, Minnesota for a basic rent plus an amount based on theannual tonnage unloaded at each site. The applicable leases run until December 31, 2003, at which time theCompany has an option to renew the leases for an additional five-year period onthe same terms and conditions subject to renegotiation of rent.  The Company also has options to renew theseleases for additional successive five-year renewal periods (extending until2018) for which the rent may be adjusted pursuant to the rental renegotiationprovisions contained in the leases.

 

(2)           Thisfacility is leased from a third party.

 

(3)           Partof this facility is leased to a third party (5,000 square feet).

 

(4)           Partof this facility is leased to third parties (10,000 square feet).

 

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

 

The Company also owns several trucks, tractors,trailers and vans.

 

ITEM 3.                 LEGALPROCEEDINGS.

 

As of the date of this filing, the Company is notinvolved in any pending legal proceeding other than ordinary routine litigationincidental to their business, except as follows:

 

LYNDE COMPANY WAREHOUSEFIRE.  Only one claimant remains underthe settlement agreement reached  inconnection with the class action, DONNA M. COOKSEY, ET AL. V. HAWKINS CHEMICAL,INC. AND THE LYNDE COMPANY (Cooksey), brought in March 1995 against the Companyand its former subsidiary, for damages alleged to be caused by a fire at anoffice/warehouse facility used by the former subsidiary.  The maximum amount of damages this claimantmay recover is $75,000.  Because thisamount is not material and the Company expects any amounts awarded to thisclaimant to be covered by its umbrella insurer, the Company does not plan tomake any further updates regarding this action in subsequent quarterly orannual reports.

 

5

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

 

The annual meeting of the shareholders of the Companywas held on February 13, 2002.

 

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

 

PROPOSAL 1:       Electionof Directors.  All of management'snominees for director were elected with the following votes:

 
|               |   | **For**    |   | **Against** |   | **Withheld** |   | **Abstain** |   | **Broker  Non-votes** |
|--------------------|--------|------------|--------|-------------|--------|--------------|--------|-------------|--------|-----------------------|
| John R. Hawkins    |   | 10,032,673 |   | 0           |   | 159,713      |   | 0           |   | 0                     |
|               |   |       |   |        |   |         |   |        |   |                  |
| Kurt R. Norman     |   | 9,938,968  |   | 0           |   | 253,418      |   | 0           |   | 0                     |
|               |   |       |   |        |   |         |   |        |   |                  |
| Dean L. Hahn       |   | 10,057,347 |   | 0           |   | 135,039      |   | 0           |   | 0                     |
|               |   |       |   |        |   |         |   |        |   |                  |
| Donald L. Shipp    |   | 10,029,085 |   | 0           |   | 163,301      |   | 0           |   | 0                     |
|               |   |       |   |        |   |         |   |        |   |                  |
| Howard M. Hawkins  |   | 10,119,560 |   | 0           |   | 72,826       |   | 0           |   | 0                     |
|               |   |       |   |        |   |         |   |        |   |                  |
| John S. McKeon     |   | 10,057,035 |   | 0           |   | 135,351      |   | 0           |   | 0                     |
|               |   |       |   |        |   |         |   |        |   |                  |
| Duane M. Jergenson |   | 10,060,757 |   | 0           |   | 131,629      |   | 0           |   | 0                     |
|               |   |       |   |        |   |         |   |        |   |                  |
| G. Robert Gey      |   | 10,060,757 |   | 0           |   | 131,629      |   | 0           |   | 0                     |
|               |   |       |   |        |   |         |   |        |   |                  |
| Daryl I. Skaar     |   | 10,026,054 |   | 0           |   | 166,332      |   | 0           |   | 0                     |

 

ITEM 4A.              EXECUTIVEOFFICERS OF THE COMPANY.

 

The executive officers of the Company, their ages andoffices held, as of May 31, 2002 are set forth below:

 
| **Name**             |   | **Age** |   | **Office**                                                         |   |
|----------------------|--------|---------|--------|--------------------------------------------------------------------|--------|
|                 |   |    |   |                                                               |   |
| John R. Hawkins      |   | 50      |   | Chairman of the Board and Chief Executive Officer                  |   |
|                 |   |    |   |                                                               |   |
| Kurt R. Norman       |   | 46      |   | President and Chief Operating Officer                              |   |
|                 |   |    |   |                                                               |   |
| Marvin E. Dee        |   | 53      |   | Vice President, Chief Financial Officer, Secretary,  and Treasurer |   |
|                 |   |    |   |                                                               |   |
| Keenan A.  Paulson   |   | 52      |   | Vice President - Water Treatment Group                             |   |
|                 |   |    |   |                                                               |   |
| John R. Sevenich     |   | 44      |   | Vice President - Manufacturing and Specialty  Products             |   |
|                 |   |    |   |                                                               |   |
| Daniel E.  Soderlund |   | 39      |   | Vice President - Pharmaceuticals                                   |   |

 

John R. Hawkins has been the Company’s Chairman andChief Executive Officer since February 16, 2000.  He was President and Chief Operating Officer from December 1998to February 2000 and was Secretary from 1991 to December 1999.  He was an Executive Vice President from 1997to December 1998 and Vice President of Sales from 1987 to 1997.

 

Kurt R. Norman has been the Company’s President andChief Operating Officer since February 16, 2000.  He was a Vice President of the Company from February 1999 untilFebruary 2000, the Vice President of the Water Treatment segment from 1996 toFebruary 1999 and was the Water Treatment General Manager from 1988 to 1996.

 

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

 

Keenan A. Paulson has been the Company’s VicePresident - Water Treatment Group since May 2000.  Prior to attaining this position, Ms. Paulson held variouspositions during her 30-year career with the Company, most recently as itsWater Treatment General Manager.

 

John R. Sevenich has been the Company’s Vice President- Manufacturing and Specialty Products since May 2000.  He was the Business Unit Manager ofManufacturing from 1998 to May 2000 and was a Sales Representative with theCompany from 1989 to 1998.

 

Daniel E. Soderlund has been the Company’s VicePresident - Pharmaceuticals since May 2000. He was the Business Unit Manager of Pharmaceuticals from April 1999 toMay 2000 and was a Sales Representative with the Company from 1992 to April1999.

 

6

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PART II

 

ITEM 5.                 MARKETFOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

 
| **Quarterly  Stock Data** |   | **High** |   | **Low** |   |
|---------------------------|--------|----------|--------|---------|--------|
|                      |   |     |   |    |   |
| Fiscal 2002               |   |     |   |    |   |
| 2nd  Quarter              |   | $        | 9.650  |    | $      | 8.370 |   |
| 1st  Quarter              |   | 8.900    |   | 7.150   |   |
|                      |   |     |   |    |   |
| Fiscal 2001               |   |     |   |    |   |
| 4th  Quarter              |   | $        | 8.900  |    | $      | 7.080 |   |
| 3rd  Quarter              |   | 9.688    |   | 8.140   |   |
| 2nd  Quarter              |   | 10.250   |   | 8.375   |   |
| 1st  Quarter              |   | 8.750    |   | 6.625   |   |
|                      |   |     |   |    |   |
| Fiscal 2000               |   |     |   |    |   |
| 4th Quarter               |   | $        | 8.063  |    | $      | 7.250 |   |
| 3rd  Quarter              |   | 8.375    |   | 7.063   |   |
| 2nd  Quarter              |   | 8.625    |   | 7.625   |   |
| 1st  Quarter              |   | 8.875    |   | 7.625   |   |

 
| **Cash Dividends** |   | **Declared** |   | **Paid** | ** ** |
|--------------------|--------|--------------|--------|----------|------------|
|               |   |         |   |     |       |
| Fiscal 2003        |   |         |   |     |       |
| 1st  Quarter       |   |         |   | $        | .15        |   |
|               |   |         |   |     |       |
| Fiscal 2002        |   |         |   |     |       |
| 2nd  Quarter       |   | $            | .15    |     |       |   |
| 1st  Quarter       |   |         |   | $        | .15        |   |
|               |   |         |   |     |       |
| Fiscal 2001        |   |         |   |     |       |
| 4th  Quarter       |   | $            | .15    |     |       |   |
| 3rd  Quarter       |   |         |   | $        | .15        |   |
| 2nd  Quarter       |   | $            | .15    |     |       |   |
| 1st  Quarter       |   |         |   | $        | .15        |   |
|               |   |         |   |     |       |
| Fiscal 2000        |   |         |   |     |       |
| 4th  Quarter       |   | $            | .15    |     |       |   |
| 3rd  Quarter       |   |         |   | $        | .17        |   |
| 2nd  Quarter       |   | $            | .17    |     |       |   |
| 1st  Quarter       |   |         |   | $        | .12        |   |

 

The common stock of Hawkins, Inc. trades on the NASDAQNational Market System under the symbol “HWKN.” The price informationrepresents closing sale prices reported in the NASDAQ/NMS Monthly StatisticalReport.

 

As of March 31, 2002, there were approximately 700shareholders of record of the Company’s common stock.  Additionally, the Depository Trust Company, the principal centralsecurities depository in the United States, held the shares of approximately1,400 shareholders that were counted as owned by one holder.

 

7

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ITEM 6.  SELECTED FINANCIAL DATA

 

SELECTED FINANCIAL DATA TABLES

 
| **Fiscal  Year**                            |   | **Six Months  Ended  March 31,  2002 (1)** |       | **Six Months  Ended  March 31,  2001** |     | **Fiscal Years Ended September 30****(1)** |     |
|---------------------------------------------|--------|--------------------------------------------|------------|----------------------------------------|----------|--------------------------------------------|----------|
|                                        |   |                                       | **2001**   |                                   | **2000** |                                       | **1999** |   | **1998** |   | **1997** | ** ** |
|                                        |   |                                       |       |                                   |     |                                       |     |   |   |   |   |   |   |   |   |
| Sales                                       |   | $                                          | 49,868,179 |                                   | $        | 50,409,638                                 |     | $ | 107,931,668 |   | $ | 98,021,731 |   | $ | 96,734,470 |   | $ | 95,860,765 |   | $ | 88,652,642 |   |
|                                        |   |                                       |       |                                   |     |                                       |     |   |   |   |   |   |   |   |   |
| Net income                                  |   | 3,083,771                                  |       | 2,588,668                              |     | 7,117,578                                  |     | 8,567,699 |   | 9,698,642 |   | 8,213,869 |   | 7,790,487 |   |
|                                        |   |                                       |       |                                   |     |                                       |     |   |   |   |   |   |   |   |   |
| Basic and diluted earnings per common share |   | .30                                        |       | .25                                    |     | .69                                        |     | .81 |   | .87 |   | .71 |   | .67 |   |
|                                        |   |                                       |       |                                   |     |                                       |     |   |   |   |   |   |   |   |   |
| Cash dividends declared per common share    |   | .15                                        |       | .15                                    |     | .30                                        |     | .32 |   | .27 |   | .20 |   | .18 |   |
|                                        |   |                                       |       |                                   |     |                                       |     |   |   |   |   |   |   |   |   |
| Cash dividends paid per common share        |   | .15                                        |       | .15                                    |     | .30                                        |     | .29 |   | .25 |   | .19 |   | .16 |   |
|                                        |   |                                       |       |                                   |     |                                       |     |   |   |   |   |   |   |   |   |
| Total assets                                |   | 71,487,133                                 |       | 69,495,457                             |     | 74,868,121                                 |     | 69,894,520 |   | 68,999,827 |   | 66,535,475 |   | 63,652,616 |   |
|                                        |   |                                       |       |                                   |     |                                       |     |   |   |   |   |   |   |   |   |
| Long-term debt                              |   |                                       |       | 116,823                                |     | 116,823                                    |     | 226,003 |   | 328,040 |   | 423,402 |   | 512,525 |   |
|                                             |        |                                            |            |                                        |          |                                            |          |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(1)           The Company changedits fiscal year end from the Sunday closest to September 30 to the Sundayclosest to March 31, beginning after a six-month transitional periodending on March 31, 2002.  See“Management’s Discussion and Analysis of Results of Operations and FinancialCondition - General.”

