**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D. C. 20549**

 

**FORM 10-K**

 

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

**SECURITIES EXCHANGE ACT OF 1934**

 

**For thefiscal year ended: September 30, 2001, Commission File 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 TelephoneNumber, Including Area Code)

 

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

Securities registered pursuant to Section 12(g) of the Act: COMMONSTOCK, 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-K or anyamendment to this Form 10-K   o

 

The aggregate market value of voting stock held by nonaffiliates of theRegistrant on December 3, 2001, was $57,838,659 (based upon the lastreported sale price on that date as reported by The Nasdaq Stock Market),excluding all shares held by officers and directors of the Registrant and bythe Trustees of the Registrant's Employee Stock Ownership Plan.  The number of shares outstanding of theRegistrant's common stock on December 3, 2001 was 10,216,688.

 

**DOCUMENTSINCORPORATED BY REFERENCE**

 

Part III of this Annual Report on Form 10-K incorporates by referenceinformation (to the extent specific sections are referred to herein) from theRegistrant's Proxy Statement for its 2002 Annual Meeting of Shareholders to beheld February 13, 2002.

 

 

 

CAUTIONARY STATEMENTREGARDING

FUTURE RESULTS ANDFORWARD-LOOKING STATEMENTS

 

                The future resultsof the Registrant, including results reflected in any forward-looking statementmade by or on behalf of the Registrant, will be impacted by a number ofimportant factors.  Words such as"may," "will," "expect," "believe,""anticipate," "estimate," or "continue" orcomparable terminology are intended to identify forward-lookingstatements.  Forward-looking statements,by their nature, involve substantial risks and uncertainties.

 

PART I

 

ITEM 1.                 BUSINESS.

 

                (a)           GENERALDEVELOPMENT OF THE BUSINESS.  TheRegistrant was incorporated under the laws of the State of Minnesota in1955.  In fiscal 1998, the Registrantmerged three of its former subsidiaries, Feed-Rite Controls, Inc., Mon-DakChemical, Inc., Dakota Chemical, Inc. and its Arrowhead Chemical Divisiontogether to form a single wholly-owned subsidiary known as Hawkins WaterTreatment Group, Inc. (HWTG).  In fiscal1999, the Registrant merged HWTG into the Registrant.  During fiscal 2000, the Registrant acquired certain assets of St.Mary’s Chemicals, Inc. (discussed more fully in paragraph (i) below).  In fiscal 2001, the Registrant’s corporatename was changed to Hawkins, Inc. from Hawkins Chemical, Inc. reflecting thefact the Registrant has expanded its original business from the distribution ofchemicals.

 

                (b)           FINANCIAL INFORMATION ABOUT INDUSTRYSEGMENTS.  The Company’s principalbusiness is the formulation, blending and distribution of bulk and specialtychemicals, which it conducts in two principal segments: Water Treatment andIndustrial.  Financial information regardingthese segments is reported in the Company’s audited financial statements.  See Items 7 and 8 below.

 

                (c)           NARRATIVE DESCRIPTION OF THEBUSINESS.

 

                (i)             PRODUCTS AND MARKETS. The Company’s business is conducted in its two segments, Water Treatmentand Industrial, which are more fully described below:

 

                (A)          WATER TREATMENT. The Water Treatment segment specializes in providing water andwaste-water treatment equipment and chemicals, as well as helping customersfind solutions to systems problems in Minnesota, Wisconsin, Iowa, North Dakota,South Dakota, Nebraska, Illinois, Michigan, Montana and Wyoming.  It also operates as a distributor of theCompany’s products to its customers. The Water Treatment operations in the Minneapolis/St. Paul area relocatedto a new 59,000 square-foot facility, “the Red Rock facility,” during the firstquarter of fiscal 2001.  The newfacility, located on the Mississippi River in St. Paul, MN has improvedoperational efficiencies, as the Water Treatment operations are located at thefacility where several key products are produced.  The consolidated warehouse space has reduced the amount of timerequired to load trucks between deliveries.

                (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 the Company.  This segment conducts its business primarilythrough terminal operations and sales.

 

                The Industrial segment receives,stores and distributes various chemicals in bulk, including liquid causticsoda, phosphoric acid and aqua ammonia; manufactures sodium hypochlorite(bleach); repackages liquid chlorine; and performs custom blending of certainchemicals for customers according to customer formulas.  Approximately 80% of the terminal operationsbusiness is related to liquid caustic soda. The Industrial segment also operates liquid caustic soda barge terminalsto receive shipments during the period the Mississippi River is open to bargetraffic (approximately April 1 through November 15).  During the remainder of the year the Company relies on stockpiles,as well as supplies shipped in by railroad tank car.  Pursuant to operating agreements it has with other chemicalcompanies, the Company also receives, stores and ships liquid caustic soda andother chemicals at the Hawkins "Terminal 1" location and its"Terminal 2" site, which is located across the river and downstreamfrom Terminal 1.  The chlorinerepackaging and bleach manufacturing operations, formerly located at Terminal1, were moved to Red Rock during fiscal 2001.

 

                Since 1963, flooding of the MississippiRiver has required the Company’s Terminal 1 and 2 operations to be temporarilyshifted out of its buildings four times, the most recent being in the spring of2001.  From approximately April 12, 2001to May 8, 2001, the areas around the terminals were flooded, preventingshipments 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 theMississippi River and no caustic soda barges were received from the closing ofthe river in the fall of 2000 until the end of May 2001.  No substantial interruptions to salesresulted from the flooding as trucks and railroad tank cars were used as analternative means of supply.  However,the Company incurred additional shipping, labor, and other costs and was notbeen able to pass through all of these costs to its customers.  This had a negative impact on earnings inthe third quarter of fiscal 2001 of approximately $200,000.  No assurance can be given that flooding willnot recur or that there will not be material damage or interruption to theCompany’s operations in the future from flooding.  In September 2001, a 1.5 million gallon caustic soda storage tankwas completed at the Red Rock facility allowing it to serve as an additionalterminal for bulk chemicals. Historically, the property on which the Red Rock facility is located hasnot been subject to flooding when Terminals 1 and 2 were not usable due to highwater and the facility was not affected by the fiscal 2001 flooding.  The Company expects the impact of futureflooding, if any, will be reduced as the new Red Rock facility is expected toallow the Company to continue shipping to customers during periods of highwater 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.  This aspect of its operations commenced in1993 when the Company acquired the assets of Industrial Chemical &Equipment Co.

 

                On May 26, 2000, the Companycompleted the acquisition of certain assets of St. Mary's Chemicals, Inc.d.b.a. Universal Chemicals. Universal Chemicals, a Minnesota-based company, wasengaged in the business of marketing, selling, and distributing pharmaceuticalchemicals to pharmacies and pharmacy wholesalers.  On May 26, 2000, the Company also entered into a five-yearemployment agreement with one of the previous owners and consulting agreementswith the other two previous owners of Universal Chemicals.  The employment agreement and consultingagreements contain performance bonuses and non-compete provisions.  The agreements are based on UniversalChemicals’ operating results, as defined, for five years after the acquisitiondate and have a maximum payment 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.  TheRegistrant did not have any significant new products in fiscal 2001.

 

                (iii)           RAW MATERIALS.  TheCompany’s segments have approximately 300 suppliers, including many of themajor chemical producers in the United States, of which approximately 20account for a majority of the purchases. The Company’s segments typically have written distributorship agreementsor supply contracts with its suppliers that are renewed from time to time.  Although there is no assurance that anycontract or understanding with any supplier will not be terminated in theforeseeable future, most of the basic chemicals purchased can be obtained fromalternative sources should existing relationships be terminated.

 

                (iv)          PATENTS, TRADEMARKS, LICENSES, FRANCHISES, ANDCONCESSIONS.  There are no patents,trademarks, licenses, franchises or concessions that are currently material tothe successful operation of the Company’s business.  The Company has, however, obtained a patent on a liquid form of sodiumphosphate for use in the processed food industry, as described below; thepatent was granted on October 17, 1995 and will expire on November 8, 2013.

 

                Process cheese producers areincreasingly moving away from dry forms of sodium ortho phosphates to liquidversions.  The advantages of the liquidform include delivery by pumping, greater measurement accuracy and consistencyin finished product and the elimination of undissolved chemical dust and thedisposal of empty chemical bags.  Themajor drawback of the liquid sodium phosphates currently being used in thecheese processing industry is that it must be stored at between 130 and 160degrees Fahrenheit to prevent crystallization. Expensive heated storage and steam heated piping is necessary to maintainrequired temperatures.  Back-upgenerators must also be installed as safeguards against product cooling andsolidifying in case of a plant power outage.

