UNITED STATES
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 the Fiscal Year Ended March 29, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-7647
HAWKINS, INC.
(Exact Name of Registrant as Specified in its Charter)
Minnesota
(State of Incorporation)
2381 Rosegate, Roseville, Minnesota
(Address of Principal Executive Offices)
41-0771293
(I.R.S. Employer
Identification No.)
55113
(Zip Code)
Title of each class
Common Stock, par value $.05 per share
(612) 331-6910
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol:
HWKN
Securities registered pursuant to Section 12(g) of the Act: None
Name of exchange on which registered:
Nasdaq Stock Market LLC
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding twelve months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past
90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer ☐
Non-accelerated filer ☐
Accelerated filer ☑
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Yes ☑ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The aggregate market value of voting stock held by non-affiliates of the Registrant on September 29, 2019 (the last business day of the Registrant’s most recently
completed second fiscal quarter) was approximately $405.0 millions based upon the closing sale price for the Registrant’s common stock on that date as reported by The
Nasdaq Stock Market LLC, excluding all shares held by officers and directors of the Registrant and by the Trustees of the Registrant’s Employee Stock Ownership Plan and
Trust.
As of May 15, 2020, the Registrant had 10,593,095 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our definitive Proxy Statement for the annual meeting of shareholders to be held July 30, 2020, are incorporated by reference in Part III of this Annual Report on
Form 10-K
FORWARD-LOOKING STATEMENTS
The information presented in this Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements have been made pursuant to the provisions of the Private
Securities Litigation Reform Act of 1995. These statements are not historical facts, but rather are based on our current expectations, estimates and
projections, and our beliefs and assumptions. Words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “seek,” “estimate,” “will” and similar
expressions may identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks,
uncertainties and other factors, some of which are beyond our control and are difficult to predict. These factors could cause actual results to differ
materially from those expressed or forecasted in the forward-looking statements. These risks and uncertainties are described in the risk factors and
elsewhere in this Annual Report on Form 10-K. We caution you not to place undue reliance on these forward-looking statements, which reflect our
management’s view only as of the date of this Annual Report on Form 10-K. We are not obligated to update these statements or publicly release the result
of any revisions to them to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect the occurrence of unanticipated
events.
As used in this Annual Report on Form 10-K, except where otherwise stated or indicated by the context, “Hawkins,” “we,” “us,” “the Company,” “our,” or
“the Registrant” means Hawkins, Inc. References to “fiscal 2021” means our fiscal year ending March 28, 2021, “fiscal 2020” means our fiscal year ended
March 29, 2020, “fiscal 2019” means our fiscal year ended March 31, 2019, “fiscal 2018” means our fiscal year ended April 1, 2018, and “fiscal 2017”
means our fiscal year ended April 2, 2017.
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Hawkins, Inc.
Annual Report on Form 10-K
For the Fiscal Year Ended March 29, 2020
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
ITEM 15.
ITEM 16.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
Market for the Company’s Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management And Related Stockholder Matters
PART III
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Exhibits and Financial Statement Schedules
Form 10-K Summary
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ITEM 1. BUSINESS
PART I
Hawkins, Inc. distributes, blends and manufactures chemicals and specialty ingredients for our customers in a wide variety of industries. We began our
operations primarily as a distributor of bulk chemicals with a strong customer focus. Over the years, we have maintained our strong customer focus and
have expanded our business by increasing our sales of value-added chemical products and specialty ingredients, including manufacturing, blending and
repackaging certain products. We believe that we create value for our customers through superb service and support, quality products, personalized
applications and trustworthy, creative employees.
We conduct our business in three segments: Industrial, Water Treatment, and Health and Nutrition.
Industrial Segment. Our Industrial Group specializes in providing industrial chemicals, products and services to industries such as agriculture, chemical
processing, electronics, energy, food, pharmaceutical and plating. This group’s principal products are acids, alkalis and industrial and food-grade salts.
The Industrial Group:
• Receives, stores and distributes various chemicals in bulk quantities, including liquid caustic soda, sulfuric acid, hydrochloric acid, urea, phosphoric
acid, aqua ammonia and potassium hydroxide;
• Manufactures sodium hypochlorite (bleach), agricultural products and certain food-grade products, including liquid phosphates, lactates and other
blended products;
• Repackages water treatment chemicals for our Water Treatment Group and bulk industrial chemicals to sell in smaller quantities to our customers;
• Performs custom blending of chemicals according to customer formulas and specifications; and
• Performs contract and private label bleach packaging.
The group’s sales are concentrated primarily in the Midwestern states, while the group’s products sold into the food and pharmaceutical markets are sold
nationally. The Industrial Group relies on a specially trained sales staff that works directly with customers on their specific needs. The group conducts its
business primarily through distribution centers and terminal operations. Agricultural sales within this group tend to be seasonal, with higher sales due to the
application of fertilizer during the planting season of March through June given the regions of the country where we are located.
Water Treatment Segment. Our Water Treatment Group specializes in providing chemicals, equipment and solutions for potable water, municipal and
industrial wastewater, industrial process water, non-residential swimming pool water and agricultural water. This group has the resources and flexibility to
treat systems ranging in size from a single small well to a multi-million-gallon-per-day facility.
The group utilizes delivery routes operated by our employees who typically serve as route driver, salesperson and trained technician to deliver our products
and diagnose our customers’ water treatment needs. We believe that the high level of service provided by these individuals allows us to serve as the trusted
water treatment expert for many of the municipalities and other customers that we serve. We also believe that there are significant synergies between our
Water Treatment and Industrial Groups in that we are able to obtain a competitive cost position on many of the chemicals sold by the Water Treatment
Group due to the volumes of these chemicals purchased by our Industrial Group. In addition, our Industrial and Water Treatment groups share certain
resources, which leverage fixed costs across both groups.
The group operates out of 29 warehouses supplying products and services to customers primarily in the Midwestern states and Florida. We expect to invest
in existing and new branches to expand the group’s geographic coverage. Our Water Treatment Group has historically experienced higher sales during
April to September, primarily due to a seasonal increase in chemicals used by municipal water treatment facilities.
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Health and Nutrition Segment. We established the Health and Nutrition segment of our business in fiscal 2016 through our acquisition of Stauber
Performance Ingredients. Through sales of distributed specialty products and our manufactured products, our Health and Nutrition Group specializes in
providing ingredient distribution, processing and formulation solutions to manufacturers of nutraceutical, functional food and beverage, personal care,
dietary supplement and other nutritional food, health and wellness products. This group offers a diverse product portfolio including minerals, vitamins and
amino acids, excipients, joint products, botanicals and herbs, sweeteners and enzymes.
The Health and Nutrition Group relies on a specially trained sales and product development staff that works directly with customers on their specific needs.
The group’s extensive product portfolio combined with value-added services, including product formulation, sourcing and distribution, processing and
blending and quality control and compliance, positions this group as a one-stop ingredient solutions provider to its customers. The group operates out of
facilities in California and New York and its products are sold nationally and, in certain cases, internationally.
Raw Materials. We have numerous suppliers, including many of the major chemical producers in the United States. We source our health and nutrition
ingredients from a wide array of domestic and international vendors. We typically have distributorship agreements or supply contracts with our suppliers
that are periodically renewed. We believe that most of the products we purchase can be obtained from alternative sources should existing relationships be
terminated. We are dependent upon the availability of our raw materials. While we believe that we have adequate sources of supply for our raw material
and product requirements, we cannot be sure that supplies will be consistently available in the future. In the event that certain raw materials become
generally unavailable, suppliers may extend lead times or limit or cut off the supply of materials to us. As a result, we may not be able to supply or
manufacture products for our customers.
Intellectual Property. Our intellectual property portfolio is of economic importance to our business. When appropriate, we have pursued, and we will
continue to pursue, patents covering our products. We also have obtained certain trademarks for our products to distinguish them from our competitors’
products. We regard many of the formulae, information and processes that we generate and use in the conduct of our business as proprietary and protectable
under applicable copyright, patent, trademark, trade secret and unfair competition laws.
Customer Concentration. In fiscal 2020, none of our customers accounted for 10% or more of our total sales. Sales to our largest customer, which is in our
Industrial segment, represented approximately 3-5% of our total sales in each of fiscal 2020, 2019 and 2018. In fiscal 2020, four of our five largest
customers were in our Industrial segment and one was in our Health and Nutrition segment. Aggregate sales to these five customers represented
approximately 10-12% of our total sales in each of fiscal 2020, 2019 and 2018. No other customer represented more than 2% of our total sales in fiscal
2020. The loss of any of our largest customers, or a substantial portion of their business, could have a material adverse effect on our results of operations.
Competition. We operate in a competitive industry and compete with many producers, distributors and sales agents offering products equivalent to
substantially all of the products we offer. Many of our competitors are larger than we are and may have greater financial resources, although no one
competitor is dominant in all of the markets we serve. We compete by offering quality products with outstanding customer service at competitive prices
coupled and with value-added services or product formulation where needed. Because of our long-standing relationships with many of our suppliers, we are
often able to leverage those relationships to obtain products when supplies are limited or to obtain competitive pricing.
Working Capital. Due to the nature of our operations, which includes purchases of large quantities of bulk chemicals, the timing of purchases can result in
significant changes in working capital and the resulting operating cash flow. Historically, our cash requirements for working capital increase during the
period from April through November as caustic soda inventory levels increase with most of our barges received during this period. Additionally, due to
seasonality of the Water Treatment business, our accounts receivable balance is generally higher during the period of April through September.
Employees. We had 656 employees as of March 29, 2020, including 74 covered by collective bargaining agreements.
About Us. Hawkins, Inc. was founded in 1938 and incorporated in Minnesota in 1955. We became a publicly-traded company in 1972. Our principal
executive offices are located at 2381 Rosegate, Roseville, Minnesota.
Available Information. Our Internet address is www.hawkinsinc.com. We have made available, free of charge, our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports, as soon as reasonably practicable after we
electronically file these materials with, or furnish them to, the Securities and Exchange Commission. Reports of beneficial ownership filed by our directors
and executive officers pursuant to Section 16(a) of the Exchange Act are also available on our website. We are not including the information contained on
our website as part of, or incorporating it by reference into, this Annual Report on Form 10-K.
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ITEM 1A. RISK FACTORS
You should consider carefully the following risks when reading the information, including the financial information, contained in this Annual Report on
Form 10-K. Shareholders are cautioned that these and other factors may affect future performance and cause actual results to differ from those which may
be anticipated. Additionally, the impact of the global coronavirus (“COVID-19”) pandemic could further exacerbate many of the risk factors described
below or described elsewhere herein.
We operate in a highly competitive environment and face significant competition and price pressure.
We operate in a highly competitive industry and compete with producers, manufacturers, distributors and sales agents offering products equivalent to
substantially all of the products we offer. Competition is based on several key criteria, including product price, product performance, product quality,
product availability and security of supply, breadth of product offerings, geographic reach, responsiveness of product development in cooperation with
customers, technical expertise and customer service. Many of our competitors are larger than we are and may have greater financial resources, more
product offerings and a broader geographic reach. As a result, these competitors may be able to offer a broader array of products to a larger geographic area
and may be better able than us to withstand changes in conditions within our industry, changes in the prices and availability of raw materials and changes in
general economic conditions as well as be able to introduce innovative products that reduce demand for or the profit from our products. Additionally,
competitors’ pricing decisions could compel us to decrease our prices, which could adversely affect our margins and profitability. Our ability to maintain or
increase our profitability would be dependent upon our ability to offset competitive decreases in the prices and margins of our products by improving
production efficiency, investing in infrastructure to reduce freight costs, identifying and selling higher margin products, providing higher levels of technical
expertise and customer service, and improving existing products through innovation and research and development. If we are unable to maintain our
profitability or competitive position, we could lose market share to our competitors and experience reduced profitability.
Fluctuations in the prices and availability of our raw materials, which may be cyclical in nature, could have a material adverse effect on our operations
and the margins we receive on sales of our products.
We experience regular and recurring fluctuations in the pricing of our raw materials. Those fluctuations can be significant and occur rapidly. The cyclicality
of commodity markets, such as the market for caustic soda, primarily results from changes in the balance between supply and demand and the level of
general economic activity. We cannot predict whether the markets for our raw materials will favorably impact or negatively impact the margins we can
realize.
Our principal chemical raw materials are generally purchased under supply contracts. The prices we pay under these contracts generally lag the market
prices of the underlying raw material and the cost of inventory we have on hand, particularly inventories of our bulk commodity chemicals where we have
significant volumes stored at our facilities, generally will lag the current market pricing of such inventory. The pricing within our supply contracts generally
adjusts quarterly or monthly. While we attempt to maintain competitive pricing and stable margin dollars, the potential variance in our cost of inventory
from the current market pricing can cause significant volatility in our margins realized. We do not engage in futures or other derivatives contracts to hedge
against fluctuations in future prices. We may enter into sales contracts where the selling prices for our products are fixed for a period of time, exposing us
to volatility in raw materials prices that we acquire on a spot market or short-term contractual basis. We attempt to pass commodity pricing changes to our
customers, but we may be unable to or be delayed in doing so. Our inability to pass through price increases or any limitation or delay in our passing
through price increases could adversely affect our profit margins.
We are also dependent upon the availability of our raw materials. In the event that raw materials are in short supply or unavailable, raw material suppliers
may extend lead times or limit or cut off supplies. As a result, we may not be able to supply or manufacture products for some or all of our customers.
Constraints on the supply or delivery of critical raw materials could disrupt our operations and adversely affect the performance of our businesses.
Demand for our products is affected by general economic conditions and by the cyclical nature of many of the industries we serve, which could cause
significant fluctuations in our sales volumes and results.
Demand for our products is affected by general economic conditions. A decline in general economic or business conditions in the industries served by our
customers could have a material adverse effect on our businesses. Although we sell to areas traditionally considered non-cyclical, such as water treatment,
food products and health and nutritional ingredients, many of our customers are in businesses that are cyclical in nature, such as the industrial
manufacturing and energy industries which include the ethanol and agriculture industries. In addition, due to the extreme pressures of the current economic
environment driven by
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the COVID-19 pandemic, even markets that had seemed stable may no longer be stable and may experience significant downturns and variability in
demand for our products. Downturns in these industries could adversely affect our sales and our financial results by affecting demand for and pricing of our
products.
Changes in our customers’ needs or failure of our products to meet customers’ specifications could adversely affect our sales and profitability.
Our products are used for a broad range of applications by our customers. Changes in our customers’ product needs or processes, or reductions in demand
for their end products, may enable or require our customers to reduce or eliminate consumption of the products that we provide. Customers may also find
alternative materials or processes that no longer require our products. Consequently, it is important that we develop new products to replace the sales of
products that mature and decline in use.
Our products provide important performance attributes to our customers’ products. If our products fail to meet the customers’ specifications or comply with
applicable laws or regulations, perform in a manner inconsistent with the customers’ expectations or have a shorter useful life than required, a customer
could seek replacement of the product or damages for costs incurred as a result of the product failure. A successful claim or series of claims against us
could have a material adverse effect on our financial condition and results of operations and could result in a loss of one or more customers. Reductions in
demand for our products could adversely affect our sales and financial results and result in facility closures.
Our business is subject to hazards common to chemical businesses, any of which could interrupt our production and adversely affect our results of
operations.
Our business is subject to hazards common to chemical manufacturing, blending, storage, handling and transportation, including explosions, fires, severe
weather, natural disasters, mechanical failure, unscheduled downtime, transportation interruptions, traffic accidents involving our delivery vehicles,
chemical spills, discharges or releases of toxic or hazardous substances or gases and other risks. These hazards could cause personal injury and loss of life,
severe damage to or destruction of property and equipment, and environmental contamination. In addition, the occurrence of material operating problems
or the absence of personnel due to pandemics or other disasters at any of our facilities due to any of these hazards may make it impossible for us to make
sales to our customers and may result in a negative public or political reaction. Many of our facilities are near significant residential populations which
increases the risk of negative public or political reaction should an environmental issue occur and could lead to adverse zoning or other regulatory actions
that could limit our ability to operate our business in those locations. Accordingly, these hazards and their consequences could have a material adverse
effect on our operations as a whole, including our results of operations and cash flows, both during and after the period of operational difficulties.
We are highly dependent upon transportation infrastructure to ship and receive our products and delays in these shipments could adversely affect our
results of operations.
Although we maintain a number of owned trucks and trailers, we rely heavily upon transportation provided by third parties (including common carriers,
barge companies, rail companies and trans-ocean cargo companies) to deliver products to us and to our customers. Our access to third-party transportation
is not guaranteed, and we may be unable to transport our products in a timely manner, or at all, in certain circumstances, or at economically attractive rates.
Disruptions in transportation are common, are often out of our control, and can happen suddenly and without warning. Rail limitations, such as limitations
in rail capacity, availability of railcars and adverse weather conditions have disrupted or delayed rail shipments in the past and we expect they will continue
into the future. Barge shipments are delayed or impossible under certain circumstances, including during times of high or low water levels, when
waterways are frozen and when locks and dams are inoperable. Truck transportation has been negatively impacted by a number of factors, including limited
availability of qualified drivers and equipment, and limitations on drivers’ hours of service. The volumes handled by, and operating challenges at, ocean
ports have at times been volatile and can delay the receipt of goods, or cause the cost of shipping goods to be more expensive. Our failure to ship or receive
products in a timely and efficient manner could have a material adverse effect on our financial condition and results of operations.
Environmental, health and safety, transportation and storage laws and regulations cause us to incur substantial costs and may subject us to future
liabilities and risks.
We are subject to numerous federal, state and local environmental, health and safety laws and regulations in the jurisdictions in which we operate, including
the management, storage, transportation and disposal of chemicals and wastes; product regulation; air water and soil contamination; and the investigation
and cleanup of any spills or releases that may result from our management, handling, storage, sale, or transportation of chemicals and other products. The
nature of our business exposes us
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to risks of liability under these laws and regulations. Ongoing compliance with such laws and regulations is an important consideration for us and we invest
substantial capital and incur significant operating costs in our compliance efforts. In addition, societal concerns regarding the safety of chemicals in
commerce and their potential impact on the environment have resulted in a growing trend towards increasing levels of product safety and environmental
protection regulations. These concerns have led to, and could continue to result in, more stringent regulatory intervention by governmental authorities. In
addition, these concerns could influence public perceptions, impact the commercial viability of the products we sell and increase the costs to comply with
increasingly complex regulations, which could have a negative impact on our business, financial condition and results of operations.
In addition, we operate a fleet of more than 150 commercial vehicles, primarily in our Water Treatment Group, which are highly regulated, including by the
U.S. Department of Transportation (“DOT”). The DOT governs transportation matters including authorization to engage in motor carrier service, including
the necessary permits to conduct our businesses, equipment operation, and safety. We are audited periodically by the DOT to ensure that we are in
compliance with various safety, hours-of-service, and other rules and regulations. If we were found to be out of compliance, the DOT could severely
restrict or otherwise impact our operations, which could have a material adverse effect on our operations as a whole, including our results of operations and
cash flows.
If we violate applicable laws or regulations, in addition to being required to correct such violations, we could be held liable in administrative, civil or
criminal proceedings for substantial fines and other sanctions that could disrupt, limit or halt our operations, which could have a material adverse effect on
our operations as a whole, including our results of operations and cash flows. Liabilities associated with the investigation and cleanup of releases of
hazardous substances, as well as personal injury, property damages or natural resource damages arising out of such releases of hazardous substances, may
be imposed in many situations without regard to violations of laws or regulations or other fault, and may also be imposed jointly and severally (so that a
responsible party may be held liable for more than its share of the losses involved, or even the entire loss). Such liabilities can be difficult to identify and
the extent of any such liabilities can be difficult to predict. We use, and in the past have used, hazardous substances at many of our facilities, and have
generated, and continue to generate, hazardous wastes at a number of our facilities. We have in the past been, and may in the future be, subject to claims
relating to exposure to hazardous materials and the associated liabilities may be material.
Environmental problems at any of our facilities could result in significant unexpected costs.
We are subject to federal, state and local environmental regulations regarding the ownership of real property and the operations conducted on real property.
Under various federal, state and local laws, ordinances and regulations, we may own or operate real property or may have arranged for the disposal or
treatment of hazardous or toxic substances at a property and, therefore, may become liable for the costs of removal or remediation of certain hazardous
substances released on or in our property or disposed of by us, as well as certain other potential costs which could relate to hazardous or toxic substances
(including governmental fines and injuries to persons and property). Such liability may be imposed whether or not we knew of, or were responsible for, the
presence of these hazardous or toxic substances. Further, future changes in environmental laws or regulations may require additional investment in capital
equipment or the implementation of additional compliance programs in the future. The cost of investigation, remediation or removal of such substances
may be substantial.
In the conduct of our operations, we have handled and do handle materials that are considered hazardous, toxic or volatile under federal, state and local
laws. The accidental release of such products cannot be completely eliminated. In addition, we operate or own facilities located on or near real property that
was formerly owned and operated by others. These properties may have been used in ways that involved hazardous materials. Contaminates may migrate
from, within or through any such property, which may give rise to claims against us. Third parties who are responsible for contamination may not have
funds, or may not make funds available when needed, to pay remediation costs imposed upon us jointly with them under environmental laws and
regulations.
We are aware that soil and groundwater contamination exists on one of our facilities. The primary contaminate of concern is trichloroethylene. In fiscal
2018, we reserved $0.6 million for estimated expenses related to remediating this contamination. At the end of fiscal 2020, the remaining reserve balance is
less than $0.1 million. Given the many uncertainties involved in assessing environmental claims, our reserves may prove to be insufficient. Increases in
these estimated environmental expenses could have a material adverse effect on our business, financial condition and results of operations.
