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 28, 2021
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-7647
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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)
(612) 331-6910
(Registrant’s Telephone Number, Including Area Code)
Title of each class
Common Shares, par value $.01 per share
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. ☑
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 27, 2020 (the last business day of the Registrant’s
most recently completed second fiscal quarter) was approximately $433.2 million based upon the closing sale price for the Registrant’s common shares 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 28, 2021, the Registrant had 21,286,322 shares of common shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our definitive Proxy Statement for the annual meeting of shareholders to be held July 29, 2021, 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 2022” means our fiscal year ending April 3, 2022, “fiscal
2021” means our fiscal year ended March 28, 2021, “fiscal 2020” means our fiscal year ended March 29, 2020, “fiscal 2019” means our fiscal
year ended March 31, 2019, and “fiscal 2018” means our fiscal year ended April 1, 2018.
ii
Hawkins, Inc.
Annual Report on Form 10-K
For the Fiscal Year Ended March 28, 2021
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.
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
Reserved
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
PART III
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management And Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
ITEM 15.
ITEM 16.
Exhibits and Financial Statement Schedules
Form 10-K Summary
PART IV
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ITEM 1. BUSINESS
PART I
We distribute, blend and manufacture 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 central United 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 manufacturing locations 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 Water Treatment group operates out of 33 warehouses supplying products and services to customers primarily in the central United
States and Florida. In fiscal 2021, we added three locations, including two by acquisition and one through organic growth. 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.
1
Health and Nutrition Segment. 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 formulas, 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 2021, none of our customers accounted for 10% or more of our total sales.
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 in the Water Treatment segment, our accounts receivable balance is generally higher
during the period of April through September.
Regulatory Matters. 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. 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, 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.
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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. 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.
Further information related to government regulation applicable to our business is included in this Annual Report on Form 10-K, in Part I, Item
1A - Risk Factors.
Human Capital. Our team is a key to our success and we are committed to creating a workplace that attracts top talent and develops leaders
and drives performance on behalf of our customers and shareholders.
We strive to recruit the best people for the job regardless of race, color, nationality, gender, age, disability, sexual orientation or any other
status protected by law. It is our policy to comply fully with all applicable laws relating to discrimination in the workplace and are committed to
advancing an inclusive, collaborative and respectful culture.
The health and safety of our employees is our highest priority. We work to ensure our employees have a thorough understanding of health
and safety precautions that need to be taken in all business functions. Specific safety initiatives include accident prevention work, improving
process controls, safety training, safety committees, safety audits, incident investigation and improvement measures.
We have ensured the safety of our employees and our customers during the COVID-19 pandemic by implementing contingency and
continuity plans to respond quickly and appropriately to identified risks, safe work practices in accordance with the guidance provided by the
US Centers for Disease Control and Prevention ("CDC"), and flexible working policies. We leveraged technology to enable approximately
175 employees to transition to remote working and enhanced sanitation and hygiene practices at all of our facilities. Finally, we worked with a
private company to offer our employees free, rapid testing for COVID-19 across the country. Through communication, enhanced resources
and leadership, we were able to support our employees, serve our customers and keep our facilities clean and safe during the pandemic.
We strive to provide employees with competitive wages commensurate with their skill levels, experience, knowledge and the regional market.
Full-time employees are eligible for health, dental and vision insurance, paid and unpaid leaves, 401(K) plan, retirement plans, life and
disability/accident coverage and our employee assistance program.
As of March 28, 2021, we had 742 employees on a full-time equivalent basis across the United States. Approximately 37% of our employees
were female or racially and ethnically diverse, and approximately 10% were covered by a collective bargaining agreement. Of the seven
members of our Board of Directors, two are female, five are male, one is Asian American and six are white.
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.
3
ITEM 1A. RISK FACTORS
You should consider carefully the following material factors regarding risks relating to an investment in our securities and 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 materially from those that may be anticipated. Additionally, the
impact of the global coronavirus (“COVID-19”) pandemic could further exacerbate many of the risk factors as described below or elsewhere
in this report.
COMPETITIVE AND REPUTATIONAL RISKS
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.
Adverse publicity or 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 risks, efficacy, 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 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.
4
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.
Failure to adequately protect critical data and technology systems could materially affect our operations.
Information technology system failures, network disruptions and breaches of data security due to internal or external factors including cyber-
attacks could disrupt our operations by causing delays or cancellation of customer orders, impede the manufacture or shipment of products
or cause standard business processes to become ineffective, resulting in the unintentional disclosure of information or damage to our
reputation. While we have taken steps to address these concerns by implementing network security and internal control measures, including
employee training, comprehensive monitoring of our networks and systems, maintenance of backup and protective systems and disaster
recovery and incident response plans, our employees, systems, networks, products, facilities and services remain potentially vulnerable to
sophisticated cyber-assault, especially while certain employees are working remotely during the COVID-19 pandemic, and, as such, there
can be no assurance that a system failure, network disruption or data security breach will not have a material adverse effect on our business,
financial condition, operating results or cash flows.
RISKS RELATED TO OUR INDUSTRY
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.
The prices we pay for our principal chemical raw materials 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.
5
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 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. As the country emerges from
the COVID-19 pandemic, our business results, particularly in our Health and Nutrition segment, could be adversely impacted if demand for
health and immunity products that contain our ingredients decreases.
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.
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.
6
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.
OPERATIONAL RISKS
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 could do so in 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.
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.
7
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.
LEGAL AND REGULATORY RISKS
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 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.
8
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.
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:
• 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 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.
9
FINANCIAL RISKS
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 28, 2021, we had $99.0 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.
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 29, 2020 for fiscal 2021. Goodwill impairment testing is at the reporting unit level. For each of our 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 each of our reporting units, this qualitative
analysis did not indicate an impairment, and therefore additional analysis was not performed. 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
10
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 30 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
105,000
59,000
41,000
32,100
(1) This is a leased facility comprising administrative offices and a distribution facility. The lease runs through January 2026.
(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 manufacturing location 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) These 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 includes two adjacent facilities comprising a total of 56 acres of land owned by the Company. These manufacturing facilities have
outside storage tanks for the storage of bulk chemicals, as well as numerous smaller tanks for storing and mixing chemicals.
(8) This 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.
11
PART II
ITEM 5. MARKET FOR THE COMPANY’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Our common shares are listed on the Nasdaq Global Select Market under the symbol “HWKN.” As of May 28, 2021, shares of our common
shares were held by approximately 399 shareholders of record.
As previously announced, our Board of Directors authorized the repurchase of up to 1.6 million shares of our outstanding common 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 shares for three months ended March 28, 2021:
Period
12/28/2020 - 1/24/2021
1/25/2021 - 2/21/2021
2/22/2021 - 3/28/2021
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
— $
— $
— $
—
—
—
—
—
—
—
—
551,506
551,506
551,506
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 April 3, 2016, and
reinvestment of all dividends.
12
ITEM 6. RESERVED
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 2021 and 2020. 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.
We have omitted discussion of the earliest of the three years covered by our consolidated financial statements presented in this report
because that disclosure was already included in our Annual Report on Form 10-K for fiscal 2020, filed with the SEC on May 20, 2020. You
are encouraged to reference Part II, Item 7, within that report, for a discussion of our financial condition and result of operations for fiscal
2019 compared to fiscal 2020.
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 2021 is provided below:
•
•
•
•
Sales of $596.9 million, a 10% increase from fiscal 2020;
Gross profit of $123.8 million, an increase of $22.8 million, or 23% from fiscal 2020;
Selling, general and administrative (“SG&A”) expenses increased $8.6 million year over year, and were relatively flat as a percentage
of sales from fiscal 2020;
Net cash provided by operating activities of $43.8 million, as compared to $58.9 million for fiscal 2020.