                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 historically experienced higher salesduring the third and fourth fiscal quarters, which is due primarily to anincrease in chemicals used by municipal water treatment facilities.

 

                (vi)          WORKING CAPITAL ITEMS. As a bulk distributor of chemicals, the Company is required to carrysignificant amounts of inventory to meet rapid delivery requirements ofcustomers.  Working capital requirementsvary on a seasonal basis as a result of the seasonality of the water treatmentbusiness.

 

                (vii)         DEPENDENCE ON LIMITED NUMBER OF CUSTOMERS.  No one customer represents more thanapproximately three percent of the Company’s sales, but the loss of its fourlargest customers could have a material adverse effect on the Company’s resultsof operations.  Additionally, no onecustomer represents 10% or more of either the Water Treatment segment orIndustrial segment sales.

 

                (viii)        BACKLOG.  Backlog isnot material to an understanding of the Company’s business.

 

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

 

                (x)            COMPETITIVE CONDITIONS. The Company operates in a competitive industry and competes withproducers, distributors and sales agents offering chemicals equivalent to allof the products handled by the Company. Many such producers and distributors have substantially more businessand are substantially larger than the Company. No one competitor, however, is dominant in the Company’s market.  Price and service are the principal methodsof competition in the industry.

 

                (xi)           RESEARCH AND DEVELOPMENT. The Company does not have a formal research and developmentfunction.  Employees are assigned toresearch and development projects as the need arises.  During the past fiscal year, expenditures for research anddevelopment were negligible and not material to the Company’s business.

 

                (xii)          ENVIRONMENTAL MATTERS. The Company is primarily a compounder and distributor, rather than amanufacturer, of chemical products.  Assuch, compliance with current federal, state and local provisions regardingdischarge of materials into the environment, or otherwise relating to theprotection of the environment, is not anticipated to have any material effectupon the capital expenditures, earnings or competitive position of theCompany.  The Company does not currentlyanticipate making any material capital expenditures for environmental controlfacilities during fiscal 2002.

 

                (xiii)         EMPLOYEES.  Thenumber of persons employed by the Company as of September 30, 2001 was 200.

 

                (d)           FINANCIAL INFORMATION ABOUT FOREIGNAND DOMESTIC OPERATIONS AND EXPORT SALES. Because the Company deals primarily in one geographic area of the UnitedStates, a breakdown of sales, profitability or assets attributable to differentgeographic areas is not meaningful to an understanding of the Company'sbusiness.

 

ITEM 2.                 PROPERTIES.

 

                The Company ownsits principal location, which consists of approximately eleven acres of land inMinneapolis, Minnesota, with six buildings containing a total of 160,000 squarefeet of office and warehouse space.  TheCompany’s principal office is located in one of these buildings, at 3100 EastHennepin Avenue.  The other buildingshouse the rest of the Company’s operations. As of the date hereof, the Company has installed sprinkler systems insubstantially all of its warehouse facilities for fire protection.  The Company carries insurance covering thereplacement of property damaged by fire or flood.

 

                As noted above,during the first quarter of fiscal 2001 the Company completed the new Red Rockfacility in St. Paul, Minnesota.  TheRed Rock facility consists of a 59,000 square foot building located onapproximately 10 acres of land.  The newfacility has outside storage capacity of approximately 1.5 million gallons forthe storage of liquid caustic soda, as well as numerous smaller tanks forstoring and mixing chemicals.  The landis leased from the Port Authority of the City of St. Paul, Minnesota for abasic rent plus an amount based on the annual tonnage unloaded at the sitethrough May 31, 2029.  The basicrent and annual tonnage rent are to be renegotiated every five years beginningJune 1, 2004.

 

                In addition to thefacilities described above, the Company’s other facilities are describedbelow.  These facilities, together withthose described above, are adequate and suitable for the purposes they serve.  Unless noted, each facility is owned and isfully utilized by the Company.

 
|            |   |                  |   |                          |   | **Approx.**      |
|-----------------|--------|-----------------------|--------|-------------------------------|--------|------------------|
| **Segment**     |   | **Location**          |   | **Primary  Use**              |   | **Square  Feet** |
|            |   |                  |   |                          |   |             |
| Industrial      |   | St. Paul, MN(1)       |   | Office, Warehouse and  Garage |   | 32,000           |
|            |   | St. Paul, MN(2)       |   | Office                        |   | 3,000            |
| Water Treatment |   | Fargo, ND(3)          |   | Office and Warehouse          |   | 22,800           |
|            |   | Fond du Lac, WI(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            |

----

   (1)           The Company’s terminal operations arelocated at two sites on opposite sides of the Mississippi River, made up ofthree buildings, nine outside storage tanks with a total capacity ofapproximately 8,900,000 gallons for the storage of liquid caustic soda, as wellas 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)           This facility is leased from a thirdparty.

 

   (3)           Part of this facility is leased to athird party (5,000 square feet).

 

   (4)           Part of this facility is leased tothird parties (10,000 square feet).

 

   (5)           Part of this facility is leased to athird party (6,000 square feet).

 

   The Companyalso owns several trucks, tractors, trailers and vans.

 

ITEM 3.                 LEGALPROCEEDINGS.

 

                As of the date ofthis filing, the Company is not involved in any pending legal proceeding otherthan ordinary routine litigation incidental to their business, except asfollows:

 

                                LYNDECOMPANY WAREHOUSE FIRE.  The settlementagreement (the Settlement Agreement) relating to the class action, DONNA M.COOKSEY, ET AL. V. HAWKINS CHEMICAL, INC. AND THE LYNDE COMPANY (Cooksey),brought in March 1995 against the Company and its former subsidiary, fordamages alleged to be caused by a fire at an office/warehouse facility used bythe former subsidiary, was approved by the court on January 30, 1998.  Pursuant to the Settlement Agreement, theCompany agreed to pay certain of the plaintiffs' costs and expenses as well ascertain compensation to the class. Three claimants remain who have not yet resolved their claims underthe Settlement Agreement.  The Companyanticipates that the defense and payment of these remaining claims, which aresubject to arbitration, will be covered by its umbrella insurer.

 

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

 

                No matter wassubmitted to a vote of security holders during the fourth quarter of fiscal2001.

 

ITEM 4A.              EXECUTIVEOFFICERS OF THE COMPANY.

 

                The executiveofficers of the Company, their ages and offices held, as of December 14, 2001are 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       |   | 52      |   | Vice President, Chief Financial Officer, Secretary,  and Treasurer |
|                |   |    |   |                                                               |
| Keenan A. Paulson   |   | 52      |   | Vice President - Water Treatment Group                             |
|                |   |    |   |                                                               |
| John R. Sevenich    |   | 43      |   | Vice President - Manufacturing and Specialty  Products             |
|                |   |    |   |                                                               |
| Daniel E. Soderlund |   | 39      |   | Vice President - Pharmaceuticals                                   |

                John R. Hawkinshas been the Company’s Chairman and Chief Executive Officer sinceFebruary 16, 2000.  He wasPresident and Chief Operating Officer from December 1998 to February 2000 andwas Secretary from 1991 to December 1999. He was an Executive Vice President from 1997 to December 1998 and VicePresident of Sales from 1987 to 1997.

 

                Kurt R. Norman hasbeen the Company’s President and Chief Operating Officer sinceFebruary 16, 2000.  He was a VicePresident of the Company from February 1999 until February 2000, the VicePresident of the Water Treatment segment from 1996 to February 1999 and was theWater Treatment General Manager from 1988 to 1996.

 

                Marvin E. Dee hasbeen the Company’s Vice President and Chief Financial Officer since September1999 and its Secretary and Treasurer since December 1999.  He was the Chief Financial Officer of NathCompanies from 1997 to September 1999, the Vice President of Finance andTreasurer of Tricord Systems, Inc. from 1993 to 1997 and Senior Director ofAccounting of NordicTrack, Inc. in 1993 and the Controller of NordicTrack from1991 to 1992.

 

                Keenan A. Paulsonhas been the Company’s Vice President - Water Treatment Group since May2000.  Prior to attaining this position,Ms. Paulson held various positions during her 30-year career with the Company,most recently as its Water Treatment General Manager.

 

                John R. Sevenichhas been the Company’s Vice President - Manufacturing and Specialty Productssince May 2000.  He was the BusinessUnit Manager of Manufacturing from 1998 to May 2000 and was a SalesRepresentative with the Company from 1989 to 1998.

 

                Daniel E.Soderlund has been the Company’s Vice President - Pharmaceuticals since May2000.  He was the Business Unit Managerof Pharmaceuticals from April 1999 to May 2000 and was a Sales Representativewith the Company from 1992 to April 1999.