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Our food, pharmaceutical and health and nutrition products are subject to government regulation, both in the United States and abroad, which could
increase our costs significantly and limit or prevent the sale of such products.
The manufacture, packaging, labeling, advertising, promotion, distribution and sale of our food, pharmaceutical and health and nutrition products are
subject to regulation by numerous national and local governmental agencies in the United States and other countries. The primary regulatory bodies in the
United States are the Food and Drug Administration (the “FDA”), the United States Department of Agriculture and the Federal Trade Commission, and we
are also subject to similar regulators in other countries. Failure to comply with these regulatory requirements may result in various types of penalties or
fines. These include injunctions, product withdrawals, recalls, product seizures, fines and criminal prosecutions. Individual states also regulate our
products. A state may interpret claims or products presumptively valid under federal law as illegal under that state’s regulations. Approvals or licensing
may be conditioned on reformulation of products or may be unavailable with respect to certain products or product ingredients. Any of these government
agencies, as well as legislative bodies, can change existing regulations, or impose new ones, or could take aggressive measures, causing or contributing to a
variety of negative consequences, including:
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requirements for the reformulation of certain or all products to meet new standards,
the recall or discontinuance of certain or all products,
additional record-keeping requirements,
expanded documentation of the properties of certain or all products,
expanded or different labeling,
adverse event tracking and reporting, and
additional scientific substantiation.
In particular, the FDA’s current good manufacturing practices (“GMPs”) describe policies and procedures designed to ensure that nutraceuticals,
pharmaceuticals and dietary supplements are produced in a quality manner, do not contain contaminants or impurities, and are accurately labeled and cover
the manufacturing, packaging, labeling and storing of supplements, with requirements for quality control, design and construction of manufacturing plants,
testing of ingredients and final products, record keeping, and complaints processes. Those who manufacture, package or store dietary supplements must
comply with current GMPs. If we or our suppliers fail to comply with current GMPs, the FDA may take enforcement action against us or our suppliers.
Any or all of the potential negative consequences described above could have a material adverse effect on us or substantially increase the cost of doing
business in these areas. There can be no assurance that the regulatory environment in which we operate will not change or that such regulatory
environment, or any specific action taken against us, will not result in a material adverse effect on us.
Our businesses expose us to potential product liability claims and recalls, which could adversely affect our financial condition and performance.
The repackaging, blending, mixing and distribution of products by us, including chemical products and products used in food or food ingredients or with
medical, pharmaceutical or dietary supplement applications, involve an inherent risk of exposure to product liability claims, product recalls, product
seizures and related adverse publicity, including, without limitation, claims for exposure to our products, spills or escape of our products, personal injuries,
food-related claims and property damage or environmental claims. A product liability claim, judgment or recall against our customers could also result in
substantial and unexpected expenditures for us, affect consumer confidence in our products and divert management’s attention from other responsibilities.
Although we maintain product liability insurance, there can be no assurance that the type or level of coverage is adequate or that we will be able to continue
to maintain our existing insurance or obtain comparable insurance at a reasonable cost, if at all. A product recall or a partially or completely uninsured
judgment against us could have a material adverse effect on our business, financial condition and results of operations.
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Demand for our food and health and nutrition products is highly dependent upon consumers’ perception of the safety and quality of our products, our
customers’ products as well as similar products distributed by other companies, and adverse publicity and negative public perception regarding
particular ingredients or products or the nutraceuticals industry in general could adversely affect the financial performance of those portions of our
business.
Purchasing decisions made by consumers of products that contain our ingredients may be affected by adverse publicity or negative public perception
regarding particular ingredients or products or the nutraceuticals industry in general. This negative public perception may include publicity regarding the
legality or quality of particular ingredients or products in general or of other companies or our products or ingredients specifically. Negative public
perception may also arise from regulatory investigations, regardless of whether those investigations involve us. We are highly dependent upon consumers’
perception of the safety and quality of products that contain our ingredients as well as similar products distributed by other companies. Thus, the mere
publication of reports asserting that such products may be harmful could have a material adverse effect on us, regardless of whether these reports are
scientifically supported. Publicity related to dietary supplements or food ingredients may also result in increased regulatory scrutiny of our industry.
Adverse publicity may have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our Water Treatment Group and our agricultural product sales within our Industrial Group are subject to seasonality and weather conditions, which
could adversely affect our results of operations.
Our Water Treatment Group has historically experienced higher sales during April to September, primarily due to a seasonal increase in chemicals used by
municipal water treatment facilities. Our agricultural product sales within our Industrial Group are also seasonal, primarily corresponding with the planting
season. Demand in both of these areas is also affected by weather conditions, as either higher or lower than normal precipitation or temperatures may affect
water usage and the timing and the amount of consumption of our products. We cannot assure you that seasonality or fluctuating weather conditions will
not have a material adverse effect on our results of operations.
The insurance that we maintain may not fully cover all potential exposures.
We maintain lines of commercial insurance, such as property, general liability and casualty insurance, but such insurance may not cover all risks associated
with the hazards of our businesses and is subject to limitations, including deductibles and limits on the liabilities covered. We may incur losses beyond the
limits or outside the coverage of our insurance policies, including liabilities for environmental remediation and product liability. In addition, from time to
time, various types of insurance for companies in the chemical, food or health and nutrition products industries have not been available on commercially
acceptable terms or, in some cases, have not been available at all. In the future, we may not be able to obtain coverage at current levels, and our premiums
may increase significantly on coverage that we maintain.
Failure to comply with the covenants under our credit facility may have a material adverse effect.
We are party to a credit agreement (the “Credit Agreement”) with U.S. Bank National Association and other lenders (collectively, the “Lenders”), which
includes secured revolving credit facilities (the “Revolving Loan Facility”) totaling $150.0 million. The Revolving Loan Facility includes a $5.0 million
letter of credit subfacility and $15.0 million swingline subfacility. At March 29, 2020, we had $60.0 million outstanding under the Revolving Loan Facility.
We may make payments on the Revolving Loan Facility from time to time. If we are unable to generate sufficient cash flow or otherwise obtain funds
necessary to make payments on our credit facilities, we could be in default when the facilities become due in 2023. We are also required to comply with
several financial covenants under the Credit Agreement. Our ability to comply with these financial covenants may be affected by events beyond our
control, which could result in a default under the Credit Agreement; such default may have a material adverse effect on our business, financial condition,
operating results or cash flows.
The Credit Agreement also contains other customary affirmative and negative covenants, including covenants that restrict our ability to incur additional
indebtedness, dispose of significant assets, make certain investments, including any acquisitions other than permitted acquisitions, make certain payments,
enter into sale and leaseback transactions, grant liens on its assets or rate management transactions, subject to certain limitations. These restrictions may
adversely affect our business.
7
Impairment to the carrying value of our goodwill or other intangible assets could adversely affect our financial condition and consolidated results of
operations.
Goodwill represents the excess of the cost of acquired businesses over the fair value of identifiable tangible net assets and identifiable intangible assets
purchased. Goodwill is tested at least annually for impairment, and is tested for impairment more frequently if events or changes in circumstances indicate
that the asset might be impaired. Our annual test for impairment is as of the first day of our fourth fiscal quarter, or December 30, 2019 for fiscal 2020.
Goodwill impairment testing is at the reporting unit level. For our Industrial and Water Treatment reporting units, we performed an analysis of qualitative
factors to determine if it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If that qualitative analysis indicates
that an impairment may exist, then we would calculate the amount of the impairment by comparing the fair value of the assets and liabilities to the fair
value of the reporting unit. For our Health and Nutrition reporting unit, we performed a quantitative goodwill impairment analysis, which required us to
estimate the fair value of the reporting unit and compare the fair value to the reporting unit’s carrying value. The fair value of the reporting unit in excess of
the value of the assets and liabilities is the implied fair value of the goodwill. If this amount is less than the carrying amount of goodwill, impairment is
recognized for the difference. As of December 30, 2019, the fair value of our Health and Nutrition reporting unit exceeded its carrying value, and thus no
impairment was recorded. In fiscal 2018, however, we recorded an impairment charge in our Health and Nutrition reporting unit of $39.1 million. A
significant amount of judgment is involved in determining if an indication of impairment exists. Factors may include, among others: a significant decline in
our expected future cash flows; a sustained, significant decline in our stock price and market capitalization; a significant adverse change in the business
climate; unanticipated competition; and slower growth rates. An adverse change in these factors may have a significant impact on the recoverability of the
net assets recorded, and any resulting impairment charge in the future could have a material adverse effect on our financial condition and consolidated
results of operations.
We evaluate the useful lives of our intangible assets to determine if they are definite- or indefinite-lived. Reaching a determination on useful life requires
significant judgments and assumptions regarding the future effects of obsolescence, demand, competition, other economic factors (such as the stability of
the industry, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), and the
expected lives of other related groups of assets.
We cannot accurately predict the amount and timing of any impairment of goodwill and other intangible assets. Should the value of these assets become
impaired, there could be a material adverse effect on our financial condition and consolidated results of operations.
If we are unable to retain key personnel or attract new skilled personnel, it could have an adverse impact on our businesses.
Because of the specialized and technical nature of our businesses, our future performance is dependent on the continued service of, and on our ability to
attract and retain, qualified management, scientific, technical and support personnel. The unanticipated departure of key members of our management team
could have an adverse impact on our business.
We may not be able to successfully consummate future acquisitions or dispositions or integrate acquisitions into our business, which could result in
unanticipated expenses and losses.
As part of our business growth strategy, we have acquired businesses and may pursue acquisitions in the future. Our ability to pursue this strategy will be
limited by our ability to identify appropriate acquisition candidates and our financial resources, including available cash and borrowing capacity. In
addition, we may seek to divest of businesses that are underperforming or not core to our future business. The expense incurred in consummating
transactions, the time it takes to integrate an acquisition or our failure to integrate businesses successfully could result in unanticipated expenses and losses.
Furthermore, we may not be able to realize the anticipated benefits from acquisitions.
The process of integrating acquired operations into our existing operations may result in unforeseen operating difficulties and may require significant
financial resources that would otherwise be available for the ongoing development or expansion of existing operations. The risks associated with the
integration of acquisitions include potential disruption of our ongoing businesses and distraction of management, unforeseen claims, liabilities,
adjustments, charges and write-offs, difficulty in conforming the acquired business’ standards, processes, procedures and controls with our operations, and
challenges arising from the increased scope, geographic diversity and complexity of the expanded operations.
8
Our businesses are subject to risks stemming from natural disasters or other extraordinary events outside of our control, which could interrupt our
production and adversely affect our results of operations.
Natural disasters have the potential of interrupting our operations and damaging our properties, which could adversely affect our businesses. Flooding of
the Mississippi River has temporarily shifted the Company’s terminal operations out of its buildings four times since the spring of 2010, including most
recently the spring of 2019. We can give no assurance that flooding or other natural disasters will not recur or that there will not be material damage or
interruption to our operations in the future from such disasters.
Chemical-related assets may be at greater risk of future terrorist attacks than other possible targets in the United States. Federal law imposes site security
requirements, specifically on chemical facilities, which have increased our overhead expenses. Federal regulations have also been adopted to increase the
security of the transportation of hazardous chemicals in the United States. We ship and receive materials that are classified as hazardous and we believe we
have met these requirements, but additional federal and local regulations that limit the distribution of hazardous materials are being considered. Bans on
movement of hazardous materials through certain cities could adversely affect the efficiency of our logistical operations. Broader restrictions on hazardous
material movements could lead to additional investment and could change where and what products we provide.
The occurrence of extraordinary events, including future terrorist attacks, global health developments and pandemics (including the COVID-19 outbreak),
or escalation of hostilities, cannot be predicted, but their occurrence can be expected to negatively affect the economy in general, and specifically the
markets for our products. The resulting damage from a direct attack on our assets, or assets used by us, could include loss of life and property damage. In
addition, available insurance coverage may not be sufficient to cover all of the damage incurred or, if available, may be prohibitively expensive.
We may not be able to renew our leases of land where four of our operations facilities reside.
We lease the land where our three main terminals are located and where another significant manufacturing plant is located. These leases, including all
renewal periods, have expiration dates from 2023 to 2044. The failure to secure extended lease terms on any one of these facilities may have a material
adverse impact on our business, as they are where a portion of our chemicals are manufactured and where the majority of our bulk chemicals are stored.
While we can make no assurances, based on historical experience and anticipated future needs, we intend to extend these leases and believe that we will be
able to renew our leases as the renewal periods expire. If we are unable to renew three of our leases (two relate to terminals and one to manufacturing) any
property remaining on the land becomes the property of the lessor, and the lessor has the option to either maintain the property or remove the property at
our expense. The fourth lease provides that we turn any property remaining on the land over to the lessor for them to maintain or remove at their expense.
The cost to relocate our operations could have a material adverse effect on our results of operations and financial condition.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
9
ITEM 2. PROPERTIES
Our facilities material to our operations consist of our locations described below. In addition to the facilities listed below, our Water Treatment group
operates out of 27 additional warehouse locations, the majority of which are owned by us. We believe that our facilities are adequate and suitable for the
purposes they serve. Unless noted, each facility is owned by us and is primarily used as office and warehouse space. We believe that we carry customary
levels of insurance covering the replacement of damaged property.
Group
Corporate headquarters
Health and Nutrition
Industrial
Industrial and Water Treatment
Water Treatment
Location
Roseville, MN
Fullerton, CA (1)
Florida, NY (2)
Minneapolis, MN (3)
Camanche, IA
Centralia, IL (4)
Dupo, IL (5)
St. Paul, MN (6)
Rosemount, MN (7)
St. Paul, MN (8)
Memphis, TN
Apopka, FL
Approx.
Square Feet
50,000
55,800
107,000
177,000
95,000
77,000
64,000
32,000
63,000
59,000
41,000
32,100
(1) This is a leased facility comprising administrative offices and a distribution facility. The lease runs through January 2021.
(2) This is comprised of (i) a 79,000 square foot manufacturing plant which sits on approximately 16 acres and (ii) a leased 28,000 square foot
warehouse located in close proximity that is leased until December 2022.
(3) This is our principal manufacturing location that sits on approximately 11 acres of land.
(4) This manufacturing facility includes 10 acres of land owned by the Company.
(5) The land for this manufacturing and packaging facility is leased from a third party, with the lease expiring in May 2023.
(6) Our terminal operations, located at two sites on opposite sides of the Mississippi River, are made up of three buildings, outside storage tanks for the
storage of liquid bulk chemicals, including caustic soda, as well as numerous smaller tanks for storing and mixing chemicals. The land is leased
from the Port Authority of the City of St. Paul, Minnesota. One of the applicable leases runs through 2033, while the other one runs through 2044
including all available lease extensions.
(7) This facility includes 28 acres of land owned by the Company. This manufacturing facility has outside storage tanks for the storage of bulk
chemicals, as well as numerous smaller tanks for storing and mixing chemicals.
(8) Our Red Rock facility, which consists of a 59,000 square-foot building located on approximately 10 acres of land, has outside storage capacity for
liquid bulk chemicals, as well as numerous smaller tanks for storing and mixing chemicals. The land is leased from the Port Authority of the City of
St. Paul, Minnesota and runs until 2029.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which we or any of our subsidiaries are
a party or of which any of our property is the subject.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
10
PART II
ITEM 5. MARKET FOR THE COMPANY’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS, AND ISSUER PURCHASES OF
EQUITY SECURITIES
Our common stock is listed on the Nasdaq Global Select Market under the symbol “HWKN.” As of May 15, 2020, shares of our common stock were held
by approximately 378 shareholders of record.
In 2014, our Board of Directors authorized the repurchase of up to 300,000 shares of our outstanding common stock. On February 7, 2019, our Board of
Directors increased the authorization to up to 800,000 shares. The shares may be repurchased on the open market or in privately negotiated transactions
subject to applicable securities laws and regulations. The following table sets forth information concerning purchases of our common stock for three
months ended March 29, 2020:
Period
12/30/2019 - 1/26/2020
1/27/2020 - 2/23/2020
2/24/2020 - 3/29/2020
Total
Total Number of Shares
Purchased
Average Price Paid Per
Share
Total Number of Shares
Purchased as Part of Publicly
Announced Plans or Programs
Maximum Number of Shares
that May Yet be Purchased
under the Plans or Programs
—
—
54,188 $
54,188
—
38.03
—
—
54,188
54,188
412,985
412,985
358,797
The following graph compares the cumulative total shareholder return on our common shares with the cumulative total returns of the Nasdaq Industrial
Index, the Nasdaq Composite Index, the Russell 2000 Index and the Standard & Poor’s (“S&P”) Small Cap 600 Index for our last five completed fiscal
years. The graph assumes the investment of $100 in our stock and each of those indices on March 29, 2015, and reinvestment of all dividends.
11
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the Company is presented in the table below and should be read in conjunction with Management’s Discussion and Analysis of
Financial Condition and Results of Operations included in Item 7 and the Company’s Financial Statements and Notes to Financial Statements included in
Item 8 of this Annual Report on Form 10-K.
2020
2019
Fiscal Year
2018 (1)
(In thousands, except per share data)
2017
2016
Sales
Gross profit
Net income (loss)
Basic earnings (loss) per common share
Diluted earnings (loss) per common share
Cash dividends declared per common share
Cash dividends paid per common share
Total assets
Total long-term obligations (3)
$
540,198 $
556,326 $
504,169 $
483,593 $
413,976
100,917
28,367
2.68
2.66
0.9225
0.9225
95,936
24,433
2.29
2.28
0.68
1.12 (2)
86,760
(9,177)
(0.87)
(0.86)
0.88
0.86
98,073
22,555
2.14
2.13
0.84
0.82
80,257
18,143
1.72
1.72
0.80
0.78
$
389,328 $
385,599 $
390,991 $
418,584 $
436,491
64,978
90,316
96,646
100,968
130,407
(1) - Net loss and basic and diluted loss per share for fiscal 2018 include a goodwill impairment charge of $39.1 million, or $3.68 per diluted share, related to our Health &
Nutrition reporting unit and a one-time tax benefit of $13.9 million, or $1.31 per diluted share, related to the revaluation of our net deferred tax liabilities associated with the
change in the U.S. corporate tax rate from 35% to 21% effective January 1, 2018 due to the Tax Cuts and Jobs Act of 2017.
(2) - In fiscal 2019, we changed from paying dividends semi-annually to quarterly. Normalized dividends paid in fiscal 2019 were $0.90 per share.
(3) - Total long-term obligations includes bank debt payable, as per the terms of the then-existing credit agreement, later than 12 months after the balance sheet date as well
as obligations payable under the terms of our withdrawal from a multi-employer pension plan.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of our financial condition and results of operations for fiscal 2020, 2019 and 2018. This discussion should be
read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in Item 8 of this Annual Report
on Form 10-K.
Overview
We derive substantially all of our revenues from the sale of chemicals and specialty ingredients to our customers in a wide variety of industries. We began
our operations primarily as a distributor of bulk chemicals with a strong customer focus. Over the years, we have maintained the strong customer focus and
have expanded our business by increasing our sales of value-added chemical products and specialty ingredients, including manufacturing, blending and
repackaging certain products.
Financial Overview
An overview of our financial performance in fiscal 2020 is provided below:
•
•
•
•
Sales of $540.2 million, a 2.9% decrease from fiscal 2019;
Gross profit of $100.9 million, an increase of $5.0 million, or 5.2% from fiscal 2019;
Selling, general and administrative (“SG&A”) expenses were relatively flat year over year, and up 0.4% as a percentage of sales from fiscal 2019;
Net cash provided by operating activities of $58.9 million, as compared to $48.0 million for fiscal 2019.
12
We focus on total profitability dollars when evaluating our financial results as opposed to profitability as a percentage of sales, as sales dollars tend to
fluctuate, particularly in our Industrial and Water Treatment segments, as raw material prices rise and fall. The costs for certain of our raw materials can
rise or fall rapidly, causing fluctuations in gross profit as a percentage of sales.
We use the last in, first out (“LIFO”) method of valuing the majority of our inventory in our Industrial and Water Treatment segments, which causes the
most recent product costs to be recognized in our income statement. The valuation of LIFO inventory for interim periods is based on our estimates of fiscal
year-end inventory levels and costs. The LIFO inventory valuation method and the resulting cost of sales are consistent with our business practices of
pricing to current chemical raw material prices. Inventories in our Health and Nutrition segment are valued using the first-in, first-out (“FIFO”) method.
We disclose the sales of our bulk commodity products as a percentage of total sales dollars for our Industrial and Water Treatment segments. Our definition
of bulk commodity products includes products that we do not modify in any way, but receive, store, and ship from our facilities, or direct ship to our
customers in large quantities.
Statement on COVID-19
The pandemic caused by COVID-19 was first reported in Wuhan, China in December 2019 and has since spread throughout the world. Financial markets
have been volatile in 2020, primarily due to uncertainty with respect to the severity and duration of the pandemic.
The pandemic has resulted in federal, state and local governments around the world implementing increasingly stringent measures to help control the
spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions or bans, business curtailments, school closures,
and other protective measures.
All of our manufacturing facilities qualify as essential operations (or the equivalent) under applicable federal and state orders. As a result, all of our
manufacturing sites and facilities have continued to operate and are doing so safely, with no significant impact to output levels. We are enforcing social
distancing and enhanced health, safety and sanitization measures in accordance with guidelines from the Center for Disease Control. We have also
implemented necessary procedures and support to enable a significant portion of our office personnel to work remotely.