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 inventory in our Industrial and Water Treatment segments, which causes the most
recent product costs to be recognized in our income statement. 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.
Business and Property Acquisitions
In the fourth quarter of fiscal 2021, we acquired substantially all the assets of C & L Aqua Professionals, Inc. and LC Blending, Inc. (together,
“C&L Aqua”) under the terms of an asset purchase agreement among us, C&L Aqua and its shareholders. C&L Aqua was a water treatment
chemical distribution company operating primarily in Louisiana. The results of operations since the acquisition date are included in our Water
Treatment segment.
13
In the third quarter of fiscal 2021, we acquired a manufacturing facility to allow further expansion and growth in both our Industrial and Water
Treatment segments. This site is adjacent to our facility in Rosemount, Minnesota, adding 40,000 square feet of manufacturing and
warehouse space on 28 acres of land to bring us to a total of 105,000 square feet of space on 56 acres of land, with rail access at both of the
sites. The expansion will allow for future growth and provide supply chain flexibility on certain raw materials to better serve our customers.
In the second quarter of fiscal 2021, we acquired substantially all the assets of American Development Corporation of Tennessee, Inc.
(“ADC”) under the terms of an asset purchase agreement among us, ADC and its shareholders. ADC was a water treatment chemical
distribution company operating primarily in Tennessee, Georgia and Kentucky. The results of operations since the acquisition date are
included in our Water Treatment segment.
The aggregate annual revenue from C&L Aqua and ADC in the twelve months prior to each acquisition date totaled approximately $25
million.
Stock Split
On March 1, 2021, we effected a two-for-one split of our common stock, and adjusted the par value from $.05 per share to $0.01 per share.
At the same time, we increased the number of authorized shares from 30 million to 60 million. Our consolidated financial statements, related
notes, and other financial data contained in this report have been adjusted to give retroactive effect to the stock split for all periods presented.
Statement on COVID-19
The pandemic caused by COVID-19 has resulted in federal, state and local governments around the world implementing stringent measures
to help control the spread of the virus, including, from time to time, quarantines, “shelter in place” and “stay at home” orders, travel
restrictions or bans, business curtailments, school closures, and other protective measures. While many restrictions have eased since the
start of the COVID-19 pandemic, certain restrictions remain in place or new restrictions may be implemented in the future. Certain restrictions
may remain in place for some time.
All of our manufacturing facilities have qualified 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, with no significant impact to our output levels.
During this public health crisis, we have remained 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.
The financial impact of the COVID-19 pandemic 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. In addition, certain expenses, such as travel and entertainment and trade show expenses, were
lower than historical levels during fiscal 2021. We expect mixed results to continue until conditions normalize following the end of the
pandemic.
14
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 2021
Fiscal 2020
Sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income (loss)
Interest expense, net
Other income
Income (loss) before income taxes
Income tax provision
Net income (loss)
Fiscal 2021 Compared to Fiscal 2020
Sales
100.0 %
(79.3)%
20.7 %
(11.4)%
9.4 %
(0.2)%
0.2 %
9.4 %
(2.5)%
6.9 %
100.0 %
(81.3)%
18.7 %
(11.0)%
7.7 %
(0.4)%
— %
7.3 %
(2.0)%
5.3 %
Sales were $596.9 million for fiscal 2021, an increase of $56.7 million, or 10%, from sales of $540.2 million for fiscal 2020.
Industrial Segment. Industrial segment sales decreased $1.9 million, or 1%, to $273.4 million for fiscal 2021, as compared to $275.2 million
for fiscal 2020. Sales of bulk commodity products in the Industrial segment were approximately 14% of sales dollars in fiscal 2021 and 18%
of sales dollars in fiscal 2020. Increased sales resulting from a product mix shift to more sales of certain of our higher-priced manufactured,
blended and repackaged products, in particular certain of our food ingredient and agricultural products, as well as increased sales of our
bleach products, was more than offset by decreased sales into the ethanol industry in the first half of fiscal 2021, due largely to weakened
economic conditions in that industry.
Water Treatment Segment. Water Treatment segment sales increased $10.1 million, or 6%, to $170.0 million for fiscal 2021, as compared to
$159.9 million for fiscal 2020. Sales of bulk commodity products in the Water Treatment segment were approximately 9% of sales dollars in
fiscal 2021 and 12% of sales dollars in fiscal 2020. The increase in sales dollars resulted from the added sales from the acquisition of ADC
and C&L Aqua as well as increased sales of certain manufactured, blended and re-packaged products in our legacy business, partially offset
by a first quarter sales decline as a result of COVID-19 which reduced sales to certain end markets, primarily swimming pools.
Health and Nutrition Segment. Sales for our Health and Nutrition segment increased $48.4 million, or 46%, to $153.5 million for fiscal 2021,
as compared to $105.1 million for fiscal 2020. The increase in sales was driven by increased sales of both our manufactured and specialty
distributed products largely as a result of increased demand for health and immunity products.
Gross Profit
Gross profit increased $22.8 million, or 23%, to $123.8 million, or 21% of sales, for fiscal 2021, from $100.9 million, or 19% of sales, for fiscal
2020. During fiscal 2021, the LIFO reserve decreased, and gross profits increased, by $0.1 million. In fiscal 2020, the LIFO reserve
increased, and gross profits decreased, by $0.6 million.
Industrial Segment. Gross profit for the Industrial segment increased $4.4 million, or 11%, to $43.3 million, or 16% of sales, for fiscal 2021,
from $38.9 million, or 14% of sales, for fiscal 2020. During fiscal 2021, the LIFO reserve decreased, and gross profits increased, by $0.2
million. In fiscal 2020, the LIFO reserve increased, and gross profits decreased, by $0.6 million. Total gross profit, and gross profit as a
percentage of sales, increased due to a product mix shift to more sales of certain higher-margin manufactured, blended and re-packaged
products, partially offset by higher operating costs.
15
Water Treatment Segment. Gross profit for the Water Treatment segment increased $4.9 million, or 12%, to $46.8 million, or 28% of sales,
for fiscal 2021, from $41.9 million, or 26% of sales, for fiscal 2020. During fiscal 2021, the LIFO reserve increased, and gross profits
decreased, by $0.1 million. During fiscal 2020, the LIFO reserve had a nominal impact on gross profit. Gross profit increased as a result of
the added gross profit from sales in the acquired businesses of ADC and C&L Aqua. Gross profit, and gross profit as a percentage of sales,
also increased as a result of a product mix shift to more sales of certain of our manufactured, blended and repackaged products in our legacy
business.
Health and Nutrition Segment. Gross profit for our Health and Nutrition segment increased $13.6 million, or 68% to $33.6 million, or 22% of
sales, for fiscal 2021, from $20.1 million, or 19% of sales, for fiscal 2020. The increase in gross profit was a result of higher sales compared
to the prior year. Gross profit as a percentage of sales increased primarily as a result of product mix changes.
Selling, General and Administrative Expenses
SG&A expenses increased $8.6 million to $67.9 million, or 11% of sales, for fiscal 2021, from $59.2 million, or 11% of sales, for fiscal 2020.
Expenses increased primarily due to increased variable pay, the added costs from the acquired businesses of ADC and C&L Aqua, including
$0.8 million expense for amortization of intangibles, and a year-over-year increase in compensation expense related to our non-qualified
deferred compensation plan, with the expense offset in other income.
Operating Income
Operating income was $55.9 million, or 9% of sales, for fiscal 2021, as compared to $41.7 million, or 8% of sales, for fiscal 2020 due to the
combined impact of the factors discussed above.