 

PART II

 

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

 
| **Quarterly  Stock Data** |   | **High**     |   | **Low**  |   |
|---------------------------|--------|--------------|--------|----------|--------|
|                      |   |         |   |     |   |
| 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 2002               |   |         |   |     |   |
| 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 NASDAQ National MarketSystem under the symbol “HWKN.” The price information represents closing saleprices reported in the NASDAQ/NMS Monthly Statistical Report.

 

As of September 30, 2001, there were approximately 700 shareholders ofrecord of the Company’s common stock.  Additionally, the Depository Trust Company, the principal centralsecurities depository in the United States, held the shares of approximately1,200 shareholders that were counted as owned by one holder.

 

ITEM 6.  SELECTED FINANCIAL DATA.

 
| SELECTED FINANCIAL DATA  TABLE                |   |       |        |       |   |       |   |       |       |
|-----------------------------------------------|--------|------------|-------------|------------|--------|------------|--------|------------|------------|
|                                          |   |       |        |       |   |       |   |       |       |   |   |
| **Fiscal Year**                               |   | **2001**   |        | **2000**   |   | **1999**   |   | **1998**   |       | **1997** |   |
|                                          |   |       |        |       |   |       |   |       |       |   |   |
| Sales *                                       |   | $          | 107,931,668 |       | $      | 98,021,731 |   | $          | 96,734,470 |   | $ | 95,860,765 |   | $ | 88,652,642 |   |
|                                          |   |       |        |       |   |       |   |       |       |   |   |
| Net income                                    |   | 7,117,578  |        | 8,567,699  |   | 9,698,642  |   | 8,213,869  |       | 7,790,487 |   |
|                                          |   |       |        |       |   |       |   |       |       |   |   |
| Basic and  diluted  earnings per common share |   | .69        |        | .81        |   | .87        |   | .71        |       | .67 |   |
|                                          |   |       |        |       |   |       |   |       |       |   |   |
| Cash dividends   declared per common share    |   | .30        |        | .32        |   | .27        |   | .20        |       | .18 |   |
|                                          |   |       |        |       |   |       |   |       |       |   |   |
| Cash dividends   paid per common share        |   | .30        |        | .29        |   | .25        |   | .19        |       | .16 |   |
|                                          |   |       |        |       |   |       |   |       |       |   |   |
| Total assets                                  |   | 74,868,121 |        | 69,894,520 |   | 68,999,827 |   | 66,535,475 |       | 63,652,616 |   |
|                                          |   |       |        |       |   |       |   |       |       |   |   |
| Long-term debt                                |   | 116,823    |        | 226,003    |   | 328,040    |   | 423,402    |       | 512,525 |   |
|                                               |        |            |             |            |        |            |        |            |            |  |  |  |  |  |  |  |

----

*              Sales for fiscal2000, 1999, 1998 and 1997 are restated due to the adoption of EITF 00-10 infiscal 2001.  EITF 00-10 required allamounts billed to customers in sales transactions relating to shipping andhandling to be classified as sales. This had no impact on net income as previously reported.

 

ITEM 7.                  MANAGEMENT'S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

                The informationcontained in this Annual Report on Form 10-K includes forward-lookingstatements as defined in Section 21E of the Securities Exchange Act of 1934, asamended.  These forward-lookingstatements involve a number of risks and uncertainties, including demand frommajor customers, competition, changes in product or customer mix or revenues,changes in product costs and operating expenses, and other factors disclosedthroughout this Annual Report on Form 10-K 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.

 

OVERALL SUMMARY

 

                Sales in fiscal2001 increased 10.1% to $107,931,668 from $98,021,731 in fiscal 2000.  Net income for fiscal 2001 was $7,117,578,or $0.69 per share, compared to $8,567,699, or $0.81 per share for fiscal 2000.  The decrease in net income was primarily dueto additional costs of operations due to the spring flooding at our terminalsand to the LIFO method of valuing inventories (see Gross Margin discussionbelow).  Return on average shareholders'equity was 12.3% for fiscal 2001, compared to 15.3% for fiscal 2000.  Book value per share at September 30, 2001was $5.77 compared to $5.44 one year ago.

 

SALES

 

                For the year endedSeptember 30, 2001, sales increased $9,909,937, a 10.1% increase from fiscal2000, 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 is 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.

 

                For the year endedOctober 1, 2000, sales increased $1,287,261, a 1.3% increase from fiscal 1999,due to an increase of $1,786,821 in Water Treatment segment sales partiallyoffset by a decrease of $499,560 in Industrial segment sales.  The Water Treatment segment increase is dueto an increase in volumes of products sold. The Industrial segment decrease is due to a decrease in the sellingprice of caustic soda partially offset by an increase in volume of caustic sodasold and the majority of other products sold in this segment.

 

GROSS MARGIN

 

                Gross margin, as apercentage of sales, was 22.5% in fiscal 2001, 25.3% in fiscal 2000 and 24.8%in fiscal 1999.  The gross marginvariations are due to a number of variables in both segments as explainedbelow.

 

                Gross margin, as apercentage of sales, for the Industrial segment was 18.7% in fiscal 2001, 22.6%in fiscal 2000 and 22.1% in fiscal 1999. The fiscal 2001 decrease compared to fiscal 2000 was primarily due tothe cost of caustic soda, which began to increase at the beginning of fiscalyear 2001 and continued to increase during the first eight months of the fiscalyear.  Due to the large quantities ofcaustic soda that we had on hand at the beginning of the fiscal year andbecause we are on the LIFO method of valuing inventories, this increasenegatively impacted gross margins.  The Companyimplemented caustic soda price increases during the year; however marketpressures prevented the Company from recovering all of the increased causticsoda costs.  Additionally, an increasein the volume of caustic soda in the year-end inventory combined with theincrease in cost of caustic soda resulted in an increase in the LIFO reserve,all of which negatively affected earnings by $1.4 million or $.14 pershare.  The Company attempts to maintainrelatively constant dollar margins as the cost of this product line increasesand decreases.  The cost of this productis normally 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 2000 increaseover fiscal 1999 was due to the Company's ability to maintain relativelyconstant profit margins as caustic soda costs were decreasing.  The Company has also generally been able to,and expects to continue to, adjust its selling prices as the cost of materialsand other expenses change.

 

                Gross margin, as apercentage of sales, for the Water Treatment segment was 30.7% in fiscal 2001,31.2% in fiscal 2000 and 31.0% in fiscal 1999. The fiscal 2001 gross margin decrease in comparison to fiscal 2000 wasattributable to the aforementioned increase in caustic soda costs andadditional costs associated with the new Red Rock facility.  The fiscal 2000 gross margin was comparableto fiscal 1999.

 

SELLING, GENERAL AND ADMINISTRATIVE

 

                Selling, generaland administrative expenses increased 21.0% and 9.3% in fiscal 2001 and fiscal2000, respectively over the previous years. These increases are primarily attributable to the Company’s investmentin infrastructure necessary to support future sales increases as well as alarger, more geographically dispersed organization.  The fiscal 2001 increase over fiscal 2000 was mainly due toincreases in the sales staff, consulting fees, amortization of intangiblesrelated to the May 26, 2000 St. Mary’s Chemicals, Inc. acquisition, and toemployee benefits costs.  The fiscal2000 increase over fiscal 1999 was mainly due to increases in the sales andadministrative staff, consulting fees and to employee benefits costs.  The increase in employee benefits costs isdue to the increased number of employees.

 

LITIGATION AND SETTLEMENT COSTS RELATED TO 1995 FIRE

 

                Prior to September1998, the Company paid and expensed $2.9 million in settlement and legal costsand for other costs in connection with the Company's defense of a lawsuit filedagainst it in Minnesota entitled DONNA M. COOKSEY, ET AL. V. HAWKINS CHEMICAL,INC. AND THE LYNDE COMPANY.  Theplaintiffs in the lawsuit sought damages for personal injury and other damagesalleged to have been caused by the release of hazardous substances as a resultof a fire at an office/warehouse facility occupied by The Lynde Company,formerly a wholly owned subsidiary of the Company.  The Company entered into a Settlement Agreement with theplaintiffs.  Most, but not all, of theclaimants have now been paid under the Settlement Agreement.

 

                The Company'sprimary and umbrella insurers denied coverage and refused to defend thelawsuit.  During fiscal 1999, theCompany prevailed in its claims against its insurers and has been reimbursed$2,851,708 for substantially all of its settlement and legal expenses.  In addition, the Company anticipates thatthe defense and payment of the 3 remaining claims will be covered by theumbrella insurer.

 

SPECIAL CHARGES

 

                During fiscal1999, the Company entered into termination agreements with three formeremployees due to corporate organizational changes and recorded Special Chargesin the Statement of Income of $1,112,127.