 

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

 

The information contained in this Report on Form 10-KTfor the six-month transitional period ended March 31, 2002 includesforward-looking statements as defined in Section 21E of the Securities ExchangeAct of 1934, as amended.  Theseforward-looking statements involve a number of risks and uncertainties,including demand from major customers, competition, changes in product orcustomer mix or revenues, changes in product costs and operating expenses, andother factors disclosed throughout this Report on Form 10-KT for the six-monthtransitional period ended March 31, 2002 and the Company's other filings withthe Securities and Exchange Commission. The actual results that the Company achieves may differ materially fromany forward-looking statements due to such risks and uncertainties.  The Company undertakes no obligation torevise any forward-looking statements in order to reflect events orcircumstances that may arise after the date of this report.  Readers are urged to carefully review andconsider the various disclosures made by the Company in this report and in theCompany's other reports filed with the Securities and Exchange Commission thatattempt to advise interested parties of the risks and uncertainties that mayaffect the Company's financial condition, results of operations or cash flows.

 

GENERAL

 

In December 2001, the Company changed its fiscal yearend to a 52/53-week year ending on the Sunday closest to March 31 from a52/53-week fiscal year ending on the Sunday closest to September 30.  The change in year-end will better match theCompany’s annual reporting process to its natural business cycles.  This change resulted in a six-monthtransitional period ending March 31, 2002. This discussion compares the six-month transitional period ended March 31,2002 with the first six months of fiscal 2001 and the Company’s fiscal 2001(ended September 30, 2001) with fiscal 2000 (ended October 1, 2000) and fiscal1999 (ended October 3, 1999).

 

OVERALL SUMMARY

 

Sales during the six-month transitional period endedMarch 31, 2002 decreased 1.1% to $49,868,179 from $50,409,638 during the sixmonths ended March 31, 2001.  Net incomefor the six-month transitional period ended March 31, 2002 increased to$3,083,771, or $0.30 per share, compared to $2,588,668, or $0.25 per shareduring the six months ended March 31, 2001. The 

 

8

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increase in net income was primarily due to the LIFO method of valuinginventories (see Gross Margin discussion below) and to tighter controls onoperating costs.  Return on averageshareholders' equity was 10.5% for the six-month transitional period endedMarch 31, 2002, compared to 9.3% for the six months ended March 31, 2001.  Book value per share at March 31, 2002 was$5.91 compared to $5.77 at September 30, 2001.

 

SALES

 

For the six-month transitional period ended March 31,2002 sales decreased $541,459, a 1.1% decrease in comparison to the six monthsended March 31, 2001, due to a decrease of $1,339,502 (3.6%) in Industrialsegment sales that was partially offset by an increase of $798,043 (6.0%) inWater Treatment segment sales.  TheIndustrial segment decrease is mainly due to decreases in both the sellingprice and volumes of caustic soda sold and to an economic downturn in the telecommunicationsand circuit board industries.  The WaterTreatment segment increase is due mainly to an increase in volumes of productssold.

 

For the fiscal year ended September 30, 2001, salesincreased $9,909,937, a 10.1% increase from the fiscal year ended October 1,2000, due to an increase of $6,494,368 (9.6%) in Industrial segment sales andan increase of $3,415,569 (11.1%) in Water Treatment segment sales.  The Industrial segment increase was mainlydue to an increase in the selling price of caustic soda and volume increases inother product lines, which were partially offset by a decrease in the volume ofcaustic soda sold.  The Water Treatmentsegment increase is due mainly to an increase in volumes of products sold.

 

For the year ended October 1, 2000, sales increased$1,287,261, a 1.3% increase from the fiscal year ended October 3, 1999, due toan increase of $1,786,821 in Water Treatment segment sales partially offset bya decrease of $499,560 in Industrial segment sales.  The Water Treatment segment increase is due to an increase involumes of products sold.  TheIndustrial segment decrease is due to a decrease in the selling price ofcaustic soda partially offset by an increase in volume of caustic soda sold andthe majority of other products sold in this segment.

 

GROSS MARGIN

 

Gross margin, as a percentage of sales, was 23.1% forthe six-month transitional period ended March 31, 2002 compared to 20.7% forthe six-month period ended March 31, 2001 and was 22.5%, 25.3%, and 24.8% forthe fiscal years ended September 30, 2001, October 1, 2000, and October 3,1999, respectively.  The gross marginvariations are due to a number of variables in both segments as explainedbelow.

 

Gross margin, as a percentage of sales, for theIndustrial segment was 21.4% for the six-month transitional period ended March31, 2002 and 17.3% for the six-month period ended March 31, 2001 and was 18.7%,22.6%, and 22.1% for the fiscal years ended September 30, 2001, October 1,2000, and October 3, 1999, respectively. The increase for the six-month transitional period ended March 31, 2002was primarily due to the negative effects in the prior year of the combinationof the Company valuing inventory using the LIFO method, rising caustic sodaprices and large quantities of inventory on hand at the beginning of theperiod.

 

The decrease in gross margin for the fiscal year endedSeptember 30, 2001 compared to the fiscal year ended October 1, 2000 wasprimarily due to the cost of caustic soda, which began to increase at thebeginning of the fiscal year ended September 30, 2001 and continued to increaseduring the first eight months of the fiscal year.  Due to the large quantities of caustic soda that the Company hadon hand at the beginning of fiscal 2001 and because of the LIFO method ofvaluing inventories, this increase negatively impacted gross margins.  The Company implemented caustic soda priceincreases during the year; however market pressures prevented the Company fromrecovering all of the increased caustic soda costs.  Additionally, an increase over the prior year in the volume ofcaustic soda in the year-end inventory combined with the increase in cost ofcaustic soda resulted in an increase in the LIFO reserve, all of whichnegatively affected earnings by $1.4 million or $.14 per share.  The Company attempts to maintain relativelyconstant dollar margins as the cost of this product line increases anddecreases.  The cost of this product isnormally subject to fluctuations, which are expected to continue in futureperiods.  By maintaining relativelystable dollar margins, the gross margin percentage will decrease when the costof the product is increasing and will increase when the cost of the product isdecreasing.  The fiscal year endedOctober 1, 2000 increase over the fiscal year ended October 3, 1999 wasdue to the Company’s ability to maintain relatively constant profit margins ascaustic soda costs were decreasing.  TheCompany has also generally been able to, and expects to continue to, adjust itsselling price as the cost of materials and other expenses changes.

 

9

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Gross margin, as a percentage of sales, for the WaterTreatment segment was 27.6% for the six-month transitional period ended March31, 2002 and 30.2% for the six-month period ended March 31, 2001 and was 30.7%,31.2%, and 31.0% for the fiscal years ended September 30, 2001, October 1,2000, and October 3, 1999, respectively. The six-month transitional period ended March 31, 2002 decrease incomparison to the six-month period ended March 31, 2001 and the decrease forthe fiscal year ended September 30, 2001 in comparison to the fiscal year endedOctober 1, 2000 were attributable to the aforementioned changes in caustic sodacosts and additional costs associated with the new Red Rock facility.  The fiscal year ended October 1, 2000 grossmargin was comparable to the fiscal year ended October 3, 1999.

 

SELLING, GENERAL AND ADMINISTRATIVE

 

Selling, general and administrative expenses increased4.3% in the six-month transitional period in comparison to the six-month periodended March 31, 2001 and increased 21.0% and 9.3% in the fiscal years endedSeptember 30, 2001 and October 1, 2000, respectively over the previousyears.  These increases are primarilyattributable to the Company’s investment in infrastructure necessary to supportfuture sales increases as well as a larger, more geographically dispersedorganization.  The six-monthtransitional period increase over the six months ended March 31, 2001 wasprimarily attributable to increases in sales staff and insurance expense.  The fiscal year ended September 30, 2001increase over the fiscal years ended October 1, 2000 and October 3, 1999 wasmainly due to increases in the sales staff, consulting fees, amortization ofintangibles related to the acquisition of Universal Chemicals, and to employeebenefits costs.  

 

INTEREST INCOME

 

Interest income decreased $237,714 in the six-monthtransitional period ended March 31, 2002 versus the six-month period endedMarch 31, 2001 and decreased $346,706 in the fiscal year ended September 30,2001 as compared to the previous fiscal year ended October 1, 2000, anddecreased $48,116 in the fiscal year ended October 1, 2000 as compared to theprevious fiscal year ended October 3, 1999, due to less cash available forinvestment and a lower rate of return on the Company’s cash equivalents andavailable for sale securities which consist primarily of money market accounts,mutual funds, commercial paper, and annuity contracts.

 

PROVISION FOR INCOME TAXES

 

The effective income tax rate was 36.2% for thesix-month transitional period ended March 31, 2002 versus 39.2% for the six-month period ended March 31, 2001.  Theeffective income tax rate was 33.8% for the fiscal year ended September 30,2001, 39.2% for the fiscal year ended October 1, 2000, and 39.4% for thefiscal year ended October 3, 1999.  Thesix-month transitional period and fiscal year ended September 30, 2001 andOctober 1, 2000 decreases were due to changes in state apportionment factorsand a deduction for dividends paid on allocated shares held in the EmployeeStock Ownership Plan and Trust.