As the spread of the virus began to be identified within the United States in March 2020, we acted by imposing travel restrictions, transitioning large
meetings from in-person to virtual formats, assessing our information technology infrastructure to ensure readiness for a remote workforce, staying
connected to customers, suppliers and business partners, planning for return to the workplace and making operational adjustments as needed to ensure
continued safety of our workforce, while also ensuring the ability to continue to supply products to meet the nation’s essential needs and evolving market
demands.
During this public health crisis, we remain focused on the health and safety of our employees, customers and suppliers and maintaining safe and reliable
operations of our manufacturing sites. As our operations and products are essential to critical national infrastructure, it is imperative that we continue to
supply materials including the products needed to maintain safe drinking water, ingredients essential for large-scale food, pharmaceutical and other health
product manufacturing and nutrition products needed to support our critical infrastructure. Our manufacturing sites have continued to operate during the
COVID-19 pandemic, with no significant impact to manufacturing.
We ended fiscal 2020 with a leverage ratio below 1.0x, net debt of $55.7 million and significant amounts available for borrowing under our Revolving
Loan Facility.
The COVID-19 pandemic has created tremendous uncertainty in the economy. The financial impact to our company has been mixed, as sales to certain
end-markets such as food, bottled bleach and health and nutrition have benefited our reporting segments, while decreased sales to other end-markets such
as ethanol, pools and resorts have negatively impacted them. As uncertainty continues with this pandemic, we expect mixed results to continue for the
foreseeable future. We will continue to be cautious in our capital expenditures and investments, and delay investments where deemed appropriate, while
still investing for the future by opening new Water Treatment branches and making capital investments to drive higher margin business. With our current
debt levels and available borrowings, we believe we are well-positioned to weather a continued economic downturn.
13
Share Repurchase Program
Our Board of Directors has authorized the repurchase of up to 800,000 shares of our outstanding common stock. The shares may be repurchased on the
open market or in privately negotiated transactions subject to applicable securities laws and regulations. The primary objective of the share repurchase
program is to offset the impact of dilution from issuances relating to employee and director equity grants and our employee stock purchase program.
During fiscal 2020, we repurchased 145,583 shares of common stock with an aggregate purchase price of $5.9 million. During fiscal 2019, we repurchased
108,166 shares of common stock with an aggregate purchase price of $4.4 million. No shares were repurchased during fiscal 2018. As of March 29, 2020,
358,797 shares remained available for purchase under the program.
Results of Operations
The following table sets forth certain items from our statement of income as a percentage of sales from period to period:
Fiscal 2020
Fiscal 2019
Fiscal 2018
Sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Goodwill impairment
Operating income (loss)
Interest expense, net
Other income
Income (loss) before income taxes
Income tax provision
Net income (loss)
Fiscal 2020 Compared to Fiscal 2019
Sales
100.0 %
(81.3) %
18.7 %
(11.0) %
— %
7.7 %
(0.4) %
— %
7.3 %
(2.0) %
5.3 %
100.0 %
(82.8) %
17.2 %
(10.6) %
— %
6.6 %
(0.6) %
— %
6.0 %
(1.6) %
4.4 %
100.0 %
(82.8) %
17.2 %
(11.8) %
(7.8) %
(2.3) %
(0.7) %
— %
(3.0) %
1.2 %
(1.8) %
Sales decreased $16.1 million, or 2.9%, to $540.2 million for fiscal 2020, as compared to sales of $556.3 million for fiscal 2019.
Industrial Segment. Industrial segment sales decreased $6.6 million, or 2.4%, to $275.2 million for fiscal 2020, as compared to $281.9 million for fiscal
2019. Sales of bulk commodity products in the Industrial segment were approximately 18% of sales dollars in fiscal 2020 and 22% in fiscal 2019. The
decrease in sales dollars from the prior year was driven by lower pricing due to lower costs of one of our major commodities as well as an overall decrease
in volumes sold, particularly of lower-priced bulk commodities driven by a weak ethanol industry. This was offset somewhat by an increase in volumes
sold of our manufactured, blended and re-packaged products that typically carry higher per-unit selling prices.
Water Treatment Segment. Water Treatment segment sales increased $10.4 million, or 7.0%, to $159.9 million for fiscal 2020, as compared to $149.5
million for fiscal 2019. Sales of bulk commodity products in the Water Treatment segment were approximately 12% of sales dollars in fiscal 2020 and 15%
in fiscal 2019. The increase in sales dollars was driven by increased volumes sold of certain manufactured, blended and re-packaged products that carry
higher per-unit selling prices. This was offset somewhat by lower volumes sold of our bulk commodity products as well as lower pricing due to lower costs
of one of our major commodities.
Health and Nutrition Segment. Sales for our Health and Nutrition segment decreased $19.9 million, or 15.9%, to $105.1 million for fiscal 2020, as
compared to $125.0 million for fiscal 2019. The decline in sales was driven by decreased sales of our distributed specialty products, some of which was
due to a previously anticipated worldwide supply shortage of a significant product that we experienced in the first two quarters of this fiscal year, and the
ramp-up of sales with new partners replacing previous product lines.
14
Gross Profit
Gross profit increased $5.0 million to $100.9 million, or 18.7% of sales, for fiscal 2020, from $95.9 million, or 17.2% of sales, for fiscal 2019. During the
current year, the LIFO reserve increased, and gross profits decreased, by $0.6 million. In the same period a year ago, the LIFO reserve decreased, and gross
profits increased, by $0.5 million.
Industrial Segment. Gross profit for the Industrial segment increased $4.0 million to $38.9 million, or 14.1% of sales, for fiscal 2020, from $34.9 million,
or 12.4% of sales, for fiscal 2019. During fiscal 2020, the LIFO reserve increased, and gross profits decreased, by $0.6 million. In fiscal 2019, the LIFO
reserve decreased, and gross profits increased, by $0.8 million. In spite of the $1.4 million year-over-year unfavorable LIFO impact and lower overall sales
dollars, total gross profit increased from a year ago due to a favorable product mix shift to more sales of our higher margin manufactured, blended and re-
packaged products.
Water Treatment Segment. Gross profit for the Water Treatment segment increased $3.9 million to $41.9 million, or 26.2% of sales, for fiscal 2020, from
$38.0 million, or 25.4% of sales, for fiscal 2019. During fiscal 2020, the LIFO reserve changed nominally and therefore had a minimal impact on gross
margin. In fiscal 2019, the LIFO reserve increased, and gross profits decreased, by $0.3 million. Gross profit increased as a result of increased sales of our
manufactured, blended and re-packaged products compared to a year ago, offset somewhat by higher operating costs.
Health and Nutrition Segment. Gross profit for our Health and Nutrition segment decreased $3.0 million to $20.1 million, or 19.1% of sales, for fiscal
2020, compared to $23.1 million, or 18.4% of sales, for fiscal 2019. Gross profit decreased as a result of lower sales, while gross profit as a percent of sales
improved year over year due to increased profitability on certain products as well as lower operational costs. The decrease in operational costs was offset
somewhat by a $0.6 million impairment charge related to certain manufacturing equipment that will not be used in production as previously planned.
Selling, General and Administrative Expenses
SG&A expenses were relatively flat at $59.2 million, or 11.0% of sales, for fiscal 2020, and $59.1 million, or 10.6% of sales, for fiscal 2019. Fiscal 2020
includes a favorable adjustment to compensation expense related to our non-qualified deferred compensation plan of $0.2 million compared to a nominal
adjustment in the prior year. These adjustments are offset in other income/expense. Increases in other variable expenses largely offset this year-over-year
benefit.
Operating Income (Loss)
Operating income was $41.7 million, or 7.7% of sales, for fiscal 2020, as compared to $36.8 million, or 6.6% of sales, for fiscal 2019 due to the combined
impact of the factors discussed above.
Interest Expense, Net
Interest expense was $2.5 million for fiscal 2020, a decrease of $0.9 million from interest expense of $3.4 million for fiscal 2019. Interest expense
decreased due to lower outstanding borrowings and lower borrowing rates compared to the prior year.
Income Tax Provision
Our effective tax rate was relatively flat at 27.2% for fiscal 2020 and 27.1% for fiscal 2019.
Fiscal 2019 Compared to Fiscal 2018
Sales
Sales increased $52.2 million, or 10.3%, to $556.3 million for fiscal 2019, as compared to sales of $504.2 million for fiscal 2018. Sales increased year over
year in all segments.
Industrial Segment. Industrial segment sales increased $34.5 million, or 13.9%, to $281.9 million for fiscal 2019. Sales of bulk commodity products in the
Industrial segment were approximately 22% of sales dollars in fiscal 2019 and 20% in fiscal 2018. Sales dollars increased in fiscal 2019 due to increased
volumes, particularly of certain specialty products that carry higher per-unit selling prices, as well as increased selling prices on certain products resulting
from increased raw material costs.
15
Water Treatment Segment. Water Treatment segment sales increased $11.0 million, or 8.0%, to $149.5 million for fiscal 2019. Sales of bulk commodity
products in the Water Treatment segment were approximately 15% of sales dollars in both fiscal 2019 and 2018. Sales dollars increased in fiscal 2019 as a
result of increased sales volumes across many product lines as well as a favorable product mix shift.
Health and Nutrition Segment. Sales for our Health and Nutrition segment increased $6.6 million, or 5.6%, to $125.0 million for fiscal 2019. Increased
sales of distributed specialty products drove the year-over-year increase in sales.
Gross Profit
Gross profit was $95.9 million, or 17.2% of sales, for fiscal 2019, an increase of $9.2 million from $86.8 million, or 17.2% of sales, for fiscal 2018. During
fiscal 2019, the LIFO reserve decreased, and gross profits increased, by $0.5 million. Conversely, during fiscal 2018, the LIFO reserve increased, and gross
profits decreased, by $4.1 million. In addition to this $4.6 million year-over-year positive impact, the increase in gross profit during fiscal 2019 was a result
of increased sales across all three segments, somewhat offset by increased operating costs.
Industrial Segment. Gross profit for the Industrial segment was $34.9 million, or 12.4% of sales, for fiscal 2019, an increase of $5.3 million from $29.6
million, or 12.0% of sales, for fiscal 2018. During fiscal 2019, the LIFO reserve decreased, and gross profits increased, by $0.8 million. Conversely, during
fiscal 2018, the LIFO reserve increased, and gross profits decreased, by $3.3 million. In addition to this $4.1 million positive year-over-year impact, the
increase in gross profit dollars was due to a favorable product mix shift to more products with higher per-unit margins as well as improved pricing on
certain products, offset somewhat by an increase in operational overhead costs driven largely by repair and maintenance costs, as well as increased
transportation costs due to a tight carrier market and increased fuel costs.
Water Treatment Segment. Gross profit for the Water Treatment segment increased $1.7 million, or 4.7%, to $38.0 million, or 25.4% of sales, for fiscal
2019, as compared to $36.3 million, or 26.2% of sales, for fiscal 2018. The increase in gross profit was largely a result of higher sales volumes compared to
a year ago, offset in part by an increase in certain variable costs, including variable pay, as well as higher transportation costs, primarily due to rising fuel
costs. During fiscal 2019, the LIFO reserve increased, and gross profits decreased, by $0.3 million. Conversely, during fiscal 2018, the LIFO reserve
increased, and gross profits decreased, by $0.8 million.
Health and Nutrition Segment. Gross profit for our Health and Nutrition segment increased $2.2 million, or 10.4%, to $23.1 million, or 18.4% of sales, for
fiscal 2019, as compared to $20.9 million, or 17.6% of sales, for fiscal 2018. Gross profit increased as a result of the combined impact of higher sales and
lower operating costs compared to the same period a year ago.
Selling, General and Administrative Expenses
SG&A expenses were $59.1 million, or 10.6% of sales, for fiscal 2019, and $59.4 million, or 11.8% of sales, for fiscal 2018. The decrease in SG&A
expenses resulted from actions taken by management in the prior year, offset somewhat by increased variable pay expense. SG&A expense as a percentage
of sales was favorable year over year in all three reporting segments.
Operating Income (Loss)
Operating income was $36.8 million, or 6.6% of sales, for fiscal 2019, as compared to an operating loss of $11.8 million, or (2.3)% of sales, for fiscal 2018
due to the combined impact of the factors discussed above.
Interest Expense, Net
Interest expense was $3.4 million in both fiscal 2019 and 2018. The impact from higher interest rates in fiscal 2019 was offset by a nearly $20 million
reduction in average borrowings.
Income Tax Provision
Our effective tax rate was 27.1% for fiscal 2019 and 39.1% for fiscal 2018. Our effective tax rate for fiscal 2018 was impacted by a $13.9 million one-time
income tax benefit which was recognized as a result of the U.S. Tax Cuts and Jobs Act of 2017 (the “Tax Act”). Our effective tax rate for fiscal 2018 was
also impacted by the $39.1 million goodwill impairment charge which was recorded for book purposes but was not deductible for tax purposes.
16
Liquidity and Capital Resources
Cash provided by operating activities in fiscal 2020 was $58.9 million compared to $48.0 million in fiscal 2019. The increase in cash provided by operating
activities in fiscal 2020 as compared to fiscal 2019 was primarily driven by favorable year-over-year changes in certain components of working capital, in
particular lower cash used for accounts payable and inventory, as well as the improvement in net income. Due to the nature of our operations, which
includes purchases of large quantities of bulk chemicals, the timing of purchases can result in significant changes in working capital and the resulting
operating cash flow. Historically, our cash requirements for working capital increase during the period from April through November as caustic soda
inventory levels increase as most of our barges are received during this period.
Cash used in investing activities was $24.2 million in fiscal 2020 compared to $12.3 million in fiscal 2019. Capital expenditures were $24.5 million in
fiscal 2020 and $12.6 million in fiscal 2019. Capital expenditures in fiscal 2020 included $9.5 million in the aggregate for the purchase of our previously
leased corporate headquarters and a previously leased Water Treatment branch facility as well as the purchase of a facility for a Water Treatment branch
expansion. The additional increase in capital expenditures primarily related to facility improvements and new and replacement equipment.
Cash used in financing activities was $39.6 million in fiscal 2020, as compared to cash used in financing activities of $31.4 million in fiscal 2019. Cash
used in financing activities included net debt repayments of $25.0 million in fiscal 2020 and $16.0 million in fiscal 2019. We also paid out cash dividends
of $9.8 million in fiscal 2020 and $12.0 million in fiscal 2019. In fiscal 2020, we used $5.9 million to repurchase shares under our board-authorized share
repurchase program, and in fiscal 2019, we used $4.4 million to repurchase shares under the program.
Our cash balance was $4.3 million at March 29, 2020, a decrease of $4.9 million as compared with March 31, 2019. Cash flows generated by operations
during fiscal 2020 were largely offset by debt repayments, capital expenditures and dividend payments.
We were party to a credit agreement (the “Prior Credit Agreement”) with U.S. Bank National Association (“U.S. Bank”) as Sole Lead Arranger and Sole
Book Runner and other lenders from time to time party thereto (collectively, the “Prior Lenders”), whereby U.S. Bank was also serving as Administrative
Agent. The Prior Credit Agreement provided us with senior secured credit facilities totaling $165.0 million, consisting of a $100.0 million senior secured
term loan credit facility and a $65.0 million senior secured revolving loan credit facility. The term loan facility required mandatory quarterly repayments,
with the balance due at maturity. The revolving loan facility included a letter of credit subfacility in the amount of $5.0 million and a swingline subfacility
in the amount of $8.0 million. The Prior Credit Agreement was scheduled to terminate on December 23, 2020 and the underlying credit facility was secured
by substantially all of our personal property assets and those of our subsidiaries. Borrowings under the Prior Credit Agreement bore interest at a variable
rate per annum equal to one of the following, plus, in both cases, an applicable margin based upon our leverage ratio: (a) LIBOR for an interest period of
one, two, three or six months as selected by us, reset at the end of the selected interest period, or (b) a base rate determined by reference to the highest of
(1) U.S. Bank’s prime rate, (2) the Federal Funds Effective Rate plus 0.5%, or (3) one-month LIBOR for U.S. dollars plus 1.0%. The LIBOR margin was
1.125%, 1.25% or 1.5%, depending on our leverage ratio. The base rate margin was either 0.125%, 0.25% or 0.5%, depending on our leverage ratio.
On November 30, 2018, we entered into an amended and restated credit agreement (the “Credit Agreement”) with U.S. Bank as Sole Lead Arranger and
Sole Book Runner, and other lenders from time to time party thereto (collectively, the “Lenders”), whereby U.S. Bank is also serving as Administrative
Agent. The Credit Agreement refinanced the term and revolving loans under the Prior Credit Agreement and provides us with senior secured revolving
credit facilities (the “Revolving Loan Facility”) totaling $150.0 million. The Revolving Loan Facility includes a $5.0 million letter of credit subfacility and
$15.0 million swingline subfacility. The Revolving Loan Facility has a five-year maturity date, maturing on November 30, 2023. The Revolving Loan
Facility is secured by substantially all of our personal property assets and those of our subsidiaries.
We used $91.0 million of the proceeds from the Revolving Loan Facility to refinance the obligations under the Prior Credit Agreement. We may use the
remaining amount of the Revolving Loan Facility for working capital, capital expenditures, share repurchases, restricted payments and acquisitions
permitted under the Credit Agreement, and other general corporate purposes.
Borrowings under the Revolving Loan Facility bear interest at a rate per annum equal to one of the following, plus, in both cases, an applicable margin
based upon our leverage ratio: (a) LIBOR for an interest period of one, two, three or six months as selected by us, reset at the end of the selected interest
period, or (b) a base rate determined by reference to the highest of (1) U. S. Bank’s prime rate, (2) the Federal Funds Effective Rate plus 0.5%, or (3) one-
month LIBOR for U.S. dollars plus 1.0%. The LIBOR margin is between 0.85% and 1.35%, depending on our leverage ratio. The base rate margin is
between 0.00% and 0.35%, depending on our leverage ratio. In the event that the ICE Benchmark Administration (or any person that
17
takes over administration of such rate) determines that LIBOR is no longer available, including as a result of the intended phase out of LIBOR by the end
of 2021, our Revolving Loan Facility provides for an alternative rate of interest to be jointly determined by us and U.S. Bank, as administrative agent, that
gives due consideration to the then prevailing market convention for determining a rate of interest for syndicated loans in the United States. Once such
successor rate has been approved by us and U.S. Bank, the Revolving Credit Loan Facility would be amended to use such successor rate without any
further action or consent of any other lender, so long as the administrative agent does not receive any objection from any other lender. At March 29, 2020,
the effective interest rate on our borrowings was 2.3%.
In addition to paying interest on the outstanding principal under the Revolving Loan Facility, we are required to pay a commitment fee on the unutilized
commitments thereunder. The commitment fee is between 0.15% and 0.25%, depending on our leverage ratio.
Debt issuance costs paid to the Lenders are being amortized as interest expense over the term of the Credit Agreement. As of March 29, 2020, the
unamortized balance of these costs was $0.3 million, and is reflected as a reduction of debt on our balance sheet.
The Credit Agreement requires us to maintain (a) a minimum fixed charge coverage ratio of 1.15 to 1.00 and (b) a maximum total cash flow leverage ratio
of 3.0 to 1.0. The Credit Agreement also contains other customary affirmative and negative covenants, including covenants that restrict our ability to incur
additional indebtedness, dispose of significant assets, make certain investments, including any acquisitions other than permitted acquisitions, make certain
payments, enter into sale and leaseback transactions, grant liens on our assets or rate management transactions, subject to certain limitations. We are
permitted to make distributions, pay dividends and repurchase shares so long as no default or event of default exists or would exist as a result thereof. We
were in compliance with all covenants of the Credit Agreement as of March 29, 2020 and expect to remain in compliance with all covenants for the next 12
months.
The Credit Agreement contains customary events of default, including failure to comply with covenants in the Credit Agreement and other loan documents,
cross default to other material indebtedness, failure by us to pay or discharge material judgments, bankruptcy, and change of control. The occurrence of an
event of default would permit the lenders to terminate their commitments and accelerate loans under the Credit Facility.
As part of our growth strategy, we have acquired businesses and may pursue acquisitions or other strategic relationships in the future that we believe will
complement or expand our existing businesses or increase our customer base. We believe we could borrow additional funds under our current or new credit
facilities or sell equity for strategic reasons or to further strengthen our financial position.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Contractual Obligations and Commercial Commitments
The following table provides aggregate information about our contractual payment obligations and the periods in which payments are due:
Payments Due by Fiscal Period
Contractual Obligation
2021
2022
2023
2024
2025
Senior secured revolver (1)
Interest payments (2)
Operating lease obligations (3)
Pension withdrawal liability (4)
$
$
$
$
— $
1,557 $
1,769 $
467 $
— $
1,557 $
1,556 $
467 $
1,557 $
1,442 $
467 $
(In thousands)
— $
60,000 $
1,557 $
More than
5 Years
Total
— $
— $
— $
— $
60,000
6,228
1,110 $
1,124 $
4,114 $
11,115
467 $
467 $
3,972 $
6,307
(1) Represents balance outstanding as of March 29, 2020, and assumes such amount remains outstanding until its maturity date. See Note 8 of our
consolidated Financial Statements for further information.
(2) Represents interest payments and commitment fees payable on outstanding balances under our revolver, and assumes interest rates remain unchanged
from the rate as of March 29, 2020.
(3) As reported under ASC Topic 842
(4) This relates to our withdrawal from a multiemployer pension plan. Payments on this obligation will continue through 2034.
