Hawkins(HWKN) - 2022 Q4 - Annual Report

PART I ITEM 1. Business Hawkins, Inc. operates in Industrial, Water Treatment, and Health and Nutrition segments, providing specialty chemicals and ingredients with a focus on quality and value - Hawkins, Inc. operates in three segments: Industrial, Water Treatment, and Health and Nutrition, providing specialty chemicals and ingredients[16][174] - The Industrial Group specializes in chemicals for agriculture, chemical processing, electronics, energy, food, pharmaceutical, and plating industries, with principal products including acids, alkalis, and food/pharmaceutical salts[17] - The Water Treatment Group offers chemicals, products, equipment, and services for potable water, municipal and industrial wastewater, and agricultural water[19][174] - The Health and Nutrition Group provides ingredient distribution, processing, and formulation solutions for nutraceutical, functional food and beverage, personal care, and dietary supplement manufacturers[22][174] - The company sources raw materials from numerous domestic and international suppliers and relies on distributorship agreements or supply contracts[24] - No single customer accounted for 10% or more of total sales in fiscal 2022, indicating diversified customer concentration[26] - The company operates in a competitive industry, competing on product quality, customer service, competitive pricing, and value-added services[27][40] - The company is subject to extensive federal, state, and local environmental, health, safety, and product-related regulations, including DOT and FDA GMPs[29][30][31][66][67][69][70] - As of April 3, 2022, Hawkins had 813 employees, with 807 full-time; approximately 38% were female or racially/ethnically diverse, and 10% were covered by collective bargaining agreements[37] ITEM 1A. Risk Factors The company faces risks from intense competition, product liability, raw material price volatility, supply chain disruptions, and regulatory compliance - The company operates in a highly competitive industry, facing significant competition and price pressure from larger competitors with greater financial resources[40] - Product liability claims, recalls, and adverse publicity, especially for chemical, food, pharmaceutical, and dietary supplement products, could significantly impact financial condition and reputation[41][45] - Fluctuations in raw material prices and availability, which can be cyclical and rapid, could materially affect operations and profit margins, as the company does not use derivatives to hedge these risks[47][48][49] - Supply chain disruptions, including transportation network issues, driver shortages, and port congestion, have negatively impacted and could continue to impact production and financial results[56][57][58] - The business is subject to hazards common to chemical operations (e.g., explosions, spills, natural disasters) which could interrupt production, cause property damage, and lead to environmental contamination[51][52][62][63][64] - Compliance with environmental, health, safety, transportation, and product-specific regulations incurs substantial costs and exposes the company to potential liabilities, fines, and operational restrictions[66][67][68][69][70] - Failure to comply with financial covenants under the $250.0 million revolving credit facility could result in default and materially adverse effects[74][75][76] - Impairment to the carrying value of goodwill or other intangible assets, which are tested annually, could adversely affect financial condition and consolidated results of operations[77][78][79] ITEM 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC - No unresolved staff comments were reported[80] ITEM 2. Properties Hawkins, Inc. owns and leases various facilities across its segments, including corporate headquarters, manufacturing plants, and numerous warehouses - The company's facilities include a 50,000 sq ft corporate headquarters in Roseville, MN[82] - Health and Nutrition segment operates facilities in Fullerton, CA (leased, 55,800 sq ft) and Florida, NY (owned 79,000 sq ft manufacturing, leased 28,000 sq ft warehouse)[82][84] - Industrial segment has significant manufacturing and terminal operations in Minneapolis, MN (177,000 sq ft), Centralia, IL (77,000 sq ft), Dupo, IL (64,000 sq ft, leased land), St. Paul, MN (32,000 sq ft, leased land), and Rosemount, MN (105,000 sq ft across two adjacent facilities)[82][84] - Water Treatment group operates out of 37 warehouses, with 33 additional owned warehouse locations beyond those listed in the table[21][81] - Several key facilities, including terminals in St. Paul, MN, and a manufacturing facility in Dupo, IL, are on leased land with expiration dates ranging from 2023 to 2044[65][84] ITEM 3. Legal Proceedings Hawkins, Inc. is not currently involved in any material legal proceedings beyond routine litigation incidental to its business operations - No material pending legal proceedings were reported, other than ordinary routine litigation incidental to the business[83][277] ITEM 4. Mine Safety Disclosures Mine Safety Disclosures are not applicable to Hawkins, Inc.'s operations - Mine Safety Disclosures are not applicable[84] PART II ITEM 5. Market for the Company's Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities Hawkins, Inc.'s common shares are listed on Nasdaq under "HWKN", with approximately 387 shareholders of record as of May 13, 2022 - Common shares are listed on the Nasdaq Global Select Market under the symbol "HWKN"[3] - As of May 13, 2022, there were approximately 387 shareholders of record[86] - The aggregate market value of voting stock held by non-affiliates on September 26, 