 

SELECTED QUARTERLY FINANCIAL DATA

 
|                                  |   | **Six-Month  Transitional Period  Ended March 31, 2002(1)** |       |
|---------------------------------------|--------|-------------------------------------------------------------|------------|
|                                  |   | **First  Quarter**                                          |       | **Second  Quarter** | ** ** |
|                                  |   |                                                        |       |   |   |   |   |
| Sales                                 |   | $                                                           | 25,210,631 |   | $ | 24,657,548 |   |
| Gross margin                          |   | 5,959,375                                                   |       | 5,576,331 |   |
| Net income                            |   | 1,620,604                                                   |       | 1,463,167 |   |
| Basic and  diluted earnings per share |   | $                                                           | .16        |   | $ | .14 |   |
|                                       |        |                                                             |            |  |  |  |  |  |  |  |

 
|                                  |   | **Fiscal Year Ended September 30, 2001** |       |
|---------------------------------------|--------|------------------------------------------|------------|
|                                  |   | **First  Quarter**                       |       | **Second  Quarter** |   | **Third  Quarter** |   | **Fourth  Quarter** | ** ** |
|                                  |   |                                     |       |   |   |   |   |   |   |
| Sales                                 |   | $                                        | 24,256,916 |   | $ | 26,152,722 |   | $ | 28,978,656 |   | $ | 28,543,374 |   |
| Gross margin                          |   | 5,075,036                                |       | 5,368,722 |   | 7,080,326 |   | 6,773,503 |   |
| Net income                            |   | 1,340,378                                |       | 1,248,290 |   | 2,082,953 |   | 2,445,957 |   |
| Basic and  diluted earnings per share |   | $                                        | .13        |   | $ | .12 |   | $ | .20 |   | $ | .24 |   |

 

10

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|                                  |   | **Fiscal Year Ended October 1, 2000** |       |
|---------------------------------------|--------|---------------------------------------|------------|
|                                  |   | **First  Quarter**                    |       | **Second  Quarter** |   | **Third  Quarter** |   | **Fourth  Quarter** | ** ** |
|                                  |   |                                  |       |   |   |   |   |   |   |
| Sales                                 |   | $                                     | 21,875,319 |   | $ | 22,923,362 |   | $ | 27,084,652 |   | $ | 26,138,398 |   |
| Gross margin                          |   | 4,972,352                             |       | 5,386,900 |   | 7,641,925 |   | 6,800,999 |   |
| Net income                            |   | 1,639,687                             |       | 1,774,690 |   | 2,742,460 |   | 2,410,862 |   |
| Basic and  diluted earnings per share |   | $                                     | .15        |   | $ | .17 |   | $ | .26 |   | $ | .23 |   |

 

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(1)           TheCompany changed its fiscal year end from the Sunday closest to September 30 tothe Sunday closest to March 31, beginning after a six-month transitionalperiod ending on March 31, 2002.  See“Management’s Discussion and Analysis of Results of Operations and Financial Condition- General.”

 

INFLATION

 

Inflation did not have a significant impact on theCompany during the six-month transitional period ended March 31, 2002 and thefiscal years ended September 30, 2001, October 1, 2000, and October 3, 1999, asselling prices have generally been adjusted as the cost of materials and otherexpenses have changed.  On occasion,however, slight fluctuations in the cost of a single, large-volume producthistorically have not been reflected in the selling price of that product.

 

FINANCIAL CONDITION

 

LIQUIDITY

 

Cash provided by operations in the six-monthtransitional period ended March 31, 2002 was $3,860,076 compared with$5,676,061 during the six-month period ended March 31, 2001, $9,950,745 in thefiscal year ended September 30, 2001 compared with $9,693,479 in the fiscalyear ended October 1, 2000, and $13,847,248 in the fiscal year ended October 3,1999.  The decrease in the six-monthtransitional period ended March 31, 2002 compared to the same period a year agowas due primarily to fluctuations in inventory and timing of liabilitypayments.  The decrease for the fiscalyears ended September 30, 2001 and October 1, 2000 compared to the fiscal yearended October 3, 1999 was due primarily to fluctuations in inventory values andto the recovery of litigation expenses during the fiscal year ended October 3,1999.

 

Cash and investments available-for-sale increased by$1,909,772 from September 30, 2001 to $14,510,643 at the end of the six-monthtransitional period.  The increase wasprimarily attributable to cash generated by operations in excess of capitalexpenditures and financing uses and the maturity of investments frominvestments held to maturity, which were invested in available for saleinvestments.  The Company is currentlyinvesting excess cash primarily in conservative investments.  Cash equivalents consist of money marketaccounts at a financial institution. Investments consist of investment contracts with high-rated, stableinsurance companies, marketable securities consisting of variable ratemunicipal bonds, commercial paper and mutual funds carried at fair value.  Investments are highly liquid and areavailable upon demand generally with only a minor penalty.  Additionally, cash and cash equivalentsincreased by $6,221,039 from September 30, 2001 as the Company was in processat March 31, 2002 of transitioning investments into higher rate of returninvestments.  Subsequent to March 31,2002 a significant portion of the cash equivalents were invested in theaforementioned investment options.

 

CAPITAL EXPENDITURES

 

Capital expenditures in the six-month transitionalperiod ended March 31, 2002 and the fiscal years ended September 30, 2001,October 1, 2000, and October 3, 1999 were $1,145,030, $7,056,226, $7,216,301,and $2,449,894, respectively.  Of thesix-month transitional period ended March 31, 2002 capital expenditures,transportation equipment additions accounted for $310,000, buildingimprovements and additions amounted to $380,000, and warehouse, laboratory andoffice machinery and equipment accounted for $450,000.

 

COMMON STOCK REPURCHASES

 

During the six-month transitional period ended March31, 2002, the Company acquired and retired 32,100 shares of common stock for$251,790.  During the fiscal year endedSeptember 30, 2001, the Company acquired and retired 168,951 shares of commonstock for $1,421,641.

 

11

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CONTRACTUAL OBLIGATIONS AND COMMMERCIAL COMMITMENTS

 

Future minimum lease payments due under operatingleases with an initial term of one year or more at March 31, 2002 are $202,407in 2003, $164,362 in 2004, $105,901 in 2005, $86,776 in 2006, $86,776 in 2007,and $1,937,996 thereafter.  The Companydoes not have any other contractual obligations or commercial commitments.

 

OUTLOOK

 

Expectedfuture cash flows from operations, coupled with the Company's strong financialposition, puts the Company in a position to fund both short and long-termworking capital and capital investment needs with internally generated funds.  Management does not, therefore, anticipatethe need to engage in significant financing activities in either the short orlong-term.  If the need to obtainadditional capital does arise, however, management is confident that theCompany's total debt to capital ratio puts it in a position to obtain debtfinancing on favorable terms.

 

Althoughmanagement continually reviews opportunities to enhance the value of theCompany through strategic acquisitions, other capital investments and strategicdivestitures, no material commitments for such investments or divestiturescurrently exist.

 

Other than as discussed above, management is not awareof any matters or trends that have materially affected the results ofoperations for the six-month transitional period ended March 31, 2002 that arenot expected to have either short or long-term implications, nor is it aware ofany trends or other matters that have not materially affected results in thesix-month transitional period ended March 31, 2002 but are expected to have amaterial effect on future periods.

 

CRITICAL ACCOUNTING POLICIES

 

Accounting policies whose application may have asignificant effect on the reported results of operations and financial positionof the Company, and that can require judgments by management that affect theirapplication, include Statement of Financial Accounting Standards (SFAS) No. 5,“Accounting for Contingencies” and SFAS No. 121, “Accounting for the Impairmentof Long-Lived Assets and for Long-Lived Assets to be Disposed Of.”

 

SFAS No. 5 requires management judgments regarding theprobability and estimated amount of possible future contingent liabilities,including legal matters.  SFAS No. 121requires judgments regarding future operating or disposition plans formarginally performing assets and estimates of expected realizable values forassets to be sold.  Other accountingpolicies that are significant to the Company include the following:

 

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, delivery and performance has occurred, theprice and terms of sale are fixed and collection of the receivable is expected.

 

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

 

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

 

Property, Plant, and Equipment – Property, plant, and equipment arestated at cost and depreciated over the lives of the assets using both thestraight-line and declining balance methods. Major replacements and improvements are capitalized, while maintenanceand repairs which do not improve or extend the useful lives of the respectiveassets are charged to operations.  Theassets and related accumulated depreciation accounts are adjusted for assetretirements and disposals with the resulting gain or loss, if any, recorded inthe Statement of Income at the time of disposal.

 

The Company’s policies for these matters, which aredescribed in Note 1 to the financial statements, are in accordance withgenerally accepted accounting principles. Management believes that their application results in a fair presentationin the financial statements of the Company’s operating results and financialposition.

 

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

In July 2001, the Financial Accounting Standards Board(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142,“Goodwill and Other Intangible Assets.” The Company adopted the provisions of SFAS No. 142 for other intangiblesand

 

12

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goodwill acquired before June 30, 2001 on the first day of fiscal 2003.  Under SFAS No. 142, goodwill as well asother intangibles determined to have an indefinite life will no longer beamortized; however, these assets will be reviewed for impairment on a periodicbasis.  SFAS No. 142 also includesprovisions for the reclassification of certain existing recognized intangiblesas goodwill, reclassification of certain intangibles out of previously reportedgoodwill and the identification of reporting units for purposes of assessingpotential future impairments of goodwill.

 

The implementation of SFAS No. 142 did not impact theCompany’s financial statements.  As ofMarch 31, 2002 the Company had net other intangibles assets of $3,345,148.  Amortization expense was $141,742, $283,485,$136,561, and $63,098 during the six-month transitional period ended March 31,2002 and the fiscal years ended September 30, 2001, October 1, 2000, andOctober 3, 1999, respectively.

 

In September 2001, the FASB issued SFAS No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets.”  SFAS No. 144 requires that long-lived assetsto be disposed of by sale, including discontinued operations, be measured atthe lower of the carrying cost or fair value less cost to sell, whetherreported in continuing operations or discontinued operations.  SFAS No. 144 also broadens the reporting ofdiscontinued operations to include all components of an entity with operationsthat can be distinguished from the rest of the entity and that will beeliminated from the ongoing operations of the entity in a disposaltransaction.  The provisions of SFAS No.144 are effective for financial statements issued for fiscal years beginningafter December 15, 2001, and, generally, are to be applied prospectively.  The adoption of SFAS No. 144 was effectivefor the Company beginning on April 1, 2002. The adoption of SFAS No. 144 did not have a material effect on theCompany’s historical results of operations, financial position, and cash flows.

 

ITEM 7A.              QUANTITATIVEAND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

 

As of March 31, 2002, the Company had an investmentportfolio of fixed income securities of $1,390,418 and mutual funds of$2,311,725, excluding $12,198,918 classified as cash and cash equivalents andvariable rate securities.  The fixedincome securities, like all fixed income instruments, are subject to interestrate risk and will decline 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 adverse impacton net income or cash flows or the amount ultimately realized on theinvestment.  The value of the mutualfunds, like all mutual funds, may increase or decrease due to marketvolatility.  The Company intends to holdthe mutual funds and does not anticipate a need to liquidate its investmentsand therefore would not expect a material adverse impact on net income or cashflows or the amount ultimately realized on the investment.

 

13

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ITEM 8.  FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA

 

**INDEPENDENTAUDITORS' REPORT**

 

To the Shareholders of Hawkins, Inc.:

 

We have audited the accompanying balance sheets of Hawkins, Inc. (theCompany) as of March 31, 2002 and September 30, 2001, and the relatedstatements of income, shareholders' equity, and cash flows for the six-monthtransitional period ended March 31, 2002 and the fiscal years endedSeptember 30, 2001, October 1, 2000, and October 3, 1999.  These financial statements are theresponsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.

 

We conducted our audits in accordance with auditing standards generallyaccepted in the United States of America. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement.  An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation.  Webelieve that our audits provide a reasonable basis for our opinion.

 

In our opinion, such financial statements present fairly, in allmaterial respects, the financial position of Hawkins, Inc. at March 31,2002 and September 30, 2001, and the results of its operations and cashflows for the six-month transitional period ended March 31, 2002 and the fiscalyears ended September 30, 2001, October 1, 2000, and October 3, 1999 inconformity with accounting principles generally accepted in the United Statesof America.