Interest Expense, Net
Interest expense was $1.5 million for fiscal 2021, a decrease of $1.0 million from interest expense of $2.5 million for fiscal 2020. The
additional interest cost as a result of the increase in outstanding borrowings was more than offset by lower borrowing rates compared to the
prior year.
Income Tax Provision
Our effective tax rate was approximately 27% for both fiscal 2021 and fiscal 2020. The effective tax rate is impacted by projected levels of
annual taxable income, permanent items, and state taxes.
16
Selected Quarterly Financial Data
(In thousands, except per share data)
Fiscal 2021
First
Second
Third
Fourth
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
Operating income
Net income
Basic earnings per share
Diluted earnings per share
$
$
$
$
$
$
$
$
$
143,172 $
30,976
15,038
15,938
11,788
0.56 $
0.55 $
147,801 $
32,797
16,221
16,576
12,190
0.58 $
0.57 $
Fiscal 2020
142,927 $
28,239
17,750
10,489
7,921
0.38 $
0.37 $
162,971
31,750
18,875
12,875
9,081
0.43
0.43
First
Second
Third
Fourth
147,336 $
28,797
14,836
13,961
9,807
0.46 $
0.46 $
140,043 $
27,994
14,817
13,177
9,250
0.44 $
0.43 $
Fiscal 2019
120,406 $
21,478
14,702
6,776
4,547
0.22 $
0.21 $
132,413
22,648
14,891
7,757
4,763
0.23
0.22
First
Second
Third
Fourth
149,800 $
28,457
14,979
13,478
9,123
0.43 $
0.43 $
145,324 $
25,772
14,941
10,831
7,409
0.35 $
0.35 $
128,151 $
21,033
14,312
6,721
4,130
0.19 $
0.19 $
133,051
20,674
14,886
5,788
3,771
0.18
0.18
Earnings (loss) per share may not equal the face of the Consolidated Statements of Income (Loss) due to rounding.
Liquidity and Capital Resources
Cash provided by operating activities in fiscal 2021 was $43.8 million compared to $58.9 million in fiscal 2020. The decrease in cash
provided by operating activities in fiscal 2021 as compared to fiscal 2020 was primarily driven by increases in customer receivables, resulting
from higher sales, as well as higher inventory levels, partially offset by an increase in net income. Increased customer demand in our Health
and Nutrition segment resulted in an increase in on-hand inventory due to increased stocking levels to fill the increased demand and to offset
longer lead times from our suppliers for many products. 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.
17
Cash used in investing activities was $71.4 million in fiscal 2021 compared to $24.2 million in fiscal 2020. Capital expenditures were $20.8
million in fiscal 2021 and $24.5 million in fiscal 2020. Total cash used in investing activities in fiscal 2021 included an aggregate of $51.0
million for the acquisitions of ADC, C&L Aqua and the purchase of the manufacturing facility in Rosemount, Minnesota. Capital expenditures
in fiscal 2021 included $7.8 million of facility improvements, including $4.3 million to expand our pharmaceutical product manufacturing
capabilities, vehicles and trucks of $4.7 million, the purchase of a previously leased Water Treatment branch facility for $0.9 million, along
with other new and replacement equipment. 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.
Cash provided by financing activities was $26.4 million in fiscal 2021, as compared to cash used in financing activities of $39.6 million in
fiscal 2020. Cash provided by financing activities included net debt borrowings of $39.0 million in fiscal 2021 to partially fund the acquisitions
in fiscal 2021, compared to net debt repayments of $25.0 million in fiscal 2020. We also paid out cash dividends of $10.0 million in fiscal
2021 and $9.8 million in fiscal 2020. In fiscal 2021, we used $4.1 million to repurchase shares under our board-authorized share repurchase
program, and in fiscal 2020, we used $5.9 million to repurchase shares under the program.
Our cash balance was $3.0 million at March 28, 2021, a decrease of $1.3 million as compared with March 29, 2020. Cash flows generated by
operations and financing activities during fiscal 2021 were offset by the cash expended for acquisitions in fiscal 2021, capital expenditures
and dividend payments.
We are party to 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.
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 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 28, 2021, the
effective interest rate on our borrowings was 1.1%.
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 28,
2021, 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 28, 2021 and expect to remain in compliance with all covenants for the next 12 months.
18
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
2022
2023
2024
2025
(In thousands)
2026
More than
5 Years
Total
Senior secured revolver (1)
Interest payments (2)
Operating lease obligations (3)
Pension withdrawal liability (4)
$
$
$
$
— $
1,256 $
1,831 $
467 $
— $
1,256 $
1,707 $
467 $
99,000 $
1,256 $
1,355 $
467 $
— $
— $
1,304 $
467 $
— $
— $
1,251 $
467 $
— $
— $
6,280 $
3,505 $
99,000
3,768
13,728
5,840
(1) Represents balance outstanding as of March 28, 2021, and assumes such amount remains outstanding until its maturity date, as
periodic payments are not required under the terms of our Credit Agreement. However, it is our intention to pay down our debt with
available excess cash flow. See Note 9 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 28, 2021.
(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.
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 28, 2020 for fiscal 2021. For each of our reporting units, we
performed an analysis of qualitative factors to determine whether it is more likely than not that the fair value of any of our 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
any of our reporting units.
19
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.
Recent Accounting Pronouncements
See Note 1 to the consolidated financial statements included in Item 8 of this Form 10-K for a full description of recent accounting
pronouncements, including expected dates of adoption and estimated effects on results of operations and financial condition.
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 $0.2 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
Board of Directors and Shareholders
Hawkins, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Hawkins, Inc. (a Minnesota corporation) and subsidiaries (the “Company”) as
of March 28, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of March 28, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework
issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the
consolidated financial statements of the Company as of and for the year ended March 28, 2021, and our report dated June 2, 2021
expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible 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 (“Management’s Report”). Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over financial
reporting of C&L Aqua Professionals, Inc and LC Blending, Inc., two wholly-owned subsidiaries, whose financial statements reflect total
assets and revenues constituting 3.5 and less than 1 percent, respectively, of the related consolidated financial statement amounts as of and
for the year ended March 28, 2021. As indicated in Management’s Report, C&L Aqua Professionals, Inc and LC Blending, Inc. were acquired
during 2021. Management’s assertion on the effectiveness of the Company’s internal control over financial reporting excluded internal control
over financial reporting C&L Aqua Professionals, Inc and LC Blending, Inc.
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.
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.
/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
June 2, 2021
21
Board of Directors and Shareholders
Hawkins, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheet of Hawkins, Inc. (a Minnesota corporation) and subsidiaries (the “Company”)
as of March 28, 2021, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for
year then ended, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial
statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March
28, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally
accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the
Company’s internal control over financial reporting as of March 28, 2021, based on criteria established in the 2013 Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated
June 2, 2021 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the 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 audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material misstatement of the 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 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 financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical audit matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be
communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2021.
Minneapolis, Minnesota
June 2, 2021
22
Board of Directors and Shareholders
Hawkins, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Hawkins, Inc. and subsidiaries (the Company) as of March 29, 2020, the
related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the two‑year
period ended March 29, 2020, and the related notes and financial statement schedule II (collectively, the consolidated financial statements).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March
29, 2020, and the results of its operations and its cash flows for each of the years in the two‑year period ended March 29, 2020, in conformity
with U.S. generally accepted accounting principles.
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 Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these consolidated financial statements 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 audit to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or
fraud. Our audits 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. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We served as the Company’s auditor from 2009 to 2020.