18
Critical Accounting Policies
In preparing the financial statements, we follow U.S. generally accepted accounting principles (“GAAP”). The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of contingent
assets and liabilities. We re-evaluate our estimates on an on-going basis. Our estimates are based on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions. We
consider the following policies to involve the most judgment in the preparation of our financial statements.
Goodwill and Infinite-life Intangible Assets - Goodwill represents the excess of the cost of acquired businesses over the fair value of identifiable tangible
net assets and identifiable intangible assets purchased. Goodwill is tested at least annually for impairment, and is tested for impairment more frequently if
events or changes in circumstances indicate that the asset might be impaired. Our annual test for impairment is as of the first day of our fourth fiscal
quarter, or December 30, 2019 for fiscal 2020. For our Industrial and Water Treatment reporting units, we performed an analysis of qualitative factors to
determine whether it is more likely than not that the fair value of either of these reporting units is less than its carrying amount as a basis for determining
whether it is necessary to perform a quantitative goodwill impairment test. Based on management’s analysis of qualitative factors, we determined that it
was not necessary to perform a quantitative goodwill impairment test for either of these reporting units.
For our Health and Nutrition reporting unit, we performed a quantitative goodwill impairment analysis which required us to estimate the fair value of the
reporting unit and compare the fair value to its carrying value. We utilized a discounted cash flow approach to calculate the present value of projected
future cash flows using appropriate discount rates. In determining the fair value of our Health and Nutrition reporting unit using the discounted cash flow
approach, we considered our projected operating results and then made a number of assumptions. These assumptions included future business plans,
economic projections and market data as well as management estimates regarding future cash flows and operating results. The key assumptions we used in
preparing our discounted cash flow analysis are (1) projected cash flows, (2) risk adjusted discount rate, and (3) expected long term growth rate. We then
compared the total fair values for all reporting units to our overall market capitalization as a test of the reasonableness of this approach. For this
comparison, the fair value of the Water Treatment reporting unit was estimated based on a multiple of EBITDA. As of December 30, 2019, the estimated
fair value of our Health and Nutrition reporting unit was more than its carrying values and accordingly no impairment charge was recorded.
Subsequent to our annual goodwill impairment testing date of December 30, 2019, the United States began to see economic impacts of the COVID-19
pandemic. As a result, management evaluated the potential long-term impact to our businesses. As a result of this qualitative analysis in the fourth quarter,
we determined there were no material adverse changes to our initial projections as a result of the COVID-19 pandemic.
Business Acquisitions - We account for acquired businesses using the acquisition method of accounting which requires that the assets acquired and
liabilities assumed be recorded at the date of acquisition at their respective fair values. The judgments made in determining the estimated fair value
assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact net income.
There are several methods that can be used to determine the fair value of assets acquired and liabilities assumed in a business combination. For intangible
assets, we normally utilize one or more forms of the “income method.” This method starts with a forecast of all of the expected future net cash flows
attributable to the subject intangible asset. These cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk
factors associated with the cash flow streams. Some of the more significant estimates and assumptions inherent in the income method (or other methods)
include the projected future cash flows (including timing) and the discount rate reflecting the risks inherent in the future cash flows.
Estimating the useful life of an intangible asset also requires judgment. For example, different types of intangible assets will have different useful lives,
influenced by the nature of the asset, competitive environment, and rate of change in the industry. Certain assets may even be considered to have indefinite
useful lives. All of these judgments and estimates can significantly impact the determination of the amortization period of the intangible asset, and thus net
income.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments.
The amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses
on instruments within its scope, including trade receivables. This
19
update is intended to provide financial statement users with more decision-useful information about the expected credit losses. This ASU is effective for
annual periods and interim periods for those annual periods beginning after December 15, 2019, which for us is our fiscal year beginning March 30, 2020.
We have evaluated the requirements of this standard on our financial assets. Upon adoption, this ASU will impact our method for calculating and
estimating our allowance for doubtful accounts, but it will not have a material impact to our financial position or results of operations.
We do not expect that any other recently issued accounting pronouncements will have a material effect on our financial statements.
See Item 8, “Note 1 - Nature of Business and Significant Accounting Policies” of the Notes to Consolidated Financial Statements for information regarding
recently adopted accounting standards.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are subject to the risk inherent in the cyclical nature of commodity chemical prices. However, we do not currently purchase forward contracts or
otherwise engage in hedging activities with respect to the purchase of commodity chemicals. We attempt to pass changes in the cost of our materials on to
our customers; however, there are no assurances that we will be able to pass on the increases in the future.
We are exposed to market risks related to interest rates. Our exposure to changes in interest rates is limited to borrowings under our credit facility. A 25-
basis point change in interest rates on the variable-rate portion of debt not covered by the interest rate swap would potentially increase or decrease annual
interest expense by approximately $0.1 million. Other types of market risk, such as foreign currency risk, do not arise in the normal course of our business
activities.
20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Hawkins, Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Hawkins, Inc. and subsidiaries (the Company) as of March 29, 2020 and March 31,
2019, the related consolidated statements of income (loss), comprehensive income (loss), shareholders’ equity, and cash flows for each of the years in the
three-year period ended March 29, 2020, and the related notes and financial statement schedule II (collectively, the consolidated financial statements). We
also have audited the Company’s internal control over financial reporting as of March 29, 2020, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of
March 29, 2020 and March 31, 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended March 29,
2020, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of March 29, 2020 based on criteria established in Internal Control – Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of April 1, 2019 due to the
adoption of Accounting Standards Update 2016-02, Leases (Topic 842), and related amendments.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the
Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective
internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
21
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
We have served as the Company’s auditor since 2009.
Minneapolis, Minnesota
May 20, 2020
/s/ KPMG LLP
22
HAWKINS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per-share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Trade receivables less allowance for doubtful accounts of $784 for 2020 and $620 for 2019
Inventories
Income taxes receivable
Prepaid expenses and other current assets
Total current assets
PROPERTY, PLANT, AND EQUIPMENT:
Land
Buildings and improvements
Machinery and equipment
Transportation equipment
Office furniture and equipment
Less accumulated depreciation
Net property, plant, and equipment
OTHER ASSETS:
Right-of-use assets
Goodwill
Intangible assets, net
Other
Total other assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable — trade
Accrued payroll and employee benefits
Current portion of long-term debt
Income tax payable
Short-term lease liability
Container deposits
Other current liabilities
Total current liabilities
LONG-TERM DEBT, LESS CURRENT PORTION
LONG-TERM LEASE LIABILITY
PENSION WITHDRAWAL LIABILITY
OTHER LONG-TERM LIABILITIES
DEFERRED INCOME TAXES
Total liabilities
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Common stock; authorized: 30,000,000 shares of $0.05 par value; 10,512,229 and 10,592,450
shares issued and outstanding for 2020 and 2019, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total shareholders’ equity
Total liabilities and shareholders’ equity
March 29, 2020
March 31, 2019
$
4,277 $
67,391
54,436
—
4,927
131,031
11,045
108,175
98,171
32,737
17,093
267,221
140,877
126,344
9,090
58,440
60,653
3,770
$
$
131,953
389,328 $
34,129 $
13,538
9,907
59
1,523
1,376
1,688
62,220
49,751
7,649
4,978
6,140
25,106
155,844
—
526
50,090
182,947
(79)
233,484
$
389,328 $
9,199
63,966
60,482
527
5,235
139,409
9,140
96,389
93,153
29,744
16,435
244,861
126,233
118,628
—
58,440
65,726
3,396
127,562
385,599
29,314
12,483
9,907
—
—
1,299
2,393
55,396
74,658
—
5,316
5,695
26,673
167,738
—
530
52,609
164,405
317
217,861
385,599
See accompanying notes to consolidated financial statements.
23
HAWKINS, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In thousands, except share and per-share data)
Sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Goodwill impairment
Operating income (loss)
Interest expense, net
Other (expense) income
Income (loss) before income taxes
Income tax (expense) benefit
Net income (loss)
Weighted average number of shares outstanding-basic
Weighted average number of shares outstanding-diluted
Basic earnings (loss) per share
Diluted earnings (loss) per share
Cash dividends declared per common share
March 29, 2020
Fiscal Year Ended
March 31, 2019
April 01, 2018
$
540,198 $
556,326 $
(439,281)
100,917
(59,246)
—
41,671
(2,511)
(204)
38,956
(10,589)
(460,390)
95,936
(59,118)
—
36,818
(3,361)
73
33,530
(9,097)
28,367 $
24,433 $
504,169
(417,409)
86,760
(59,403)
(39,116)
(11,759)
(3,408)
91
(15,076)
5,899
(9,177)
10,579,989
10,654,400
10,654,887
10,726,176
10,607,422
10,643,719
2.68 $
2.66 $
2.29 $
2.28 $
0.9225 $
0.68 $
(0.87)
(0.86)
0.88
$
$
$
$
See accompanying notes to consolidated financial statements.
24
HAWKINS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Net income (loss)
Other comprehensive income, net of tax:
Unrealized (loss) gain on interest rate swap
Unrealized gain on post-retirement liability
Total other comprehensive (loss) income
Total comprehensive income (loss)
March 29, 2020
Fiscal Year Ended
March 31, 2019
April 1, 2018
$
$
28,367 $
24,433 $
(9,177)
(396)
—
(396)
(280)
1
(279)
296
2
298
27,971 $
24,154 $
(8,879)
See accompanying notes to consolidated financial statements.
25
HAWKINS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except share data)
BALANCE — April 2, 2017
Cash dividends declared
Share-based compensation expense
Vesting of restricted stock
ESPP shares issued
Other comprehensive income, net of
tax
Net loss
BALANCE — April 1, 2018
Cash dividends declared
Share-based compensation expense
Vesting of restricted stock
Shares surrendered for payroll taxes
ESPP shares issued
Shares repurchased
Other comprehensive income, net of
tax
Net income
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Retained
Earnings
Accumulated Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
10,582,596 $
529 $
51,104 $
165,897 $
298 $
217,828
8,092
41,304
1
2
1,371
(1)
1,403
(9,400)
(78)
(9,177)
298
(9,400)
1,371
—
1,405
220
(9,177)
10,631,992 $
532 $
53,877 $
147,242 $
596 $
202,247
(7,270)
33,051
(8,105)
43,678
(108,166)
2
(1)
2
(5)
2,010
(2)
(265)
1,336
(4,347)
24,433
(279)
(7,270)
2,010
—
(266)
1,338
(4,352)
(279)
24,433
BALANCE — March 31, 2019
10,592,450 $
530 $
52,609 $
164,405 $
317 $
217,861
Cash dividends declared and paid
Share-based compensation expense
Vesting of restricted stock
Shares surrendered for payroll taxes
ESPP shares issued
Shares repurchased
Other comprehensive income, net of
tax
Net income
(9,825)
35,972
(9,160)
38,550
(145,583)
1
(1)
2
(6)
2,273
(1)
(342)
1,398
(5,847)
28,367
(396)
(9,825)
2,273
—
(343)
1,400
(5,853)
(396)
28,367
BALANCE — March 29, 2020
10,512,229 $
526 $
50,090 $
182,947 $
(79) $
233,484
See accompanying notes to consolidated financial statements.
26
HAWKINS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
Reconciliation to cash flows:
Depreciation and amortization
Operating leases
Amortization of debt issuance costs
Loss (gain) on deferred compensation assets
Goodwill Impairment
Deferred income taxes
Stock compensation expense
Loss (gain) from property disposals
Changes in operating accounts (using) providing cash:
Trade receivables
Inventories
Accounts payable
Accrued liabilities
Lease liabilities
Income taxes
Other
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment
Proceeds from property disposals
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid
New shares issued
Shares surrendered for payroll taxes
Shares repurchased
Payments for debt issuance costs
Payments on senior secured term loan
Payments on senior secured revolving credit facility
Proceeds from revolver borrowings
Net cash used in financing activities
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS
CASH AND CASH EQUIVALENTS - beginning of year
CASH AND CASH EQUIVALENTS - end of year
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION-
Cash paid during the year for income taxes
Cash paid for interest
Noncash investing activities - Capital expenditures in accounts
payable
March 29, 2020
March 31, 2019
April 1, 2018
Fiscal Year Ended
$
28,367 $
24,433 $
(9,177)
21,756
22,390
21,584
2,033
93
233
—
(1,421)
2,273
563
(3,387)
6,045
4,228
663
(2,025)
586
(933)
58,902
(24,549)
346
(24,203)
(9,825)
1,400
(343)
(5,853)
—
—
(44,000)
19,000
(39,621)
(4,922)
9,199
—
122
(73)
—
(607)
2,010
415
(487)
(746)
(4,137)
4,752
—
2,116
(1,564)
47,990
(12,618)
275
(12,343)
(11,975)
1,338
(266)
(4,352)
(183)
(85,000)
(24,000)
93,000
(31,438)
4,209
4,990
—
136
(92)
39,116
(14,757)
1,371
(46)
(6,164)
(8,487)
4,157
1,674
—
(1,711)
(1,061)
27,349
(19,703)
364
(19,339)
(9,161)
1,405
—
—
—
(8,125)
(21,000)
27,000
(9,881)
(1,871)
6,861
4,990
$
$
4,277 $
9,199 $
11,415 $
2,413
7,589 $
3,160
10,232
3,025
1,041
495
468
See accompanying notes to consolidated financial statements.
27
Note 1 — Nature of Business and Significant Accounting Policies
HAWKINS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nature of Business - We have three reportable segments: Industrial, Water Treatment and Health and Nutrition. The Industrial Group specializes in
providing industrial chemicals, products and services to industries such as agriculture, chemical processing, electronics, energy, food, pharmaceutical and
plating. This group also manufactures and sells certain food-grade products, including liquid phosphates, lactates and other blended products. The Water
Treatment Group specializes in providing chemicals, equipment and solutions for potable water, municipal and industrial wastewater, industrial process
water and non-residential swimming pool water. This group has the resources and flexibility to treat systems ranging in size from a single small well to a
multi-million-gallon-per-day facility. Our Health and Nutrition Group specializes in providing ingredient distribution, processing and formulation solutions
to manufacturers of nutraceutical, functional food and beverage, personal care, dietary supplement and other nutritional food, health and wellness products.
This group offers a diverse product portfolio including minerals, botanicals and herbs, vitamins and amino acids, excipients, joint products, sweeteners and
enzymes.
Fiscal Year - Our fiscal year is a 52 or 53-week year ending on the Sunday closest to March 31. Our fiscal years ended March 29, 2020 (“fiscal 2020”),
March 31, 2019 (“fiscal 2019”) and April 1, 2018 (“fiscal 2018”) were 52 weeks. The fiscal year ending March 28, 2021 (“fiscal 2021”) will also be 52
weeks.
Principles of Consolidation - The consolidated financial statements include the accounts of Hawkins, Inc. and its wholly-owned subsidiaries. All
intercompany transactions and accounts have been eliminated.
Estimates - The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities, particularly receivables, inventories, property, plant and
equipment, right-of-use assets, goodwill, intangibles, accrued expenses, short-term and long-term lease liability, income taxes and related accounts and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition - Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products. Revenue is
recognized when we satisfy our performance obligations under the contract. We recognize revenue upon transfer of control of the promised products to the
customer, with revenue recognized at the point in time the customer obtains control of the products. Net sales include products and shipping charges, net of
estimates for product returns and any related sales rebates. We estimate product returns based on historical return rates. Using probability assessments, we
estimate sales rebates expected to be paid over the term of the contract. The majority of our contracts have a single performance obligation and are short
term in nature. Sales taxes that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are
excluded from net sales. We offer certain customers cash discounts and volume rebates as sales incentives. The discounts and volume rebates are recorded
as a reduction in sales at the time revenue is recognized in an amount estimated based on historical experience and contractual obligations.
Shipping and Handling - All shipping and handling amounts billed to customers are included in revenues. Costs incurred related to the shipping and the
handling of products are included in cost of sales.
Fair Value Measurements - The financial assets and liabilities that are re-measured and reported at fair value for each reporting period are an interest rate
swap and marketable securities. There are no fair value measurements with respect to nonfinancial assets or liabilities that are recognized or disclosed at
fair value in our consolidated financial statements on a recurring basis.
Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as
of the measurement date:
Level 1: Valuation is based on quoted prices in active markets for identical assets or liabilities.
Level 2: Valuation is based on quoted prices in active markets for similar assets or liabilities, or quoted prices for identical or similar assets or
liabilities in markets that are not active, or inputs other than quoted prices that are observable or can be corroborated by observable market data for the
asset or liability.
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
Level 3: Valuation is based upon unobservable inputs for the asset or liability that are supported by little or no market activity. These fair values are
determined using pricing models for which the assumptions utilize management’s estimates or market participant assumptions.
In making fair value measurements, observable market data must be used when available. When inputs used to measure fair value fall within different
levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value
measurement.
Cash Equivalents - Cash equivalents include all liquid debt instruments (primarily cash funds and money market accounts) purchased with an original
maturity of three months or less. The cash balances, maintained at large commercial banking institutions with strong credit ratings, may, at times, exceed
federally insured limits.
Trade Receivables and Concentrations of Credit Risk - Financial instruments, which potentially subject us to a concentration of credit risk, principally
consist of trade receivables. We sell our principal products to a large number of customers in many different industries. There are no concentrations of
credit risk with a single customer from a particular service or geographic area that would significantly impact us in the near term. To reduce credit risk, we
routinely assess the financial strength of our customers. We record an allowance for doubtful accounts to reduce our receivables to an amount we estimate
is collectible from our customers. Estimates used in determining the allowance for doubtful accounts are based on historical collection experience, current
trends, aging of accounts receivable and periodic evaluations of our customers’ financial condition.
Inventories - Inventories, consisting primarily of finished goods, are primarily valued at the lower of cost or net realizable value, with cost for
approximately 72% of our inventory determined using the last-in, first-out (“LIFO”) method. Cost for the other 28% of our total inventory is determined
using the first-in, first-out (“FIFO”) method.
Leases - The Company determines if an arrangement is a lease at inception. Right-of-use ("ROU") assets include operating leases. Lease liabilities for
operating leases are classified in "short-term lease liabilities" and "long-term lease liabilities" in our condensed consolidated balance sheet.
ROU assets and related liabilities are recognized at commencement date based on the present value of the lease payments over the lease term. As most of
our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date, in determining
the present value of lease payments. We use the implicit rate when readily determinable. Lease terms may include options to extend or terminate the lease
when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Lease and non-lease components are generally accounted for separately for real estate leases. For non-real estate leases, we account for the lease and non-
lease components as a single lease component.
Property, Plant and Equipment - Property is stated at cost and depreciated or amortized over the lives of the assets, using the straight-line method.
Estimated lives are: 10 to 40 years for buildings and improvements; 3 to 20 years for machinery and equipment; and 3 to 10 years for transportation
equipment and office furniture and equipment including computer systems. Leasehold improvements are depreciated over the lesser of their estimated
useful lives or the remaining lease term. Depreciation expense is recorded in our Consolidated Statement of Income (Loss) within cost of goods sold and
selling, general and administrative expense, depending on the use of the underlying asset.
Significant improvements that add to productive capacity or extend the lives of properties are capitalized. Costs for repairs and maintenance are charged to
expense as incurred. When property is retired or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from the
accounts and any related gains or losses are included in income.
We review the recoverability of long-lived assets to be held and used, such as property, plant and equipment, when events or changes in circumstances
occur that indicate the carrying value of the asset group may not be recoverable, such as prolonged industry downturn or significant reductions in projected
future cash flows. The assessment of possible impairment is based on our ability to recover the carrying value of the asset group from the expected future
pre-tax cash flows (undiscounted) of the related operations. If these cash flows are less than the carrying value of such asset group, an impairment loss
would be measured by the amount the carrying value exceeds the fair value of the long-lived asset group. The measurement of impairment requires us to
estimate future cash flows and the fair value of long-lived assets. During fiscal 2020, we incurred a $0.6 million impairment charge as a result of the
determination to not use a piece of equipment in our manufacturing operations as previously planned. Other that this asset, no additional long-lived assets
were determined to be impaired during fiscal years 2020, 2019 or 2018.
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
Goodwill and Identifiable Intangible Assets - Goodwill represents the excess of the cost of acquired businesses over the fair value of identifiable tangible
net assets and identifiable intangible assets purchased. Goodwill is tested at least annually for impairment, and is tested for impairment more frequently if
events or changes in circumstances indicate that the asset might be impaired. Our annual test for impairment is as of the first day of our fourth fiscal
quarter. As of December 30, 2019, we performed an analysis of qualitative factors for our Industrial and Water Treatment reporting units to determine
whether it is more likely than not that the fair value of either of these reporting units was less than its carrying amount as a basis for determining whether it
is necessary to perform a quantitative goodwill impairment test. Based on management’s analysis of qualitative factors, we determined that it was not
necessary to perform a quantitative goodwill impairment test for either of these reporting units.
We performed a quantitative goodwill impairment test for our Health and Nutrition reporting unit. This test, used to identify potential impairment,
compares the fair value of each reporting unit with its carrying value, including indefinite-lived intangible assets. If the fair value exceeds the carrying
value, the goodwill is not considered impaired. If the carrying amount exceeds the fair value, the reporting unit’s goodwill is considered impaired, and we
must recognize an impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value. The fair value of our Health and
Nutrition reporting unit exceeded its carrying value as of December 30, 2019, and accordingly we did not record a goodwill impairment charge.