 

/s/ Deloitte & Touche LLP

 

Minneapolis, Minnesota

June 5, 2002

 

14

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**HAWKINS,INC.**

**BALANCESHEETS**

 
|                                                                                                                                               |   | **March 31,  2002** |       | **September  30,  2001** |       |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|------------|--------------------------|------------|
|                                                                                                                                               |   |                | ** ** |                     | ** ** |
| **ASSETS**                                                                                                                                         |   |                |       |                     |       |
| CURRENT ASSETS:                                                                                                                                    |   |                |       |                     |       |
| Cash and cash  equivalents                                                                                                                         |   | $                   | 7,339,895  |                     | $          | 1,118,856 |   |
| Investments  available-for-sale                                                                                                                    |   | 7,170,748           |       | 11,482,015               |       |
| Trade  receivables - less allowance for doubtful accounts:  2002, $300,000; 2001, $335,000                                                    |   | 10,610,386          |       | 12,212,402               |       |
| Inventories                                                                                                                                        |   | 9,397,541           |       | 12,584,723               |       |
| Prepaid expenses  and other current assets                                                                                                         |   | 1,977,667           |       | 1,268,522                |       |
| Total current  assets                                                                                                                              |   | 36,496,237          |       | 38,666,518               |       |
|                                                                                                                                               |   |                |       |                     |       |
| PROPERTY, PLANT  AND EQUIPMENT:                                                                                                                    |   |                |       |                     |       |
| Land                                                                                                                                               |   | 631,662             |       | 631,662                  |       |
| Buildings and  improvements                                                                                                                        |   | 26,820,678          |       | 26,329,660               |       |
| Machinery and  equipment                                                                                                                           |   | 10,263,085          |       | 9,986,305                |       |
| Transportation  equipment                                                                                                                          |   | 7,347,470           |       | 7,289,667                |       |
| Office furniture  and equipment                                                                                                                    |   | 2,729,534           |       | 2,666,900                |       |
|                                                                                                                                               |   | 47,792,429          |       | 46,904,194               |       |
| Less accumulated  depreciation                                                                                                                     |   | 19,852,259          |       | 18,734,077               |       |
| Net property,  plant and equipment                                                                                                                 |   | 27,940,170          |       | 28,170,117               |       |
|                                                                                                                                               |   |                |       |                     |       |
| OTHER ASSETS:                                                                                                                                      |   |                |       |                     |       |
| Intangible  assets - less accumulated amortization:   2002, $1,017,901; 2001, $876,159                                                        |   | 3,345,148           |       | 3,486,890                |       |
| Other                                                                                                                                              |   | 3,705,578           |       | 4,544,596                |       |
| Total other  assets                                                                                                                                |   | 7,050,726           |       | 8,031,486                |       |
|                                                                                                                                               |   | $                   | 71,487,133 |                     | $          | 74,868,121 |   |
|                                                                                                                                               |   |                |       |                     |       |
| **LIABILITIES AND SHAREHOLDERS'  EQUITY**                                                                                                          |   |                |       |                     |       |
|                                                                                                                                               |   |                |       |                     |       |
| CURRENT  LIABILITIES:                                                                                                                              |   |                |       |                     |       |
| Accounts payable  – trade                                                                                                                     |   | $                   | 4,095,820  |                     | $          | 7,294,730 |   |
| Current portion  of long-term debt                                                                                                                 |   | 116,823             |       | 109,180                  |       |
| Dividends  payable                                                                                                                                 |   | 1,532,690           |       | 1,537,805                |       |
| Accrued payroll  and employee benefits                                                                                                             |   | 1,790,998           |       | 3,063,633                |       |
| Container  deposits                                                                                                                                |   | 1,358,100           |       | 1,352,026                |       |
| Other accruals                                                                                                                                     |   | 855,353             |       | 1,160,621                |       |
| Total current  liabilities                                                                                                                         |   | 9,749,784           |       | 14,517,995               |       |
|                                                                                                                                               |   |                |       |                     |       |
| LONG-TERM DEBT                                                                                                                                     |   |                |       | 116,823                  |       |
|                                                                                                                                               |   |                |       |                     |       |
| OTHER LONG-TERM  LIABILITIES                                                                                                                       |   | 353,063             |       | 411,705                  |       |
|                                                                                                                                               |   |                |       |                     |       |
| DEFERRED INCOME  TAXES                                                                                                                             |   | 953,851             |       | 737,184                  |       |
|                                                                                                                                               |   |                |       |                     |       |
| COMMITMENTS AND  CONTINGENCIES (Note 7)                                                                                                            |   |                |       |                     |       |
|                                                                                                                                               |   |                |       |                     |       |
| SHAREHOLDERS'  EQUITY:                                                                                                                             |   |                |       |                     |       |
| Common stock -  authorized: 30,000,000 shares of $.05 par value; issued and outstanding:  2002 - 10,216,688 shares; 2001 -  10,248,788 shares |   | 510,834             |       | 512,439                  |       |
| Additional  paid-in capital                                                                                                                        |   | 37,747,492          |       | 37,866,092               |       |
| Accumulated  other comprehensive loss                                                                                                              |   | (145,528            | )          | (192,258                 | )          |
| Retained  earnings                                                                                                                                 |   | 22,317,637          |       | 20,898,141               |       |
| Total  shareholders' equity                                                                                                                        |   | 60,430,435          |       | 59,084,414               |       |
|                                                                                                                                               |   | $                   | 71,487,133 |                     | $          | 74,868,121 |   |

 

See accompanying notes to financial statements.

 

15

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** **

**HAWKINS,INC.**

**STATEMENTS OF INCOME**

 
|                                           |   | **For the  Six-Month  Transitional****Period  Ended  March 31,  2002** | ** **               |        | ** **           |
|------------------------------------------------|--------|------------------------------------------------------------------------|--------------------------|-------------|----------------------|
|                                           |
| **For the  Fiscal Year Ended**                 |   |
|                                           |   | ** **                                                             | **September  30,  2001** | ** **  | **October 1,  2000** | ** ** | **October 3,  1999** | ** ** |
|                                           |   |                                                                   | ** **               |        | ** **           |   | ** ** |   | ** ** |
| Sales                                          |   | $                                                                      | 49,868,179               |        | $                    | 107,931,668 |   | $ | 98,021,731 |   | $ | 96,734,470 |   |
|                                           |   |                                                                   |                     |        |                 |   |   |   |   |
| Cost  of sales                                 |   | (38,332,473                                                            | )                        | (83,634,081 | )                    | (73,219,555 | ) | (72,790,300 | ) |
|                                           |   |                                                                   |                     |        |                 |   |   |   |   |
| Gross  margin                                  |   | 11,535,706                                                             |                     | 24,297,587  |                 | 24,802,176 |   | 23,944,170 |   |
|                                           |   |                                                                   |                     |        |                 |   |   |   |   |
| Selling,  general and administrative expenses  |   | (6,924,750                                                             | )                        | (14,242,227 | )                    | (11,765,758 | ) | (10,763,251 | ) |
|                                           |   |                                                                   |                     |        |                 |   |   |   |   |
| Litigation  settlement proceeds                |   |                                                                   |                     |        |                 |   |   | 2,851,708 |   |
|                                           |   |                                                                   |                     |        |                 |   |   |   |   |
| Special  charges                               |   |                                                                   |                     |        |                 |   |   | (1,112,127 | ) |
|                                           |   |                                                                   |                     |        |                 |   |   |   |   |
| Income  from operations                        |   | 4,610,956                                                              |                     | 10,055,360  |                 | 13,036,418 |   | 14,920,500 |   |
|                                           |   |                                                                   |                     |        |                 |   |   |   |   |
| Interest  income                               |   | 227,360                                                                |                     | 727,117     |                 | 1,073,823 |   | 1,121,939 |   |
|                                           |   |                                                                   |                     |        |                 |   |   |   |   |
| Interest  expense                              |   | (6,152                                                                 | )                        | (26,279     | )                    | (30,192 | ) | (36,867 | ) |
|                                           |   |                                                                   |                     |        |                 |   |   |   |   |
| Income  before income taxes                    |   | 4,832,164                                                              |                     | 10,756,198  |                 | 14,080,049 |   | 16,005,572 |   |
|                                           |   |                                                                   |                     |        |                 |   |   |   |   |
| Provision  for income taxes                    |   | (1,748,393                                                             | )                        | (3,638,620  | )                    | (5,512,350 | ) | (6,306,930 | ) |
|                                           |   |                                                                   |                     |        |                 |   |   |   |   |
| Net  income                                    |   | $                                                                      | 3,083,771                |        | $                    | 7,117,578 |   | $ | 8,567,699 |   | $ | 9,698,642 |   |
|                                           |   |                                                                   |                     |        |                 |   |   |   |   |
| Weighted  average number of shares outstanding |   | 10,219,432                                                             |                     | 10,346,964  |                 | 10,615,881 |   | 11,130,970 |   |
|                                           |   |                                                                   |                     |        |                 |   |   |   |   |
| Basic  and diluted earnings per share          |   | $                                                                      | 0.30                     |        | $                    | 0.69 |   | $ | 0.81 |   | $ | 0.87 |   |

 

See accompanying notes to financial statements.

 