 

OTHER INCOME

 

                Interest incomedecreased $346,706 in fiscal 2001 as compared to the previous year due to lesscash available for investment and a lower rate of return on the Company’savailable for sale securities which consist primarily of municipal bonds andannuity contracts.  Interest incomedecreased $48,116 in fiscal 2000 as compared to the previous year due to lesscash available for investment.  Interestexpense decreased in fiscal 2001 and fiscal 2000 as compared to the previousyear.  Most of the interest expense isthe result of the Company issuing a note payable to the seller in connectionwith the acquisition of the assets of Industrial Chemical & EquipmentCompany in 1993.

PROVISION FOR INCOME TAXES

 

                The effectiveincome 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 the fiscal yearended October 3, 1999.  The fiscal2001 decrease compared to fiscal 2000 and 1999 was due to changes in stateapportionment factors and a deduction for dividends paid on allocated sharesheld in the Employee Stock Ownership Plan.

 
| SELECTED QUARTERLY  FINANCIAL DATA      |   |                                      |       |        |       |        |       |
|-----------------------------------------|--------|-------------------------------------------|------------|-------------|------------|-------------|------------|
|                                    |   |                                      |       |        |       |        |       |   |   |
|                                    |   | **Fiscal Year Ended September 30,  2001** |       |
|                                    |   | **First**                                 |       | **Second**  |       | **Third**   |       | **Fourth** |   |
|                                    |   | **Quarter**                               |       | **Quarter** |       | **Quarter** |       | **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 |   |
|                                    |   |                                      |       |        |       |        |       |   |   |
|                                    |   | **Fiscal  Year Ended October 1, 2000**    |       |
|                                    |   | **First**                                 |       | **Second**  |       | **Third**   |       | **Fourth** |   |
|                                    |   | **Quarter**                               |       | **Quarter** |       | **Quarter** |       | **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 |   |

----

*              Previouslydisclosed quarterly sales are restated due to the adoption of EITF 00-10, whichhad no effect on gross margin or net income as previously reported.  EITF 00-10 required all amounts billed tocustomers in sales transactions relating to shipping and handling to beclassified as sales.

 

INFLATION

 

                Inflation has nothad a significant impact on the Company during the past three fiscal years, 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 byoperations in fiscal 2001 was $9,950,745 compared with $9,693,479 in fiscal2000 and $13,847,248 in fiscal 1999. The decrease in fiscal 2001 and 2000 compared to fiscal 1999 was dueprimarily to fluctuations in inventory values and to the recovery of litigationexpenses in fiscal 1999.

 

                Cash andinvestments available-for-sale decreased by $1,618,752 to $12,600,871 at theend of fiscal 2001.  The decrease wasprimarily attributable to capital expenditures.  The Company is currently investing excess cash primarily inconservative investments.  Cashequivalents consist of a money market account at a financial institution.  Investments consist of investment contractswith high-rated, stable insurance companies, marketable securities consistingof variable rate municipal bonds and mutual funds carried at fair value.  Investments are highly liquid and are availableupon demand generally with only a minor penalty.

 

CAPITAL EXPENDITURES

 

                Capitalexpenditures in fiscal 2001, 2000 and 1999 were $7,056,226, $7,216,301 and$2,449,894, respectively.  Of the fiscal2001 capital expenditures, the new Red Rock facility accounted for$4.1 million, transportation equipment additions accounted for$1.3 million, building improvements and additions amounted to$0.3 million, and warehouse, laboratory and office machinery and equipmentaccounted for $1.4 million.

 

COMMON STOCK REPURCHASES

 

                During fiscal2001, the Company acquired and retired 168,951 shares of common stock for$1,421,641.  During fiscal 2000, theCompany acquired and retired 608,900 shares of common stock for $5,020,366.

 

OUTLOOK

 

                Management doesnot anticipate the need for stock or debt issuances in the short or long-term,as cash, investments and cash flows from operations have been more thanadequate to fund working capital, capital investments, dividend needs andcommon stock repurchases.  If the needfor additional financing arises, however, management will consider issuance ofdebt or equity if such financing can be obtained on favorable terms.  Although management continually looks forcompanies to acquire and for ways to modernize its facilities and equipment, nomaterial commitments for acquisitions or capital expenditures currently exist.

 

                Other than asdiscussed above, management is not aware of any matters or trends that havematerially affected the results of operations for fiscal 2001 that are notexpected to have either short or long-term implications, nor is it aware of anytrends or other matters that have not materially affected results in fiscal2001 but are expected to have a material effect on future periods.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

                In 2000, theFinancial Accounting Standards Board issued Emerging Issues Task Force (EITF)00-10, “Accounting for Shipping and Handling Costs.”  EITF 00-10 requires all amounts billed to customers in a salestransaction related to shipping and handling to be classified as sales.  The Company records costs related toshipping and handling in cost of sales. Prior period sales and cost of sales have been adjusted for this change,which had no effect on previously reported net income.

 

                In July 2001, theFASB issued Statement of Financial Accounting Standards (SFAS) No. 141,“Business Combinations.”  SFAS No. 141requires the use of the purchase method of accounting for all businesscombinations initiated after June 30, 2001 and all acquisitions dated July 1,2001 or later.  The Company adopted theprovisions of SFAS No. 141 during fiscal 2001.

 

                In July 2001, theFASB also issued SFAS No. 142, “Goodwill and Other Intangible Assets.”  The Company will adopt the provisions ofSFAS No. 142 for other intangibles and goodwill acquired before June 30, 2001on the first day of fiscal 2003.  UnderSFAS No. 142, goodwill as well as other intangibles determined to have anindefinite life will no longer be amortized; however, these assets will bereviewed 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 Company doesnot expect the implementation of SFAS No. 142 to materially impact theCompany’s financial statements.  As ofSeptember 30, 2001 the Company had net other intangibles assets of $3,486,890.  Amortization expense recorded during fiscal2001, 2000, and 1999 was $283,485, $136,561 and $63,098, respectively.

 

                In August 2001,the FASB issued SFAS No. 143, “Accounting for Asset RetirementObligations.”  SFAS No. 143 requiresentities to record the fair value of a liability for an asset retirementobligation in the period in which it is incurred.  When the liability is initially recorded, the entity capitalizesa cost by increasing the carrying amount of the related long-lived asset.  Over time, the liability is accreted to itspresent value each period, and the capitalized cost is depreciated over theuseful life of the related asset.  Uponsettlement of the liability, an entity either settles the obligation for its recordedamount or incurs a gain or loss upon settlement.  SFAS No. 143 is effective for fiscal years beginning after June15, 2002.  The Company expects to adoptSFAS No. 143 in fiscal 2003.  TheCompany has not yet determined the impact of SFAS No. 143 on its financialposition and results of operations.

 

                In September 2001,the FASB also issued SFAS No. 144, “Accounting for the Impairment or Disposalof Long-Lived Assets.”  SFAS No. 144requires that long-lived assets to be disposed of by sale, includingdiscontinued operations, to be measured at the lower of the carrying cost orfair value less cost to sell, whether reported in continuing operations ordiscontinued operations.  SFAS No. 144also broadens the reporting of discontinued operations to include allcomponents of an entity with operations that can be distinguished from the restof the entity and that will be eliminated from the ongoing operations of theentity in a disposal transaction.  Theprovisions of SFAS No. 144 are effective for financial statements issued forfiscal years beginning after December 15, 2001, and, generally, are to beapplied prospectively.  The Companyexpects to adopt SFAS No. 144 in fiscal 2003. The Company has not yet determined the impact of SFAS No. 144 on itsfinancial position and results of operations.

ITEM 7A.              QUANTITATIVEAND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

 

                At the end offiscal 2001, the Company had an investment portfolio of fixed income securitiesof $1,491,152 and mutual funds of $2,202,115, excluding $11,054,304 classifiedas cash and cash equivalents and variable rate securities.  The fixed income securities, like all fixedincome instruments, are subject to interest rate risk and will decline in valueif market interest rates increase. However, while the value of the investment may fluctuate in any givenperiod, the Company intends to hold its fixed income investments untilmaturity.  Consequently the Companywould not expect to recognize an adverse impact on net income or cash flows orthe amount ultimately realized on the investment.  The value of the mutual funds, like all mutual funds, mayincrease or decrease due to market volatility. The Company intends to hold the mutual funds and does not anticipate aneed to liquidate its investments and therefore would not expect a materialadverse impact on net income or cash flows or the amount ultimately realized onthe investment.

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 September 30, 2001 and October 1, 2000, and therelated statements of income, shareholders' equity, and cash flows for each ofthe three years in the period ended September 30, 2001.  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 and disclosuresin the financial statements.  An auditalso includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation.  We believe thatour 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. atSeptember 30, 2001 and October 1, 2000, and the results of itsoperations and cash flows for each of the three years in the period endedSeptember 30, 2001 in conformity with accounting principles generallyaccepted in the United States of America.