Goodwill impairment assessments were also completed in the fourth quarters of fiscal 2019 and 2018. We recorded a $39.1 million impairment charge
during the fourth quarter of fiscal 2018 in our Health and Nutrition reporting unit. The impairment charge was recorded as a result of changes in
expectations for future growth as part of our fourth quarter long-term strategic planning process to align with historical experience in recent periods and
expected changes in future product mix.
Our primary identifiable intangible assets include customer lists, trade secrets, non-competition agreements, trademarks and trade names acquired in
previous business acquisitions. Identifiable intangible assets with finite lives are amortized whereas identifiable intangible assets with indefinite lives are
not amortized. The values assigned to the intangible assets with finite lives are being amortized on average over approximately 14 years. Identifiable
intangible assets that are subject to amortization are evaluated for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. Identifiable intangible assets not subject to amortization are tested for impairment annually or more frequently if events
warrant. The impairment test consists of a qualitative assessment to determine whether it is more likely than not that the asset is impaired. Based on
management’s analysis of qualitative factors, we determined that it was not necessary to perform a quantitative impairment test for fiscal 2020. Impairment
assessments were also completed in the fourth quarters of fiscal 2019 and 2018 which resulted in no impairment charges for either of these fiscal years.
Income Taxes - The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and
liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in
income tax expense in the period that includes the enactment date. The deferred tax assets and liabilities are analyzed regularly, and management assesses
the likelihood that deferred tax assets will be recovered from future taxable income. We record any interest and penalties related to income taxes as income
tax expense in the consolidated statements of income.
The effects of income tax positions are recognized only if those positions are more likely than not of being sustained. Changes in recognition or
measurement are made as facts and circumstances change.
Stock-Based Compensation - We account for stock-based compensation on a fair value basis. The estimated grant date fair value of each stock-based
award is recognized in expense over the requisite service period (generally the vesting period). Non-vested share awards are recorded as expense over the
requisite service periods based on the market value on the date of grant.
Earnings Per Share - Basic earnings per share (“EPS”) are computed by dividing net income by the weighted-average number of common shares
outstanding. Diluted EPS are computed by dividing net income by the weighted-average number of common shares outstanding including the incremental
shares assumed to be issued as performance units and restricted stock.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
Basic and diluted EPS were calculated using the following:
Weighted average common shares outstanding — basic
Dilutive impact of stock performance units and restricted stock
Weighted average common shares outstanding — diluted
March 29, 2020
March 31, 2019
April 1, 2018
10,579,989
74,411
10,654,400
10,654,887
71,289
10,726,176
10,607,422
36,297
10,643,719
There were no shares or stock options excluded from the calculation of weighted average common shares for diluted EPS for fiscal 2020, 2019 or 2018.
Derivative Instruments and Hedging Activities - We are subject to interest rate risk associated with our variable rate debt. We have in place an interest rate
swap which was has been designated as a cash flow hedge, the purpose of which is to eliminate the cash flow impact of interest rate changes on a portion of
our variable-rate debt. The hedge was measured at fair value on the contract date and is subsequently remeasured to fair value at each reporting date.
Changes in the fair value of a derivative that is highly effective, and that is designated and qualifies as a cash flow hedge, are recorded in other
comprehensive income, until the consolidated statement of income is affected by the variability in cash flows of the designated hedged item. To the extent
that the hedge is ineffective, changes in the fair value are recognized in the Statement of Income.
Recently Issued Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit
Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments in this update replace the incurred loss impairment
methodology in current GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade receivables. This
update is intended to provide financial statement users with more decision-useful information about the expected credit losses. This ASU is effective for
annual periods and interim periods for those annual periods beginning after December 15, 2019, which for us is our fiscal year 2021. We have evaluated the
requirements of this standard on our financial assets. Upon adoption, this ASU will impact our method for calculating and estimating our allowance for
doubtful accounts, but it will not have a material impact to our financial position or results of operations.
We do not expect that any other recently issued accounting pronouncements will have a material effect on our financial statements.
Recently Adopted Accounting Pronouncements
In March 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), which provides new accounting guidance requiring
lessees to recognize most leases as assets and liabilities on the balance sheet and disclose key information about leasing arrangements. We adopted this
guidance and related amendments on April 1, 2019. The new standard establishes a Right of Use ("ROU") model that requires a lessee to recognize a ROU
asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with
classification affecting the pattern and expense recognition in the income statement. We adopted this ASU using the modified retrospective method. See
Note 14 to the condensed consolidated financial statements for further details.
In May 2014, the FASB issued ASU 2014-09, which provides accounting requirements for recognition of revenue from contracts with customers. We
adopted the new standard effective April 2, 2018, and there was no impact to our financial position or results of operations. See Note 2 for disclosures
required upon adoption of this new standard.
In January 2016, the FASB issued ASU 2016-01 which provides guidance that addresses certain aspects of recognition, measurement, presentation, and
disclosure of financial instruments. We adopted the new standard effective April 2, 2018, and there was no impact to our financial position or results of
operations.
In February 2018, the FASB issued ASU 2018-02 which allows a reclassification from accumulated other comprehensive income to retained earnings for
stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). Hawkins early adopted this standard during the fourth quarter of
fiscal 2018 and reclassified approximately $0.1 million from other comprehensive income to retained earnings.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
In December 2017, the Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the
application of U.S. GAAP related to the enactment of the Tax Act. This guidance was adopted in the third quarter of fiscal 2018. Additional information
regarding our adoption of this guidance is contained in Note 12.
In March 2016, the FASB issued ASU 2016-09, which provides accounting guidance intended to improve the accounting for share-based payment
transactions. This guidance outlines new provisions intended to simplify various aspects related to accounting for share-based payments and their
presentation in the financial statements. We adopted this guidance in the first quarter of fiscal 2018. We will continue to estimate forfeitures as we
determine compensation cost each period. The primary impact on our consolidated financial statements is the recognition of excess tax benefits in the
provision for income taxes rather than additional paid-in capital, which may result in increased volatility in the reported amounts of income tax expense and
net income.
In July 2015, the FASB issued ASU 2015-11, which requires companies to change the measurement principal for inventory measured using the first-in,
first-out (“FIFO”) or average cost method from the lower of cost or market to the lower of cost and net realizable value. Treatment of inventory valued
under the last-in, last-out (“LIFO”) method is unchanged by this guidance. We adopted this guidance in the first quarter of fiscal 2018 and there was no
impact to our financial position or results of operations.
Note 2 — Revenue
On April 2, 2018, we adopted ASU 2014-09 using the modified retrospective method applied to those contracts which were not completed as of April 2,
2018. Results for reporting periods beginning after April 2, 2018 are presented under ASU 2014-09, while prior period amounts are not adjusted and
continue to be reported in accordance with historic accounting under Accounting Standards Codification (“ASC”) Topic 605.
Our revenue arrangements generally consist of a single performance obligation to transfer promised goods or services. As a result, the application of ASU
2014-09 had no impact on our financial statement line items as compared with the guidance that was in effect before the change. Accordingly, the impact of
adopting the standard resulted in no adjustment to accumulated retained earnings.
We disaggregate revenues from contracts with customers by both operating segments and types of product sold. Reporting by operating segment is
pertinent to understanding our revenues, as it aligns to how we review the financial performance of our operations. Types of products sold within each
operating segment help us to further evaluate the financial performance of our segments.
The following table disaggregates external customer net sales by major revenue stream:
(In thousands)
Bulk / Distributed specialty products (1)
Manufactured, blended or repackaged products (2)
Other
Total external customer sales
(In thousands)
Bulk / Distributed specialty products (1)
Manufactured, blended or repackaged products (2)
Other
Total external customer sales
Fiscal Year Ended March 29, 2020:
Water
Treatment
Health and
Nutrition
Industrial
49,864
$
18,481
$
90,065
$
222,161
3,199
139,917
1,497
14,770
244
Total
158,410
376,848
4,940
275,224
$
159,895
$
105,079
$
540,198
Fiscal Year Ended March 31, 2019:
Water
Treatment
Health and
Nutrition
Industrial
60,947
$
21,813
$
109,067
$
216,874
4,039
126,217
1,460
15,684
225
Total
191,827
358,775
5,724
281,860
$
149,490
$
124,976
$
556,326
$
$
$
$
(1) For our Industrial and Water Treatment segments, this line includes our bulk products that we do not modify in any way, but receive, store, and ship from our
facilities, or direct ship to our customers in large quantities. For our Health and Nutrition segment,
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
this line includes our non-manufactured distributed specialty products, which may be sold out of one of our facilities or direct shipped to our customers.
(2) For our Industrial and Water Treatment segments, this line includes our non-bulk specialty products that we either manufacture, blend, repackage, resell in their
original form, or direct ship to our customers in smaller quantities, and services we provide for our customers. For our Health and Nutrition segment, this line
includes products manufactured, processed or repackaged in our facility and/or with our equipment.
Net sales include products and shipping charges, net of estimates for product returns and any related sales rebates. Revenue is measured as the amount of
consideration we expect to receive in exchange for transferring products. All revenue is recognized when we satisfy our performance obligations under the
contract. Our criteria for recording revenue is consistent between our operating segments and types of products sold. We recognize revenue upon transfer of
control of the promised products to the customer, with revenue recognized at the point in time the customer obtains control of the products. In arrangements
where product is shipped directly from the vendor to our customer, we act as the principal in the transaction as we direct the other party to provide the
product to our customer on our behalf, take inventory risk, establish the selling price, and are exposed to credit risk for the collection of the invoiced
amount. If there were circumstances where we were to manufacture products for customers that were unique to their specifications and we would be
prohibited by contract to use the product for any alternate use, we would recognize revenue over time if all criteria were met. We have made a policy
election to treat shipping costs for FOB shipping point sales as fulfillment costs. As such, we recognize revenue for all shipping charges, if applicable, at
the same time we recognize revenue on the products delivered. We estimate product returns based on historical return rates. Using probability assessments,
we estimate sales rebates expected to be paid over the term of the contract. The majority of our contracts have a single performance obligation and are short
term in nature. Sales taxes that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are
excluded from net sales. We offer certain customers cash discounts and volume rebates as sales incentives. The discounts and volume rebates are recorded
as a reduction in sales at the time revenue is recognized in an amount estimated based on historical experience and contractual obligations. We periodically
review the assumptions underlying our estimates of discounts and volume rebates and adjusts revenues accordingly.
Note 3 — Derivative Instruments
We have in place an interest rate swap agreement to manage the risk associated with a portion of our variable-rate long-term debt. We do not utilize
derivative instruments for speculative purposes. The interest rate swap involves the exchange of fixed-rate and variable-rate payments without the exchange
of the underlying notional amount on which the interest payments are calculated. The swap agreement will terminate on December 23, 2020, and the
notional amount of the swap agreement is $20 million. We have designated this swap as a cash flow hedge and have determined that it qualifies for hedge
accounting treatment. For so long as the hedge is effective, changes in fair value of the cash flow hedge are recorded in other comprehensive income or loss
(net of tax) until income or loss from the cash flows of the hedged item is realized.
For the years ended March 29, 2020 and March 31, 2019, we recorded $0.4 million and $0.3 million in other comprehensive income related to unrealized
losses (net of tax) on the cash flow hedge described above. For the year ended April 1, 2018, we recorded $0.3 million in other comprehensive income
related to unrealized gains (net of tax) on the cash flow hedge. Included in other current liabilities on our condensed consolidated balance sheet was
$0.1 million as of March 29, 2020. Included in other long-term assets on our condensed consolidated balance sheet was $0.4 million as of March 31, 2019
and $0.8 million as of April 1, 2018.
By their nature, derivative instruments are subject to market risk. Derivative instruments are also subject to credit risk associated with counterparties to the
derivative contracts. Credit risk associated with derivatives is measured based on the replacement cost should the counterparty with a contract in a gain
position to us fail to perform under the terms of the contract. We do not anticipate nonperformance by the counterparty.
Note 4 – Fair Value Measurements
Our financial assets and liabilities are measured at fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date (exit price). The carrying value of cash equivalents, accounts receivable, accounts
payable, and accrued expenses approximate fair value because of the short-term nature of these instruments. Because of the variable-rate nature of our debt
under our credit facility, our debt also approximates fair value. We classify the inputs used to measure fair value into the following hierarchy:
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2:
Level 3:
Quoted prices in active markets for similar assets or liabilities, or quoted prices for identical or similar assets or liabilities
in markets that are not active, or inputs other than quoted prices that are observable or can be corroborated by observable
market data for the asset or liability.
Unobservable inputs for the asset or liability that are supported by little or no market activity. These fair values are
determined using pricing models for which the assumptions utilize management’s estimates or market participant
assumptions.
Assets and Liabilities Measured at Fair Value on a Recurring Basis. The fair value hierarchy requires the use of observable market data when available.
In instances where inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined
based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the
fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.
Our financial assets that are measured at fair value on a recurring basis are an interest rate swap and assets held in a deferred compensation retirement plan.
As of March 29, 2020, the assets held in a deferred compensation retirement plan is classified as other long-term assets on our balance sheet, with the
portion of the plan assets expected to be paid within twelve months classified as current assets and the interest rate swap is classified as other current
liabilities on our balance sheet. As of March 31, 2019, both of these assets were classified as other long-term assets on our balance sheet, with the portion
of the deferred compensation retirement plan assets expected to be paid within twelve months reclassified to current assets. The fair value of the interest
rate swap is determined by the respective counterparties based on interest rate changes. Interest rate swaps are valued based on observable interest rate
yield curves for similar instruments. The deferred compensation plan assets relate to contributions made to a non-qualified compensation plan on behalf of
certain employees who are classified as “highly compensated employees” as determined by IRS guidelines. The assets are part of a rabbi trust and the funds
are held in mutual funds. The fair value of the deferred compensation is based on the quoted market prices for the mutual funds at the end of the period.
The following table summarizes the balances of assets or liabilities measured at fair value on a recurring basis as of March 29, 2020 and March 31, 2019.
(In thousands)
Assets
Deferred compensation plan assets
Interest rate swap
Liabilities
Interest rate swap
0
Note 5 – Assets Held for Sale
March 29, 2020
March 31, 2019
Level 1
Level 2
Level 2
$
3,564
$
—
108
2,637
435
—
In the third quarter of fiscal 2019, management entered into a plan of action to dispose of an office building in St. Louis, Missouri currently utilized in the
administration of our Industrial segment. The amount of office space in this facility is no longer needed due to current staffing levels, and management
expects to relocate affected employees to leased space. The building is listed for sale at a price in excess of its current book value, and thus no impairment
has been recognized. The $0.9 million net book value of this property is recorded as an asset held for sale within prepaid expenses and other current assets
on our balance sheet.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
Note 6 — Inventories
Inventories at March 29, 2020 and March 31, 2019 consisted of the following:
(In thousands)
Inventory (FIFO basis)
LIFO reserve
Net inventory
2020
2019
$
$
60,090 $
(5,654)
54,436 $
65,526
(5,044)
60,482
The FIFO value of inventories accounted for under the LIFO method was $43.3 million at March 29, 2020 and $45.2 million at March 31, 2019. The
remainder of the inventory was valued and accounted for under the FIFO method.
Note 7 — Goodwill and Other Identifiable Intangible Assets
The carrying amount of goodwill for each of our three reportable segments were as follows:
(In thousands)
Balance as of April 1, 2018, March 31, 2019 and March 29, 2020
Industrial
Water Treatment
Health and
Nutrition
Total
$
6,495 $
7,000 $
44,945 $
58,440
The following is a summary of our identifiable intangible assets as of March 29, 2020 and March 31, 2019:
(In thousands)
Finite-life intangible assets:
Customer relationships
Trademarks and trade names
Other finite-life intangible assets
Total finite-life intangible assets
Indefinite-life intangible assets
Total intangible assets, net
(In thousands)
Finite-life intangible assets:
Customer relationships
Trademarks and trade names
Other finite-life intangible assets
Total finite-life intangible assets
Indefinite-life intangible assets
Total intangible assets, net
Gross Amount
2020
Accumulated
Amortization
Net carrying value
$
78,383 $
(21,400) $
6,045
3,648
88,076
1,227
(3,640)
(3,610)
(28,650)
—
$
89,303 $
(28,650) $
56,983
2,405
38
59,426
1,227
60,653
Gross Amount
2019
Accumulated
Amortization
Net carrying value
$
78,383 $
(16,910) $
6,045
3,648
88,076
1,227
(3,115)
(3,552)
(23,577)
—
$
89,303 $
(23,577) $
61,473
2,930
96
64,499
1,227
65,726
Intangible asset amortization expense was $5.1 million during fiscal 2020, $5.5 million during fiscal 2019, and $5.7 million during fiscal 2018.
The estimated future amortization expense for identifiable intangible assets during the next five years is as follows:
(In thousands)
Estimated amortization expense
2022
2023
2021
4,891 $
5,028 $
$
4,891 $
2024
2025
4,891 $
4,891
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
Note 8 – Debt
On November 30, 2018, we entered into an amended and restated credit agreement (the “Credit Agreement”) with U.S. Bank National Association (“U.S.
Bank”) as Sole Lead Arranger and Sole Book Runner, and other lenders from time to time party thereto (collectively, the “Lenders”), whereby U.S. Bank is
also serving as Administrative Agent. The Credit Agreement refinanced the term and revolving loans under our previous credit agreement with U.S. Bank
and provides us with senior secured revolving credit facilities (the “Revolving Loan Facility”) totaling $150 million. The Revolving Loan Facility includes
a $5.0 million letter of credit subfacility and $15.0 million swingline subfacility. The Revolving Loan Facility has a five-year maturity date, maturing on
November 30, 2023. The Revolving Loan Facility is secured by substantially all of our personal property assets and those of our subsidiaries.
We used $91.0 million of the proceeds from the Revolving Loan Facility to refinance the obligations under the previous credit facility. We may use the
remaining amount of the Revolving Loan Facility for working capital, capital expenditures, share repurchases, restricted payments and acquisitions
permitted under the Credit Agreement, and other general corporate purposes.
At March 29, 2020, the effective interest rate on our borrowings was 2.3%. In addition to paying interest on the outstanding principal under the Revolving
Loan Facility, we are required to pay a commitment fee on the unutilized commitments thereunder. The commitment fee is between 0.15% and 0.25%,
depending on our leverage ratio.
Debt issuance costs of $0.2 million paid to the lenders in connection with the Credit Agreement, as well as unamortized debt issuance costs of $0.3 million
paid in connection with the previous credit facility, are reflected as a reduction of debt and are being amortized as interest expense over the term of the
Revolving Loan Facility.
Debt at March 29, 2020 and March 31, 2019 consisted of the following:
(In thousands)
Senior secured revolving loan
Less: unamortized debt issuance costs
Total debt, net of debt issuance costs
Less: current portion of long-term debt, net of current unamortized debt issuance costs
Total long-term debt
Note 9 — Share-Based Compensation
March 29, 2020
March 31, 2019
$
$
60,000 $
(342)
59,658
(9,907)
49,751 $
85,000
(435)
84,565
(9,907)
74,658
Performance-Based Restricted Stock Units. Our Board of Directors has approved a performance-based equity compensation arrangement for our
executive officers. This performance-based arrangement provides for the grant of performance-based restricted stock units that represent a possible future
issuance of restricted shares of our common stock based on our pre-tax income target for the applicable fiscal year. The actual number of restricted shares
to be issued to each executive officer will be determined when our final financial information becomes available after the applicable fiscal year and will be
between zero shares and 69,632 shares in the aggregate for fiscal 2020. The restricted shares issued, if any, will fully vest two years after the end of the
fiscal year on which the performance is based. We record the compensation expense for the outstanding performance share units and then-converted
restricted stock over the life of the awards.
The following table represents the restricted stock activity for fiscal 2019 and 2020:
Outstanding at beginning of fiscal 2019
Granted
Vested
Forfeited or expired
Outstanding at end of fiscal 2019
Granted
Vested
Forfeited or expired
Outstanding at end of fiscal 2020
36
Weighted-
Average Grant
Date Fair Value
45.39
31.35
43.10
47.50
43.66
34.49
46.01
Shares
51,143 $
7,818
(24,567)
(1,511)
32,883 $
69,252
(27,620)
—
74,515 $
34.27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
The weighted average grant date fair value of performance-based restricted shares issued in fiscal 2020 was $34.49, fiscal 2019 was $31.35 and fiscal 2018
was $47.50. We recorded compensation expense on performance-based restricted stock of approximately $1.5 million for fiscal 2020, $1.3 million for
fiscal 2019 and $0.7 million for fiscal 2018, substantially all of which was recorded in selling, general and administrative (“SG&A”) expense in the
Consolidated Statements of Income. The total fair value of performance-based restricted stock units vested was $1.3 million in fiscal 2020 and $1.1 million
in fiscal 2019. There were no performance-based restricted stock units that vested in fiscal 2018.
Until the performance-based restricted stock units result in the issuance of restricted stock, the amount of expense recorded each period is dependent upon
our estimate of the number of shares that will ultimately be issued and our then current common stock price. Upon issuance of restricted stock, we record
compensation expense over the remaining vesting period using the award date closing price. Unrecognized compensation expense related to non-vested
restricted stock and non-vested restricted share units as of March 29, 2020 was $2.3 million and is expected to be recognized over a weighted average
period of 1.4 years.