2021, was approximately $706.8 million[4] - As of May 13, 2022, the Registrant had 21,078,132 shares of common shares outstanding[5] ITEM 6. Reserved This item is reserved and contains no information - No unresolved staff comments were reported[80] ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Hawkins, Inc.'s financial condition and results for fiscal 2022 and 2021, highlighting sales growth, acquisition strategy, and liquidity - The company focuses on total profitability dollars rather than profitability as a percentage of sales, due to fluctuations in raw material prices[92] - The majority of inventory (73%) in Industrial and Water Treatment segments is valued using the LIFO method, while Health and Nutrition uses FIFO[93][190] - The company completed three Water Treatment segment acquisitions in fiscal 2022 (NAPCO Chemical Company, Water and Waste Specialties, Southeast Water Systems) with aggregate annual revenue of approximately $17 million[95][96][97][101] - In fiscal 2021, the company acquired C&L Aqua Professionals, Inc. and American Development Corporation of Tennessee, Inc. (ADC), and a manufacturing facility in Rosemount, MN, totaling approximately $25 million in aggregate annual revenue from the acquired businesses[98][99][100][101] - On March 1, 2021, a two-for-one common stock split was effected, adjusting par value to $0.01 per share and increasing authorized shares from 30 million to 60 million[102] - All manufacturing facilities qualified as essential operations during the COVID-19 pandemic, maintaining output levels and focusing on employee/customer safety[104][105] Fiscal 2022 Compared to Fiscal 2021 In fiscal 2022, Hawkins, Inc. experienced substantial growth, with sales increasing by 30% to $774.5 million driven by higher selling prices and demand Fiscal 2022 vs. Fiscal 2021 Financial Highlights | Metric | Fiscal 2022 (Millions) | Fiscal 2021 (Millions) | Change (Millions) | % Change | % of Sales (FY22) | % of Sales (FY21) | | :---------------------------------- | :--------------------- | :--------------------- | :---------------- | :------- | :---------------- | :---------------- | | Sales | $774.5 | $596.9 | $177.6 | 30% | 100.0% | 100.0% | | Cost of Sales | $(628.0) | $(473.1) | $(154.9) | 33% | (81.1)% | (79.3)% | | Gross Profit | $146.5 | $123.8 | $22.7 | 18% | 18.9% | 20.7% | | SG&A Expenses | $(75.3) | $(67.9) | $(7.4) | 11% | (9.7)% | (11.3)% | | Operating Income | $71.2 | $55.9 | $15.3 | 27% | 9.2% | 9.4% | | Interest Expense, Net | $(1.4) | $(1.5) | $0.1 | -7% | (0.2)% | (0.2)% | | Income Before Income Taxes | $70.0 | $55.9 | $14.1 | 25% | 9.0% | 9.4% | | Income Tax Provision | $(18.4) | $(14.9) | $(3.5) | 23% | (2.3)% | (2.5)% | | Net Income | $51.5 | $41.0 | $10.5 | 26% | 6.7% | 6.9% | - The 53rd week in fiscal 2022 contributed approximately $17.5 million in additional sales, $3.6 million in gross profit, $1.0 million in SG&A expense, and $3 million in operating income[107][108][109][110][111][112][113][114][115][116] - Industrial segment sales increased by 42% to $386.9 million, driven by increased selling prices due to higher raw material costs and increased sales of bulk and manufactured products[108] - Water Treatment segment sales increased by 34% to $228.1 million, due to increased demand and sales from acquisitions[109] - Health and Nutrition segment sales increased by 4% to $159.5 million, primarily from specialty distributed products, partially offset by normalizing demand for manufactured products post-COVID-19 surge[110] - Gross profit as a percentage of sales decreased from 20.7% in fiscal 2021 to 18.9% in fiscal 2022, largely due to a $15.8 million increase in the LIFO reserve from rising input costs[106][111] - SG&A expenses increased by $7.4 million but decreased as a percentage of sales from 11.3% to 9.7%, reflecting added costs from acquisitions, increased variable incentive compensation, new personnel, and normalization of travel expenses[106][115] - The effective tax rate remained consistent at approximately 26.5% for both fiscal 2022 and fiscal 2021[117] Selected Quarterly Financial Data Selected quarterly financial data for fiscal years 2022, 2021, and 2020 shows consistent growth in sales, gross profit, operating income, and net income, with an upward trend in EPS Selected Quarterly Financial Data (Fiscal 2022) | (In thousands, except per share data) | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | | :---------------------------------- | :------------ | :------------- | :------------ | :------------- | :---- | | Sales | $181,241 | $183,277 | $187,050 | $222,973 | $774,541 | | Gross profit | $38,974 | $37,287 | $33,940 | $36,319 | $146,520 | | Selling, general, and administrative expenses | $16,856 | $17,679 | $19,681 | $21,110 | $75,326 | | Operating income | $22,118 | $19,608 | $14,259 | $15,209 | $71,194 | | Net income | $16,628 | $14,133 | $10,204 | $10,577 | $51,542 | | Basic earnings per share | $0.79 | $0.67 | $0.49 | $0.51 | $2.46 | | Diluted earnings per share | $0.79 | $0.67 | $0.48 | $0.50 | $2.44 | Selected Quarterly Financial Data (Fiscal 2021) | (In thousands, except per share data) | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | | :---------------------------------- | :------------ | :------------- | :------------ | :------------- | :---- | | Sales | $143,172 | $147,801 | $142,927 | $162,971 | $596,871 | | Gross profit | $30,976 | $32,797 | $28,239 | $31,750 | $123,762 | | Selling, general, and administrative expenses | $15,038 | $16,221 | $17,750 | $18,875 | $67,884 | | Operating income | $15,938 | $16,576 | $10,489 | $12,875 | $55,878 | | Net income | $11,788 | $12,190 | $7,921 | $9,081 | $40,980 | | Basic