 

 

/s/ Deloitte & Touche LLP

 

 

Minneapolis, Minnesota

December 6, 2001

 

 
| **HAWKINS,  INC.**                                                                                                                                 |   |              |       |           |       |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|------------|----------------|------------|
| **BALANCE SHEETS**                                                                                                                                 |   |
|                                                                                                                                               |   |              |       |           |       |
|                                                                                                                                               |   | **September 30,** |       | **October 1,** |       |
|                                                                                                                                               |   | **2001**          |       | **2000**       |       |
|                                                                                                                                               |   |              | ** ** |           | ** ** |
| **ASSETS**                                                                                                                                         |   |              |       |           |       |
| CURRENT ASSETS:                                                                                                                                    |   |              |       |           |       |
| Cash and cash  equivalents                                                                                                                         |   | $                 | 1,118,856  |           | $          | 2,185,757 |   |
| Investments  available-for-sale                                                                                                                    |   | 11,482,015        |       | 12,033,866     |       |
| Trade  receivables - less allowance for doubtful accounts:  2001, $335,000; 2000, $377,000                                                    |   | 12,212,402        |       | 11,610,606     |       |
| Inventories                                                                                                                                        |   | 12,584,723        |       | 8,929,957      |       |
| Prepaid expenses  and other current assets                                                                                                         |   | 1,268,522         |       | 2,816,576      |       |
| Total current  assets                                                                                                                              |   | 38,666,518        |       | 37,576,762     |       |
|                                                                                                                                               |   |              |       |           |       |
| PROPERTY, PLANT  AND EQUIPMENT:                                                                                                                    |   |              |       |           |       |
| Land                                                                                                                                               |   | 631,662           |       | 631,662        |       |
| Buildings and  improvements                                                                                                                        |   | 26,329,660        |       | 23,319,413     |       |
| Machinery and  equipment                                                                                                                           |   | 9,986,305         |       | 8,078,640      |       |
| Transportation  equipment                                                                                                                          |   | 7,289,667         |       | 6,462,568      |       |
| Office furniture  and equipment                                                                                                                    |   | 2,666,900         |       | 1,839,836      |       |
|                                                                                                                                               |   | 46,904,194        |       | 40,332,119     |       |
| Less accumulated  depreciation                                                                                                                     |   | 18,734,077        |       | 16,644,782     |       |
| Net property,  plant and equipment                                                                                                                 |   | 28,170,117        |       | 23,687,337     |       |
|                                                                                                                                               |   |              |       |           |       |
| OTHER ASSETS:                                                                                                                                      |   |              |       |           |       |
| Intangible  assets - less accumulated amortization:   2001, $876,159; 2000, $592,674                                                          |   | 3,486,890         |       | 3,770,375      |       |
| Other                                                                                                                                              |   | 4,544,596         |       | 4,860,046      |       |
| Total other  assets                                                                                                                                |   | 8,031,486         |       | 8,630,421      |       |
|                                                                                                                                               |   | $                 | 74,868,121 |           | $          | 69,894,520 |   |
|                                                                                                                                               |   |              |       |           |       |
| **LIABILITIES AND SHAREHOLDERS'  EQUITY**                                                                                                          |   |              |       |           |       |
|                                                                                                                                               |   |              |       |           |       |
| CURRENT  LIABILITIES:                                                                                                                              |   |              |       |           |       |
| Accounts payable  - trade                                                                                                                          |   | $                 | 7,294,730  |           | $          | 5,006,580 |   |
| Current portion  of long-term debt                                                                                                                 |   | 109,180           |       | 102,037        |       |
| Dividends  payable                                                                                                                                 |   | 1,537,805         |       | 1,566,036      |       |
| Accrued payroll  and employee benefits                                                                                                             |   | 3,063,633         |       | 2,417,746      |       |
| Container  deposits                                                                                                                                |   | 1,352,026         |       | 1,533,800      |       |
| Other accruals                                                                                                                                     |   | 1,160,621         |       | 836,819        |       |
| Total current  liabilities                                                                                                                         |   | 14,517,995        |       | 11,463,018     |       |
|                                                                                                                                               |   |              |       |           |       |
| LONG-TERM DEBT                                                                                                                                     |   | 116,823           |       | 226,003        |       |
|                                                                                                                                               |   |              |       |           |       |
| OTHER LONG-TERM  LIABILITIES                                                                                                                       |   | 411,705           |       | 596,943        |       |
|                                                                                                                                               |   |              |       |           |       |
| DEFERRED INCOME  TAXES                                                                                                                             |   | 737,184           |       | 937,330        |       |
|                                                                                                                                               |   |              |       |           |       |
| COMMITMENTS AND  CONTINGENCIES (Notes 6 and 9)                                                                                                     |   |              |       |           |       |
|                                                                                                                                               |   |              |       |           |       |
| SHAREHOLDERS'  EQUITY:                                                                                                                             |   |              |       |           |       |
| Common stock -  authorized: 30,000,000 shares of $.05 par value; issued and outstanding:  2001 - 10,248,788 shares; 2000 -  10,417,739 shares |   | 512,439           |       | 520,887        |       |
| Additional paid-in  capital                                                                                                                        |   | 37,866,092        |       | 38,490,313     |       |
| Accumulated  other comprehensive loss                                                                                                              |   | (192,258          | )          |           |       |
| Retained  earnings                                                                                                                                 |   | 20,898,141        |       | 17,660,026     |       |
| Total  shareholders' equity                                                                                                                        |   | 59,084,414        |       | 56,671,226     |       |
|                                                                                                                                               |   | $                 | 74,868,121 |           | $          | 69,894,520 |   |

 

 

See accompanying notes to financial statements.

 
| **HAWKINS,  INC.**                             |   |
|------------------------------------------------|--------|
| **STATEMENTS OF INCOME**                       |   |
|                                           |   |   |   |
|                                           |   | **For the Fiscal Years Ended** |   |
|                                           |   | **September 30,** |   | **October 1,** |   | **October 3,** |   |
|                                           |   | **2001** |   | **2000** |   | **1999** |   |
|                                           |   |   | ** ** |   | ** ** |   | ** ** |
| Sales                                          |   | $ | 107,931,668 |   | $ | 98,021,731 |   | $ | 96,734,470 |   |
|                                           |   |   |   |   |   |   |   |
| Cost of sales                                  |   | (83,634,081 | ) | (73,219,555 | ) | (72,790,300 | ) |
|                                           |   |   |   |   |   |   |   |
| Gross margin                                   |   | 24,297,587 |   | 24,802,176 |   | 23,944,170 |   |
|                                           |   |   |   |   |   |   |   |
| Selling, general  and administrative expenses  |   | (14,242,227 | ) | (11,765,758 | ) | (10,763,251 | ) |
|                                           |   |   |   |   |   |   |   |
| Litigation  settlement proceeds                |   |   |   |   |   | 2,851,708 |   |
|                                           |   |   |   |   |   |   |   |
| Special charges                                |   |   |   |   |   | (1,112,127 | ) |
|                                           |   |   |   |   |   |   |   |
| Income from  operations                        |   | 10,055,360 |   | 13,036,418 |   | 14,920,500 |   |
|                                           |   |   |   |   |   |   |   |
| Interest income                                |   | 727,117 |   | 1,073,823 |   | 1,121,939 |   |
|                                           |   |   |   |   |   |   |   |
| Interest expense                               |   | (26,279 | ) | (30,192 | ) | (36,867 | ) |
|                                           |   |   |   |   |   |   |   |
| Income before  income taxes                    |   | 10,756,198 |   | 14,080,049 |   | 16,005,572 |   |
|                                           |   |   |   |   |   |   |   |
| Provision for  income taxes                    |   | (3,638,620 | ) | (5,512,350 | ) | (6,306,930 | ) |
|                                           |   |   |   |   |   |   |   |
| Net income                                     |   | $ | 7,117,578 |   | $ | 8,567,699 |   | $ | 9,698,642 |   |
|                                           |   |   |   |   |   |   |   |
| Weighted average  number of shares outstanding |   | 10,346,964 |   | 10,615,881 |   | 11,130,970 |   |
|                                           |   |   |   |   |   |   |   |
| Basic and  diluted earnings per share          |   | $ | 0.69 |   | $ | 0.81 |   | $ | 0.87 |   |

 

 

See accompanying notes to financial statements.