Minneapolis, Minnesota
May 20, 2020, except as to the stock split and par value adjustments as described in Note 1, which are as of June 2, 2021
23
HAWKINS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per-share data)
March 28, 2021
March 29, 2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Trade accounts receivables, net
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
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
DEFERRED INCOME TAXES
DEFERRED COMPENSATION LIABILITY
OTHER LONG-TERM LIABILITIES
Total liabilities
COMMITMENTS AND CONTINGENCIES (Note 13)
SHAREHOLDERS’ EQUITY:
Common shares; authorized: 60,000,000 shares of $0.01 par value; 20,969,746 and
21,024,458 shares issued and outstanding for 2021 and 2020, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Total shareholders’ equity
Total liabilities and shareholders’ equity
$
2,998 $
90,603
63,864
175
5,367
163,007
15,235
120,410
109,353
37,646
17,760
300,404
155,792
144,612
11,630
70,720
76,368
6,213
164,931
472,550 $
37,313 $
18,048
9,907
1,587
1,452
2,155
70,462
88,845
10,231
4,631
24,445
7,322
1,368
207,304
210
51,138
213,898
—
265,246
472,550 $
$
$
$
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
1,523
1,376
1,747
62,220
49,751
7,649
4,978
25,106
5,026
1,114
155,844
211
50,405
182,947
(79)
233,484
389,328
See accompanying notes to consolidated financial statements.
24
HAWKINS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per-share data)
Sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income
Interest expense, net
Other income (expense)
Income before income taxes
Income tax expense
Net income
Weighted average number of shares outstanding-basic
Weighted average number of shares outstanding-diluted
Basic earnings per share
Diluted earnings per share
Cash dividends declared per common share
March 28, 2021
Fiscal Year Ended
March 29, 2020
March 31, 2019
596,871 $
(473,109)
123,762
(67,884)
55,878
(1,467)
1,440
55,851
(14,871)
40,980 $
540,198 $
(439,281)
100,917
(59,246)
41,671
(2,511)
(204)
38,956
(10,589)
28,367 $
556,326
(460,390)
95,936
(59,118)
36,818
(3,361)
73
33,530
(9,097)
24,433
21,024,344
21,260,296
21,159,978
21,308,800
21,309,774
21,452,352
1.95 $
1.93 $
1.34 $
1.33 $
1.15
1.14
0.47125 $
0.46125 $
0.34000
$
$
$
$
$
See accompanying notes to consolidated financial statements.
25
HAWKINS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive income, net of tax:
Unrealized gain (loss) on interest rate swap
Unrealized gain on post-retirement liability
Total other comprehensive income (loss)
Total comprehensive income
March 28, 2021
Fiscal Year Ended
March 29, 2020
March 31, 2019
$
$
40,980 $
28,367 $
24,433
79
—
79
41,059 $
(396)
—
(396)
27,971 $
(280)
1
(279)
24,154
See accompanying notes to consolidated financial statements.
26
HAWKINS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except share data)
Common Shares
BALANCE — April 1, 2018
Shares
21,263,984 $
Cash dividends declared
Share-based compensation
expense
Vesting of restricted stock
Shares surrendered for payroll
taxes
ESPP shares issued
Shares repurchased
Other comprehensive loss, net of
tax
Net Income
BALANCE — March 31, 2019
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 loss, net of
tax
Net income
BALANCE — March 29, 2020
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
BALANCE — March 28, 2021
—
—
66,102
(16,210)
87,356
(216,332)
—
—
21,184,900 $
—
—
71,944
(18,320)
77,100
(291,166)
—
—
21,024,458 $
—
—
26,542
(3,314)
88,148
(166,088)
—
—
20,969,746 $
Amount
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
213 $
54,196 $
147,242 $
596 $
—
—
—
—
1
(2)
—
—
212 $
—
—
—
—
1
(2)
—
—
211 $
—
—
—
—
1
(2)
—
(7,270)
2,010
—
(266)
1,337
(4,350)
—
—
—
—
—
—
—
52,927 $
—
24,433
164,405 $
—
(9,825)
2,273
—
(343)
1,399
(5,851)
—
—
—
—
—
—
—
50,405 $
—
28,367
182,947 $
—
(10,029)
3,343
—
(54)
1,582
(4,138)
—
—
—
—
—
—
—
210 $
—
—
51,138 $
—
40,980
213,898 $
—
—
—
—
—
—
(279)
—
317 $
—
—
—
—
—
—
(396)
—
(79) $
—
—
—
—
—
—
79
—
— $
202,247
(7,270)
2,010
—
(266)
1,338
(4,352)
(279)
24,433
217,861
(9,825)
2,273
—
(343)
1,400
(5,853)
(396)
28,367
233,484
(10,029)
3,343
—
(54)
1,583
(4,140)
79
40,980
265,246
See accompanying notes to consolidated financial statements.
27
HAWKINS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Reconciliation to cash flows provided by operating activities:
Depreciation and amortization
Operating leases
(Gain) loss on deferred compensation assets
Deferred income taxes
Stock compensation expense
Other
Changes in operating accounts (using) providing cash, net
of acquisitions:
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
Acquisitions
Other
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash used in investing 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 provided by (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 28, 2021
Fiscal Year Ended
March 29, 2020
March 31, 2019
$
40,980 $
28,367 $
24,433
22,669
1,896
(1,440)
(689)
3,343
203
(21,323)
(7,960)
2,551
7,554
(1,837)
(235)
(1,919)
43,793
(20,794)
(51,000)
362
(71,432)
(10,029)
1,583
(54)
(4,140)
—
—
(37,000)
76,000
26,360
21,584
2,033
233
(1,421)
2,273
656
(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)
(1,279)
4,277
2,998 $
(4,922)
9,199
4,277 $
15,783 $
1,288
11,415 $
2,413
626
1,041
21,756
—
(73)
(607)
2,010
537
(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
9,199
7,589
3,160
495
See accompanying notes to consolidated financial statements.
28
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 28, 2021
(“fiscal 2021”), March 29, 2020 (“fiscal 2020”) and March 31, 2019 (“fiscal 2019”) were 52 weeks. The fiscal year ending April 3, 2022 (“fiscal
2022”) will be 53 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.
29
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. As of
March 28, 2021, we had a significant concentration of credit risk, with a single customer representing approximately 20% of our total trade
receivables. There are no other concentrations of credit risk with other single customers 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. Receivables are reported net of an allowance for credit
losses as determined by management at the end of each reporting period. Our receivable allowance in based on an estimate of expected
credit losses, with the estimate based on a number of qualitative and quantitative factors that, based on collection experience, may have an
impact on repayment risk and ability to collect.
Inventories - Inventories, consisting primarily of finished goods, are primarily valued at the lower of cost or net realizable value, with cost for
approximately 68% of our inventory determined using the last-in, first-out (“LIFO”) method. Cost for the other 32% 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. 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 amortized over
the lesser of their estimated useful lives or the remaining lease term. Depreciation and amortization expense is recorded in our Consolidated
Statement of Income within cost of goods sold and selling, general and administrative expense, depending on the use of the underlying
asset. We recorded depreciation expense of $16.8 million for fiscal 2021, $16.5 million for fiscal 2020 and $16.3 million for fiscal 2019,
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.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
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 asset group. 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. We incurred asset write-off charges of $0.2 million during fiscal 2021 and $0.6 million during fiscal 2020.
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 28, 2020, we performed an analysis of qualitative factors for our
Industrial, Water Treatment and Health and Nutrition 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 any of these reporting units.
Goodwill impairment assessments were also completed in the fourth quarters of fiscal 2020 and 2019 and similarly, we did not record a
goodwill impairment charge.