Restricted Stock Awards. As part of their retainer, our non-employee directors receive restricted stock for their Board services. The restricted stock awards
are expensed over a one-year vesting period, based on the market value on the date of grant. The following table represents the Board’s restricted stock
activity for fiscal 2019 and 2020:
Outstanding at beginning of fiscal 2019
Granted
Vested
Forfeited or expired
Outstanding at end of fiscal 2019
Granted
Vested
Forfeited or expired
Outstanding at end of fiscal 2020
Shares
8,484 $
8,352
(8,484)
—
8,352 $
8,008
(8,352)
—
8,008 $
Weighted-
Average Grant
Date Fair Value
41.25
35.90
41.25
—
35.90
43.67
35.90
—
43.67
Annual expense related to the value of restricted stock was $0.3 million in fiscal 2020, 2019 and 2018, and was recorded in SG&A expense in the
Consolidated Statements of Income. Unrecognized compensation expense related to non-vested restricted stock awards as of March 29, 2020 was $0.1
million and is expected to be recognized over a weighted average period of 0.3 years.
Note 10 — Share Repurchases
Our board of directors has authorized the repurchase of up to 800,000 shares of our outstanding common stock. The shares may be repurchased on the open
market or in privately negotiated transactions subject to applicable securities laws and regulations. Upon repurchase of the shares, we reduce our common
stock for the par value of the shares with the excess applied against additional paid-in capital. We repurchased 145,583 of common stock at an aggregate
purchase price of $5.9 million during fiscal 2020. We repurchased 108,166 of common stock at an aggregate purchase price of $4.4 million during fiscal
2019. No shares were repurchased during fiscal 2018. As of March 29, 2020, the number of shares available to be purchased under the share repurchase
program was 358,797.
Note 11 — Profit Sharing, Employee Stock Ownership, Employee Stock Purchase and Pension Plans
Company Sponsored Plans. The majority of our non-bargaining unit employees are eligible to participate in a company-sponsored profit sharing plan.
Contributions are made at our discretion subject to a maximum amount allowed under the Internal Revenue Code (“IRC”). The profit sharing plan
contribution level for each employee depends upon date of hire, and was 2.5% or 5.0% of each employee’s eligible compensation for fiscal 2020, 2019 and
2018. We also have in place a retirement plan covering our collective bargaining unit employees. The retirement plan provides for a contribution of 2.5% or
5.0% of each employee’s eligible annual wages depending on their hire date. In addition to the employer contributions described above, both the profit
sharing plan and the retirement plant include a 401(k) plan that allows employees to contribute pre-tax earnings up to the maximum amount allowed under
the IRC, with an employer match of up to 5% of the employee’s eligible compensation.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
We have two employee stock ownership plans (“ESOPs”), one covering the majority of our non-bargaining unit employees and the other covering our
collective bargaining unit employees. Contributions to the plan covering our non-bargaining unit employees are made at our discretion. Contributions to
both plans are subject to a maximum amount allowed under the IRC, and were 2.5% or 5.0% of each employee’s eligible wages, depending on each eligible
employee’s hire date, for fiscal 2020, 2019 and 2018.
We have a nonqualified deferred compensation plan covering employees who are classified as “highly compensated employees” as determined by IRS
guidelines for the plan year and who were hired on or before April 1, 2012. Employees who are eligible for the nonqualified deferred compensation plan
for any plan year are not eligible for the profit sharing plan contribution or the ESOP contributions described above for that plan year. Our contribution to
the nonqualified deferred compensation plan for fiscal 2020, 2019 and 2018 was 10% of each employee’s eligible compensation, subject to the maximum
amount allowed under the IRC.
We have an employee stock purchase plan (“ESPP”) covering substantially all of our employees. The ESPP allows employees to purchase newly-issued
shares of the Company’s common stock at a discount from market. The number of new shares issued under the ESPP was 38,550 in fiscal 2020, 43,678 in
fiscal 2019 and 41,304 in fiscal 2018.
The following represents the contribution expense for these company-sponsored plans for fiscal 2020, 2019 and 2018:
(In thousands)
Non-bargaining unit employee plans:
2020
2019
Profit sharing
401(k) matching contributions
ESOP
Nonqualified deferred compensation plan
Bargaining unit employee plans
ESPP - all employees
Total contribution expense
$
$
631 $
899 $
2,399
631
1,262
481
431
2,390
899
1,246
474
376
5,835 $
6,284 $
2018
779
2,143
779
1,258
496
364
5,819
In 2013, we withdrew from a collectively bargained multiemployer pension plan and recorded a liability for our share of the unfunded vested benefits.
Payments of $467,000 per year are being made through 2034.
Note 12 — Commitments and Contingencies
Litigation. As of March 29, 2020, there were no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to
which we or any of our subsidiaries are a party or of which any of our property is the subject. Legal fees associated with such matters are expensed as
incurred.
Environmental Remediation: During fiscal 2018, we recorded a liability of $0.6 million related to estimated remediation expenses associated with existing
trichloroethylene contamination at our Minneapolis facility. The liability was decreased to $0.1 million as of March 29, 2020 and $0.4 million as of March
31, 2019, to reflect payments made and management’s revised expectations related to the cost of this environmental remediation. The liability is not
discounted as management expects to incur these expenses within the next twelve months. Given the many uncertainties involved in assessing
environmental claims, our reserves may prove to be insufficient. While it is possible that additional expenses related to remediation will be incurred in
future periods if currently unknown issues arise, we are unable to estimate the extent of any further financial impact.
Asset Retirement Obligations. We have three leases of land which contain terms that state that at the end of the lease term, we have a specified amount of
time to remove the property and buildings. Including available lease extensions, these leases expire in 2023, 2033 and 2044. At that time, anything that
remains on the land becomes the property of the lessor, and the lessor has the option to either maintain the property or remove the property at our expense.
We have not been able to reasonably estimate the fair value of the asset retirement obligations, primarily due to the combination of the following factors:
Certain of the leases do not expire in the near future; we have a history of extending the leases with the lessors and currently intend to do so at expiration of
the lease periods; the lessors do not have a history of terminating leases with their tenants; and because it is more likely than not that the buildings will have
value at the end of the lease life and therefore, may not be removed by either the lessee or the lessor. Therefore, in accordance with accounting guidance
related to asset retirement and environmental obligations, we have not recorded an asset retirement obligation as of March 29, 2020. We will continue to
monitor the factors surrounding the requirement to record an asset retirement obligation and will recognize the fair value of a liability in the period in
which it is incurred and a reasonable estimate can be made.
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
Note 13 — Income Taxes
The U.S. Tax Cuts and Jobs Act of 2017 (the “Tax Act”) included a number of provisions, including lowering of the U.S. corporate tax rate from 35% to
21% effective January 1, 2018. Under GAAP, deferred tax assets and liabilities are required to be revalued during the period in which the new tax
legislation is enacted. As such, during fiscal 2018 we revalued our net deferred tax liabilities to reflect the impact of the Tax Act and recorded a one-time
benefit of $13.9 million. The accounting for the impact of the Tax Act was finalized during fiscal 2019 and there were no material adjustments to the
estimates used under provisional accounting. Our effective tax rate for fiscal 2018 was also impacted by the $39.1 million goodwill impairment charge
which was recorded for book purposes but was not deductible for tax purposes.
In March 2020, the United States government approved the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"), providing tax relief to
certain individuals and corporations. Other than allowing bonus depreciation on certain qualified improvement property not previously permitted under the
Tax Act, the CARES Act is not expected to have an impact on our federal income tax provision.
The provisions for income taxes for fiscal 2020, 2019 and 2018 were as follows:
(In thousands)
Federal — current
State — current
Total current
Federal — deferred
State — deferred
Total deferred
Total provision
2020
2019
2018
$
$
8,447 $
3,563
12,010
(976)
(445)
(1,421)
6,956 $
2,748
9,704
(334)
(273)
(607)
10,589 $
9,097 $
7,024
1,834
8,858
(14,393)
(364)
(14,757)
(5,899)
Reconciliations of the provisions for income taxes to the applicable federal statutory income tax rate for fiscal 2020, 2019 and 2018 are listed below.
2020
2019
2018
Statutory federal income tax
State income taxes, net of federal deduction
ESOP dividend deduction on allocated shares
Domestic production deduction
Goodwill impairment
Revaluation of net deferred tax liabilities
Other — net
Total
21.0 %
5.7 %
(0.3) %
— %
— %
— %
0.8 %
27.2 %
21.0 %
5.8 %
(0.3) %
— %
— %
— %
0.6 %
27.1 %
31.5 %
(8.3) %
1.4 %
2.7 %
(81.7) %
92.5 %
1.0 %
39.1 %
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
The tax effects of items comprising our net deferred tax liability as of March 29, 2020 and March 31, 2019 are as follows:
(In thousands)
Deferred tax assets:
2020
2019
Trade receivables
Stock compensation accruals
Pension withdrawal liability
Lease liability
Unrealized loss on interest rate swap
Other
Total deferred tax assets
Deferred tax liabilities:
Inventories
Prepaid expenses
Excess of tax over book depreciation
Intangible assets
Unrealized gain on interest rate swap
ROU asset
Total deferred tax liabilities
Net deferred tax liabilities
$
$
$
$
$
212 $
728
1,435
2,476
29
1,982
6,862 $
(2,231) $
(843)
(10,504)
(15,936)
—
(2,454)
(31,968) $
(25,106) $
167
654
1,525
—
—
1,853
4,199
(3,272)
(764)
(10,000)
(16,718)
(118)
—
(30,872)
(26,673)
As of March 29, 2020, the Company has determined that it is more likely than not that the deferred tax assets at March 29, 2020 will be realized either
through future taxable income or reversals of taxable temporary differences.
We are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The tax years prior to our fiscal year ended April 2, 2017 are
closed to examination by the Internal Revenue Service, and with few exceptions, state and local
income tax jurisdictions.
Note 14 – Leases
On April 1, 2019, we adopted ASU 2016-02 and related amendments using the modified retrospective method applied to existing leases in place as of April
1, 2019. Leases entered into after April 1, 2019 are presented under the provisions of ASU 2016-02, while prior periods are not adjusted and continue to be
reported in accordance with previous accounting guidance. Leases commencing or renewing after the adoption date are evaluated based on the guidance in
ASU 2016-02 and may result in more finance leases being recognized even for the renewal of previously classified operating leases. We do not currently
have any leases that qualify as financing leases.
We elected to adopt the 'package of practical expedients’, which permitted us not to reassess under the new standard our prior conclusions about lease
identification, lease classification and initial direct costs. We elected the short-term lease recognition exemption for all leases that qualified. This means, for
those leases that qualified, we did not recognize right-of-use assets or lease liabilities, and this included not recognizing right-of-use assets or lease
liabilities for existing short-term leases of those assets in transition. We also elected the practical expedient to not separate lease and non-lease components
for all leases other than leases of real estate, and this included not separating lease and non-lease components for all leases other than leases of real estate in
transition.
We adopted ASU 2016-02 using the modified retrospective method, recognizing the cumulative effect of application as an adjustment to the oening balance
sheet. The standard had a material impact on our condensed consolidated balance sheet, but did not have a material impact on our condensed consolidated
statement of income or cash flows. The most significant impact was the recognition of the ROU asset and lease liabilities for operating leases, both of
which were approximately $10.4 million upon adoption.
Lease Obligations. As of March 29, 2020, we were obligated under operating lease agreements for certain manufacturing facilities, warehouse space, the
land on which some of our facilities sit, vehicles and information technology equipment. Our leases have remaining lease terms of 1 year to 24 years, some
of which include options to extend the lease for up to 10 years.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
As of March 29, 2020, our operating lease components with initial or remaining terms in excess of one year were classified on the condensed consolidated
balance sheet within right of use assets, short-term lease liability and long-term lease liability.
Total lease expense was $2.8 million for the twelve months ended March 29, 2020, and includes leases less than 12 months in duration.
Other information related to our operating leases was as follows:
Lease Term and Discount Rate
Weighted average remaining lease term (years)
Weighted average discount rate
Maturities of lease liabilities as of March 29, 2020 were as follows:
(In thousands)
Fiscal 2021
Fiscal 2022
Fiscal 2023
Fiscal 2024
Fiscal 2025
Thereafter
Total
Less: Interest
Present value of lease liabilities
March 29, 2020
8.73
4.1 %
Operating Leases
$
$
$
1,769
1,556
1,442
1,110
1,124
4,114
11,115
(1,943)
9,172
As we have not restated prior year information for our adoption of ASC Topic 842, the following represents our future minimum lease payments for
operating leases under ASC Topic 840 on March 31, 2019:
(In thousands)
Fiscal 2020
Fiscal 2021
Fiscal 2022
Fiscal 2023
Fiscal 2024
Thereafter
Total
Operating Leases
$
$
2,198
1,783
1,407
1,352
1,183
5,473
13,396
Note 15 — Segment Information
We have three reportable segments: Industrial, Water Treatment and Health and Nutrition. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. Product costs and expenses for each segment are based on actual costs incurred along with cost
allocations of shared and centralized functions.
We evaluate performance based on profit or loss from operations before income taxes not including nonrecurring gains and losses. Reportable segments are
defined primarily by product and type of customer. Segments are responsible for the sales, marketing and development of their products and services. Other
than our Health and Nutrition segment, the segments do not have separate accounting, administration, customer service or purchasing functions. There are
no intersegment sales and no operating segments have been aggregated.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
Reportable Segments
(In thousands)
Fiscal Year Ended March 29, 2020:
Sales
Gross profit
Selling, general, and administrative expenses
Operating income
Identifiable assets*
Capital expenditures
Fiscal Year Ended March 31, 2019:
Sales
Gross profit
Selling, general, and administrative expenses
Operating income (loss)
Identifiable assets*
Capital expenditures
Fiscal Year Ended April 1, 2018:
Sales
Gross profit
Selling, general, and administrative expenses
Goodwill impairment
Operating income
Identifiable assets*
Capital expenditures
Industrial
Water
Treatment
Health and
Nutrition
Total
$
$
$
$
$
$
$
$
$
275,224 $
159,895 $
105,079 $
38,936
24,123
14,813
41,902
19,801
22,101
20,079
15,322
4,757
173,068 $
63,506 $
139,780 $
14,933 $
9,160 $
456 $
540,198
100,917
59,246
41,671
376,354
24,549
281,860 $
149,490 $
124,976 $
556,326
34,900
22,759
12,141
37,986
19,498
18,488
23,050
16,861
6,189
162,926 $
58,274 $
146,042 $
7,319 $
4,506 $
793 $
95,936
59,118
36,818
367,242
12,618
247,374 $
138,465 $
118,330 $
504,169
29,619
21,159
—
8,460
36,268
19,426
—
16,842
20,873
18,818
39,116
(37,061)
165,052 $
58,513 $
153,123 $
10,265 $
7,228 $
2,210 $
86,760
59,403
39,116
(11,759)
376,688
19,703
* Unallocated assets, consisting primarily of cash and cash equivalents, investments and prepaid expenses, were $13.0 million at March 29, 2020, $18.4
million at March 31, 2019 and $14.3 million at April 1, 2018.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
Note 16 — Selected Quarterly Financial Data (Unaudited)
(In thousands, except per share data)
Fiscal 2020
Sales
Gross profit
Selling, general, and administrative expenses
Operating income
Net income
Basic earnings per share
Diluted earnings per share
Sales
Gross profit
Selling, general, and administrative expenses
Operating income
Net income
Basic earnings per share
Diluted earnings per share
Sales
Gross profit
Selling, general, and administrative expenses
Goodwill impairment
Operating income (loss)
Net income (loss)
Basic earnings (loss) per share
Diluted earnings (loss) per share
First
Second
Third
Fourth
147,336 $
140,043 $
120,406 $
132,413
28,797
14,836
13,961
9,807
0.92 $
0.92 $
27,994
14,817
13,177
9,250
0.87 $
0.87 $
Fiscal 2019
21,478
14,702
6,776
4,547
0.43 $
0.43 $
22,648
14,891
7,757
4,763
0.45
0.45
First
Second
Third
Fourth
149,800 $
145,324 $
128,151 $
133,051
28,457
14,979
13,478
9,123
0.86 $
0.85 $
25,772
14,941
10,831
7,409
0.69 $
0.69 $
Fiscal 2018
21,033
14,312
6,721
4,130
0.39 $
0.39 $
20,674
14,886
5,788
3,771
0.35
0.35
First
Second
Third
Fourth
133,731 $
125,395 $
118,053 $
25,999
15,766
—
10,233
5,831
24,115
14,828
—
9,287
5,210
18,840
14,139
—
4,701
17,143
0.55 $
0.55 $
0.49 $
0.49 $
1.62 $
1.61 $
126,990
17,806
14,670
39,116
(35,980)
(37,361)
(3.51)
(3.50)
$
$
$
$
$
$
$
$
$
Earnings (loss) per share may not equal the face of the Consolidated Statements of Income (Loss) due to rounding.
43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-K, we conducted an evaluation, under supervision and with the participation of
management, including the chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Based upon that evaluation, our chief executive officer and chief financial
officer concluded that our disclosure controls and procedures are effective. Disclosure controls and procedures are defined by Rules 13a-15(e) and 15d-
15(e) of the Exchange Act as controls and other procedures that are designed to ensure that information required to be disclosed by us in reports filed with
the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us
in reports filed under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial
officers, or person performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-
15(f) of the Securities Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our
internal control over financial reporting includes those policies and procedures that (1) pertain to maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of the financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being
made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of the
effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of March 29, 2020, based on the criteria described in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment,
management believes that our internal control over financial reporting was effective as of March 29, 2020.
Our independent registered public accounting firm has issued an attestation report on our internal control over financial reporting for March 29, 2020 which
is included in the Report of Independent Registered Public Accounting Firm in Item 8 of this Annual Report on 10-K.
Attestation Report of Registered Public Accounting Firm
The attestation report required under this Item 9A is contained in Item 8 of this Annual Report on 10-K under the caption “Report of Independent
Registered Public Accounting Firm.”
Changes in Internal Control Procedures
There was no change in our internal control over financial reporting during the fourth quarter of fiscal 2020 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
44
ITEM 9B. OTHER INFORMATION
None.
45
Certain information required by Part III is incorporated by reference from Hawkins’ definitive Proxy Statement for the Annual Meeting of Shareholders to
be held on July 30, 2020 (the “2020 Proxy Statement”). Except for those portions specifically incorporated in this Form 10-K by reference to the 2020
Proxy Statement, no other portions of the 2020 Proxy Statement are deemed to be filed as part of this Form 10-K.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Information about our Executive Officers
Our current executive officers, their ages and offices held, are set forth below:
Name
Patrick H. Hawkins
Jeffrey P. Oldenkamp
Richard G. Erstad
Drew M. Grahek
Thomas J. Keller
Theresa R. Moran
Shirley A. Rozeboom
John R. Sevenich
Age
49
47
56
50
60
57
58
62
Office
Chief Executive Officer and President
Vice President, Chief Financial Officer, and Treasurer
Vice President, General Counsel and Secretary
Vice President — Operations
Vice President — Water Treatment Group
Vice President — Purchasing, Logistics and Sales Support
Vice President — Health and Nutrition
Vice President — Industrial Group
Patrick H. Hawkins has been our Chief Executive Officer and President and member of our board since 2011. Mr. Hawkins has held the position of
President since 2010. He joined the Company in 1992 and served as the Business Director - Food and Pharmaceuticals, a position he held from 2009 to
2010. Previously he served as Business Manager - Food and Co-Extrusion Products from 2007 to 2009 and Sales Representative - Food Ingredients from
2002 to 2007. He previously served the Company in various other capacities, including Plant Manager, Quality Director and Technical Director.
Jeffrey P. Oldenkamp joined Hawkins in May 2017 and assumed the role of Chief Financial Officer, Vice President and Treasurer in June 2017. Prior to
joining Hawkins, Mr. Oldenkamp was with MTS Systems Corporation, a supplier of high-performance test systems and sensors, where he served as Chief
Financial Officer from January 2015 to May 2017 and as Vice President of Finance for the MTS Test business from January 2014 to January 2015, and
with Nilfisk-Advance, Inc., a global manufacturer of professional cleaning equipment, where he served as Americas Operations Chief Financial Officer and
Vice President from 2012 to 2014.
Richard G. Erstad has been our Vice President, General Counsel and Secretary since 2008. Mr. Erstad was General Counsel and Secretary of BUCA, Inc., a
restaurant company, from 2005 to 2008. Mr. Erstad had previously been an attorney with the corporate group of Faegre & Benson LLP, a law firm, from
1996 to 2005, where his practice focused on securities law and mergers and acquisitions. He is a member of the Minnesota Bar.
Drew M. Grahek has been our Vice President - Operations since September 2018. Prior to joining Hawkins, Mr. Grahek was Adjunct Faculty at the
University of Minnesota College of Continuing Education and a Business Administrator in the Archdiocese of St. Paul and Minneapolis from June 2017 to
June 2018; Director of Service Operations and Supply Chain with Ulta Beauty, Inc. from April 2016 to June 2017; and Director of Stores with Field and
Stream Outdoor Stores, a division of Dick’s Sporting Goods, Inc. from July 2015 to April 2016. Previously, he spent a total of 23 years at Target
Corporation in a variety of operations, merchandising and property management positions.
Thomas J. Keller has been our Vice President - Water Treatment Group since 2012. Prior to attaining this position, Mr. Keller held various positions since
joining the Company in 1980, most recently as its Water Treatment General Manager, a position he had held since 2011. Previously, Mr. Keller served as a
Regional Manager of the Water Treatment Group from 2002 to 2011. Mr. Keller has announced his intent to retire from all positions in July of 2020.