 
| **HAWKINS,  INC.**                                                                         |   |              |   |        |    |           |   |              |   |                   |       |       |     |
|--------------------------------------------------------------------------------------------|--------|-------------------|--------|-------------|---------|----------------|--------|-------------------|--------|------------------------|------------|------------|----------|
| **STATEMENTS OF SHAREHOLDERS' EQUITY**                                                     |   |
|                                                                                       |   |              |   |        |    |           |   |              |   |                   |       |       |     |
|                                                                                       |   |              |   |        |    |           |   |              |   | **Accumulated**        |       |       |     |
|                                                                                       |   |              |   |        |    | **Additional** |   |              |   | **Other**              |       | **Total**  |     |
|                                                                                       |   | **Common  Stock** |   | **Paid-in** |    | **Retained**   |   | **Comprehensive** |   | **Shareholders’** |       |
|                                                                                       |   | **Shares**        |   | **Amount**  |    | **Capital**    |   | **Earnings**      |   | **Loss**               |       | **Equity** |     |
|                                                                                       |   |              |   |        |    |           |   |              |   |                   |       |       |     |
| BALANCE AT SEPTEMBER 27, 1998                                                              |   | 11,450,895        |   | $           | 572,545 |           | $      | 41,960,535        |   | $                      | 10,946,888 |       |     |   | $ | 53,479,968 |   |
|                                                                                       |   |              |   |        |    |           |   |              |   |                   |       |       |     |
| Cash dividend                                                                              |   |              |   |        |    |           |   | (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 dividend                                                                              |   |              |   |        |    |           |   | (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 dividend                                                                              |   |              |   |        |    |           |   | (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 |   |

 

 

See accompanying notes to financial statements.

 

 
| **HAWKINS, INC.**                                                                      |   |                           |       |           |       |           |       |
|----------------------------------------------------------------------------------------|--------|--------------------------------|------------|----------------|------------|----------------|------------|
| **STATEMENTS OF CASH FLOWS**                                                           |   |
|                                                                                   |   |                           |       |           |       |           |       |
|                                                                                   |   | **For the Fiscal Years Ended** |       |
|                                                                                   |   | **September 30,**              |       | **October 1,** |       | **October 3,** |       |
|                                                                                   |   | **2001**                       |       | **2000**       |       | **1999**       |       |
|                                                                                   |   |                           | ** ** |           | ** ** |           | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                 |   |                           |       |           |       |           |       |
| Net income                                                                             |   | $                              | 7,117,578  |           | $          | 8,567,699      |       | $ | 9,698,642 |   |
| Reconciliation  to cash flows:                                                         |   |                           |       |           |       |           |       |
| Depreciation and  amortization                                                         |   | 2,727,577                      |       | 2,259,864      |       | 2,099,491      |       |
| Deferred income  taxes                                                                 |   | 414,641                        |       | 177,320        |       | (970,950       | )          |
| Earnings on  other assets                                                              |   | (104,386                       | )          | (108,643       | )          | (108,745       | )          |
| Loss (gain) from  property disposals                                                   |   | 35,901                         |       | (4,266         | )          | (256,808       | )          |
| Changes in  operating accounts (requiring) providing cash:                             |   |                           |       |           |       |           |       |
| Trade  receivables                                                                     |   | (601,796                       | )          | (281,395       | )          | 107,479        |       |
| Inventories                                                                            |   | (3,654,766                     | )          | (513,886       | )          | 2,437,232      |       |
| Accounts payable                                                                       |   | 2,288,150                      |       | (25,688        | )          | 61,927         |       |
| Accrued  liabilities                                                                   |   | 602,677                        |       | (239,529       | )          | 210,786        |       |
| Other                                                                                  |   | 1,125,169                      |       | (137,997       | )          | 568,194        |       |
| Net cash  provided by operating activities                                             |   | 9,950,745                      |       | 9,693,479      |       | 13,847,248     |       |
|                                                                                   |   |                           |       |           |       |           |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                 |   |                           |       |           |       |           |       |
| Additions to  property, plant and equipment                                            |   | (7,056,226                     | )          | (7,216,301     | )          | (2,449,894     | )          |
| Purchase of  investments                                                               |   | (800,597                       | )          | (2,247,230     | )          | (4,766,585     | )          |
| Sale of  investments                                                                   |   | 1,032,018                      |       | 7,638,064      |       | 1,885,814      |       |
| Proceeds from  property disposals                                                      |   | 93,453                         |       | 87,618         |       | 428,799        |       |
| Acquisition of  St. Mary’s Chemicals, Inc.                                        |   |                           |       | (2,700,000     | )          |           |       |
| Payments  received on notes receivable                                                 |   | 356,106                        |       | 376,862        |       | 427,810        |       |
| Net cash used in  investing activities                                                 |   | (6,375,246                     | )          | (4,060,987     | )          | (4,474,056     | )          |
|                                                                                   |   |                           |       |           |       |           |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                 |   |                           |       |           |       |           |       |
| Debt repayment                                                                         |   | (102,037                       | )          | (95,362        | )          | (89,123        | )          |
| Cash dividends  paid                                                                   |   | (3,118,722                     | )          | (3,109,181     | )          | (2,814,622     | )          |
| Acquisition and  retirement of stock                                                   |   | (1,421,641                     | )          | (5,020,366     | )          | (4,888,288     | )          |
| Net cash used in  financing activities                                                 |   | (4,642,400                     | )          | (8,224,909     | )          | (7,792,033     | )          |
|                                                                                   |   |                           |       |           |       |           |       |
| NET (DECREASE)  INCREASE IN CASH AND CASH EQUIVALENTS                                  |   | (1,066,901                     | )          | (2,592,417     | )          | 1,581,159      |       |
|                                                                                   |   |                           |       |           |       |           |       |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                         |   | 2,185,757                      |       | 4,778,174      |       | 3,197,015      |       |
|                                                                                   |   |                           |       |           |       |           |       |
| CASH AND CASH  EQUIVALENTS AT END OF YEAR                                              |   | $                              | 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                                                                               |   | $                              | 33,422     |           | $          | 36,867         |       | $ | 43,106 |   |
| Income taxes                                                                           |   | $                              | 2,078,071  |           | $          | 6,071,804      |       | $ | 6,079,339 |   |

 

 

See accompanying notes to financial statements.

 
| **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*- The Company's fiscal year is a 52/53-week year endingon the Sunday closest to September 30. The fiscal years ended September 30, 2001, October 1, 2000 andOctober 3, 1999 were fifty-two, fifty-two and fifty-three week years,respectively.

 

*CashEquivalents*- Cash equivalents include all liquid debtinstruments (primarily cash funds, certificates of deposits, and a money marketaccount) purchased with an original maturity of three months or less.

 

*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 (19%) and variable rate marketablesecurities, primarily municipal bonds (71%) and annuity contracts (10%) thatwill be held for indefinite periods of time, including securities that may besold in response to changes in market interest or prepayment rates, needs forliquidity or changes in the availability or yield of alternativeinvestments.  Gross unrealized losses,primarily within the mutual fund portfolio, were $320,430 as of September 30,2001.  In fiscal years 2001, 2000 and 1999,proceeds from the sale of investments available-for-sale were $1,032,018,$7,638,064, and $1,885,814, respectively. Gross realized gains and losses were not material for fiscal years 2001,2000 and 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 $2,146,700 and $2,050,503at September 30, 2001 and October 1, 2000, 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 market valuethat is based on the discounted cash flows expected to be generated by theasset.

 

*RevenueRecognition*- The Company recognizes revenues when transferof title occurs.

 

*Shippingand Handling –* In fiscal 2001, the Company adopted EmergingIssues Task Force (EITF) 00-10, “Accounting for Shipping and HandlingCosts.”  EITF 00-10 requires all amountsbilled to customers in a sales transaction related to shipping and handling tobe classified as sales.  Historicallythe Company recorded these amounts related to shipping and handling in cost ofsales.  Prior period sales and cost ofsales have been adjusted for this change, which had no effect on previouslyreported net income.

 

*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 shares outstanding.

 

*Reclassifications*– Certain reclassifications have been made to the fiscal 2000and 1999 financial statements to conform to the presentation used in the fiscal2001 financial statements.  Thereclassifications had no effect on shareholders’ equity or net income aspreviously reported.

 

*Concentrationsof Credit Risk*- Financial instruments which potentiallysubject the Company to a concentration of credit risk principally consist ofcash, investments available-for-sale and trade receivables.  The Company sells its principal products toa large number of customers in many different industries.  To reduce credit risk, the Company routinelyassesses the financial strength of its customers.  The Company invests its excess cash balances in a money marketaccount at a single financial institution. At September 30, 2001, the Company had deposits in excess of federallyinsured limits of approximately $1,000,000.