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. No such events or changes in circumstances occurred
during fiscal 2021, 2020 or 2019. 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 an annual
quantitative impairment test for fiscal 2021. Impairment assessments were also completed in the fourth quarters of fiscal 2020 and 2019
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 stock price on the date of grant.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
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. 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 28, 2021
March 29, 2020
March 31, 2019
21,024,344
235,952
21,260,296
21,159,978
148,822
21,308,800
21,309,774
142,578
21,452,352
There were no shares or stock options excluded from the calculation of weighted average common shares for diluted EPS for fiscal 2021,
2020 or 2019.
Stock Split - On March 1, 2021, we effected a two-for-one stock split of our common stock and adjusted the par value of our common stock
to $.01 par value. Our consolidated financial statements, related notes, and other financial data contained in this report have been adjusted
to give retroactive effect to the stock split for all periods presented.
Derivative Instruments and Hedging Activities - We are subject to interest rate risk associated with our variable rate debt. We had an
interest rate swap agreement which was designated as a cash flow hedge, the purpose of which was to eliminate the cash flow impact of
interest rate changes on a portion of our variable-rate debt. The interest rate swap agreement terminated on December 23, 2020. The hedge
was measured at fair value on the contract date and was 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 December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, Income
Taxes (Topic 740) - Simplifying the Accounting for Income Taxes, removing certain exceptions for investments, intra-period allocations and
interim calculations and adding guidance to reduce complexity in accounting for income taxes. The accounting standard will be effective for
reporting periods beginning after December 15, 2020. Early adoption of this guidance is permitted. The accounting standard is effective for
reporting periods beginning after December 15, 2020 and is not expected to have a material impact on the Company's consolidated financial
position, results of operations and cash flows.
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 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 replaced the incurred loss impairment methodology in previous 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. We adopted this guidance on March 30, 2020. Our
adoption of this ASU impacted our method for calculating and estimating our allowance for doubtful accounts but did not have a material
impact to our financial position or results of operations.
Note 2 — Acquisitions
Acquisition of American Development Corporation of Tennessee, Inc.: On July 28, 2020, we acquired substantially all the assets of
American Development Corporation of Tennessee, Inc. (“ADC”) under the terms of an asset purchase agreement among us, ADC and its
shareholders. We paid $25 million for the acquisition, using funds available under our revolving credit facility with U.S. Bank National
Association to fund the acquisition. ADC was a water treatment chemical distribution company operating primarily in Tennessee, Georgia and
Kentucky. The results of operations since the acquisition date, and the assets, including the goodwill associated with this acquisition, are
included in our Water Treatment segment. Costs associated with this transaction were not material and were expensed as incurred.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
The acquisition has been accounted for as a business combination, under which the total purchase price is allocated to the net tangible and
intangible assets and liabilities of ADC acquired in connection with the acquisition based on their estimated fair values. We estimated the fair
values of the assets acquired and liabilities assumed using a discounted cash flow analysis (income approach). Of the $25 million purchase
price, we allocated $13.3 million to finite-lived intangible assets, primarily customer relationships to be amortized over 17 years, $1.6 million
to property, plant and equipment, and $0.9 million to net working capital. The residual amount of $9.2 million was allocated to goodwill. The
goodwill recognized as a result of this acquisition is primarily attributable to strategic and synergistic benefits, as well as the assembled
workforce. Such goodwill is expected to be deductible for tax purposes. The purchase price allocation is final.
Acquisition of Property: On December 16, 2020, we acquired a manufacturing facility on 28 acres located adjacent to our facility in
Rosemount, Minnesota to allow further expansion and growth in both our Industrial and Water Treatment segments. We paid $10 million for
the property. The purchase of this facility adds approximately 40,000 square feet of manufacturing and warehouse space to bring us to a total
of 105,000 square feet of space on 56 acres of land in the area, with rail access at both of the sites to allow for future growth and provide for
supply chain flexibility on certain raw materials to better serve our customers.
This acquisition has been accounted for as an asset acquisition, under which the total purchase price is allocated to the net tangible assets
acquired based on their estimated fair values. Of the $10 million purchase price, $4.6 million was allocated to buildings, $3.7 million was
allocated to land, $1.4 million was allocated to equipment, and $0.3 million was allocated to site improvements.
Acquisition of C&L Aqua Professionals, Inc. and LC Blending, Inc.: On December 30, 2020, we acquired substantially all the assets of
C&L Aqua Professionals, Inc. and LC Blending, Inc. (together, "C&L Aqua") under the terms of an asset purchase agreement among us, C&L
Aqua and its shareholders. We paid $16 million for the acquisition, using funds available under our revolving credit facility with U.S. Bank
National Association to fund the acquisition. C&L Aqua was a water treatment chemical distribution company operating primarily in Louisiana.
The results of operations since the acquisition date, and the assets, including the goodwill associated with this acquisition, are included in our
Water Treatment segment. Costs associated with this transaction were not material and were expensed as incurred.
The acquisition has been accounted for as a business combination, under which the total purchase price is allocated to the net tangible and
intangible assets and liabilities of C&L Aqua acquired in connection with the acquisition based on their estimated fair values. We estimated
the fair values of the assets acquired and liabilities assumed using a discounted cash flow analysis (income approach). Of the $16 million
purchase price, we preliminarily allocated $8.2 million to finite-lived intangible assets, primarily customer relationships to be amortized over
18 years, $3.6 million to property, plant and equipment, and $1.1 million to net working capital. The residual amount of $3.1 million was
allocated to goodwill. The goodwill recognized as a result of this acquisition is primarily attributable to strategic and synergistic benefits, as
well as the assembled workforce. Such goodwill is expected to be deductible for tax purposes. The purchase price allocation is preliminary
pending finalization of a construction project at the acquired property.
Note 3 — Revenue
Our revenue arrangements generally consist of a single performance obligation to transfer promised goods or services. 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.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
The following table disaggregates external customer net sales by major revenue stream:
(In thousands)
Bulk / Distributed specialty products
Manufactured, blended or repackaged products
Other
(1)
(2)
Total external customer sales
(In thousands)
Bulk / Distributed specialty products
Manufactured, blended or repackaged products
Other
(1)
(2)
Total external customer sales
(In thousands)
Bulk / Distributed specialty products
Manufactured, blended or repackaged products
Other
(1)
(2)
Total external customer sales
Industrial
Fiscal Year Ended March 28, 2021:
Water
Treatment
Health and
Nutrition
38,378
231,427
3,556
273,361
$
$
16,067
152,694
1,243
170,004
$
$
115,317
38,270
(81)
153,506
Industrial
Fiscal Year Ended March 29, 2020:
Water
Treatment
Health and
Nutrition
49,864
222,161
3,199
275,224
$
$
18,481
139,917
1,497
159,895
$
$
90,065
14,770
244
105,079
Industrial
Fiscal Year Ended March 31, 2019:
Water
Treatment
Health and
Nutrition
60,947
216,874
4,039
281,860
$
$
21,813
126,217
1,460
149,490
$
$
109,067
15,684
225
124,976
$
$
$
$
$
$
$
$
$
$
$
$
Total
169,762
422,391
4,718
596,871
Total
158,410
376,848
4,940
540,198
Total
191,827
358,775
5,724
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, 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.
Note 4 — Derivative Instruments
We previously had 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 $20 million swap
agreement terminated on December 23, 2020. We had designated this swap as a cash flow hedge and determined that it qualified for hedge
accounting treatment. For so long as the hedge was effective, changes in fair value of the cash flow hedge were recorded in other
comprehensive income or loss (net of tax) until income or loss from the cash flows of the hedged item was realized.