16

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**HAWKINS,INC.**

**STATEMENTS OF SHAREHOLDERS' EQUITY**

 
|                                                                                        |              |       |       | **Additional  Paid-in  Capital** |       | **Retained  Earnings** |       | **Accumulated  Other  Comprehensive   Loss** |   | **Total  Shareholders’  Equity** |       |
|---------------------------------------------------------------------------------------------|-------------------|------------|------------|----------------------------------|------------|------------------------|------------|----------------------------------------------|--------|---------------------------------------|------------|
|                                                                                        | **Common  Stock** | ** ** | ** ** | ** **                       | ** ** | ** **             |
|                                                                                        | **Shares**        |       | **Amount** | ** **                       | ** ** | ** **             | ** ** | ** **                                   |
|                                                                                        |              |       |       |                             |       |                   |       |                                         |   |                                  |       |   |   |
| BALANCE AT  SEPTEMBER 27, 1998                                                              |              | 11,450,895 |       | $                                | 572,545    |                   | $          | 41,960,535                                   |   | $                                     | 10,946,888 |   |   |   | $ | 53,479,968 |   |
|                                                                                        |              |       |       |                             |       |                   |       |                                         |   |                                  |       |   |   |
| Cash dividends                                                                              |              |       |       |                             |       |                   |       | (2,981,686                                   | )      |                                  |       | (2,981,686 | ) |
| Stock acquired  and retired                                                                 |              | (499,614   | )          | (24,981                          | )          | (1,830,786             | )          | (3,032,521                                   | )      |                                  |       | (4,888,288 | ) |
| Income tax  savings from dividends paid on ESOP shares                                      |              |       |       |                             |       |                   |       | 266,580                                      |   |                                  |       | 266,580 |   |
| Net and  comprehensive income                                                               |              |       |       |                             |       |                   |       | 9,698,642                                    |   |                                  |       | 9,698,642 |   |
|                                                                                        |              |       |       |                             |       |                   |       |                                         |   |                                  |       |   |   |
| BALANCE AT  OCTOBER 3, 1999                                                                 |              | 10,951,281 |       | 547,564                          |       | 40,129,749             |       | 14,897,903                                   |   |                                  |       | 55,575,216 |   |
|                                                                                        |              |       |       |                             |       |                   |       |                                         |   |                                  |       |   |   |
| Cash dividends                                                                              |              |       |       |                             |       |                   |       | (3,361,063                                   | )      |                                  |       | (3,361,063 | ) |
| Stock acquired  and retired                                                                 |              | (608,900   | )          | (30,445                          | )          | (2,235,668             | )          | (2,754,253                                   | )      |                                  |       | (5,020,366 | ) |
| Stock issued in  conjunction with the  acquisition of  St. Mary’s Chemicals, Inc. |              | 75,358     |       | 3,768                            |       | 596,232                |       |                                         |   |                                  |       | 600,000 |   |
| Income tax  savings from dividends paid on ESOP shares                                      |              |       |       |                             |       |                   |       | 309,740                                      |   |                                  |       | 309,740 |   |
| Net and  comprehensive income                                                               |              |       |       |                             |       |                   |       | 8,567,699                                    |   |                                  |       | 8,567,699 |   |
|                                                                                        |              |       |       |                             |       |                   |       |                                         |   |                                  |       |   |   |
| BALANCE AT  OCTOBER 1, 2000                                                                 |              | 10,417,739 |       | 520,887                          |       | 38,490,313             |       | 17,660,026                                   |   |                                  |       | 56,671,226 |   |
|                                                                                        |              |       |       |                             |       |                   |       |                                         |   |                                  |       |   |   |
| Cash dividends                                                                              |              |       |       |                             |       |                   |       | (3,090,491                                   | )      |                                  |       | (3,090,491 | ) |
| Stock acquired  and retired                                                                 |              | (168,951   | )          | (8,448                           | )          | (624,221               | )          | (788,972                                     | )      |                                  |       | (1,421,641 | ) |
| Comprehensive  income:                                                                      |              |       |       |                             |       |                   |       |                                         |   |                                  |       |   |   |
| Unrealized loss  on investments  available for sale                                    |              |       |       |                             |       |                   |       |                                         |   | $                                     | (192,258   | ) | (192,258 | ) |
| Net income                                                                                  |              |       |       |                             |       |                   |       | 7,117,578                                    |   |                                  |       | 7,117,578 |   |
| Comprehensive  income                                                                       |              |       |       |                             |       |                   |       |                                         |   |                                  |       | 6,925,320 |   |
|                                                                                        |              |       |       |                             |       |                   |       |                                         |   |                                  |       |   |   |
| BALANCE AT  SEPTEMBER 30, 2001                                                              |              | 10,248,788 |       | 512,439                          |       | 37,866,092             |       | 20,898,141                                   |   | (192,258                              | )          | 59,084,414 |   |
|                                                                                        |              |       |       |                             |       |                   |       |                                         |   |                                  |       |   |   |
| Cash dividends                                                                              |              |       |       |                             |       |                   |       | (1,532,690                                   | )      |                                  |       | (1,532,690 | ) |
| Stock acquired  and retired                                                                 |              | (32,100    | )          | (1,605                           | )          | (118,600               | )          | (131,585                                     | )      |                                  |       | (251,790 | ) |
| Comprehensive  income:                                                                      |              |       |       |                             |       |                   |       |                                         |   |                                  |       |   |   |
| Unrealized gain  on investments available for sale                                          |              |       |       |                             |       |                   |       |                                         |   | 46,730                                |       | 46,730 |   |
| Net income                                                                                  |              |       |       |                             |       |                   |       | 3,083,771                                    |   |                                  |       | 3,083,771 |   |
| Comprehensive  income                                                                       |              |       |       |                             |       |                   |       |                                         |   |                                  |       | 3,130,501 |   |
|                                                                                        |              |       |       |                             |       |                   |       |                                         |   |                                  |       |   |   |
| BALANCE AT MARCH  31, 2002                                                                  |              | 10,216,688 |       | $                                | 510,834    |                   | $          | 37,747,492                                   |   | $                                     | 22,317,637 |   | $ | (145,528 | ) | $ | 60,430,435 |   |

 

See accompanying notes to financial statements.

 

17

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**HAWKINS,INC.**

**STATEMENTSOF CASH FLOWS**

 
|                                                                                 |   | **For the  Six-Month  Transitional****Period  Ended  March 31,  2002** |                           |       |                 |       |                 |       |       |
|--------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------|--------------------------------|------------|----------------------|------------|----------------------|------------|------------|
|                                                                                 |   |                                                                   | **For the  Fiscal Year Ended** |       |
|                                                                                 |   |                                                                   | **September  30,  2001**       |       | **October 1,  2000** |       | **October 3,  1999** |       |
|                                                                                 |   |                                                                   |                           |       |                 |       |                 |       |       |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                |   |                                                                   | ** **                     |       | ** **           |       | ** **           |       | ** ** |
| Net income                                                                           |   | $                                                                      | 3,083,771                      |       | $                    | 7,117,578  |                 | $          | 8,567,699  |   | $ | 9,698,642 |   |
| Reconciliation to cash  flows:                                                       |   |                                                                   |                           |       |                 |       |                 |       |       |
| Depreciation and  amortization                                                       |   | 1,481,750                                                              |                           | 2,727,577  |                 | 2,259,864  |                 | 2,099,491  |       |
| Deferred income taxes                                                                |   | 322,585                                                                |                           | 414,641    |                 | 177,320    |                 | (970,950   | )          |
| Earnings on other  assets                                                            |   | (45,750                                                                | )                              | (104,386   | )                    | (108,643   | )                    | (108,745   | )          |
| Loss (gain) from  property disposals                                                 |   | 6,144                                                                  |                           | 35,901     |                 | (4,266     | )                    | (256,808   | )          |
| Changes in operating  accounts (requiring) providing cash:  Trade receivables        |   | 1,602,016                                                              |                           | (601,796   | )                    | (281,395   | )                    | 107,479    |       |
| Inventories                                                                          |   | 3,187,182                                                              |                           | (3,654,766 | )                    | (513,886   | )                    | 2,437,232  |       |
| Accounts payable                                                                     |   | (3,198,910                                                             | )                              | 2,288,150  |                 | (25,688    | )                    | 61,927     |       |
| Accrued liabilities                                                                  |   | (1,630,471                                                             | )                              | 602,677    |                 | (239,529   | )                    | 210,786    |       |
| Other                                                                                |   | (948,241                                                               | )                              | 1,125,169  |                 | (137,997   | )                    | 568,194    |       |
| Net cash provided by  operating activities                                           |   | 3,860,076                                                              |                           | 9,950,745  |                 | 9,693,479  |                 | 13,847,248 |       |
|                                                                                 |   |                                                                   |                           |       |                 |       |                 |       |       |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                               |   |                                                                   |                           |       |                 |       |                 |       |       |
| Additions to property,  plant, and equipment                                         |   | (1,145,030                                                             | )                              | (7,056,226 | )                    | (7,216,301 | )                    | (2,449,894 | )          |
| Purchase of investments                                                              |   | (3,600,099                                                             | )                              | (800,597   | )                    | (2,247,230 | )                    | (4,766,585 | )          |
| Sales of investments                                                                 |   | 8,797,736                                                              |                           | 1,032,018  |                 | 7,638,064  |                 | 1,885,814  |       |
| Proceeds from property  disposals                                                    |   | 28,825                                                                 |                           | 93,453     |                 | 87,618     |                 | 428,799    |       |
| Acquisition of St.  Mary’s Chemicals, Inc.                                      |   |                                                                   |                           |       |                 | (2,700,000 | )                    |       |       |
| Payments received on  notes receivable                                               |   | 178,306                                                                |                           | 356,106    |                 | 376,862    |                 | 427,810    |       |
| Net cash provided by  (used in) investing activities                                 |   | 4,259,738                                                              |                           | (6,375,246 | )                    | (4,060,987 | )                    | (4,474,056 | )          |
|                                                                                 |   |                                                                   |                           |       |                 |       |                 |       |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                               |   |                                                                   |                           |       |                 |       |                 |       |       |
| Debt repayment                                                                       |   | (109,180                                                               | )                              | (102,037   | )                    | (95,362    | )                    | (89,123    | )          |
| Cash dividends paid                                                                  |   | (1,537,805                                                             | )                              | (3,118,722 | )                    | (3,109,181 | )                    | (2,814,622 | )          |
| Acquisition and  retirement of stock                                                 |   | (251,790                                                               | )                              | (1,421,641 | )                    | (5,020,366 | )                    | (4,888,288 | )          |
| Net cash used in  financing activities                                               |   | (1,898,775                                                             | )                              | (4,642,400 | )                    | (8,224,909 | )                    | (7,792,033 | )          |
|                                                                                 |   |                                                                   |                           |       |                 |       |                 |       |       |
| NET INCREASE (DECREASE)  IN CASH AND CASH EQUIVALENTS                                |   | 6,221,039                                                              |                           | (1,066,901 | )                    | (2,592,417 | )                    | 1,581,159  |       |
|                                                                                 |   |                                                                   |                           |       |                 |       |                 |       |       |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF PERIOD                                    |   | 1,118,856                                                              |                           | 2,185,757  |                 | 4,778,174  |                 | 3,197,015  |       |
|                                                                                 |   |                                                                   |                           |       |                 |       |                 |       |       |
| CASH AND CASH  EQUIVALENTS AT END OF PERIOD                                          |   | $                                                                      | 7,339,895                      |       | $                    | 1,118,856  |                 | $          | 2,185,757  |   | $ | 4,778,174 |   |
|                                                                                 |   |                                                                   |                           |       |                 |       |                 |       |       |
| SUPPLEMENTAL  DISCLOSURES OF CASH FLOW INFORMATION:                                  |   |                                                                   |                           |       |                 |       |                 |       |       |
| Stock issued in  conjunction with the acquisition of St. Mary’s Chemicals, Inc. |   |                                                                   |                           |       |                 | $          | 600,000              |       |       |   |
| Cash paid during the  year for:                                                      |   |                                                                   |                           |       |                 |       |                 |       |       |
| Interest                                                                             |   | $                                                                      | 17,884                         |       | $                    | 33,422     |                 | $          | 36,867     |   | $ | 43,106 |   |
| Income taxes                                                                         |   | $                                                                      | 1,917,426                      |       | $                    | 2,078,071  |                 | $          | 6,071,804  |   | $ | 6,079,339 |   |

 

See accompanyingnotes to financial statements.

 

18

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**HAWKINS,INC.**

**NOTES TO FINANCIAL STATEMENTS**

 

1.             NATUREOF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

 

*Natureof Business*- Hawkins, Inc. (the Company) has two reportablesegments: Industrial and Water Treatment. The Industrial segment specializes in providing industrial chemicals andservices to the energy, electronics, and plating industries.  In addition, the Industrial segment providesproducts and services to food manufacturers and processing plants and thepharmaceutical industry.  The WaterTreatment segment specializes in providing water and waste-water treatmentequipment and chemicals and in helping customers find solutions to systemproblems.

 

*FiscalYear*- In December 2001, the Company changed its fiscal yearend to a 52/53-week year ending on the Sunday closest to March 31 from a52/53-week fiscal year ending on the Sunday closest to September 30.  The change in year-end will better match theCompany’s annual reporting process to its natural business cycles.  This change resulted in a six-monthtransitional period ending March 31, 2002. The six-month transitional periodwas a twenty-six week period, the fiscal years ended September 30, 2001 andOctober 1, 2000 were fifty-two week years and the fiscal year endedOctober 3, 1999 was a fifty-three week year.

