Hawkins(HWKN) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Hawkins, Inc. presents unaudited condensed consolidated financial statements, highlighting $217.5 million shareholders' equity and $20.7 million net income for the nine-month period Condensed Consolidated Balance Sheets Total assets slightly decreased to $388.4 million as of December 30, 2018, while total liabilities decreased, leading to an increase in shareholders' equity to $217.5 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 30, 2018 | April 1, 2018 | | :--- | :--- | :--- | | Total Assets | $388,444 | $390,991 | | Total Current Assets | $142,180 | $134,982 | | Net Property, Plant, and Equipment | $117,604 | $123,826 | | Total Liabilities | $170,914 | $188,744 | | Total Current Liabilities | $53,083 | $60,567 | | Long-Term Debt, Less Current Portion | $80,635 | $90,762 | | Total Shareholders' Equity | $217,530 | $202,247 | Condensed Consolidated Statements of Income Sales increased to $128.2 million for the quarter and $423.3 million for nine months, with net income of $4.1 million and $20.7 million respectively Three Months Ended Financial Performance (in thousands, except per-share data) | Metric | Dec 30, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | | Sales | $128,151 | $118,053 | | Gross Profit | $21,033 | $18,840 | | Operating Income | $6,721 | $4,701 | | Net Income | $4,130 | $17,143* | | Diluted EPS | $0.39 | $1.61* | Nine Months Ended Financial Performance (in thousands, except per-share data) | Metric | Dec 30, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | | Sales | $423,275 | $377,179 | | Gross Profit | $75,262 | $68,954 | | Operating Income | $31,030 | $24,221 | | Net Income | $20,662 | $28,184* | | Diluted EPS | $1.93 | $2.65* | - *Prior year net income for both three and nine-month periods included a significant one-time tax benefit related to the U.S. Tax Cuts and Jobs Act[12][53] Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly increased to $31.0 million, while investing activities used $7.0 million and financing activities used $21.7 million Nine Months Ended Cash Flow Summary (in thousands) | Cash Flow Activity | Dec 30, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | | Net cash provided by operating activities | $31,030 | $14,560 | | Net cash used in investing activities | ($7,038) | ($16,704) | | Net cash (used in) provided by financing activities | ($21,682) | $2,918 | | Net increase in cash and cash equivalents | $2,310 | $774 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, segment performance, debt refinancing with a new $150 million revolving credit facility, and $2.4 million in share repurchases - The company adopted the new revenue recognition standard (ASU 2014-09) on April 2, 2018, with no impact on its financial position or results of operations[21][23][25] Nine Months Ended 2018 Sales by Segment (in thousands) | Segment | Sales | % of Total | | :--- | :--- | :--- | | Industrial | $212,446 | 50.2% | | Water Treatment | $116,322 | 27.5% | | Health and Nutrition | $94,507 | 22.3% | | Total | $423,275 | 100.0% | - On November 30, 2018, the company refinanced its debt, entering into a new five-year, $150.0 million senior secured revolving credit facility, which replaced its previous term and revolving loans[46] Nine Months Ended 2018 Operating Income by Segment (in thousands) | Segment | Operating Income | | :--- | :--- | | Industrial | $10,193 | | Water Treatment | $16,052 | | Health and Nutrition | $4,785 | | Total | $31,030 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses increased sales, gross profit, and operating income, driven by segment growth and improved liquidity from operations and a new $150 million credit facility Results of Operations Q3 sales rose 8.6% to $128.2 million and operating income to $6.7 million; nine-month sales increased 12.2% to $423.3 million and operating income to $31.0 million Q3 FY19 vs Q3 FY18 Performance Summary | Metric | Q3 FY19 | Q3 FY18 | Change | | :--- | :--- | :--- | :--- | | Sales | $128.2M | $118.1M | +8.6% | | Gross Profit | $21.0M | $18.8M | +11.7% | | Operating Income | $6.7M | $4.7M | +42.6% | Nine Months FY19 vs FY18 Performance Summary | Metric | YTD FY19 | YTD FY18 | Change | | :--- | :--- | :--- | :--- | | Sales | $423.3M | $377.2M | +12.2% | | Gross Profit | $75.3M | $69.0M | +9.1% | | Operating Income | $31.0M | $24.2M | +28.1% | - The Industrial segment's sales grew 14.4% in Q3 and 16.1% in the nine-month period due to higher volumes and increased selling prices. The Water Treatment segment's sales increased 6.1% in Q3 and 8.4% in the nine-month period from higher volumes and favorable product mix[73][86][87] - SG&A expenses decreased by $0.5 million for the nine-month period due to management actions, despite increases in certain variable expenses[94] Liquidity and Capital Resources Liquidity strengthened with cash from operations doubling to $31.0 million, and debt refinanced into a new $150 million revolving credit facility for greater flexibility - Cash provided by operating activities increased to $31.0 million for the nine months ended Dec 30, 2018, compared to $14.6 million in the prior year, mainly due to higher operating income and improved working capital management[100] - Capital expenditures decreased to $7.2 million for the nine-month period, down from $17.0 million in the prior year, which included non-recurring projects[102] - On November 30, 2018, the company entered into a new five-year, $150.0 million revolving credit facility, refinancing its previous debt structure and using $91.0 million of the proceeds to pay off existing obligations[106][107] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company manages market risks from commodity prices by passing costs to customers and mitigates interest rate risk on variable-rate debt with an interest rate swap - The company is subject to risk from cyclical commodity chemical prices but does not use forward contracts or hedging for purchases, instead aiming to pass cost changes to customers[116] - To manage interest rate risk, the company has an interest rate swap designated as a cash flow hedge, converting a portion of its variable-rate debt to a fixed rate. The notional amount is $30 million through August 2019 and decreases thereafter until its termination in December 2020[117][118] Item 4. Controls and Procedures CEO and CFO concluded disclosure controls and procedures were effective as of December 30, 2018, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 30, 2018[120] - No changes occurred in the company's internal control over financial reporting during the third quarter of fiscal 2019 that materially affected, or are reasonably likely to materially affect, internal controls[121] PART II. OTHER INFORMATION Item 1. Legal Proceedings No material pending legal proceedings are reported, only ordinary routine litigation incidental to the company's business - There are no material pending legal proceedings against the company or its subsidiaries, apart from ordinary, routine litigation[123] Item 1A. Risk Factors No material changes to the company's risk factors have occurred since the Annual Report on Form 10-K for fiscal year ended April 1, 2018 - No material changes to risk factors have occurred since the company's last Annual Report on Form 10-K[124] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 59,788 shares of common stock during the quarter, with 52,758 shares remaining available under the program Share Repurchases for Q3 FY19 | Period | Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | 10/29/2018-11/25/2018 | 29,995 | $39.24 | | 11/26/2018-12/30/2018 | 29,793 | $40.57 | | Total | 59,788 | - | - As of December 30, 2018, 52,758 shares remained available for repurchase under the authorized plan[125] Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including the Amended and Restated Credit Agreement and CEO/CFO certifications - Key exhibits filed include: - Amended and Restated Credit Agreement (Exhibit 10.2) - CEO and CFO Certifications (Exhibits 31.1, 31.2, 32.1, 32.2) - XBRL Interactive Data File (Exhibit 101)[129]