earnings per share | $0.56 | $0.58 | $0.38 | $0.43 | $1.95 | | Diluted earnings per share | $0.55 | $0.57 | $0.37 | $0.43 | $1.93 | Selected Quarterly Financial Data (Fiscal 2020) | (In thousands, except per share data) | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | | :---------------------------------- | :------------ | :------------- | :------------ | :------------- | :---- | | Sales | $147,336 | $140,043 | $120,406 | $132,413 | $540,198 | | Gross profit | $28,797 | $27,994 | $21,478 | $22,648 | $100,917 | | Selling, general, and administrative expenses | $14,836 | $14,817 | $14,702 | $14,891 | $59,246 | | Operating income | $13,961 | $13,177 | $6,776 | $7,757 | $41,671 | | Net income | $9,807 | $9,250 | $4,547 | $4,763 | $28,367 | | Basic earnings per share | $0.46 | $0.44 | $0.22 | $0.23 | $1.34 | | Diluted earnings per share | $0.46 | $0.43 | $0.21 | $0.22 | $1.33 | Liquidity and Capital Resources Hawkins, Inc.'s operating cash flow slightly decreased in fiscal 2022, while investing activities decreased, and the company refinanced its credit facility to enhance liquidity Cash Flow Summary (In millions) | Cash Flow Activity | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | | :-------------------------------- | :---------- | :---------- | :---------- | | Net cash provided by operating activities | $42.8 | $43.8 | $58.9 | | Net cash used in investing activities | $(49.8) | $(71.4) | $(24.2) | | Net cash provided by (used in) financing activities | $7.4 | $26.4 | $(39.6) | | Net increase (decrease) in cash and cash equivalents | $0.5 | $(1.3) | $(4.9) | | Cash and cash equivalents - end of year | $3.5 | $3.0 | $4.3 | - Capital expenditures were $28.5 million in fiscal 2022, up from $20.8 million in fiscal 2021, including investments in vehicles, facility improvements, and pharmaceutical ingredient manufacturing[121] - Water Treatment group acquisitions totaled $21.5 million in fiscal 2022, a decrease from $51.0 million in fiscal 2021[121] - Cash dividends paid were $11.1 million in fiscal 2022, and $8.5 million was used for share repurchases[122] - On March 31, 2022, the company entered into a new credit agreement, establishing a $250 million senior secured revolving credit facility maturing on April 30, 2027[125][255] - As of April 3, 2022, $126.0 million was outstanding under the Revolving Loan Facility, with an effective interest rate of 1.2%[126][127][257] - The Credit Agreement requires maintaining a minimum fixed charge coverage ratio of 1.15 to 1.00 and a maximum total cash flow leverage ratio of 3.0 to 1.0[131][259] - The company has an interest rate swap agreement with a notional amount of $60 million, terminating May 1, 2027, to manage variable-rate debt risk[133][235] Contractual Obligations and Commercial Commitments The company's contractual obligations primarily consist of senior secured revolver debt, interest payments, operating lease obligations, and a pension withdrawal liability Contractual Payment Obligations (In thousands) | Contractual Obligation | 2023 | 2024 | 2025 | 2026 | 2027 | More than 5 Years | Total | | :----------------------- | :--- | :--- | :--- | :--- | :--- | :---------------- | :---- | | Senior secured revolver | $— | $— | $— | $— | $— | $126,000 | $126,000 | | Interest payments | $1,833 | $1,833 | $1,833 | $1,833 | $1,833 | $152 | $9,317 | | Operating lease obligations | $1,889 | $1,515 | $1,450 | $1,388 | $1,359 | $5,171 | $12,772 | | Pension withdrawal liability | $467 | $467 | $467 | $467 | $467 | $3,037 | $5,372 | - The senior secured revolver balance of $126 million is assumed to remain outstanding until its April 30, 2027 maturity, though the company intends to pay down debt with excess cash flow[125][135] - Pension withdrawal liability payments will continue through 2034[136] Critical Accounting Estimates Hawkins, Inc. has determined that it has no critical accounting estimates material to its consolidated financial position, results of operations, or cash flow - The company has no critical accounting estimates material to its consolidated financial position, results of operations, or cash flow[137] ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk Hawkins, Inc. is exposed to market risks from commodity chemical prices and interest rate fluctuations, managing the latter with an interest rate swap - The company is subject to market risk from the cyclical nature of commodity chemical prices but does not engage in forward contracts or hedging for these purchases[138] - Interest rate risk is limited to borrowings under the credit facility, with a 25-basis point change on the unhedged variable-rate debt potentially impacting annual interest expense by approximately $0.3 million[139] - Other market risks, such as foreign currency risk, are not significant in the normal course of business[139] ITEM 8. Financial Statements and Supplementary Data This section presents audited consolidated financial statements for fiscal years 2022, 2021, and 2020, along with independent auditor reports confirming internal control effectiveness - Grant Thornton LLP issued an unqualified opinion on the effectiveness of internal control over financial reporting as of April 3, 2022, based on COSO criteria[144] - Grant Thornton LLP also expressed an unqualified opinion on the consolidated financial statements for the years ended April 3, 2022, and March 28, 2021[145][153] - KPMG LLP issued an unqualified opinion on the consolidated financial statements for the year ended March 29, 2020[161] - No critical audit matters were identified by Grant Thornton LLP for the current period audit[157] Consolidated Balance Sheets The consolidated balance sheets show an increase in