For the year ended March 28, 2021, we recorded $0.1 million in other comprehensive income related to unrealized gains (net of tax) on the
cash flow hedge. 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. 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.
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. While the interest rate swap was in effect,
we did not anticipate nonperformance by the counterparty.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
Note 5 – 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.
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, which term ended in fiscal 2021, and
assets held in a deferred compensation retirement plan. As of March 28, 2021, 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. 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. The fair value of the interest rate swap was
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 28, 2021 and
March 29, 2020.
(In thousands)
Assets
March 28, 2021
March 29, 2020
Deferred compensation plan assets
Level 1
$
5,946
$
3,564
Liabilities
Interest rate swap
0
Note 6 – Assets Held for Sale
Level 2
—
108
Included in assets held for sale as of March 28, 2021 is $0.7 million for an office building in St. Louis, Missouri currently utilized in the
administration of our Industrial segment, which is expected to be sold in the first quarter of fiscal 2022, and $0.2 million for a water treatment
branch located in Eldridge, Iowa, which has been relocated to another owned facility and was sold in the first quarter of fiscal 2022. At March
29, 2020, $0.9 million was included in assets held for sale pertaining to the St. Louis building. These amounts are recorded as assets held for
sale within prepaid expenses and other current assets on our balance sheet.
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
Note 7 — Inventories
Inventories at March 28, 2021 and March 29, 2020 consisted of the following:
(In thousands)
Inventory (FIFO basis)
LIFO reserve
Net inventory
2021
2020
$
$
69,438 $
(5,574)
63,864 $
60,090
(5,654)
54,436
The FIFO value of inventories accounted for under the LIFO method was $46.8 million at March 28, 2021 and $43.3 million at March 29,
2020. The remainder of the inventory was valued and accounted for under the FIFO method.
Note 8 — 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 March 31, 2019 and March 29, 2020
Addition due to acquisitions
Balance as of March 28, 2021
Industrial
Water Treatment
Health and
Nutrition
$
$
6,495 $
—
6,495 $
7,000 $
12,280
19,280 $
44,945 $
—
44,945 $
Total
58,440
12,280
70,720
The following is a summary of our identifiable intangible assets as of March 28, 2021 and March 29, 2020:
(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
2021
Accumulated
Amortization
Net carrying
value
$
$
99,588 $
6,210
3,833
109,631
1,227
110,858 $
(26,522) $
(4,275)
(3,693)
(34,490)
—
(34,490) $
73,066
1,935
140
75,141
1,227
76,368
Gross Amount
2020
Accumulated
Amortization
Net carrying
value
$
$
78,383 $
6,045
3,648
88,076
1,227
89,303 $
(21,400) $
(3,640)
(3,610)
(28,650)
—
(28,650) $
56,983
2,405
38
59,426
1,227
60,653
Intangible asset amortization expense was $5.8 million during fiscal 2021, $5.1 million during fiscal 2020, and $5.5 million during fiscal 2019.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
The estimated future amortization expense for identifiable intangible assets is as follows:
(In thousands)
Fiscal 2022
Fiscal 2023
Fiscal 2024
Fiscal 2025
Fiscal 2026
Thereafter
Total
Note 9 – Debt
Intangible
Assets
6,235
6,159
6,112
6,112
6,012
44,511
75,141
$
$
$
We have in place 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 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 may use 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 28, 2021, the effective interest rate on our borrowings was 1.1%. 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 28, 2021 and March 29, 2020 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
March 28, 2021
March 29, 2020
$
$
99,000 $
(248)
98,752
(9,907)
88,845 $
60,000
(342)
59,658
(9,907)
49,751
Note 10 — Share-Based Compensation
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 shares 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 124,770 shares in the aggregate for fiscal
2021. 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.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
The following table represents the restricted stock activity for fiscal 2020 and 2021:
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
Granted
Vested
Forfeited or expired
Outstanding at end of fiscal 2021
Shares
102,286 $
15,636
(49,134)
(3,022)
65,766 $
138,504
(55,240)
—
149,030 $
129,626
(10,526)
(29,010)
239,120 $
Weighted-
Average Grant
Date Fair Value
22.70
15.68
21.55
23.75
21.83
17.25
23.01
—
17.13
18.69
15.68
17.92
17.94
The weighted average grant date fair value of performance-based restricted shares issued in fiscal 2021 was $18.69, fiscal 2020 was $17.25
and fiscal 2019 was $15.68. We recorded compensation expense on performance-based restricted stock of approximately $2.5 million for
fiscal 2021, $1.5 million for fiscal 2020 and $1.3 million for fiscal 2019, 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 $0.2 million in fiscal 2021, $1.3 million in fiscal 2020 and $1.1 million in fiscal 2019.
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 share 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 28, 2021 was $3.0 million
and is expected to be recognized over a weighted average period of 1.3 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 2020 and 2021:
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
Granted
Vested
Forfeited or expired
Outstanding at end of fiscal 2021
38
Shares
16,968 $
16,704
(16,968)
—
16,704 $
16,016
(16,704)
—
16,016 $
13,186
(16,016)
(1,958)
11,228 $
Weighted-
Average Grant
Date Fair Value
20.63
17.95
20.63
—
17.95
21.84
17.95
—
21.84
25.59
21.84
25.53
25.60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
Annual expense related to the value of restricted stock was $0.3 million in fiscal 2021, 2020 and 2019, 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 28, 2021 was $0.1 million and is expected to be recognized over a weighted average period of 0.3 years.
Note 11 — Share Repurchases
Our board of directors has authorized the repurchase of up to 1,600,000 shares of our outstanding common shares. 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 shares for the par value of the shares with the excess applied against additional paid-in
capital. We repurchased 166,088 of common shares at an aggregate purchase price of $4.1 million during fiscal 2021. We repurchased
291,166 of common shares at an aggregate purchase price of $5.9 million during fiscal 2020. We repurchased 216,332 of common shares at
an aggregate purchase price of $4.4 million during fiscal 2019. As of March 28, 2021, the number of shares available to be purchased under
the share repurchase program was 551,506.
Note 12 — 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 2021, 2020 and 2019. 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 plan 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.
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 2021, 2020 and 2019.
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 2021, 2020 and 2019 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 shares at a discount from market. The number of new shares issued under the ESPP was
88,148 in fiscal 2021, 77,100 in fiscal 2020 and 87,356 in fiscal 2019.
The following represents the contribution expense for these company-sponsored plans for fiscal 2021, 2020 and 2019:
(In thousands)
Non-bargaining unit employee plans:
Profit sharing
401(k) matching contributions
ESOP
Nonqualified deferred compensation plan
Bargaining unit employee plans
ESPP - all employees
Total contribution expense
2021
2020
2019
$
$
994 $
2,650
994
1,327
555
556
7,076 $
631
2,399
631
1,262
481
431
5,835
$
$
899
2,390
899
1,246
474
376
6,284
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.
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
Note 13 — Commitments and Contingencies
Litigation. As of March 28, 2021, 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.
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 28, 2021. 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.
Note 14 — Income Taxes
The provisions for income taxes for fiscal 2021, 2020 and 2019 were as follows:
(In thousands)
Federal — current
State — current
Total current
Federal — deferred
State — deferred
Total deferred
Total provision
2021
2020
2019
$
$
11,169 $
4,391
15,560
(302)
(387)
(689)
14,871 $
8,447 $
3,563
12,010
(976)
(445)
(1,421)
10,589 $
6,956
2,748
9,704
(334)
(273)
(607)
9,097
Reconciliations of the provisions for income taxes to the applicable federal statutory income tax rate for fiscal 2021, 2020 and 2019 are listed
below.