Theresa R. Moran has been our Vice President - Purchasing, Logistics and Sales Support since June 2017. Since joining the Company in 1981, Ms. Moran
has served the Company in a variety of positions, including Administration Operations Manager from 1999 to 2007, Director - Process Improvement from
2007 until 2010 and Vice President - Quality and Support from 2010 to June 2017.
46
Shirley A. Rozeboom was named Vice President - Health and Nutrition in April 2019. Ms. Rozeboom had held the position of Senior Vice President of
Sales for Stauber since 2012. Previously, she held the positions of Director of Sales at Stauber from 2008 to 2012 and Account Executive from 2000 to
2008.
John R. Sevenich has been our Vice President - Industrial Group since 2000. Mr. Sevenich was the Business Unit Manager of Manufacturing from 1998 to
2000 and was a Sales Representative with the Company from 1989 to 1998.
The disclosure under the headings “Election of Directors,” “Corporate Governance,” and, if applicable, “Delinquent Section 16(a) Reports” of the 2019
Proxy Statement is incorporated herein by reference.
We have adopted a Code of Business Conduct and Ethics that applies to all of our directors and employees, including our principal executive officer,
principal financial officer, controller and other persons performing similar functions. We have posted the Code of Business Conduct and Ethics on our
website located at www.hawkinsinc.com. Hawkins’ Code of Business Conduct and Ethics is also available in print to any shareholder who requests it in
writing from our Corporate Secretary. We intend to post on our website any amendment to, or waiver from, a provision of our Code of Business Conduct
and Ethics that applies to our principal executive officer, principal financial officer, controller and other persons performing similar functions within four
business days following the date of such amendment or waiver. We are not including the information contained on our website as part of, or incorporating it
by reference into, this report.
ITEM 11. EXECUTIVE COMPENSATION
The disclosure under the heading “Compensation of Executive Officers and Directors” in the 2020 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The disclosure under the headings “Security Ownership of Management and Beneficial Ownership” and “Equity Compensation Plan Information” in the
2020 Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The disclosure under the headings “Election of Directors” and “Related Party Transactions” of the 2020 Proxy Statement is incorporated herein by
reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The disclosure under the heading “Independent Registered Public Accounting Firm’s Fees” of the 2020 Proxy Statement is incorporated herein by
reference.
47
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1)
FINANCIAL STATEMENTS OF THE COMPANY
PART IV
The following financial statements of Hawkins, Inc. are filed as part of this Annual Report on Form 10-K:
Report of Independent Registered Public Accounting Firm.
Consolidated Balance Sheets at March 29, 2020 and March 31, 2019.
Consolidated Statements of Income for the fiscal years ended March 29, 2020, March 31, 2019 and April 1, 2018.
Consolidated Statements of Comprehensive Income for the fiscal years ended March 29, 2020, March 31, 2019 and April 1, 2018.
Consolidated Statements of Shareholders’ Equity for the fiscal years ended March 29, 2020, March 31, 2019, and April 1, 2018.
Consolidated Statements of Cash Flows for the fiscal years ended March 29, 2020, March 31, 2019, and April 1, 2018.
Notes to Consolidated Financial Statements.
(a)(2)
FINANCIAL STATEMENT SCHEDULES OF THE COMPANY
The additional financial data listed below is included as a schedule to this Annual Report on Form 10-K and should be read in
conjunction with the financial statements presented in Part II, Item 8. Schedules not included with this additional financial data have
been omitted because they are not required, or the required information is included in the financial statements or the notes.
The following financial statement schedule for the fiscal years 2020, 2019 and 2018.
Schedule II — Valuation and Qualifying Accounts.
(a)(3)
EXHIBITS
Unless otherwise indicated, all documents incorporated into this Annual Report on Form 10-K by reference to a document filed with the SEC are
located under file number 0-7647.
Exhibit Index
Exhibit
3.1
3.2
4.1
10.1*
10.2*
10.3*
10.4*
Description
Method of Filing
Amended and Second Restated Articles of Incorporation.(1)
Amended and Restated By-Laws.(2)
Description of Securities
Hawkins, Inc. 2010 Omnibus Incentive Plan.(3)
Form of Performance-Based Unit Award Notice and Restricted Stock Agreement under the
Company’s 2010 Omnibus Incentive Plan.(4)
Incorporated by Reference
Incorporated by Reference
Filed Electronically
Incorporated by Reference
Incorporated by Reference
Form of Restricted Stock Agreement under the Company’s 2010 Omnibus Incentive Plan.(5)
Incorporated by Reference
Hawkins, Inc. Executive Severance Plan.(6)
Incorporated by Reference
48
10.5
10.6
10.7
10.8
10.9
10.10
Commitment Letter, dated November 23, 2015, by and among the Company, U.S.Bank
National Association, and JP Morgan Chase Bank, N.A. (7)
Credit Agreement dated as of December 23, 2015 among the Company, U.S. Bank National
Association, and certain financial institutions.(8)
Employee Stock Purchase Plan, as amended. (9)
Amended and Restated Credit Agreement, dated as of November 30, 2018, among the
Company, U.S. Bank National Association, and certain financial institutions. (10)
Hawkins, Inc. 2019 Equity Incentive Plan (11)
Form of Performance Stock Unit Award Notice and Restricted Stock Agreement under the
Company’s 2019 Equity Incentive Plan
21
Subsidiaries of the registrant (12)
23.1
24.1
31.1
31.2
32.1
32.2
101
Consent of Independent Registered Public Accounting Firm.
Powers of Attorney
Certification by Chief Certification by Chief Executive Officer pursuant to Rule 13a-14(a) of
the Exchange Act. Officer pursuant to Rule 13a-14(a) of the Exchange Act.
Certification by Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act.
Section 1350 Certification by Chief Executive Officer.
Section 1350 Certification by Chief Financial Officer.
Financial statements from the Annual Report on Form 10-K of Hawkins, Inc. for the period
ended March 29, 2020, filed with the SEC on May 20, 2020, formatted in Inline Extensible
Business Reporting Language (iXBRL): (i) the Consolidated Balance Sheets at March 29,
2020 and March 31, 2019, (ii) the Consolidated Statements of Income for the fiscal years
ended March 29, 2020, March 31, 2019, and April 1, 2018, (iii) the Consolidated Statements
of Comprehensive Income for the fiscal years ended March 29, 2020, March 31, 2019, and
April 1, 2018, (iv) the Consolidated Statements of Shareholders’ Equity for the fiscal years
ended March 29, 2020, March 31, 2019, and April 1, 2018, (v) Consolidated Statements of
Cash Flows for the fiscal years ended March 29, 2020, March 31, 2019, and April 1, 2018, and
(iv) Notes to Consolidated Financial Statements.
Incorporated by Reference
Incorporated by Reference
Incorporated by Reference
Incorporated by Reference
Incorporated by Reference
Filed Electronically
Incorporated by Reference
Filed Electronically
Filed Electronically
Filed Electronically
Filed Electronically
Filed Electronically
Filed Electronically
Filed Electronically
104
Cover Page Interactive Data File (embedded within the inline XBRL document)
Filed Electronically
*
Management contract or compensation plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K.
(1) Incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2010.
(2) Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated October 28, 2009 and filed November 3, 2009.
(3) Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed June 6, 2011 (file no. 333-174735).
(4) Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2010.
(5) Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2010.
(6) Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended July 3, 2011.
(7) Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated November 23, 2015
(8) Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 23, 2015.
(9) Incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 filed November 2, 2018 (File no. 333-228128).
(10)Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form 8-K filed December 3, 2018 (File no. 000-07647).
(11)Incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 29, 2019.
(12) Incorporated by reference to Exhibit 21 to the Company’s Annual Report on Form 10-K filed May 31, 2018 (File no. 000-07647),
ITEM 16. FORM 10-K SUMMARY
None
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SIGNATURES
HAWKINS, INC.
By
/s/ Patrick H. Hawkins
Patrick H. Hawkins
Chief Executive Officer and President
Dated:
May 20, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the
capacities and on the dates indicated.
Signature
Title
/s/ Patrick H. Hawkins
Patrick H. Hawkins
/s/ Jeffrey P. Oldenkamp
Jeffrey P. Oldenkamp
*
John S. McKeon
*
Daniel J. Stauber
*
Duane M. Jergenson
*
James A. Faulconbridge
*
James T. Thompson
*
Jeffrey L. Wright
*
Mary J. Schumacher
Date
May 20, 2020
May 20, 2020
Chief Executive Officer, President and Director
(principal executive officer)
Vice President, Chief Financial Officer and Treasurer
(principal financial officer and principal accounting officer)
Chairman of the Board, Director
May 20, 2020
Director
Director
Director
Director
Director
Director
May 20, 2020
May 20, 2020
May 20, 2020
May 20, 2020
May 20, 2020
May 20, 2020
* Patrick H. Hawkins, by signing his name hereto, does hereby sign this document on behalf of each of the above‑named directors of the registrant pursuant
to Powers of Attorney duly executed by such persons.
By: /s/ Patrick H. Hawkins
Patrick H. Hawkins
Attorney-in-fact
SCHEDULE II
HAWKINS, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEARS ENDED March 29, 2020, March 31, 2019 AND April 1, 2018
Description
Reserve deducted from asset to which it applies:
Fiscal Year Ended March 29, 2020:
Allowance for doubtful accounts
Fiscal Year Ended March 31, 2019:
Allowance for doubtful accounts
Fiscal Year Ended April 1, 2018:
Allowance for doubtful accounts
$
$
$
Balance at
Beginning
of Year
Charged to
Costs and
Expenses
Additions
Charged to
Other
Accounts
(In thousands)
Deductions
Write-Offs
Balance at
End of Year
620 $
448 $
— $
284 $
942 $
92 $
— $
414 $
468 $
509 $
— $
35 $
784
620
942
Exhibit 4.1
The following description of the common shares of Hawkins, Inc. (the “Company”) does not purport to be complete and is subject to and qualified by
reference to the Company’s Amended and Restated Articles of Incorporation (the “Articles”) and Amended and Restated By‑Laws (the “Bylaws”) and
applicable law.
DESCRIPTION OF CAPITAL STOCK
Authorized Capital
The Company is authorized to issue up to 30,000,000 shares, with a par value of $.05 per share (the “common shares”). The common shares may be
allotted as and when the Company’s Board of Directors (the “Board”) shall determine, and, under and pursuant to the laws of the State of Minnesota, the
Board has the power to fix or alter, from time to time, in respect to shares then unallotted, any or all of the following: the dividend rate; the redemption
price; the liquidation price; the conversion rights and the sinking or purchase fund rights of shares of any class, or of any series of any class.
Voting Rights
Each common share entitles the holder to one vote for all purposes and cumulative voting is not permitted in the election of directors. Significant corporate
transactions, such as amendments to the Articles, mergers, sales of assets and dissolution or liquidation, require approval by the affirmative vote of the
majority of the outstanding common shares. Other matters to be voted upon by the holders of common shares normally require the affirmative vote of a
majority of the shares present at the particular shareholders meeting.
Dividends and Other Distributions
Holders of the common shares are entitled to receive dividends in the form of cash, property or shares of capital stock of the Company, when and as
declared by the Board, provided there are sufficient earnings or surplus legally available for that purpose. All of the issued and outstanding common shares
are nonassessable.
No Preemptive Rights
There are no preemptive, subscription, conversion, redemption or sinking fund rights pertaining to the common shares. The absence of preemptive rights
could result in a dilution of the interest of investors should additional common shares be issued.
Liquidation Rights
Common shares are entitled to share ratably in all of the Company’s assets available for distribution upon liquidation, dissolution or winding up of the
affairs of the Company.
Anti-Takeover Provisions
Certain provisions of Minnesota law described below could have anti-takeover effects. These provisions are intended to provide management flexibility
and to enhance the likelihood of continuity and stability in the composition of the Board and in the policies formulated by the Board and to discourage an
unsolicited takeover of the Company, if the Board determines that such a takeover is not in the best interests of the Company and its shareholders.
However, these provisions could have the effect of discouraging certain attempts to acquire the Company that could deprive shareholders of opportunities
to sell their common shares at prices higher than prevailing market prices.
Section 302A.671 of the Minnesota Business Corporation Act applies, with certain exceptions, to any acquisition of the Company’s voting stock (from a
person other than the Company and other than in connection with certain mergers and exchanges to which the Company is a party) resulting in the
acquiring person owning 20% or more of its voting stock then outstanding. Section 302A.671 requires approval of any such acquisitions by a majority vote
of the Company’s shareholders prior to consummation. In general, shares acquired in the absence of such approval are denied voting rights and are
redeemable at their then fair market value by the Company within thirty days after the acquiring person has failed to give a timely information statement to
the Company or the date the shareholders voted not to grant voting rights to the acquiring person’s shares.
Section 302A.673 of the Minnesota Business Corporation Act generally prohibits the Company or any of its subsidiaries from entering into any transaction
with a shareholder under which the shareholder purchases 10% or more of the Company’s voting shares (an “interested shareholder”) within four years
following the date the person became an interested shareholder, unless the transaction is approved by a committee of all of the disinterested members of the
Board serving before the interested shareholder acquires the shares.
In addition to the various Minnesota statutory provisions described above, certain provisions in the Articles and Bylaws could have an anti-takeover effect.
The Articles provide that the holders of the common shares do not have cumulative voting rights. For the shareholders to call a special meeting, the Bylaws
require that at least 10% of the voting power of the shareholders must join in the request and at least 25% of the voting power of the shareholders must join
in the request for a special meeting in the case of a special meeting called for the purpose of considering any action to directly or indirectly effect a business
combination, including any action to change or otherwise affect the composition of the Board for that purpose. Furthermore, the Board has the power to
issue any or all of the shares of undesignated common shares, including the authority to establish one or more series and to fix the powers, preferences,
rights and limitations of such class or series, without seeking shareholder approval, and the right to fill vacancies of the Board (including a vacancy created
by an increase in the Board).
The Company’s Bylaws include an advance notice procedure for shareholder proposals to be brought before an annual meeting of shareholders, including
proposed nominations of candidates for election to the Board. Shareholders at an annual meeting will only be able to consider proposals or nominations
specified in the notice of meeting or brought before the meeting by or at the direction of the Board, or by a shareholder that has delivered timely written
notice in proper form to the Company’s secretary of the business to be brought before the meeting. These provisions could have the effect of delaying
shareholder actions that may be favored by the holders of a majority of the Company’s outstanding voting securities until the next shareholder meeting, or
may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempt to obtain
control of the Company.
HAWKINS, INC.
2019 EQUITY INCENTIVE PLAN
Performance Stock Unit Award Notice and Restricted Stock Agreement
Exhibit 10.10
Hawkins, Inc. (the “Company”), pursuant to its 2019 Equity Incentive Plan (the “Plan”), hereby grants an award of Performance Stock Units to
you, the Participant named below. The terms and conditions of this Award are set forth in this Performance Stock Unit Award Notice and Restricted Stock
Agreement (the “Agreement”), consisting of this cover page, the Terms and Conditions on the following pages and the attached Exhibit A, and in the Plan
document, a copy of which has been provided to you. Any capitalized term that is used but not defined in this Agreement shall have the meaning assigned
to it in the Plan as it currently exists or as it is amended in the future.
Name of Participant:
Maximum Number of Units:
Performance Period Start Date:
Unit Grant Date:
Performance Period End Date:
Unit Vesting Date
Restricted Share Vesting Date
By signing below or otherwise evidencing your acceptance of this Agreement in a manner approved by the Company, you agree to all of the terms
and conditions contained in this Agreement and in the Plan document. You acknowledge that you have received and reviewed these documents and that
they set forth the entire agreement between you and the Company regarding this Award.
PARTICIPANT:
HAWKINS, INC.
By:
Title:
HAWKINS, INC.
2019 Equity Incentive Plan
Performance Stock Unit Award Notice and Restricted Stock Agreement
Terms and Conditions
1.
2.
3.
Award of Performance Stock Units. The Company hereby confirms the grant to you, as of the Grant Date and subject to the terms and
conditions of this Agreement and the Plan, of an award of Performance Stock Units (the “Units”) in an amount initially equal to the Maximum
Number of Units specified on the cover page to this Agreement. The number of Units that will vest will be based on the results of the performance
goals specified in Exhibit A to this Agreement. Each Unit that vests will entitle you to receive either (i) one restricted Share of the Company’s
common stock (each a “Restricted Share”), which shall remain forfeitable by you until satisfaction of the vesting conditions set forth in Section
5(a) hereof, or (ii) one unrestricted Share of the Company’s common stock (each an “Unrestricted Share”), as hereinafter provided for in this
Agreement.
Nature of Units. The Units granted pursuant to this Agreement are bookkeeping entries only and do not provide you with any dividend, voting or
other rights of a shareholder of the Company. The Units shall remain forfeitable at all times unless and to the extent the vesting conditions set forth
in Sections 3 or 4 of this Agreement are satisfied. Neither this Award nor the Units subject to this Award may be sold, assigned, transferred,
exchanged or encumbered, voluntarily or involuntarily, other than a transfer upon your death in accordance with your will, by the laws of descent
and distribution. Any attempted transfer in violation of this Section 2 shall be void and without effect. Any determination of a number of Units to
vest under this Agreement will be rounded up to the nearest whole Unit.
Vesting and Forfeiture of Units. Except as otherwise provided in Section 4 hereof and subject to Section 6 hereof, if, after the Performance
Period (as defined in Section 7 hereof) has concluded, the Committee certifies (the “Committee Certification”) that the Company achieved at least
the Minimum Performance Threshold set forth in Exhibit A to this Agreement, then a number of Units, as determined by the procedures set forth
in Exhibit A, will vest immediately. As soon as practicable after the Committee Certification, but no later than July 15 of the Company fiscal year
following the end of the Performance Period, the Company will cause to be issued to you (or your beneficiary or personal representative) one
Restricted Share in payment and settlement of each vested Unit. Immediately after the Committee Certification, all unvested Units shall be
immediately forfeited.
4.
Acceleration of Vesting.
a.
Death or Disability. If your Service terminates by reason of your death or Disability at any time during the Performance Period, then a
number of Units, as would be determined by the procedure set forth in Exhibit A if the Company were to achieve 100% of the
Performance Target, will vest immediately. As soon as practicable after your Service terminates due to death or Disability, but in no event
later than two and one-half months after the later of the end of the calendar year or the end of the Company fiscal year in which the death
or determination of Disability occurred, the Company will cause to be issued to you (or your beneficiary or personal representative) one
Unrestricted Share in payment and settlement of each vested Unit. You shall forfeit all remaining unvested Units.
b.
Corporate Transaction. In the event of a proposed Corporate Transaction, then one of the following must occur:
i.
If, pending the Corporate Transaction, the Committee determines that this Award will not continue after the Corporate
Transaction or that the successor entity (or its parent) will not agree to provide for the assumption or replacement of this Award
with a comparable equity-based award covering shares of the successor entity (or its parent) that would equitably preserve the
compensation element of this Award at the time of the Corporate Transaction, then either:
1.
If the Corporate Transaction occurs during the Performance Period, then a number of Units, as would be determined by
the procedure set forth in Exhibit A if the Company were to achieve 100% of the Performance Target, will vest, and the
Company shall cause to be issued to you one Unrestricted Share in payment and
settlement of each vested Unit, immediately before the consummation of the Corporate Transaction. You shall forfeit all
remaining unvested Units.
2.
If the Corporate Transaction occurs between the end of the Performance Period and the Restricted Share Vesting Date,
all of the Restricted Shares granted or to be granted under this Agreement will vest and cease to be subject to forfeiture
under Section 5(b) hereof immediately before the consummation of the Corporate Transaction. If audited financial
information for the Performance Period is unavailable before the consummation of the Corporate Transaction, the
Committee will perform the procedure set forth in Exhibit A using such financial information as may be available to it
at the time.
ii.
If, in connection with the Corporate Transaction, Section 4(b)(i) hereof is not applicable and this Award is continued, assumed
or replaced by a comparable equity-based award covering shares of the successor entity (or its parent) that equitably preserves
the compensation element of this Award at the time of the Corporate Transaction, and if your Service is terminated by the
employer for reasons other than Cause or is terminated by you for Good Reason (as defined in Section 7 hereof), then
1.
2.
If your Service terminates during the Performance Period, then a number of Units, as would be determined by the
procedure set forth in Exhibit A if the Company were to achieve 100% of the Performance Target, will vest
immediately upon your termination of Service. As soon as practicable after the termination of Service, but in no event
later than two and one-half months after the later of the end of the calendar year or the end of the Company (or
successor entity) fiscal year in which the termination of Service occurred, the Company or its successor entity shall
cause to be issued to you one Unrestricted Share or, the equivalent in shares of stock in the surviving corporation, in
payment and settlement of each vested Unit. You shall forfeit all remaining unvested Units.
If your Service terminates between the end of the Performance Period and the Restricted Share Vesting Date, all of the
Restricted Shares granted or to be granted under this Agreement, or equivalent shares of stock in the surviving
corporation, will vest and cease to be subject to forfeiture under Section 5(b) hereof immediately upon your termination
of Service. If audited financial information for the Performance Period is unavailable before the termination of Service,
the Committee will perform the procedure set forth in Exhibit A using such financial information as may be available to
it at the time.
c.
Change in Control. If a Change in Control as defined in Section 7(a)(i) that does not involve a Corporate Transaction occurs and your
Service is terminated by the employer for reasons other than Cause or is terminated by you for Good Reason (as defined in Section 7
hereof) while this Award is still outstanding, then one of the following must occur:
i.
ii.