total assets to $567.3 million and total liabilities to $264.7 million in fiscal 2022, with shareholders' equity growing to $302.6 million Consolidated Balance Sheet Summary (In thousands) | Asset/Liability/Equity | April 3, 2022 | March 28, 2021 | | :-------------------------------- | :------------ | :------------- | | ASSETS: | | | | Cash and cash equivalents | $3,496 | $2,998 | | Trade accounts receivables, net | $122,826 | $90,603 | | Inventories | $94,985 | $63,864 | | Total current assets | $227,738 | $163,007 | | Net property, plant, and equipment | $161,846 | $144,612 | | Goodwill | $77,401 | $70,720 | | Intangible assets, net | $80,193 | $76,368 | | Total assets | $567,328 | $472,550 | | LIABILITIES: | | | | Accounts payable — trade | $66,693 | $37,313 | | Total current liabilities | $101,466 | $70,462 | | Long-term debt, less current portion | $115,644 | $88,845 | | Total liabilities | $264,727 | $207,304 | | SHAREHOLDERS' EQUITY: | | | | Total shareholders' equity | $302,601 | $265,246 | - Trade accounts receivables, net, increased by $32.2 million (35.6%) from $90.6 million in fiscal 2021 to $122.8 million in fiscal 2022[165] - Inventories increased by $31.1 million (48.7%) from $63.9 million in fiscal 2021 to $95.0 million in fiscal 2022[165] - Accounts payable — trade increased by $29.4 million (78.5%) from $37.3 million in fiscal 2021 to $66.7 million in fiscal 2022[165] - Long-term debt, less current portion, increased by $26.8 million (30.2%) from $88.8 million in fiscal 2021 to $115.6 million in fiscal 2022[165] Consolidated Statements of Income The consolidated statements of income show strong performance, with sales increasing to $774.5 million and net income to $51.5 million in fiscal 2022, driving EPS growth Consolidated Statements of Income (In thousands, except per share data) | Metric | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | | :---------------------------------- | :---------- | :---------- | :---------- | | Sales | $774,541 | $596,871 | $540,198 | | Cost of sales | $(628,021) | $(473,109) | $(439,281) | | Gross profit | $146,520 | $123,762 | $100,917 | | Selling, general and administrative expenses | $(75,326) | $(67,884) | $(59,246) | | Operating income | $71,194 | $55,878 | $41,671 | | Interest expense, net | $(1,404) | $(1,467) | $(2,511) | | Other income (expense) | $189 | $1,440 | $(204) | | Income before income taxes | $69,979 | $55,851 | $38,956 | | Income tax expense | $(18,437) | $(14,871) | $(10,589) | | Net income | $51,542 | $40,980 | $28,367 | | Basic earnings per share | $2.46 | $1.95 | $1.34 | | Diluted earnings per share | $2.44 | $1.93 | $1.33 | | Cash dividends declared per common share | $0.52250 | $0.47125 | $0.46125 | - Sales increased by $177.7 million (30%) from fiscal 2021 to fiscal 2022[167] - Net income increased by $10.6 million (25.9%) from fiscal 2021 to fiscal 2022[167] - Basic EPS increased by $0.51 (26.2%) and Diluted EPS increased by $0.51 (26.4%) from fiscal 2021 to fiscal 2022[167] Consolidated Statements of Comprehensive Income Total comprehensive income for Hawkins, Inc. increased to $52.8 million in fiscal 2022, driven by higher net income and a significant unrealized gain on interest rate swaps Consolidated Statements of Comprehensive Income (In thousands) | Metric | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | | :-------------------------------- | :---------- | :---------- | :---------- | | Net income | $51,542 | $40,980 | $28,367 | | Unrealized gain (loss) on interest rate swap | $1,291 | $79 | $(396) | | Total comprehensive income | $52,833 | $41,059 | $27,971 | - Unrealized gain on interest rate swap, net of tax, was $1.3 million in fiscal 2022, compared to $0.1 million in fiscal 2021[169][237] Consolidated Statements of Shareholders' Equity Shareholders' equity increased to $302.6 million in fiscal 2022, primarily due to net income and share-based compensation, partially offset by dividends and repurchases Consolidated Statements of Shareholders' Equity (In thousands) | Metric | March 28, 2021 Balance | Fiscal 2022 Activity | April 3, 2022 Balance | | :-------------------------------- | :--------------------- | :------------------- | :-------------------- | | Common Shares (Amount) | $210 | $(1) | $209 | | Additional Paid-in Capital | $51,138 | $(4,421) | $46,717 | | Retained Earnings | $213,898 | $40,486 | $254,384 | | Accumulated Other Comprehensive Income (Loss) | $— | $1,291 | $1,291 | | Total Shareholders' Equity | $265,246 | $37,355 | $302,601 | - Net income contributed $51.5 million to retained earnings in fiscal 2022[171] - Cash dividends declared and paid totaled $11.1 million in fiscal 2022[171] - Share repurchases amounted to $8.5 million in fiscal 2022, reducing additional paid-in capital[171] - Share-based compensation expense was $3.8 million in fiscal 2022[171] Consolidated Statements of Cash Flows Cash provided by operating activities slightly decreased to $42.8 million in fiscal 2022, while investing activities decreased, and financing activities provided $7.4 million Consolidated Statements of Cash Flows (In thousands) | Cash Flow Activity | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | | :-------------------------------- | :---------- | :---------- | :---------- | | Net cash provided by operating activities | $42,837 | $43,793 | $58,902 | | Net cash used in investing activities | $(49,756) | $(71,432) | $(24,203) | | Net cash provided by (used in) financing activities | $7,417 | $26,360 | $(39,621) | | Net increase (decrease) in cash and cash equivalents | $498 | $(1,279) | $(4,922) | | Cash and cash equivalents - end of year | $3,496 | $2,998 | $4,277 | - The decrease in operating cash