Statutory federal income tax
State income taxes, net of federal deduction
ESOP dividend deduction on allocated shares
Other — net
Total
2021
2020
2019
21.0 %
5.9 %
(0.2)%
(0.1)%
26.6 %
21.0 %
5.7 %
(0.3)%
0.8 %
27.2 %
21.0 %
5.8 %
(0.3)%
0.6 %
27.1 %
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
The tax effects of items comprising our net deferred tax liability as of March 28, 2021 and March 29, 2020 are as follows:
(In thousands)
Deferred tax assets:
2021
2020
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
ROU asset
Total deferred tax liabilities
Net deferred tax liabilities
$
$
$
$
$
134 $
1,341
1,344
3,191
—
2,882
8,892 $
(2,815) $
(864)
(11,249)
(15,269)
(3,140)
(33,337) $
(24,445) $
212
728
1,435
2,476
29
1,982
6,862
(2,231)
(843)
(10,504)
(15,936)
(2,454)
(31,968)
(25,106)
As of March 28, 2021, the Company has determined that it is more likely than not that the deferred tax assets at March 28, 2021 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 1, 2018 are closed to examination by the Internal Revenue Service, and with few exceptions, state and local
income tax jurisdictions.
Note 15 – Leases
Lease Obligations. As of March 28, 2021, 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 23 years, some of which include options to extend the lease for up to 15 years.
As of March 28, 2021 and March 29, 2020, our operating lease components with initial or remaining terms in excess of one year were
classified on the 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 both twelve months ended March 28, 2021 and March 29, 2020, and includes leases less than
12 months in duration.
Our facility in Fullerton, California is leased from a party related to Daniel Stauber, one of our Board members. The total amount of lease
expense related to this lease in fiscal 2021 was $0.5 million, of which less than $0.1 million was attributable to Mr. Stauber. We have included
$5.7 million on our balance sheet as a right-of-use asset, with a corresponding equal amount of lease liabilities, related to this lease.
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
March 29, 2021
March 29, 2020
9.73
2.7 %
8.73
4.1 %
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
HAWKINS, INC.
Maturities of lease liabilities as of March 28, 2021 were as follows:
(In thousands)
Fiscal 2022
Fiscal 2023
Fiscal 2024
Fiscal 2025
Fiscal 2026
Thereafter
Total
Less: Interest
Present value of lease liabilities
Note 16 — Segment Information
Operating Leases
1,831
$
1,707
1,355
1,304
1,251
6,280
13,728
(1,910)
11,818
$
$
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.
Reportable Segments
(In thousands)
Fiscal Year Ended March 28, 2021:
Sales
Gross profit
Selling, general, and administrative expenses
Operating income
Identifiable assets*
Capital expenditures
Fiscal Year Ended March 29, 2020:
Sales
Gross profit
Selling, general, and administrative expenses
Operating income (loss)
Identifiable assets*
Capital expenditures
Fiscal Year Ended March 31, 2019:
Sales
Gross profit
Selling, general, and administrative expenses
Operating income
Identifiable assets*
Capital expenditures
Industrial
Water
Treatment
Health and
Nutrition
Total
$
$
$
$
$
$
$
$
$
273,361 $
43,337
27,033
16,304
181,478 $
13,713 $
275,224 $
38,936
24,123
14,813
173,068 $
14,933 $
281,860 $
34,900
22,759
12,141
162,926 $
7,319 $
170,004 $
46,793
24,453
22,340
109,761 $
6,732 $
159,895 $
41,902
19,801
22,101
63,506 $
9,160 $
149,490 $
37,986
19,498
18,488
58,274 $
4,506 $
153,506 $
33,632
16,398
17,234
166,558 $
349 $
105,079 $
20,079
15,322
4,757
139,780 $
456 $
124,976 $
23,050
16,861
6,189
146,042 $
793 $
596,871
123,762
67,884
55,878
457,797
20,794
540,198
100,917
59,246
41,671
376,354
24,549
556,326
95,936
59,118
36,818
367,242
12,618
* Unallocated assets not included, consisting primarily of cash and cash equivalents, investments and prepaid expenses, were $14.8 million
at March 28, 2021, $13.0 million at March 29, 2020 and $18.4 million at March 31, 2019.
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 28, 2021, based on the criteria described
in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In
making this assessment as of March 28, 2021, we have excluded the Louisiana water treatment operations acquired from C&L Aqua
Professionals, Inc. and LC Blending, Inc. on December 30, 2020. The financial statements of this business comprise 3.5% of total assets and
less than 1% of total revenues in our consolidated financial amounts as of and for the year ended March 28, 2021. We have excluded this
business because we have not had sufficient time to make an assessment of its internal controls using the COSO criteria in accordance with
Section 404 of the Sarbanes-Oxley Act of 2002. In excluding this business from our assessment, we have considered the “Frequently Asked
Questions” as set forth by the office of the Chief Accountant and the Division of Corporate Finance on June 24, 2004, as revised on
September 24, 2007, which acknowledges that it may not be possible to conduct an assessment of an acquired business’s internal control
over financial reporting in the period between the consummation date and the date of management’s assessment and contemplates that
such business would be excluded from management’s assessment in the year of acquisition. Based on this assessment, management
believes that our internal control over financial reporting was effective as of March 28, 2021.
Our independent registered public accounting firm has issued an attestation report on our internal control over financial reporting for
March 28, 2021 which is included in the Report of Independent Registered Public Accounting Firm in Item 8 of this Annual Report on 10-K.
Changes in Internal Control Procedures
There was no change in our internal control over financial reporting during the fourth quarter of fiscal 2021 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
43
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 29, 2021 (the “2021 Proxy Statement”). Except for those portions specifically incorporated in this Form 10-K
by reference to the 2021 Proxy Statement, no other portions of the 2021 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
Douglas A. Lange
Theresa R. Moran
Shirley A. Rozeboom
John R. Sevenich
Office
Chief Executive Officer and President
Executive 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
Age
50
48
57
51
51
58
59
63
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 has been our Executive Vice President, Chief Financial Officer and Treasurer since October 2021. Mr. 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 2015 to May 2017 and as Vice President of Finance for the MTS Test business from 2014 to 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.
Douglas A. Lange has been our Vice President - Water Treatment Group since June 2020. Prior to attaining this position, Mr. Lange served
the Company as General Manager and Product Development Manager for the Water Treatment Group after joining the company in January
2019. Prior to joining the Company, Mr. Lange was with H.B. Fuller Company, a global supplier of special adhesives, where he served as
Global Marketing Manager and Product Manager for specialty markets in electronics and wood products from 2011 to January 2019. Mr.
Lange served in various roles in the specialty adhesives market for a total of 21 years prior to joining the Company.
44
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.
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. Mr. Sevenich has announced his intent to retire
from all positions in June 2021.
The disclosure under the headings “Election of Directors,” “Corporate Governance,” and, if applicable, “Delinquent Section 16(a) Reports” of
the 2021 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 2021 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 2021 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 2021 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 2021 Proxy Statement is incorporated
herein by reference.
45
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 28, 2021 and March 29, 2020.
Consolidated Statements of Income for the fiscal years ended March 28, 2021, March 29, 2020 and March 31, 2019.
Consolidated Statements of Comprehensive Income for the fiscal years ended March 28, 2021, March 29, 2020 and
March 31, 2019.
Consolidated Statements of Shareholders’ Equity for the fiscal years ended March 28, 2021, March 29, 2020, and
March 31, 2019.
Consolidated Statements of Cash Flows for the fiscal years ended March 28, 2021, March 29, 2020, and March 31, 2019.
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 2021, 2020 and 2019.
Schedule II — Valuation and Qualifying Accounts.