 

*CashEquivalents*- Cash equivalents include all liquid debtinstruments (primarily cash funds, certificates of deposits, and money marketaccounts) purchased with an original maturity of three months or less.  The balances maintained at financialinstitutions may, at times, exceed federally insured limits.

 

*InvestmentsAvailable-For-Sale*- In accordance with the provisions ofStatement of Financial Accounting Standards (SFAS) No. 115 “Accounting forCertain Investments in Debt and Equity Securities” these investments arecarried at fair market value with unrealized gains and losses reported inshareholders’ equity as a component of other comprehensive income (loss).  Investments classified as available-for-salesecurities consist of mutual funds (32%) and variable rate marketablesecurities, primarily commercial paper (51%) and annuity contracts (17%) thatwill be held for indefinite periods of time, including securities that may besold in response to changes in market interest or prepayment rates, needs for liquidityor changes in the availability or yield of alternative investments.  Gross unrealized losses, primarily withinthe mutual fund portfolio, were $231,528 and $320,430 as of March 31, 2002 andSeptember 30, 2001, respectively.  Inthe six-month transitional period ended March 31, 2002 and the fiscal yearsended September 30, 2001, October 1, 2000, and October 3, 1999, proceeds fromthe sale of investments available-for-sale were $8,797,736, $1,032,018,$7,638,064, and $1,885,814, respectively. Gross realized gains and losses were not material for the six-monthtransitional period ended March 31, 2002 and the fiscal years ended September30, 2001, October 1, 2000, and October 3, 1999.

 

*Inventories*- Inventories, consisting primarily of finished goods, areprimarily valued at the lower of cost or net realizable value, with cost beingdetermined using the last-in, first-out (LIFO) method.

 

*Property,Plant and Equipment*- Property is stated at cost anddepreciated over the lives of the assets using both straight-line anddeclining-balance methods.  Estimatedlives are: 10 to 50 years for buildings and improvements; 3 to 15 years formachinery and equipment; 3 to 10 years for transportation equipment; and 3 to10 years for office furniture and equipment.

 

*IntangiblesAssets*– Intangible assets consist primarily of customerlists, trademarks, and trade names acquired in previous businessacquisitions.  The values assigned tothe intangible assets are being amortized primarily over 15 years.

* *

*InvestmentsHeld-To-Maturity*- Held-to-maturity securities consist ofMinnesota municipal bonds, which the Company has the intent and ability to holdto maturity, and are valued at amortized historical cost, increased foraccretion of discounts and reduced by amortization of premiums, computed by theconstant-yield method.  Investmentsheld-to-maturity, included within other assets, were $1,390,418 and $2,146,700at March 31, 2002 and September 30, 2001, respectively.

 

*Recoverabilityof Long-Lived Assets*- The Company reviews its long-livedassets whenever events or changes in circumstances indicate the carrying amountof the assets may not be recoverable. The Company determines potential impairment by comparing the carryingvalue of the assets with expected net cash flows expected to be provided byoperating activities of the business or related products.  Should the sum of the expected future netcash flows be less than the carrying value, the Company would determine whetheran impairment loss should be recognized. An impairment loss would be measured by comparing the amount by whichthe carrying value exceeds the fair value of the asset based on marketvalue that is based on the discounted cash flows expected to be generatedby the asset.

 

19

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*RevenueRecognition*- The Company recognizes revenue when the producthas been shipped to the customer if there is evidence that the customer hasagreed to purchase the products, delivery and performance has occurred, theprice and terms of sale are fixed and collection of the receivable is expected.

 

*Shippingand Handling -* All shipping and handling amounts billed tocustomers are included in revenues. Costs incurred related to shipping and handling are included in costs ofgoods sold.

 

*IncomeTaxes*- The Company utilizes SFAS No. 109, “Accountingfor Income Taxes.” Under SFAS No. 109, the deferred tax assets andliabilities are recognized based on differences between the financialstatements and the tax bases of assets and liabilities using presently enactedtax rates.

 

*EarningsPer Share*- Basic and diluted earnings per share are computedby dividing net income by the weighted average number of common sharesoutstanding.

 

*Concentrationsof Credit Risk*- Financial instruments which potentiallysubject the Company to a concentration of credit risk principally consist ofinvestments available-for-sale and trade receivables.  The Company sells its principal products to a large number ofcustomers in many different industries. To reduce credit risk, the Company routinely assesses the financialstrength of its customers.  The Companyinvests its excess cash balances in money market account at a single financialinstitution.

 

At March 31, 2002, the Company also had an investmentportfolio of fixed income securities, excluding $14,510,643 of those classifiedas cash and cash equivalents and variable rate securities, of $1,390,418.  These securities, like all fixed incomeinstruments, are subject to interest rate risk and will decline in value if marketinterest 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.

 

*DerivativeInstruments and Hedging Activities*– In fiscal 2001, theCompany adopted SFAS No. 133, “Accounting for Derivative Instruments andHedging Activities,” as amended by SFAS No. 138, “Accounting for CertainDerivative Instruments and Certain Hedging Activities.”  SFAS No. 133 establishes accounting andreporting standards for derivative instruments and for hedging activities.  It requires that all derivatives, includingthose embedded in other contracts, be recognized as either assets or liabilitiesand that those financial instruments be measured at fair value.  The accounting for changes in the fair valueof derivatives depends on their intended use and designation.  Management has reviewed the requirements ofSFAS No. 133 and has determined that the Company has no freestanding orembedded derivatives.  All contractsthat contain provisions meeting the definition of a derivative also meet therequirements of, and have been designated as, normal purchases and sales.  The Company’s policy is to not usefreestanding derivatives and to not enter into contracts with terms that cannotbe designated as normal purchases or sales.

 

*Estimates*- The preparation of financial statements in conformity withaccounting principles generally accepted in the United States of America(generally accepted accounting principles) requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reported period.  Actualresults could differ from those estimates.

 

*Riskand Uncertainties*- There are no concentrations of businesstransacted with a particular customer or supplier nor concentrations of salesfrom a particular service or geographic area that would severely impact theCompany in the near term.

 

*AccountingPronouncements*– In July 2001, the Financial AccountingStandards Board (FASB) issued SFAS No. 142, “Goodwill and Other IntangibleAssets.”  The Company adopted theprovisions of SFAS No. 142 for other intangibles and goodwill acquired beforeJune 30, 2001 on the first day of fiscal 2003. Under SFAS No. 142, goodwill as well as other intangibles determined tohave an indefinite life will no longer be amortized; however, these assets willbe reviewed for impairment on a periodic basis.  SFAS No. 142 also includes provisions for the reclassification ofcertain existing recognized intangibles as goodwill, reclassification ofcertain intangibles out of previously reported goodwill and the identificationof reporting units for purposes of assessing potential future impairments ofgoodwill.

 

The implementation of SFAS No. 142 did not impact theCompany’s financial statements.  As ofMarch 31, 2002 the Company had net other intangibles assets of $3,345,148.  Amortization expense was $141,742, $283,485,$136,561, and $63,098 during the six-month transitional period ended March 31,2002 and the fiscal years ended September 30, 2001, October 1, 2000, andOctober 3, 1999, respectively.

 

20

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In September 2001, the FASB issued SFAS No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets.”  SFAS No. 144 requires that long-lived assetsto be disposed of by sale, including discontinued operations, be measured atthe lower of the carrying cost or fair value less cost to sell, whetherreported in continuing operations or in discontinued operations.  SFAS No. 144 also broadens the reporting ofdiscontinued operations to include all components of an entity with operationsthat can be distinguished from the rest of the entity and that will beeliminated from the ongoing operations of the entity in a disposaltransaction.  The provisions of SFAS No.144 are effective for financial statements issued for fiscal years beginningafter December 15, 2001, and, generally, are to be applied prospectively.  The adoption of SFAS No. 144 was effectivefor the Company beginning on April 1, 2002. The adoption of SFAS No. 144 did not have a material effect on theCompany’s historical results of operations, financial position, and cash flows.

 

2.             INVENTORIES

 

Inventories at March 31, 2002 and September 30, 2001consisted of the following:

 
|                         |   | **2002**   |       | **2001**   |   |
|------------------------------|--------|------------|------------|------------|--------|
|                         |   |       |       |       |   |
| Finished goods (FIFO  basis) |   | $          | 10,699,070 |       | $      | 15,697,925 |   |
| LIFO reserve                 |   | (1,301,529 | )          | (3,113,202 | )      |
| Net inventory                |   | $          | 9,397,541  |       | $      | 12,584,723 |   |

 

Inventories valued under the LIFO method at March 31,2002 and September 30, 2001 were approximately $9,405,315 and $14,422,762,respectively.  The balance of theinventory was valued under the FIFO method.

 

In fiscal 2002, the LIFO reserve decreased by$1,811,673.  The decrease in the LIFOreserve was caused by a significant decrease in the cost of a single, largevolume component of inventory.  TheCompany liquidated LIFO inventory layers that were at lower costs than currentcosts.  The impact of the liquidation oncost of sales was approximately $300,000.

 

3.             NOTES RECEIVABLE

 

The Company has three notes receivable related to thesales of Tessman Seed, Inc., land and building, and The Lynde Company.  At March 31, 2002 and September 30, 2001,the net balance outstanding on the notes receivable were $2,234,866 and$2,413,172, respectively.  The currentportion of $226,266 and $221,431 at March 31, 2002 and September 30, 2001,respectively, are included within prepaid expenses and other current assets andthe remaining balances are included within other assets.  The notes receivable bear interest at 8% andare due in equal monthly installments of $36,204 through September 1, 2010at which time the remaining unpaid balance of $1,213,163 is due.  The notes receivable are secured by land andbuilding, and a personal guarantee.

 

4.             LONG-TERMDEBT

 

Long-term debt at March 31, 2002 and September 30,2001 is summarized as follows:

 
|                                                      |   | **2002** |    | **2001** |   |
|-----------------------------------------------------------|--------|----------|---------|----------|--------|
|                                                      |   |     |    |     |   |
| Note payable, due in annual installments to October  2002 |   | $        | 116,823 |     | $      | 226,003 |   |
| Less current portion                                      |   | 116,823  |    | 109,180  |   |
| Long-term portion                                         |   | $        | 0       |     | $      | 116,823 |   |

 

5.             SHAREHOLDERS'EQUITY

 

During the six-month transitional period ended March31, 2002, and the fiscal years ended September 30, 2001, October 1, 2000,and October 3, 1999, the Company acquired and retired 32,100, 168,951, 608,900,and 499,614 shares of common stock, respectively, for $251,790, $1,421,641,$5,020,366, and $4,888,288, respectively.

 

6.             PENSIONAND EMPLOYEE STOCK OWNERSHIP PLANS

 

The Company has a defined contribution pension plancovering substantially all of its non-union employees.  Pension expense for the six-monthtransitional period ended March 31, 2002 and the fiscal years ended September30, 2001, October 1, 2000, and October 3, 1999 were $504,349, $870,787,$751,936, and $578,975, respectively. The Company's cost for the pension plan is determined as 11% of eachemployee's covered compensation for the six-month transitional period endedMarch 31, 2002 compared to 10% in the fiscal years ended September 30,2001 and October 1, 2000, and 7% in the 

 

21

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fiscal year ended October 3, 1999.  Amounts charged to pension expense andcontributed to union multi-employer pension plans (not included in the aboveamounts) were not material.  It is theCompany's policy to fund all pension costs accrued.