At the end of fiscal 2001, the Company also had aninvestment portfolio of fixed income securities, excluding $13,256,419 of thoseclassified as cash and cash equivalents and variable rate securities, of$1,491,152.  These securities, like allfixed income instruments, are subject to interest rate risk and will decline invalue if market interest rates increase. However, the Company has the ability to hold its fixed incomeinvestments until maturity and therefore the Company would not expect torecognize an adverse impact on net income 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 orliabilities and that those financial instruments be measured at fairvalue.  The accounting for changes inthe fair value of derivatives depends on their intended use anddesignation.  Management has reviewedthe requirements of SFAS No. 133 and has determined that the Company has nofreestanding or embedded derivatives. All contracts that contain provisions meeting the definition of aderivative also meet the requirements of, and have been designated as, normalpurchases and sales.  The Company’spolicy is to not use freestanding derivatives and to not enter into contractswith terms that cannot be 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. 141, “Business Combinations.”  SFAS No. 141 requires the use of the purchasemethod of accounting for all business combination initiated after June 30, 2001and all acquisitions dated July 1, 2001 or later.  The Company adopted the provisions of SFAS No. 141 during fiscal2001.

 

In July 2001, the FASB also issued SFAS No. 142,“Goodwill and Other Intangible Assets.” The Company will adopt the provisions of SFAS No. 142 for otherintangibles and goodwill acquired before June 30, 2001 on the first day offiscal 2003.  Under SFAS No. 142,goodwill as well as other intangibles determined to have an indefinite lifewill no longer be amortized; however, these assets will be reviewed forimpairment on a periodic basis.  SFASNo. 142 also includes provisions for the reclassification of certain existingrecognized intangibles as goodwill, reclassification of certain intangibles outof previously reported goodwill and the identification of reporting units forpurposes of assessing potential future impairments of goodwill.

The Company does not expect the implementation of theSFAS No. 142 to materially impact the Company’s financial statements.  As of September 30, 2001 the Company had netother intangibles assets of $3,486,890. Amortization expense recorded during fiscal 2001, 2000, and 1999 was$283,485, $136,561 and $63,098, respectively.

 

In August 2001, the FASB issued SFAS No. 143,“Accounting for Asset Retirement Obligations.” SFAS No. 143 requires entities to record the fair value of a liabilityfor an asset retirement obligation in the period in which it is incurred.  When the liability is initially recorded,the entity capitalizes a cost by increasing the carrying amount of the relatedlong-lived asset.  Over time, theliability is accreted to its present value each period, and the capitalizedcost is depreciated over the useful life of the related asset.  Upon settlement of the liability, an entityeither settles the obligation for its recorded amount or incurs a gain or lossupon settlement.  SFAS No. 143 iseffective for fiscal years beginning after June 15, 2002.  The Company expects to adopt SFAS No. 143 infiscal 2003.  The Company has not yetdetermined the impact of SFAS No. 143 on its financial position and results ofoperations.

 

In September 2001, the FASB also 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, to 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 Company expects to adopt SFAS No. 144 infiscal 2003.  The Company has not yetdetermined the impact of SFAS No. 144 on its financial position and results ofoperations.

 

2.             INVENTORIES

 

Inventories at September 30, 2001 and October 1, 2000consisted of the following:

 
|                         |   | **2001**   |       | **2000** |   |
|------------------------------|--------|------------|------------|----------|--------|
|                         |   |       |       |     |   |
| Finished goods  (FIFO basis) |   | $          | 15,697,925 |     | $      | 9,505,795 |   |
| LIFO reserve                 |   | (3,113,202 | )          | (575,838 | )      |
| Net inventory                |   | $          | 12,584,723 |     | $      | 8,929,957 |   |

 

Inventories valued under the LIFO method for thefiscal years ended September 30, 2001 and October 1, 2000, wereapproximately $14,422,762 and $8,121,829, respectively.  The balance of the inventory was valuedunder the FIFO method.

 

3.             NOTESRECEIVABLE

 

The Company has three notes receivable related to thesales of Tessman Seed, Inc., land and building, and The Lynde Company.  At September 30, 2001 and October 1,2000, the net balance outstanding on the notes receivable were $2,413,172 and$2,769,278, respectively.  The currentportion of $221,431 and $157,701 at September 30, 2001 and October 1, 2000,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 September 30, 2001 and October 1,2000 is summarized as follows:

 
|                                                      |   | **2001** |    | **2000** |   |
|-----------------------------------------------------------|--------|----------|---------|----------|--------|
|                                                      |   |     |    |     |   |
| Note payable, due in annual installments to October  2002 |   | $        | 226,003 |     | $      | 328,040 |   |
| Less current portion                                      |   | 109,180  |    | 102,037  |   |
| Long-term portion                                         |   | $        | 116,823 |     | $      | 226,003 |   |

 

Long-term debt maturities for the fiscal years subsequentto 2001 are:  2002 - $109,180 and 2003 -$116,823.

 

5.             SHAREHOLDERS'EQUITY

 

During fiscal 2001, 2000 and 1999, the Companyacquired and retired 168,951, 608,900 and 499,614, shares of common stock,respectively, for $1,421,641, $5,020,366 and $4,888,288, respectively.

 

6.             LEASES

 

The Company has various operating leases for land andbuildings on which some of its operations are located.  Total rental expense for fiscal 2001, 2000and 1999 was $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 September 30, 2001are $176,212 in 2002, $176,183 in 2003, $112,416 in 2004, $94,204 in 2005,$94,204 in 2006, and $2,074,040 thereafter.

 

7.             PENSIONAND EMPLOYEE STOCK OWNERSHIP PLANS

 

The Company has a defined contribution pension plancovering substantially all of its non-union employees.  Pension expense for the years endedSeptember 30, 2001, October 1, 2000 and October 3, 1999 was $870,787,$751,936 and $578,975, respectively. Beginning in fiscal 2000, the Company's cost for the pension plan isdetermined as 10% of each employee's covered compensation compared to 7% inprior years.  Amounts charged to pensionexpense and contributed to union multi-employer pension plans (not included inthe above amounts) were not material. It is the Company'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 theyears ended September 30, 2001, October 1, 2000 and October 3, 1999were $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.

8.             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 September 30, 2001, the Company is required to make futurepayments to the individuals for periods of 3 months to 4 years.  The present value of the future payments tobe paid in fiscal 2002 is included in Other Accruals and the present value ofthe remaining payments is included in Other Long-term Liabilities.

 

9.             CONTINGENCIES

 

During 1995, there was a fire in the office/warehouseof The Lynde Company, a former wholly-owned subsidiary of the Company.  Charges of $1,771,439 in 1997 and $750,000in 1995 were recorded to cover legal fees and settlement costs in connectionwith the Company's defense of a lawsuit filed against it as a result of thefire.  Other costs paid amounted toapproximately $300,000.  Most, but notall, of the claimants have now been paid under a settlement agreement and theCompany anticipates that the remaining claims will be covered by the Company'sumbrella insurer as to the cost of defense and claims payment.

 

The Company's primary and umbrella insurers deniedcoverage and refused to defend the lawsuit. During fiscal 1999, the Company prevailed in its claims against itsinsurers and has been reimbursed for substantially all of its settlement andlegal expenses.

 

In addition, the Company is involved in various legalactions arising from the normal course of business.  Management is of the opinion that any judgment or settlementresulting from pending or threatened litigation would not have a materialadverse effect on the financial position, results of operations or cash flowsof the Company.