flow was driven by higher inventory levels ($30.0 million increase) and increases in customer receivables ($30.5 million increase), partially offset by increased net income and accounts payable[120][172] - Additions to property, plant, and equipment were $28.5 million in fiscal 2022[172] - Acquisitions used $21.5 million in cash in fiscal 2022[172] - Net debt borrowings were $27.0 million in fiscal 2022 ($42.0 million borrowings minus $15.0 million payments)[122][172] Notes to Consolidated Financial Statements The notes provide detailed information on accounting policies, acquisitions, revenue recognition, debt, and other financial statement components, clarifying the basis for reporting Note 1 — Nature of Business and Significant Accounting Policies This note details Hawkins, Inc.'s three reportable segments, fiscal year, principles of consolidation, and key accounting policies for revenue, inventory, fair value, and derivatives - The company's fiscal year is a 52 or 53-week year ending on the Sunday closest to March 31; fiscal 2022 was 53 weeks[175] - Revenue is recognized at the point in time when control of promised products is transferred to the customer, net of estimated returns and rebates[177] - Inventories are primarily valued at the lower of cost or net realizable value, with 73% using LIFO and 27% using FIFO[190] - Goodwill is tested at least annually for impairment, with the last qualitative assessment as of December 27, 2021, indicating no impairment[199] - Identifiable intangible assets with finite lives are amortized over an average remaining useful life of approximately 12 years, while indefinite-life intangibles are not amortized but tested for impairment annually[201] - The company accounts for income taxes using the asset and liability method and recognizes stock-based compensation on a fair value basis[204][206] - An interest rate swap is designated as a cash flow hedge, with changes in fair value recorded in other comprehensive income[209] Note 2 — Acquisitions In fiscal 2022, Hawkins, Inc. completed three Water Treatment segment acquisitions totaling $21.1 million, expanding geographic reach and adding goodwill; fiscal 2021 also saw significant acquisitions - Acquired NAPCO Chemical Company on December 30, 2021, for $19.0 million, adding water treatment chemical manufacturing and distribution in Texas, with $9.4 million allocated to finite-lived intangible assets and $4.5 million to goodwill[215][216] - Acquired Water and Waste Specialties, Inc. on October 29, 2021, for $1.4 million, expanding water treatment chemical distribution in Alabama, with $0.5 million allocated to finite-lived intangible assets and $0.5 million to goodwill[217][218] - Acquired Southeast Water Systems LLC on September 20, 2021, for up to $2.2 million (including $1.0 million contingent consideration), adding water treatment chemical equipment supply and installation in Alabama, Georgia, and Florida panhandle, with $1.7 million to goodwill[219][220] - In fiscal 2021, acquired C&L Aqua Professionals, Inc. and LC Blending, Inc. for $16 million, expanding water treatment distribution in Louisiana, with $8.2 million allocated to finite-lived intangible assets and $3.1 million to goodwill[223][224] - In fiscal 2021, acquired a manufacturing facility in Rosemount, MN, for $10 million, adding 40,000 sq ft of space on 28 acres for Industrial and Water Treatment segments[225][226] - In fiscal 2021, acquired American Development Corporation of Tennessee, Inc. (ADC) for $25 million, expanding water treatment distribution in Tennessee, Georgia, and Kentucky, with $13.3 million allocated to finite-lived intangible assets and $9.2 million to goodwill[227][228] Note 3 — Revenue Hawkins, Inc. disaggregates external customer net sales by operating segment and product type, with total sales of $774.5 million in fiscal 2022, primarily from manufactured products External Customer Net Sales by Major Revenue Stream (In thousands) | Revenue Stream | Industrial (FY22) | Water Treatment (FY22) | Health and Nutrition (FY22) | Total (FY22) | Industrial (FY21) | Water Treatment (FY21) | Health and Nutrition (FY21) | Total (FY21) | | :---------------------------------- | :---------------- | :--------------------- | :-------------------------- | :----------- | :---------------- | :--------------------- | :-------------------------- | :----------- | | Manufactured, blended or repackaged products | $318,514 | $205,350 | $34,690 | $558,554 | $231,427 | $152,694 | $38,270 | $422,391 | | Distributed specialty products | $— | $— | $124,312 | $124,312 | $— | $— | $115,317 | $115,317 | | Bulk products | $61,443 | $20,211 | $— | $81,654 | $38,378 | $16,067 | $— | $54,445 | | Other | $6,981 | $2,572 | $468 | $10,021 | $3,556 | $1,243 | $(81) | $4,718 | | Total external customer sales | $386,938 | $228,133 | $159,470 | $774,541 | $273,361 | $170,004 | $153,506 | $596,871 | - Manufactured, blended or repackaged products saw a 32.2% increase in sales from $422.4 million in fiscal 2021 to $558.6 million in fiscal 2022[232] - Bulk products sales increased by 50% from $54.4 million in fiscal 2021 to $81.7 million in fiscal 2022[232] Note 4 — Derivative Instruments Hawkins, Inc. uses a $60 million interest rate swap as a cash flow hedge to manage variable-rate debt risk, recording $1.3 million in unrealized gains in fiscal 2022 - The company has a $60 million interest rate swap agreement, designated as a cash flow hedge, terminating on May 1, 2027, to manage variable-rate debt risk[235] - Unrealized gains (net of tax) on the cash flow hedge were $1.3 million in fiscal 2022, compared to $0.1 million in fiscal 2021[237] - A previous $20 million swap