(a)(3)
EXHIBITS
46
Exhibit Index
Exhibit
Description
3.1 Restated Articles of Incorporation.(1)
3.2 Amended and Restated By-Laws.(2)
4.1 Description of Securities.
10.1* Hawkins, Inc. 2010 Omnibus Incentive Plan.(3)
10.2* Hawkins, Inc. Executive Severance Plan.(4)
10.3
Employee Stock Purchase Plan, as amended. (5)
10.4
Amended and Restated Credit Agreement, dated as of November 30, 2018, among
the Company, U.S. Bank National Association, and certain financial institutions. (6)
10.5 Hawkins, Inc. 2019 Equity Incentive Plan. (7)
10.6
Form of Performance Stock Unit Award Notice and Restricted Stock Agreement
under the Company’s 2019 Equity Incentive Plan. (8)
10.7 Nine Year LTI with Shirley Rozeboom.
16.1 Correspondence from KPMG LLP dated February 11, 2020. (9)
21
Subsidiaries of the registrant.
23.1 Consent of Grant Thornton LLP.
23.2 Consent of KPMG LLP.
24.1
Powers of Attorney.
31.1
31.2
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.
32.1 Section 1350 Certification by Chief Executive Officer.
32.2 Section 1350 Certification by Chief Financial Officer.
101
Financial statements from the Annual Report on Form 10-K of Hawkins, Inc. for the
period ended March 28, 2021, filed with the SEC on May 20, 2021, formatted in Inline
Extensible Business Reporting Language (iXBRL): (i) the Consolidated Balance
Sheets at March 28, 2021 and March 29, 2020 (ii) the Consolidated Statements of
Income for the fiscal years ended March 28, 2021, March 29, 2020, and March 31,
2019, (iii) the Consolidated Statements of Comprehensive Income for the fiscal years
ended March 28, 2021, March 29, 2020, and March 31, 2019, (iv) the Consolidated
Statements of Shareholders’ Equity for the fiscal years ended March 28, 2021, March
29, 2020, and March 31, 2019 (v) Consolidated Statements of Cash Flows for the
fiscal years ended March 28, 2021, March 29, 2020, and March 31, 2019, and
(iv) Notes to Consolidated Financial Statements.
Method of Filing
Incorporated by Reference
Incorporated by Reference
Filed Electronically
Incorporated by Reference
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
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 3.2 to the Company’s Current Report on Form 8-K dated February 26, 2021 and filed March
March 2, 2021.
(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.
(4)
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.
(5)
Incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 filed November 2, 2018.
(6)
Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form 8-K filed December 3, 2018.
(7)
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.
(8)
Incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K filed May 20,2020.
(9)
Incorporated by reference to Exhibit 16.1 to the Company’s Current Report on Form 8-K dated February 11, 2020.
ITEM 16. FORM 10-K SUMMARY
None
SIGNATURES
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.
HAWKINS, INC.
By
/s/ Patrick H. Hawkins
Patrick H. Hawkins
Chief Executive Officer and President
Dated:
June 2, 2021
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
*
James A. Faulconbridge
*
Mary J. Schumacher
*
Daniel J. Stauber
*
Yi "Faith" Tang
*
James T. Thompson
*
Jeffrey L. Wright
Chief Executive Officer, President and Director
(principal executive officer)
Executive Vice President and Chief Financial Officer
(principal financial officer and principal accounting officer)
Director
Director
Director
Director
Director
Director
Date
June 2, 2021
June 2, 2021
June 2, 2021
June 2, 2021
June 2, 2021
June 2, 2021
June 2, 2021
June 2, 2021
* 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 28, 2021, March 29, 2020 AND March 31, 2019
Description
Reserve deducted from asset to which it
applies:
Fiscal Year Ended March 28, 2021:
Allowance for doubtful accounts
Fiscal Year Ended March 29, 2020:
Allowance for doubtful accounts
Fiscal Year Ended March 31, 2019:
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
$
$
$
784 $
— $
620 $
448 $
942 $
92 $
— $
— $
— $
287 $
284 $
414 $
497
784
620
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 60,000,000 shares, with a par value of $0.01 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.
Nine Year LTI with Shirley Rozeboom
Exhibit 10.7
I. ELIGIBILITY:
Shirley Rozeboom, SVP Sales and Marketing
II. PROGRAM EFFECTIVE DATE:
September 2016
III. INDIVIDUAL COMPENSATION DESIGN SUMMARY
Shirley Rozeboom Compensation
9 Year Retention Program: $500,000
IV. PAYOUT OPPORTUNITY FOR LTIP:
$500,000 lump sum payment upon reaching 63rd birthday
•
•
Cash payment at end of nine year period (must be employed at end of period)
Payout based on your employment in good standing on your 63rd birthday
V. MISCELLANEOUS:
•
In the case of death/disability or termination without cause the cash payment will be pro-rated through the last day worked.
• Payments will be treated as income for tax purposes and will be subject to supplemental, federal, state and local tax withholding
requirements.
•
In the event that the Company makes an overpayment to a participant in excess of the amount to which the participant is
entitled, these payments will be considered overpayments and must be paid back to the Company.
• Nothing in the noted guidelines shall be construed to confer upon any employee the right to continue in the employ of the
Company or affect the right of the Company to terminate his/her employment at any time.
Subsidiaries of Hawkins, Inc.
Exhibit 21
Subsidiary
Stauber Holdings, Inc.
Stauber Performance Ingredients, Inc., a subsidiary of Stauber Holdings, Inc.
C & L Aqua Professionals, Inc.
State of Organization
Minnesota
Minnesota
Minnesota
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
The Board of Directors
Hawkins, Inc.:
We have issued our reports dated June 2, 2021, with respect to the consolidated financial statements and internal control over financial
reporting included in the Annual Report of Hawkins, Inc. on Form 10-K for the year ended March 28, 2021. We consent to the incorporation
by reference of said reports in the Registration Statements of Hawkins, Inc. on Forms S-8 (File Nos. 333-87582, 333-123080, 333-172761,
333-174735, 333-228128 and 333-234432).
/s/ Grant Thornton LLP
Minneapolis, Minnesota
June 2, 2021
Consent of Independent Registered Public Accounting Firm
Exhibit 23.2
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, 333-
228128 and 333-234432) on Form S-8 of Hawkins, Inc. of our report dated May 20, 2020, except as to the stock split and par value
adjustment as described in Note 1, which are as of June 2, 2021, with respect to the consolidated balance sheet of Hawkins, Inc. as of March
29, 2020 and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the
years in the two-year period ended March 29, 2020.
Our report dated May 20, 2020 refers to a change to the method of accounting for leases.
/s/ KPMG LLP
Minneapolis, Minnesota
June 2, 2021
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 28, 2021 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 A. Faulconbridge
James A. Faulconbridge
May 20, 2021
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 28, 2021 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 J. Schumacher
Mary J. Schumacher
May 20, 2021
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 28, 2021 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 J. Stauber
Daniel J. Stauber
May 20, 2021
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 28, 2021 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/ Yi “Faith” Tang
Yi “Faith” Tang
May 20, 2021
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 28, 2021 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 T. Thompson
James Thompson
May 20, 2021
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 28, 2021 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 L. Wright
Jeffrey L. Wright
May 20, 2021
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) 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
b) 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: June 2, 2021
/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) 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
b) 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: June 2, 2021
/s/ Jeffrey P. Oldenkamp
Jeffrey P. Oldenkamp
Executive Vice President and Chief Financial Officer
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 28, 2021, 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
June 2, 2021
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 28, 2021, 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
Executive Vice President and Chief Financial Officer
June 2, 2021