 

10.           INCOMETAXES

 

The provisions (benefits) for income taxes for thefiscal years ended September 30, 2001, October 1, 2000 and October 3,1999 are as follows:

 
|               |   | **2001** |      | **2000**  |   | **1999**  |   |
|--------------------|--------|----------|-----------|-----------|--------|-----------|--------|
|               |   |     |      |      |   |      |   |
| Federal -  current |   | $        | 2,591,327 |      | $      | 4,094,040 |   | $ | 5,862,780 |   |
| States - current   |   | 632,652  |      | 1,240,990 |   | 1,415,100 |   |
| Deferred           |   | 414,641  |      | 177,320   |   | (970,950  | )      |
| Total provision    |   | $        | 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% for the fiscal years ended September 30, 2001,October 1, 2000 and October 3, 1999 are as follows:

 
|                                         |   | **2001** |      | **2000** |   | **1999**  |   |
|----------------------------------------------|--------|----------|-----------|----------|--------|-----------|--------|
|                                         |   |     |      |     |   |      |   |
| Statutory  federal income tax                |   | $        | 3,764,669 |     | $      | 4,928,017 |   | $ | 5,601,950 |   |
| State income taxes, net of federal deduction |   | 490,750  |      | 806,644  |   | 919,815   |   |
| Tax-exempt income                            |   | (139,329 | )         | (142,344 | )      | (165,390  | )      |
| ESOP dividend deduction on allocated shares  |   | (235,902 | )         |     |   |      |   |
| Other, net                                   |   | (241,568 | )         | (79,967  | )      | (49,445   | )      |
| Total                                        |   | $        | 3,638,620 |     | $      | 5,512,350 |   | $ | 6,306,930 |   |

 

The tax effects of items comprising the Company's netdeferred tax asset (liability) as of September 30, 2001 and October 1,2000 are as follows:

 
|                               |   | **2001** |     | **2000** |   |
|------------------------------------|--------|----------|----------|----------|--------|
|                               |   |     |     |     |   |
| Current deferred  taxes:           |   |     |     |     |   |
| Trade  receivables                 |   | $        | 130,650  |     | $      | 150,000 |   |
| Inventory                          |   | 524,802  |     | 908,000  |   |
| Accruals                           |   | 302,893  |     | 386,960  |   |
| Total*                             |   | $        | 958,345  |     | $      | 1,444,960 |   |
|                               |   |     |     |     |   |
| Noncurrent deferred taxes:         |   |     |     |     |   |
| Gain on sale of  The Lynde Company |   | $        | (610,643 | )        | $      | (331,000 | ) |
| Property basis  difference         |   | (254,713 | )        | (606,330 | )      |
| Unrealized loss  on investments    |   | 128,172  |     |     |   |
| Total                              |   | $        | (737,184 | )        | $      | (937,330 | ) |

 

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

 

11.           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 have a maximum payment of $3,520,000.  The non-compete provisions cover a period offive years after the termination of the employment or consulting agreements,and require annual payments of $100,000 to $200,000 depending on UniversalChemicals' operating results, as defined, for five years after the terminationdate.

 

12.           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 responsible forthe sales, marketing and development of their products and services.  The segments do not have separateaccounting, administration, customer service or purchasing functions.

 
| **Reportable  Segments** |   | **Industrial** |       | **Water  Treatment** |       | **Total**  |       |
|--------------------------|--------|----------------|------------|----------------------|------------|------------|------------|
|                     |   |           | ** ** |                 | ** ** |       | ** ** |
| 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 |       |
| Operating income         |   | 3,850,444      |       | 6,204,916            |       | 10,055,360 |       |
|                     |   |           |       |                 |       |       |       |
| Identifiable  assets     |   | $              | 44,622,720 |                 | $          | 14,244,584 |       | $ | 58,867,304 |   |
|                     |   |           |       |                 |       |       |       |
| 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 |       |
| Operating income         |   | 7,526,740      |       | 5,509,678            |       | 13,036,418 |       |
|                     |   |           |       |                 |       |       |       |
| Identifiable  assets     |   | $              | 42,710,196 |                 | $          | 8,057,357  |       | $ | 50,767,553 |   |
|                     |   |           |       |                 |       |       |       |
| 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 |   |

 
| **Profit  Reconciliation**            |   | **2001** |       | **2000** |   | **1999**   | ** ** |
|---------------------------------------|--------|----------|------------|----------|--------|------------|------------|
|                                  |   |     |       |     |   |       |       |
| Total income for  reportable segments |   | $        | 10,055,360 |     | $      | 13,036,418 |       | $ | 12,068,792 |   |
| Unallocated corporate income          |   |     |       |     |   | 2,851,708  |       |
| Total operating  income               |   | $        | 10,055,360 |     | $      | 13,036,418 |       | $ | 14,920,500 |   |

 

 

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

 

                No changes inaccountants or disagreements between the Registrant and its accountantsregarding accounting principles or financial statement disclosure have occurredduring the Registrant's two most recent fiscal years or any subsequent interimperiod.

 

PART III

 

ITEM 10.   DIRECTORSAND EXECUTIVE OFFICERS OF THE REGISTRANT.

 

                The informationunder the captions "Election of Directors" and "Section 16 (a)Beneficial Ownership Reporting Compliance" in the 2002 Proxy Statement is incorporatedherein by this reference.

 

ITEM 11.   EXECUTIVECOMPENSATION.

 

                The informationunder the caption "Compensation of Executive Officers and Directors"in the 2002 Proxy Statement is incorporated herein by this reference.

 

ITEM 12.   SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

 

                The informationunder the caption "Security Ownership of Management and BeneficialOwnership" in the 2002 Proxy Statement is incorporated herein by thisreference.

 

ITEM 13.   CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS.

 

                The informationunder the captions "Election of Directors" and "Related PartyTransactions" in the 2002 Proxy Statement is incorporated herein by thisreference.

 

PART IV

 

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

 

(a)(1)       FINANCIALSTATEMENTS OF REGISTRANT.

 

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

 

Independent Auditors' Report.

 

Balance Sheets at September 30, 2001 and October 1,2000.

 

Statements of Income for the Years Ended September 30,2001, October 1, 2000, and October 3, 1999.

 

Statements of Shareholders' Equity for the Years EndedSeptember 30, 2001, October 1, 2000, and October 3, 1999.

 

Statements of Cash Flows for the Years Ended September30, 2001, October 1, 2000, and October 3, 1999.

 

Notes to Financial Statements.

 

(a)(2)       FINANCIALSTATEMENT SCHEDULES OF REGISTRANT.

 

The additional financial data listed below is includedas a schedule to this Annual Report on Form 10-K and should be read inconjunction with the financial statements presented in Part II, Item 8.Schedules not included with this additional financial data have been omittedbecause they are not required or the required information is included in thefinancial statements or the notes.

 

Independent Auditors' Report on Schedule.

 

The following financial statement schedule for theyears ended September 30, 2001, October 1, 2000 and October 3, 1999 is includedherein.

 

Schedule II - Valuation and Qualifying Accounts.

 

(a)(3)       EXHIBITS.

 

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

 

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 Registrant upon receipt from any such person of a written request forany such exhibit.  Such request shouldbe sent to 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 Annual Reporton Form 10-K pursuant to Item 14(a)(3).

 

(b)           REPORTSON FORM 8-K.

 

None.

 

SIGNATURES

 

                Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theRegistrant has duly caused this report to be signed on its behalf by theundersigned on December 20, 2001.

 
|   | HAWKINS, INC. |  
 

By

/s/ John R. Hawkins

 

 

John R. Hawkins, Chief Executive Officer

 

                Pursuant to therequirements of the Securities Exchange Act of 1934,this report has also beensigned below by the following persons on behalf of the Registrant and in thecapacities indicated on December 20, 2001.

`

 

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

 

 

 

**INDEPENDENTAUDITORS' REPORT ON SCHEDULE**

 

We have audited the financial statements of Hawkins, Inc. (the Company)as of September 30, 2001 and October 1, 2000, and for each of thethree years in the period ended September 30, 2001, and have issued ourreport thereon dated December 6, 2001; such report is included elsewherein this Form 10-K.  Our audits alsoincluded the financial statement schedule of the Company, listed in Item 14(a)(2).  This financial statement schedule is theresponsibility of the Company's management. Our responsibility is to express an opinion based on our audits.  In our opinion, this financial statementschedule, when considered in relation to the basic financial statements takenas a whole, presents fairly in all material respects the information set forththerein.

 

 

/s/ Deloitte & Touche LLP

 

 

Minneapolis, Minnesota

December 6, 2001

 

 

**SCHEDULE II**

 

 

 

**               **

 

**HAWKINS,  INC.**

 

 

 

 

 

 

 

 

 

 
**VALUATION AND  QUALIFYING ACCOUNTS**
 
**FOR THE YEARS ENDED  SEPTEMBER 30, 2001, OCTOBER 1, 2000 AND OCTOBER 3, 1999**
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Additions**

 

 

 

 

 

 

 

**Balance at**

 

**Charged to**

 

**Charged**

 

 

 

 

 

 

 

**Beginning**

 

**Costs and**

 

**to Other**

 

**Deductions**

 

**Balance at**

 

**Description**

 

**of Year**

 

**Expenses**

 

**Accounts**

 

**Write-Offs**

 

**End of Year**

 

 

 

 

** **

 

** **

 

** **

 

** **

 

** **

Reserve deducted from  asset to  which it applies - allowance for doubtful accounts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

**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.

 

Filed herewith electronically

 

 

 

 

 

3.2

 

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

 

Incorporated by reference to Exhibit 3.2 to the  Registrant'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 Registrant.

 

Incorporated by reference to Exhibit 10.1 to the  Registrant’s Quarterly Report on Form 10-Q for the Quarter ended  June 30, 2000

 

 

 

 

 

23.1*

 

Independent Auditor's Consent.

 

Filed herewith electronically

 

 

 

 

 

* Denotes previously unfiled documents.

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