agreement terminated on December 23, 2020[236] Note 5 – Fair Value Measurements Hawkins, Inc. measures financial assets and liabilities at fair value, classifying them into Level 1 (deferred compensation plan assets) and Level 2 (interest rate swap) based on input transparency - Fair value measurements are classified into Level 1 (quoted prices in active markets) and Level 2 (observable market data for similar assets/liabilities)[183][184][186][240] - Deferred compensation plan assets are measured at Level 1 fair value, totaling $7.0 million in fiscal 2022 and $5.9 million in fiscal 2021[241][243] - The interest rate swap is measured at Level 2 fair value, totaling $1.8 million in fiscal 2022[241][243] Note 6 – Assets Held for Sale As of April 3, 2022, Hawkins, Inc. had no assets classified as held for sale, with previous assets sold in the first quarter of fiscal 2022 - No assets were classified as held for sale as of April 3, 2022[246] - As of March 28, 2021, assets held for sale included a $0.7 million office building and a $0.2 million water treatment branch, both sold in Q1 fiscal 2022[246] Note 7 — Inventories Inventories for Hawkins, Inc. increased significantly to $95.0 million in fiscal 2022, with the LIFO reserve also rising substantially to $21.3 million due to rising input costs Inventories (In thousands) | Inventory Component | April 3, 2022 | March 28, 2021 | | :-------------------- | :------------ | :------------- | | Inventory (FIFO basis) | $116,325 | $69,438 | | LIFO reserve | $(21,340) | $(5,574) | | Net inventory | $94,985 | $63,864 | - The FIFO value of LIFO inventories was $83.7 million at April 3, 2022, and $46.8 million at March 28, 2021[247] - The LIFO reserve increased by $15.8 million in fiscal 2022, primarily due to rising input costs[111][247] Note 8 — Goodwill and Other Identifiable Intangible Assets Goodwill increased to $77.4 million in fiscal 2022 due to Water Treatment acquisitions, and identifiable intangible assets, net, rose to $80.2 million, with amortization expense of $6.5 million Goodwill by Segment (In thousands) | Segment | March 28, 2021 Balance | Additions due to acquisitions (FY22) | April 3, 2022 Balance | | :-------------------- | :--------------------- | :----------------------------------- | :-------------------- | | Industrial | $6,495 | $— | $6,495 | | Water Treatment | $19,280 | $6,681 | $25,961 | | Health and Nutrition | $44,945 | $— | $44,945 | | Total | $70,720 | $6,681 | $77,401 | Identifiable Intangible Assets, Net (In thousands) | Intangible Asset Type | April 3, 2022 Net Carrying Value | March 28, 2021 Net Carrying Value | | :-------------------------- | :------------------------------- | :-------------------------------- | | Customer relationships | $77,245 | $73,066 | | Trademarks and trade names | $1,624 | $1,935 | | Other finite-life intangible assets | $97 | $140 | | Indefinite-life intangible assets | $1,227 | $1,227 | | Total intangible assets, net | $80,193 | $76,368 | - Intangible asset amortization expense was $6.5 million in fiscal 2022, $5.8 million in fiscal 2021, and $5.1 million in fiscal 2020[251] Estimated Future Amortization Expense (In thousands) | Fiscal Year | Intangible Assets | | :---------- | :---------------- | | 2023 | $6,923 | | 2024 | $6,707 | | 2025 | $6,707 | | 2026 | $6,606 | | 2027 | $6,305 | | Thereafter | $45,718 | | Total | $78,966 | Note 9 – Debt On March 31, 2022, Hawkins, Inc. refinanced its credit facility, establishing a new $250 million revolving loan facility with $126.0 million outstanding at 1.2% interest, and was in compliance with all covenants - The new $250 million senior secured revolving loan facility matures on April 30, 2027, and is secured by substantially all personal property assets[255] - Outstanding balance on the revolving loan was $126.0 million as of April 3, 2022, with an effective interest rate of 1.2%[257][260] - The credit agreement requires maintaining a minimum fixed charge coverage ratio of 1.15 to 1.00 and a maximum total cash flow leverage ratio of 3.0 to 1.0[259] - The company was in compliance with all required covenants as of April 3, 2022[259] Debt (In thousands) | Debt Component | April 3, 2022 | March 28, 2021 | | :---------------------------------------------------- | :------------ | :------------- | | Senior secured revolving loan | $126,000 | $99,000 | | Less: unamortized debt issuance costs | $(443) | $(248) | | Total debt, net of debt issuance costs | $125,557 | $98,752 | | Less: current portion of long-term debt, net of current unamortized debt issuance costs | $(9,913) | $(9,907) | | Total long-term debt | $115,644 | $88,845 | Note 10 — Share-Based Compensation Hawkins, Inc. grants performance-based restricted stock units and restricted stock awards, with total compensation expense for performance units at $2.9 million and director awards at $0.3 million in fiscal 2022 Performance-Based Restricted Stock Unit Activity | Metric | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | | :-------------------------------- | :---------- | :---------- | :---------- | | Shares Granted | 111,618 | 129,626 | 138,504 | | Weighted Average Grant Date Fair Value (Granted) | $31.74 | $18.69 | $17.25 | | Compensation Expense (in millions) | $2.9 | $2.5 | $1.5 | | Total Fair Value Vested (in millions) | $2.1 | $0.2 | $1.3 | - Unrecognized compensation expense for non-vested restricted stock and units was $3.9 million as of April 3, 2022, expected to be recognized over a weighted average period of 1.2 years[265] Board's Restricted Stock Activity | Metric | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | | :-------------------------------- | :---------- | :---------- | :---------- | | Shares