If your Service terminates during the Performance Period, then a number of Units, as would be determined by the procedure set
forth in Exhibit A if the Company were to achieve 100% of the Performance Target, will vest immediately upon your
termination of Service. As soon as practicable after the termination of Service, but in no event later than two and one-half
months after the later of the end of the calendar year or the end of the Company (or successor entity) fiscal year in which the
termination of Service occurred, the Company shall cause to be issued to you one Unrestricted Share in payment and settlement
of each vested Unit. You shall forfeit all remaining unvested Units.
If your Service terminates between the end of the Performance Period and the Restricted Share Vesting Date, all of the
Restricted Shares granted or to be granted under this Agreement will vest and cease to be subject to forfeiture under Section 5(b)
hereof immediately upon your termination of Service.
5.
Restricted Shares.
a.
b.
c.
d.
e.
Vesting of Restricted Shares. Subject to Section 6 hereof, all Restricted Shares granted pursuant to this Agreement that have not already
vested under Section 4 hereof shall cease to be subject to forfeiture under Section 5(b) hereof upon the Restricted Share Vesting Date
specified on the cover page of this Agreement.
Restricted Share Forfeiture Events. Upon the occurrence of a Restricted Share Forfeiture Event (as defined below), you shall
immediately forfeit to the Company all of the Restricted Shares that have not become vested pursuant to this Agreement, and upon such
forfeiture you shall immediately return any stock certificates representing the forfeited Restricted Shares and execute and deliver such
stock powers as the Company may request. The Restricted Shares that are forfeited pursuant to the previous sentence shall become
authorized but unissued shares of the Company’s capital stock. A “Restricted Share Forfeiture Event” means any of the following events:
i.
ii.
any attempt to transfer or otherwise dispose of any of the Restricted Shares, or to levy any attachment or pursue any similar
involuntary process with respect to any Restricted Shares, in violation of Section 5(c) hereof; or
your termination of Service as contemplated by Section 6(a) hereof.
Limitation on Transfer. Until such time as the Restricted Shares have become vested under Section 5(a) hereof or such earlier time as is
otherwise provided for herein, you shall not transfer the Restricted Shares and the Restricted Shares shall not be subject to pledge
hypothecation, execution, attachment or similar processes. Any attempt to assign, transfer, pledge, hypothecate or otherwise dispose of
any Restricted Shares contrary to the provisions of this Agreement and any attempt to levy any attachment or pursue any similar process
with respect to the Restricted Shares shall be null and void.
Shareholder Rights. Upon the issuance of Restricted Shares, you shall have all of the rights of a shareholder of the Company with
respect to those Restricted Shares, except as otherwise specifically provided in this Agreement.
Restrictive Legends and Stop-Transfer Orders.
i.
ii.
iii.
Legends. The certificate or certificates representing the Restricted Shares shall bear the following legend (as well as any legends
required by applicable state and federal corporate and securities laws) noting the existence of the restrictions set forth in this
Agreement:
“THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO FORFEITURE AND MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A RESTRICTED STOCK AGREEMENT BETWEEN
THE COMPANY AND THE PARTICIPANT, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY.”
Stop-Transfer Notices. You agree that, in order to ensure compliance with the restrictions referred to herein, the Company may
issue appropriate “stop transfer” instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it
may make appropriate notations to the same effect in its own records.
Refusal to Transfer. The Company shall not be required to (1) transfer on its books any Restricted Shares that have been sold or
otherwise transferred in violation of any of the provisions of this Agreement or (2) treat as owner of the Restricted Shares or to
accord the right to vote or pay dividends to any purchaser or other transferee to whom the Restricted Shares shall have been so
transferred.
6.
Service Requirement.
a.
b.
Termination for Cause or without Good Reason. In the event that your Service is terminated at any time (i) by the Company with Cause
or (ii) voluntarily or involuntarily by you other than for Good Reason, then you shall immediately forfeit to the Company all Units and
Restricted Shares granted under this Agreement that have not otherwise previously vested as of the date your Service is terminated.
Termination without Cause or for Good Reason. Except as otherwise provided in Section 4 hereof, in the event that your Service is
terminated during the Performance Period (i) by the Company other than for Cause or (ii) voluntarily by you for Good Reason, then you
shall continue to be eligible to have a number of Units vest in accordance with Section 3 hereof (as determined by the procedure set forth
in Exhibit A) as if your Service continued until the end of the Performance Period. As soon as practicable after the Committee
Certification provided for in Section 3 hereof, but no later than July 15 of the Company fiscal year following the end of the Performance
Period, the Company will cause to be issued to you (or your beneficiary or personal representative) one Restricted Share in payment and
settlement of each vested Unit, if any. You shall forfeit all remaining unvested Units. For purposes of clarification, any and all Restricted
Shares issued to you in accordance with this Section 6(b) will be subject to forfeiture only in connection with a breach of Section 5(b)(i)
hereof.
7.
Definitions. The following terms used in this Agreement will have the meanings indicated (with any capitalized term used in such definitions but
not defined in this Agreement having the meaning assigned to it in the Plan):
a.
“Change in Control” means one of the following:
i.
An Exchange Act Person becomes the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
securities of the Company representing more than 20% of the combined voting power of the Company’s then outstanding Voting
Securities, except that the following will not constitute a Change in Control:
A.
B.
C.
any acquisition of securities of the Company by an Exchange Act Person from the Company for the purpose of
providing financing to the Company;
any formation of a Group consisting solely of beneficial owners of the Company’s Voting Securities as of the effective
date of this Plan; or
any repurchase or other acquisition by the Company of its Voting Securities that causes any Exchange Act Person to
become the beneficial owner of more than 20% of the Company’s Voting Securities.
If, however, an Exchange Act Person or Group referenced in clause (A), (B) or (C) above acquires beneficial ownership of
additional Company Voting Securities after initially becoming the beneficial owner of more than 20% of the combined voting
power of the Company’s Voting Securities by one of the means described in those clauses, then a Change in Control will be
deemed to have occurred. Furthermore, a Change in Control will occur if a Person becomes the beneficial owner of more than
20% of the Company’s Voting Securities as the result of a Corporate Transaction only if the Corporate Transaction is itself a
Change in Control pursuant to subsection 7(a)(iii).
ii.
iii.
Individuals who are Continuing Directors cease for any reason to constitute a majority of the members of the Board.
A Corporate Transaction is consummated, unless, immediately following such Corporate Transaction, all or substantially all of
the individuals and entities who were the beneficial owners of the Company’s Voting Securities immediately prior to such
Corporate Transaction beneficially own, directly or indirectly, more than 50% of the combined voting power of the then
outstanding Voting Securities of the surviving or acquiring entity resulting from such Corporate Transaction (including
beneficial ownership through any Parent of such entity) in substantially the same proportions as their ownership, immediately
prior to such Corporate Transaction, of the Company's Voting Securities.
Notwithstanding the foregoing, to the extent that any Award constitutes a deferral of compensation subject to Code Section 409A, and if
that Award provides for a change in the time or form of payment upon a Change in Control, then no Change in Control shall be deemed
to have occurred upon an event described in this Section 7(a) unless the event would also constitute a change in ownership or effective
control of, or a change in the ownership of a substantial portion of the assets of, the Company under Code Section 409A.
b.
“Good Reason” means what the term is expressly defined to mean in a then-effective employment agreement between you and the
Company, or in the absence of any such then-effective agreement or definition, means any of the following conditions arising without
your consent, provided that you have first given written notice to the Company of the existence of the condition within 90 days of its first
occurrence, and the Company has failed to remedy the condition within 30 days thereafter:
i.
ii.
iii.
iv.
a decrease in your base salary;
a material diminution in your authority, duties, or responsibilities;
relocation of your principal office more than 50 miles from its current location; or
any other action or inaction that constitutes a material breach by the Company of any terms or conditions of any agreement
between the Company and you, which breach has not been caused by you.
c.
“Performance Period” means the period beginning on the Performance Period Start Date and ending on the Performance Period End Date
as specified on the cover page to this Agreement.
8.
General Provisions.
a.
b.
c.
d.
e.
Withholding Taxes. The parties hereto recognize that the Company or a Subsidiary may be obligated to withhold federal and state taxes
or other taxes upon the vesting of the Restricted Shares, or, in the event that you elect under Code Section 83(b) to report the receipt of
the Restricted Shares as income in the year of receipt, upon your receipt of the Restricted Shares. You hereby authorize the Company (or
any Subsidiary) to withhold from payroll or other amounts payable to you any sums required to satisfy such withholding tax obligations,
and otherwise agree to satisfy such obligations in accordance with the provisions of Section 14 of the Plan. You may satisfy such
withholding tax obligations by having the Company (or the Subsidiary) withhold a number of Shares that would otherwise be issued to
you in settlement of this Award and that have a Fair Market Value equal to the amount of such withholding tax obligations. Unless you
notify the Company (or the Subsidiary) otherwise, the Company (or the Subsidiary) will assume you are satisfying your tax withholding
obligations as provided in the previous sentence. You further acknowledge that the Company has directed you to seek independent advice
regarding the applicable provisions of the Code, the income tax laws of any municipality, state or foreign country in which you may
reside, and the tax consequences of your death.
No Right to Continued Service. This Agreement does not give you a right to continued Service with the Company or any Affiliate, and
the Company or any such Affiliate may terminate your Service at any time and otherwise deal with you without regard to the effect it
may have upon you under this Agreement.
Governing Plan Document. This Agreement and the Award are subject to all the provisions of the Plan, and to all interpretations, rules
and regulations which may, from time to time, be adopted and promulgated by the Committee pursuant to the Plan. If there is any conflict
between the provisions of this Agreement and the Plan, the provisions of the Plan will govern.
Governing Law. This Agreement, the parties’ performance hereunder, and the relationship between them shall be governed by, construed,
and enforced in accordance with the laws of the State of Minnesota, without giving effect to the choice of law principles thereof.
Severability. The provisions of this Agreement shall be severable and if any provision of this Agreement is found by any court to be
unenforceable, in whole or in part, the remainder of this
f.
g.
h.
Agreement shall nevertheless be enforceable and binding on the parties. You also agree that any trier of fact may modify any invalid,
overbroad or unenforceable provision of this Agreement so that such provision, as modified, is valid and enforceable under applicable
law.
Binding Effect. This Agreement shall be binding in all respects on your heirs, representatives and assigns, and on the successors and
assigns of the Company.
Section 409A of the Code. The award of Units as provided in this Agreement and any issuance of Shares or payment pursuant to this
Agreement are intended to be exempt from Section 409A of the Code under the short-term deferral exception specified in Treas. Reg. §
1.409A-l(b)(4).
Electronic Delivery and Acceptance. The Company may deliver any documents related to this Award by electronic means and request
your acceptance of this Agreement by electronic means. You hereby consent to receive all applicable documentation by electronic
delivery and to participate in the Plan through an on-line (and/or voice activated) system established and maintained by the Company or
the Company’s third-party stock plan administrator.
By signing the cover page of this Agreement or otherwise accepting this Agreement in a manner approved by the Company, you agree to all the terms
and conditions described above and in the Plan document.
Target Unit Amount:
Performance Metric:
Vested Unit Determination Procedure
Performance Target:
EXHIBIT A
Minimum Performance Threshold:
Maximum Performance Threshold:
The number of Units that will vest upon the Committee Certification or such other event as provided for in the Agreement will be determined as follows:
1. The Performance Metric (set forth above) identifies the quantitative performance measure or combination of quantitative performance measures
that the Committee will use to determine performance.
2. The Performance Target (set forth above) (“PT”) represents the target value of the Performance Metric for the Performance Period.
3. The Target Unit Amount (set forth above) represents the number of Units that will vest if exactly 100% of the Performance Target is achieved.
4. The actual value of the Performance Metric for the Performance Period (“Actual Performance,” or “AP”) will be determined after audited
Company financial information becomes available for the Performance Period.
5. Based on Actual Performance, the number of Units that will vest will be determined from one of the following formulas (rounded up to the nearest
whole Unit):
Portion of Performance Target Achieved
< Minimum Performance Threshold
≥ Minimum Performance Threshold & ≤ Maximum
Performance Threshold
> Maximum Performance Threshold
The practical impact of these formulas is:
Number of Units Vested
None
Target Unit Amount × ((AP/PT – 1) × 2.5) + 1)
Target Unit Amount × 1.5
•
•
If Actual Performance is below the Minimum Performance Threshold, then no Units will vest.
If Actual Performance is equal to or between the Minimum Performance Threshold and the Maximum Performance Threshold, then the
number of Units that will vest is based on a sliding scale between a minimum of 50% of the Target Unit Amount if Actual Performance
equals the Minimum Performance Threshold and a maximum of 150% of the Target Unit Amount if Actual Performance equals the
Maximum Performance Threshold.
•
If Actual Performance exceeds the Maximum Performance Threshold, then a maximum of 150% of the Target Unit Amount will vest.
6. For example:
a.
If Actual Performance is $110, the Performance Target is $100, and the Target Unit Amount is 100 Units:
Number of Units Vested = 100 × ((110/100 – 1) × 2.5) + 1) = 125 Units
Therefore, 125 Units would vest under the applicable formula.
b.
If Actual Performance is $90, the Performance Target is $100, and the Target Unit Amount is 100 Units:
Number of Units Vested = 100 × ((90/100 – 1) × 2.5) + 1) = 75 Units
Therefore, 75 Units would vest under the applicable formula.
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
The Board of Directors
Hawkins, Inc.:
We consent to the incorporation by reference in the registration statements (No. 333-87582, 333-123080, 333-172761, 333-174735, and 333-228128) on
Form S-8 of Hawkins, Inc. of our report dated May 20, 2020, with respect to the consolidated balance sheets of Hawkins, Inc. as of March 29, 2020 and
March 31, 2019, the related consolidated statements of income (loss), comprehensive income (loss), shareholders’ equity, and cash flows for each of the
years in the three-year period ended March 29, 2020, and the related notes and financial statement schedule II, and the effectiveness of internal control over
financial reporting as of March 29, 2020, which report appears in the March 29, 2020 annual report on Form 10-K of Hawkins, Inc.
Our report dated May 20, 2020 refers to a change to the method of accounting for leases.
/s/ KPMG LLP
Minneapolis, Minnesota
May 20, 2020
HAWKINS, INC.
Power of Attorney
The undersigned director of Hawkins, Inc., a Minnesota corporation (the “Company”), does hereby make, constitute and appoint Patrick H. Hawkins
and Jeffrey P. Oldenkamp, and either of them, the undersigned’s true and lawful attorneys-in-fact and agents, with power of substitution and resubstitution,
for the undersigned and in the undersigned’s name, place and stead, to sign and affix the undersigned’s name as such director of the Company to an Annual
Report on Form 10-K for the fiscal year ended March 29, 2020 or other applicable form, and any amendments thereto, to be filed by the Company with the
U.S. Securities and Exchange Commission, Washington, D.C. (the “SEC”), and to file the same with all exhibits thereto and other supporting documents in
connection therewith with the SEC, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and to perform any
and all acts necessary or incidental to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the date set forth below.
/s/ John McKeon
John McKeon
May 18, 2020
HAWKINS, INC.
Power of Attorney
The undersigned director of Hawkins, Inc., a Minnesota corporation (the “Company”), does hereby make, constitute and appoint Patrick H. Hawkins
and Jeffrey P. Oldenkamp, and either of them, the undersigned’s true and lawful attorneys-in-fact and agents, with power of substitution and resubstitution,
for the undersigned and in the undersigned’s name, place and stead, to sign and affix the undersigned’s name as such director of the Company to an Annual
Report on Form 10-K for the fiscal year ended March 29, 2020 or other applicable form, and any amendments thereto, to be filed by the Company with the
U.S. Securities and Exchange Commission, Washington, D.C. (the “SEC”), and to file the same with all exhibits thereto and other supporting documents in
connection therewith with the SEC, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and to perform any
and all acts necessary or incidental to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the date set forth below.
/s/ Daniel Stauber
Daniel Stauber
May 19, 2020
HAWKINS, INC.
Power of Attorney
The undersigned director of Hawkins, Inc., a Minnesota corporation (the “Company”), does hereby make, constitute and appoint Patrick H. Hawkins
and Jeffrey P. Oldenkamp, and either of them, the undersigned’s true and lawful attorneys-in-fact and agents, with power of substitution and resubstitution,
for the undersigned and in the undersigned’s name, place and stead, to sign and affix the undersigned’s name as such director of the Company to an Annual
Report on Form 10-K for the fiscal year ended March 29, 2020 or other applicable form, and any amendments thereto, to be filed by the Company with the
U.S. Securities and Exchange Commission, Washington, D.C. (the “SEC”), and to file the same with all exhibits thereto and other supporting documents in
connection therewith with the SEC, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and to perform any
and all acts necessary or incidental to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the date set forth below.
/s/ Duane Jergenson
Duane Jergenson
May 14, 2020
HAWKINS, INC.
Power of Attorney
The undersigned director of Hawkins, Inc., a Minnesota corporation (the “Company”), does hereby make, constitute and appoint Patrick H. Hawkins
and Jeffrey P. Oldenkamp, and either of them, the undersigned’s true and lawful attorneys-in-fact and agents, with power of substitution and resubstitution,
for the undersigned and in the undersigned’s name, place and stead, to sign and affix the undersigned’s name as such director of the Company to an Annual
Report on Form 10-K for the fiscal year ended March 29, 2020 or other applicable form, and any amendments thereto, to be filed by the Company with the
U.S. Securities and Exchange Commission, Washington, D.C. (the “SEC”), and to file the same with all exhibits thereto and other supporting documents in
connection therewith with the SEC, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and to perform any
and all acts necessary or incidental to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the date set forth below.
/s/ James Faulconbridge
James Faulconbridge
May 14, 2020
HAWKINS, INC.
Power of Attorney
The undersigned director of Hawkins, Inc., a Minnesota corporation (the “Company”), does hereby make, constitute and appoint Patrick H. Hawkins
and Jeffrey P. Oldenkamp, and either of them, the undersigned’s true and lawful attorneys-in-fact and agents, with power of substitution and resubstitution,
for the undersigned and in the undersigned’s name, place and stead, to sign and affix the undersigned’s name as such director of the Company to an Annual
Report on Form 10-K for the fiscal year ended March 29, 2020 or other applicable form, and any amendments thereto, to be filed by the Company with the
U.S. Securities and Exchange Commission, Washington, D.C. (the “SEC”), and to file the same with all exhibits thereto and other supporting documents in
connection therewith with the SEC, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and to perform any
and all acts necessary or incidental to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the date set forth below.
/s/ James Thompson
James Thompson
May 15, 2020
HAWKINS, INC.
Power of Attorney
The undersigned director of Hawkins, Inc., a Minnesota corporation (the “Company”), does hereby make, constitute and appoint Patrick H. Hawkins
and Jeffrey P. Oldenkamp, and either of them, the undersigned’s true and lawful attorneys-in-fact and agents, with power of substitution and resubstitution,
for the undersigned and in the undersigned’s name, place and stead, to sign and affix the undersigned’s name as such director of the Company to an Annual
Report on Form 10-K for the fiscal year ended March 29, 2020 or other applicable form, and any amendments thereto, to be filed by the Company with the
U.S. Securities and Exchange Commission, Washington, D.C. (the “SEC”), and to file the same with all exhibits thereto and other supporting documents in
connection therewith with the SEC, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and to perform any
and all acts necessary or incidental to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the date set forth below.
/s/ Jeffrey Wright
Jeffrey Wright
May 14, 2020
HAWKINS, INC.
Power of Attorney
The undersigned director of Hawkins, Inc., a Minnesota corporation (the “Company”), does hereby make, constitute and appoint Patrick H. Hawkins
and Jeffrey P. Oldenkamp, and either of them, the undersigned’s true and lawful attorneys-in-fact and agents, with power of substitution and resubstitution,
for the undersigned and in the undersigned’s name, place and stead, to sign and affix the undersigned’s name as such director of the Company to an Annual
Report on Form 10-K for the fiscal year ended March 29, 2020 or other applicable form, and any amendments thereto, to be filed by the Company with the
U.S. Securities and Exchange Commission, Washington, D.C. (the “SEC”), and to file the same with all exhibits thereto and other supporting documents in
connection therewith with the SEC, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and to perform any
and all acts necessary or incidental to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the date set forth below.
/s/ Mary Schumacher
Mary Schumacher
May 14, 2020
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
CERTIFICATIONS
I, Patrick H. Hawkins, certify that:
1.
I have reviewed this annual report on Form 10-K of Hawkins, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: May 20, 2020
/s/ Patrick H. Hawkins
Patrick H. Hawkins
Chief Executive Officer and President
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
CERTIFICATIONS
I, Jeffrey P. Oldenkamp, certify that:
1.
I have reviewed this annual report on Form 10-K of Hawkins, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: May 20, 2020
/s/ Jeffrey P. Oldenkamp
Jeffrey P. Oldenkamp
Vice President, Chief Financial Officer, and Treasurer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Hawkins, Inc. (the Company) on Form 10-K for the period ended March 29, 2020, as filed with the Securities and
Exchange Commission on the date hereof (the Report), I, Patrick H. Hawkins, Chief Executive Officer and President of the Company, certify, pursuant to
18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Patrick H. Hawkins
Patrick H. Hawkins
Chief Executive Officer and President
May 20, 2020
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Hawkins, Inc. (the Company) on Form 10-K for the period ended March 29, 2020, as filed with the Securities and
Exchange Commission on the date hereof (the Report), I, Jeffrey P. Oldenkamp, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §
1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Jeffrey P. Oldenkamp
Jeffrey P. Oldenkamp
Vice President, Chief Financial Officer, and Treasurer
May 20, 2020