 

The Company has an employee stock ownership plancovering substantially all of its non-union employees.  Contributions are made at the discretion ofthe Board of Directors subject to a maximum amount allowed under the InternalRevenue Code.  Contributions for thesix-month transitional period ended March 31, 2002 and the fiscal years endedSeptember 30, 2001, October 1, 2000, and October 3, 1999 were $412,649,$1,027,828, $787,667, and $1,049,779, respectively.

 

The Company does not currently offer anypost-retirement benefits, deferred stock or stock-based compensation plans.

 

7.             COMMITMENTSAND CONTINGENCIES

 

*Leases*- The Company has various operating leases for land and buildings on which someof its operations are located.  Totalrental expense for the six-month transitional period ended March 31, 2002, andthe fiscal years ended September 30, 2001, October 1, 2000, and October 3,1999 were $98,034, $172,552, $136,416, and $53,843, respectively.  Future minimum lease payments due underoperating leases with an initial term of one year or more at March 31, 2002 are$202,407 in 2003, $164,362 in 2004, $105,901 in 2005, $86,776 in 2006, $86,776in 2007, and $1,937,996 thereafter.

 

*SpecialCharges -*During fiscal 1999, the Company entered intotermination agreements with three former employees and recorded special chargesin the statement of income of $1,112,127. At March 31, 2002, the Company is required to make future payments tothe individuals for periods of 6 months to 3.5 years.  The present value of the future payments to be paid in fiscal2003 is included in other accruals and the present value of the remainingpayments is included in other long-term liabilities.

 

*Litigation*- The Company is involved in various legal actions arising from the normalcourse of business.  Management is ofthe opinion that any judgment or settlement resulting from pending orthreatened litigation would not have a material adverse effect on the financialposition, results of operations or cash flows of the Company.

 

8.             INCOMETAXES

 

The provisions (benefits) for income taxes are asfollows:

 
|                    |   | **For the  Six-Month  Transitional  Period Ended** |       | **For the  Fiscal Year Ended** |       |
|-------------------------|--------|----------------------------------------------------|------------|--------------------------------|------------|
|                    |   | **March 31,  2002**                                |       | **September  30,  2001**       |       | **October 1,  2000** |   | **October 3,  1999** |   |
|                    |   |                                               | ** ** |                           | ** ** |   | ** ** |   | ** ** |
| Federal –  current |   | $                                                  | 1,122,058  |                           | $          | 2,591,327 |   | $ | 4,094,040 |   | $ | 5,862,780 |   |
| States – current   |   | 303,750                                            |       | 632,652                        |       | 1,240,990 |   | 1,415,100 |   |
| Deferred                |   | 322,585                                            |       | 414,641                        |       | 177,320 |   | (970,950 | ) |
| Total provision         |   | $                                                  | 1,748,393  |                           | $          | 3,638,620 |   | $ | 5,512,350 |   | $ | 6,306,930 |   |

 

Reconciliation of the provision for income taxes,based on income from continuing operations, to the applicable federal statutoryincome tax rate of 35% are as follows:

 
|                                          |   | **For the  Six-Month  Transitional  Period Ended** |       | **For the  Fiscal Year Ended** |       |
|-----------------------------------------------|--------|----------------------------------------------------|------------|--------------------------------|------------|
|                                          |   | **March 31,  2002**                                |       | **September  30,  2001**       |       | **October 1,  2000** |   | **October 3,  1999** |   |
|                                          |   |                                               | ** ** |                           | ** ** |   | ** ** |   | ** ** |
| Statutory  federal income tax                 |   | $                                                  | 1,691,257  |                           | $          | 3,764,669 |   | $ | 4,928,017 |   | $ | 5,601,950 |   |
| State income  taxes, net of federal deduction |   | 225,773                                            |       | 490,750                        |       | 806,644 |   | 919,815 |   |
| Tax-exempt  income                            |   | (31,904                                            | )          | (139,329                       | )          | (142,344 | ) | (165,390 | ) |
| ESOP  dividend deduction on allocated shares  |   | (112,345                                           | )          | (235,902                       | )          |   |   |   |   |
| Other,  net                                   |   | (24,388                                            | )          | (241,568                       | )          | (79,967 | ) | (49,445 | ) |
| Total                                         |   | $                                                  | 1,748,393  |                           | $          | 3,638,620 |   | $ | 5,512,350 |   | $ | 6,306,930 |   |

 

22

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The tax effects of items comprising the Company's netdeferred tax asset (liability) as of March 31, 2002 and September 30, 2001are as follows:

 
|                               |   | **2002** |     | **2001** |   |
|------------------------------------|--------|----------|----------|----------|--------|
|                               |   |     |     |     |   |
| Current deferred  taxes:           |   |     |     |     |   |
| Trade  receivables                 |   | $        | 117,000  |     | $      | 130,650 |   |
| Inventory                          |   | 416,951  |     | 524,802  |   |
| Accruals                           |   | 276,304  |     | 302,893  |   |
| Total*                             |   | $        | 810,255  |     | $      | 958,345 |   |
|                               |   |     |     |     |   |
| Noncurrent deferred taxes:         |   |     |     |     |   |
| Gain on sale of  The Lynde Company |   | $        | (235,027 | )        | $      | (254,713 | ) |
| Property basis  difference         |   | (804,824 | )        | (610,643 | )      |
| Unrealized loss  on investments    |   | 86,000   |     | 128,172  |   |
| Total                              |   | $        | (953,851 | )        | $      | (737,184 | ) |

 

----

*Included in prepaid expenses and other current assetson the balance sheet.

 

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

 

On May 26, 2000, the Company completed theacquisition of certain assets of St. Mary's Chemicals, Inc. d.b.a. UniversalChemicals.  Universal Chemicals, aMinnesota-based company, was engaged in the business of marketing, selling, anddistributing pharmaceutical chemicals to pharmacies and pharmacywholesalers.  In connection with theacquisition, assets purchased, common stock issued, and cash consideration paidwere as follows:

 
| Assets acquired:                    |   |      |      |
|-------------------------------------|--------|-----------|-----------|
| Inventory                           |   | $         | 36,843    |   |
| Equipment                           |   | 12,692    |      |
| Intangible  assets                  |   | 3,250,465 |      |
|                                |   | 3,300,000 |      |
| Common stock issued (75,358 shares) |   | 600,000   |      |
| Cash consideration paid             |   | $         | 2,700,000 |   |

 

The acquisition was accounted for using the purchasemethod of accounting.  The operations ofUniversal Chemicals are included in the Company's statement of income beginningon May 26, 2000.  The pro formaeffect of this acquisition on prior periods sales, operating income, andearnings per share were not significant.

 

On May 26, 2000, the Company also entered into afive-year employment agreement with one of the previous owners of UniversalChemicals and consulting agreements with the other two previous owners ofUniversal Chemicals.  The employmentagreement and consulting agreements contain performance bonuses and non-competeprovisions.  The agreements are based onUniversal Chemicals' operating results, as defined, for five years after theacquisition date and has a maximum payout of $3,520,000.  The non-compete provisions cover a period offive years 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, for five years after the terminationdate.

 

10.           SEGMENTINFORMATION

 

The Company has two reportable segments: Industrialand Water Treatment.  The Industrialsegment specializes in providing industrial chemicals and services to theenergy, electronics, and plating industries. In addition, the Industrial segment provides products and services tothe food manufacturers and processing plants and the pharmaceuticalindustry.  The Water Treatment segmentspecializes in providing water and waste-water treatment equipment andchemicals and in helping customers find solutions to system problems.

 

The accounting policies of the segments are the sameas those described in the summary of significant accounting policies.  Product costs and expenses for each segmentare based on actual costs incurred along with cost allocation of shared andcentralized functions.  The Companyevaluates performance based on profit or loss from operations before incometaxes not including nonrecurring gains and losses.  Reportable segments are defined by product and type ofcustomer.  Segments are 

 

23

----

 

responsible for the sales, marketing and developmentof their products and services.  Thesegments do not have separate accounting, administration, customer service orpurchasing functions.

 
| **Reportable Segments**                            |   | **Industrial** |       | **Water  Treatment** |       | **Total**  |       |
|----------------------------------------------------|--------|----------------|------------|----------------------|------------|------------|------------|
|                                               |   |           |       |                 |       |       |       |
| Six-Month Transitional Period Ended March 31, 2002 |   |           |       |                 |       |       |       |
| Sales                                              |   | $              | 35,686,509 |                 | $          | 14,181,670 |       | $ | 49,868,179 |   |
| Cost of sales                                      |   | 28,059,961     |       | 10,272,512           |       | 38,332,473 |       |
| Gross margin                                       |   | 7,626,548      |       | 3,909,158            |       | 11,535,706 |       |
| Income from  operations                            |   | 2,559,529      |       | 2,051,427            |       | 4,610,956  |       |
|                                               |   |           |       |                 |       |       |       |
| Identifiable  assets                               |   | $              | 40,113,075 |                 | $          | 13,415,036 |       | $ | 53,528,111 |   |
|                                               |   |           | ** ** |                 | ** ** |       | ** ** |
| Fiscal Year  Ended September 30, 2001              |   |           |       |                 |       |       |       |
| Sales                                              |   | $              | 73,818,768 |                 | $          | 34,112,900 |       | $ | 107,931,668 |   |
| Cost of sales                                      |   | 59,990,184     |       | 23,643,897           |       | 83,634,081 |       |
| Gross margin                                       |   | 13,828,584     |       | 10,469,003           |       | 24,297,587 |       |
| Income from  operations                            |   | 3,850,444      |       | 6,204,916            |       | 10,055,360 |       |
|                                               |   |           |       |                 |       |       |       |
| Identifiable  assets                               |   | $              | 44,622,720 |                 | $          | 14,244,584 |       | $ | 58,867,304 |   |
|                                               |   |           |       |                 |       |       |       |
| Fiscal Year Ended October 1, 2000                  |   |           |       |                 |       |       |       |
| Sales                                              |   | $              | 67,324,400 |                 | $          | 30,697,331 |       | $ | 98,021,731 |   |
| Cost of sales                                      |   | 52,088,658     |       | 21,130,897           |       | 73,219,555 |       |
| Gross margin                                       |   | 15,235,742     |       | 9,566,434            |       | 24,802,176 |       |
| Income from  operations                            |   | 7,526,740      |       | 5,509,678            |       | 13,036,418 |       |
|                                               |   |           |       |                 |       |       |       |
| Identifiable  assets                               |   | $              | 42,710,196 |                 | $          | 8,057,357  |       | $ | 50,767,553 |   |
|                                               |   |           |       |                 |       |       |       |
| Fiscal Year Ended October 3, 1999                  |   |           |       |                 |       |       |       |
| Sales                                              |   | $              | 67,823,960 |                 | $          | 28,910,510 |       | $ | 96,734,470 |   |
| Cost of sales                                      |   | 52,845,755     |       | 19,944,545           |       | 72,790,300 |       |
| Gross margin                                       |   | 14,978,205     |       | 8,965,965            |       | 23,944,170 |       |
| Operating income                                   |   | 6,902,505      |       | 5,166,287            |       | 12,068,792 |       |
|                                               |   |           |       |                 |       |       |       |
| Identifiable  assets                               |   | $              | 36,763,233 |                 | $          | 5,357,446  |       | $ | 42,120,679 |   |

 
|                                  |   | **For the  Six-Month  Transitional  Period Ended** |       | **For the  Fiscal Year Ended** |       |
|---------------------------------------|--------|----------------------------------------------------|------------|--------------------------------|------------|
| **Profit  Reconciliation**            |   | **March 31,  2002**                                |       | **September  30,  2001**       |       | **October 1,  2000** |   | **October 3,  1999** |   |
|                                  |   |                                               | ** ** |                           | ** ** |   | ** ** |   | ** ** |
| Total income for  reportable segments |   | $                                                  | 4,610,956  |                           | $          | 10,055,360 |   | $ | 13,036,418 |   | $ | 12,068,792 |   |
| Unallocated  corporate income         |   |                                               |       |                           |       |   |   | 2,851,708 |   |
| Total operating  income               |   | $                                                  | 4,610,956  |                           | $          | 10,055,360 |   | $ | 13,036,418 |   | $ | 14,920,500 |   |