Granted | 10,287 | 13,186 | 16,016 | | Weighted Average Grant Date Fair Value (Granted) | $32.80 | $25.59 | $21.84 | | Annual Expense (in millions) | $0.3 | $0.3 | $0.3 | - Unrecognized compensation expense for non-vested restricted stock awards was $0.1 million as of April 3, 2022, expected to be recognized over a weighted average period of 0.3 years[269] Note 11 — Share Repurchases The board authorized the repurchase of up to 1,600,000 common shares; in fiscal 2022, 240,501 shares were repurchased for $8.5 million, with 311,005 shares remaining available - The board authorized the repurchase of up to 1,600,000 common shares[270] - In fiscal 2022, 240,501 common shares were repurchased for an aggregate of $8.5 million[270] - As of April 3, 2022, 311,005 shares were available for repurchase under the program[270] Note 12 — Profit Sharing, Employee Stock Ownership, Employee Stock Purchase and Pension Plans Hawkins, Inc. offers various company-sponsored plans, including profit sharing, 401(k) matching, ESOPs, and an ESPP, with total contribution expense of $7.7 million in fiscal 2022 - Company-sponsored plans include profit sharing, 401(k) matching, two ESOPs, a nonqualified deferred compensation plan, and an ESPP[271][272][275][276] Total Contribution Expense for Company-Sponsored Plans (In thousands) | Plan Type | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | | :-------------------------------- | :---------- | :---------- | :---------- | | Non-bargaining unit employee plans: | | | | | Profit sharing | $1,056 | $994 | $631 | | 401(k) matching contributions | $3,122 | $2,650 | $2,399 | | ESOP | $1,056 | $994 | $631 | | Nonqualified deferred compensation plan | $1,355 | $1,327 | $1,262 | | Bargaining unit employee plans | $589 | $555 | $481 | | ESPP - all employees | $549 | $556 | $431 | | Total contribution expense | $7,727 | $7,076 | $5,835 | - Payments of approximately $0.5 million per year are being made through 2034 for a multiemployer pension plan withdrawal liability[276] Note 13 — Commitments and Contingencies Hawkins, Inc. has no material pending legal proceedings beyond routine litigation and has asset retirement obligations for three land leases, but no liability is recorded due to estimation difficulties - No material pending legal proceedings were reported, other than ordinary routine litigation incidental to the business[277] - The company has asset retirement obligations for three land leases expiring between 2023 and 2044, but has not recorded a liability due to inability to reasonably estimate fair value[278] - Factors preventing reasonable estimation include long lease terms, history of lease extensions, lessors' lack of termination history, and potential future value of buildings[278] Note 14 — Income Taxes Hawkins, Inc.'s total income tax provision was $18.4 million in fiscal 2022, with an effective tax rate of 26.3%, and the company maintains a net deferred tax liability of $23.4 million Provisions for Income Taxes (In thousands) | Tax Type | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | | :---------------- | :---------- | :---------- | :---------- | | Federal — current | $14,736 | $11,169 | $8,447 | | State — current | $5,202 | $4,391 | $3,563 | | Total current | $19,938 | $15,560 | $12,010 | | Federal — deferred | $(1,054) | $(302) | $(976) | | State — deferred | $(447) | $(387) | $(445) | | Total deferred | $(1,501) | $(689) | $(1,421) | | Total provision | $18,437 | $14,871 | $10,589 | Reconciliation of Income Tax Rate | Component | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | | :-------------------------------- | :---------- | :---------- | :---------- | | Statutory federal income tax | 21.0% | 21.0% | 21.0% | | State income taxes, net of federal deduction | 5.6% | 5.9% | 5.7% | | ESOP dividend deduction on allocated shares | (0.2)% | (0.2)% | (0.3)% | | Other — net | (0.1)% | (0.1)% | 0.8% | | Total effective tax rate | 26.3% | 26.6% | 27.2% | Net Deferred Tax Liabilities (In thousands) | Component | April 3, 2022 | March 28, 2021 | | :-------------------------------- | :------------ | :------------- | | Total deferred tax assets | $9,185 | $8,892 | | Total deferred tax liabilities | $(32,607) | $(33,337) | | Net deferred tax liabilities | $(23,422) | $(24,445) | - The company expects to realize its deferred tax assets through future taxable income or reversals of taxable temporary differences[283] Note 15 – Leases Hawkins, Inc. has operating lease agreements for various assets with terms from 1 to 23 years, incurring $2.9 million in lease expense in fiscal 2022, with a weighted average remaining term of 8.91 years - Operating lease agreements cover manufacturing facilities, warehouse space, land, vehicles, and IT equipment, with terms from 1 to 23 years, including options to extend up to 15 years[287] - Total lease expense was $2.9 million for fiscal 2022, a slight increase from $2.8 million in fiscal 2021[288] Operating Lease Information | Metric | April 3, 2022 | March 28, 2021 | | :-------------------------------- | :------------ | :------------- | | Weighted average remaining lease term (years) | 8.91 | 9.73 | | Weighted average discount rate | 2.6% | 2.7% | Maturities of Lease Liabilities (In thousands) | Fiscal Year | Operating Leases | | :---------- | :--------------- | | 2023 | $1,889 | | 2024 | $1,515 | | 2025 | $1,450 | | 2026 | $1,388 | | 2027 | $1,359 | | Thereafter | $5,171 | | Total | $12,772 | | Less: Interest | $(1,972) | | Present value of lease liabilities | $10,800 | Note 16 — Segment Information Hawkins, Inc. reports financial performance across its Industrial, Water Treatment, and Health and Nutrition segments, with all