 

11.           TRANSITIONPERIOD DISCLOSURE (UNAUDITED)

 

The following information for the six-month periodended March 31, 2001 is included for comparison purposes.

 
| Sales         |   | $          | 50,409,638 |   |
|---------------|--------|------------|------------|--------|
| Gross  margin |   | 10,443,758 |       |
| Income  taxes |   | 1,668,100  |       |
| Net  income   |   | 2,588,668  |       |

 

24

----

 

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

 

No changes in accountants or disagreements between theCompany and its accountants regarding accounting principles or financialstatement disclosure have occurred during the Company's six-month transitionalperiod ended March 31, 2002 and the fiscal years ended September 30, 2001,October 1, 2000, and October 3, 1999, or any subsequent interim period.

 

PART III

 

ITEM 10.   DIRECTORSAND EXECUTIVE OFFICERS OF THE COMPANY.

 

The information under the captions “Election ofDirectors” and “Section 16 (a) Beneficial Ownership Reporting Compliance” inthe Proxy Statement for the six-month transitional period ended March 31, 2002is incorporated herein by this reference.

 

ITEM 11.   EXECUTIVECOMPENSATION.

 

The information under the caption “Compensation ofExecutive Officers and Directors” in the Proxy Statement for the six-monthtransitional period ended March 31, 2002 is incorporated herein by thisreference.

 

ITEM 12.   SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

 

The information under the caption “Security Ownershipof Management and Beneficial Ownership” in the Proxy Statement for thesix-month transitional period ended March 31, 2002 is incorporated herein bythis reference.  The Company does nothave any equity compensation plans as defined in Statement of FinancialAccounting Standards No. 123 “Accounting for Stock-Based Compensation.”

 

ITEM 13.   CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS.

 

The information under the captions “Election ofDirectors” and “Related Party Transactions” in the Proxy Statement for thesix-month transitional period ended March 31, 2002 is incorporated herein bythis reference.

 

PART IV

 

ITEM 14.   EXHIBITS,FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

 

(a)(1)       FINANCIAL STATEMENTS OF THE COMPANY.

 

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

 

Independent Auditors' Report.

 

Balance Sheets at March 31, 2002 and September 30,2001.

 

Statements of Income for the Six-Month TransitionalPeriod Ended March 31, 2002 and for the Fiscal Years Ended September 30, 2001,October 1, 2000, and October 3, 1999.

 

Statements of Shareholders' Equity for the Six-MonthTransitional Period Ended March 31, 2002 and for the Fiscal Years EndedSeptember 30, 2001, October 1, 2000, and October 3, 1999.

 

Statements of Cash Flows for the Six-MonthTransitional Period Ended March 31, 2002 and for the Fiscal Years EndedSeptember 30, 2001, October 1, 2000, and October 3, 1999.

 

Notes to Financial Statements.

 

(a)(2)       FINANCIAL STATEMENT SCHEDULES OF THE COMPANY.

 

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

 

25

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Independent Auditors' Report on Schedule.

 

The following financial statement schedule for thesix-month transitional period ended March 31, 2002 and for the fiscal yearsended September 30, 2001, October 1, 2000, and October 3, 1999.

 

Schedule II - Valuation and Qualifying Accounts.

 

(a)(3)       EXHIBITS.

 

See the Exhibit Index and Exhibits attached as aseparate section of this Report on Form 10-KT.

 

A copy of any of the exhibits listed or referred toabove will be furnished at a reasonable cost to any person who is a shareholderof the Company upon receipt from any such person of a written request for anysuch exhibit.  Such request should be sentto Hawkins, Inc., 3100 East Hennepin Avenue, Minneapolis, Minnesota, 55413,Attention:  Corporate Secretary.

 

There are no management contracts or compensatoryplans or arrangements required to be filed as an exhibit to this Report on Form10-KT pursuant to Item 14(a)(3).

 

(b)           REPORTSON FORM 8-K.

 

None.

 

26

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) ofthe Securities Exchange Act of 1934, the Company has duly caused this report tobe signed on its behalf by the undersigned on June 20, 2002.

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

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has also been signed below by the followingpersons on behalf of the Company and in the capacities indicated on June 20,2002.

 
| By     | /s/ John R. Hawkins                                 |   |
|--------|-----------------------------------------------------|--------|
|   | John R. Hawkins, Chief  Executive Officer, Director |   |
|   |                                                |   |
| By     | /s/ Kurt R. Norman                                  |   |
|   | Kurt R. Norman,  President, Director                |   |
|   |                                                |   |
| By     | /s/ Dean L. Hahn                                    |   |
|   | Dean L. Hahn, Director                              |   |
|   |                                                |   |
| By     | /s/ Donald L. Shipp                                 |   |
|   | Donald L. Shipp,  Director                          |   |
|   |                                                |   |
| By     | /s/ Howard M. Hawkins                               |   |
|   | Howard M. Hawkins,  Director                        |   |
|   |                                                |   |
| By     | /s/ John S. McKeon                                  |   |
|   | John S. McKeon,  Director                           |   |
|   |                                                |   |
| By     | /s/ Duane M. Jergenson                              |   |
|   | Duane M. Jergenson,  Director                       |   |
|   |                                                |   |
| By     | /s/ G. Robert Gey                                   |   |
|   | G. Robert Gey, Director                             |   |
|   |                                                |   |
| By     | /s/ Daryl I. Skaar                                  |   |
|   | Daryl I. Skaar,  Director                           |   |
|   |                                                |   |
| By     | /s/ Marvin E. Dee                                   |   |
|   | Marvin E. Dee, Chief  Financial Officer,            |   |
|   | Vice President,  Secretary, Treasurer               |   |

 

27

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**INDEPENDENTAUDITORS' REPORT ON SCHEDULE**

 

We have audited the financial statements of Hawkins, Inc. (the Company)as of March 31, 2002 and September 30, 2001, and for the six-monthtransitional period ended March 31, 2002 and each of the fiscal years endedSeptember 30, 2001, October 1, 2000, and October 3, 1999, and have issuedour report thereon dated June 5, 2002; such report is included elsewherein this Form 10-KT.  Our audits alsoincluded the financial statement schedule of the Company, listed in Item14(a)(2).  This financial statementschedule is the responsibility of the Company's management.  Our responsibility is to express an opinionbased on our audits.  In our opinion,this financial statement schedule, when considered in relation to the basicfinancial statements taken as a whole, presents fairly in all material respectsthe information set forth therein.

 

/s/ Deloitte & Touche LLP

 

Minneapolis, Minnesota

June 5, 2002

 

28

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**SCHEDULE II**

 

**HAWKINS,INC.**

 

**VALUATIONAND QUALIFYING ACCOUNTS**

**FOR THESIX-MONTH TRANSITIONAL PERIOD ENDED MARCH 31, 2002 AND THE FISCAL YEARS ENDEDSEPTEMBER 30, 2001, OCTOBER 1, 2000, AND OCTOBER 3, 1999**

 
|                                                                                |   |                               |       | **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 - allowance for  doubtful accounts: |   |                               |       |                                |       |                            |       |                       |       |   |   |
|                                                                                |   |                               |       |                                |       |                            |       |                       |       |   |   |
| SIX-MONTHS ENDED:  March 31, 2002                                                   |   | $                                  | 335,000    |                                | $          | 30,868                          |       |                       |       | $ | 65,868 |   | $ | 300,000 |   |
|                                                                                |   |                               |       |                                |       |                            |       |                       |       |   |   |   |   |   |   |
| YEAR ENDED:  September 30, 2001                                                     |   | $                                  | 377,000    |                                | $          | 70,803                          |       |                       |       | $ | 112,803 |   | $ | 335,000 |   |
|                                                                                |   |                               |       |                                |       |                            |       |                       |       |   |   |
| YEAR ENDED  October 1, 2000                                                         |   | $                                  | 380,000    |                                |       |                            |       |                       | $          | 3,000 |   | $ | 377,000 |   |
|                                                                                |   |                               |       |                                |       |                            |       |                       |       |   |   |
| YEAR ENDED:  October 3, 1999                                                        |   | $                                  | 378,726    |                                | $          | 131,771                         |       |                       |       | $ | 130,497 |   | $ | 380,000 |   |

 

29

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**INDEX TO EXHIBITS**

 
| **Exhibit No.** |   | **Description of Exhibit**                                                                                             |   | **Method of Filing**                                                                                                                     |   |
|-----------------|--------|------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------|--------|
|            |   |                                                                                                                   |   |                                                                                                                                     |   |
| 3.1             |   | Amended and Second Restated Articles of  Incorporation as amended through February 27, 2001.                           |   | Incorporated by reference to Exhibit 3.1 to the  Company's Annual Report on Form 10-K for  the year ended September 30, 2001.       |   |
|            |   |                                                                                                                   |   |                                                                                                                                     |   |
| 3.2             |   | Second Amended and Superseding By-Laws as amended  through February 15, 1995.                                          |   | Incorporated by reference to Exhibit 3.2 to the  Company's Annual Report on Form 10-K for  the year ended October 1, 1995.          |   |
|            |   |                                                                                                                   |   |                                                                                                                                     |   |
| 4               |   | See Exhibits 3.1 and 3.2 above.                                                                                        |   |                                                                                                                                     |   |
|            |   |                                                                                                                   |   |                                                                                                                                     |   |
| 10.1            |   | Asset purchase agreement dated May 26, 2000 among  St. Mary’s Chemicals, Inc., its shareholders, and the Company. |   | Incorporated by reference to Exhibit 10.1 to the  Company’s Quarterly Report on Form 10-Q for the Quarter ended June 30,  2000 |   |
|            |   |                                                                                                                   |   |                                                                                                                                     |   |
| 23.1*           |   | Independent Auditors’ Consent.                                                                                    |   | Filed herewith electronically                                                                                                            |   |

 

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* Denotes previously unfiled documents.

 

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