segments showing increased sales and gross profit in fiscal 2022 Segment Performance (Fiscal Year Ended April 3, 2022, In thousands) | Metric | Industrial | Water Treatment | Health and Nutrition | Total | | :-------------------------------- | :--------- | :-------------- | :------------------- | :---- | | Sales | $386,938 | $228,133 | $159,470 | $774,541 | | Gross profit | $59,606 | $54,571 | $32,343 | $146,520 | | Selling, general, and administrative expenses | $28,127 | $31,357 | $15,842 | $75,326 | | Operating income | $31,479 | $23,214 | $16,501 | $71,194 | | Identifiable assets | $236,934 | $143,889 | $167,034 | $547,857 | | Capital expenditures | $18,812 | $8,939 | $761 | $28,512 | Segment Performance (Fiscal Year Ended March 28, 2021, In thousands) | Metric | Industrial | Water Treatment | Health and Nutrition | Total | | :-------------------------------- | :--------- | :-------------- | :------------------- | :---- | | Sales | $273,361 | $170,004 | $153,506 | $596,871 | | Gross profit | $43,337 | $46,793 | $33,632 | $123,762 | | Selling, general, and administrative expenses | $27,033 | $24,453 | $16,398 | $67,884 | | Operating income | $16,304 | $22,340 | $17,234 | $55,878 | | Identifiable assets | $181,478 | $109,761 | $166,558 | $457,797 | | Capital expenditures | $13,713 | $6,732 | $349 | $20,794 | - Industrial segment sales increased by 41.5% from $273.4 million in fiscal 2021 to $386.9 million in fiscal 2022[294] - Water Treatment segment identifiable assets increased by 31.1% from $109.8 million in fiscal 2021 to $143.9 million in fiscal 2022, largely due to acquisitions[294] ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Hawkins, Inc. reported no changes in or disagreements with accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure were reported[296] ITEM 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of April 3, 2022, with an attestation report from the independent auditor - Disclosure controls and procedures were deemed effective as of April 3, 2022[297] - Management assessed internal control over financial reporting as effective, excluding the NAPCO Chemical Company, Inc. acquisition due to insufficient time for assessment[300] - The independent registered public accounting firm issued an attestation report confirming the effectiveness of internal control over financial reporting[301] - No material changes in internal control over financial reporting occurred during the fourth quarter of fiscal 2022[302] ITEM 9B. Other Information This item contains no other information - No other information was reported[304] ITEM 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to Hawkins, Inc - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable[305] PART III ITEM 10. Directors, Executive Officers, and Corporate Governance This section provides information on Hawkins, Inc.'s executive officers and directors, including their backgrounds, and incorporates disclosures on corporate governance and the Code of Business Conduct and Ethics Executive Officers | Name | Age | Office | | :------------------ | :-- | :---------------------------------------------------- | | Patrick H. Hawkins | 51 | Chief Executive Officer and President | | Jeffrey P. Oldenkamp | 49 | Executive Vice President, Chief Financial Officer and Treasurer | | Richard G. Erstad | 58 | Vice President, General Counsel and Secretary | | Drew M. Grahek | 52 | Vice President — Operations | | Douglas A. Lange | 52 | Vice President — Water Treatment Group | | David J. Mangine | 64 | Vice President — Industrial Group | | Theresa R. Moran | 59 | Vice President — Purchasing, Logistics and Sales Support | | Shirley A. Rozeboom | 60 | Vice President — Health and Nutrition | - Patrick H. Hawkins has served as CEO and President since 2011, joining the company in 1992[308] - Jeffrey P. Oldenkamp became Executive Vice President, CFO, and Treasurer in October 2021, having joined Hawkins in May 2017[309] - The company has adopted a Code of Business Conduct and Ethics applicable to all directors and employees, available on its website[317] ITEM 11. Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2022 Proxy Statement - Executive compensation details are incorporated by reference from the 2022 Proxy Statement[318] ITEM 12. Security Ownership of Certain Beneficial Owners and Management And Related Stockholder Matters Information on security ownership by certain beneficial owners and management, as well as equity compensation plan information, is incorporated by reference from the company's 2022 Proxy Statement - Security ownership and equity compensation plan information are incorporated by reference from the 2022 Proxy Statement[319] ITEM 13. Certain Relationships and Related Transactions, and Director Independence Information concerning certain relationships and related transactions, along with director independence, is incorporated by reference from the company's 2022 Proxy Statement - Details on certain relationships, related transactions, and director independence are incorporated by reference from the 2022 Proxy Statement[320] ITEM 14. Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's 2022 Proxy Statement - Principal accountant fees and services information is incorporated by reference from the 2022 Proxy Statement[321] PART IV ITEM 15. Exhibits and Financial Statement Schedules This section lists all financial statements, supplementary data, and exhibits filed as part of the Annual Report on Form 10-K, including auditor reports and a detailed exhibit index - The section includes reports of Independent Registered Public Accounting Firms, Consolidated Balance Sheets, Statements of Income, Comprehensive Income, Shareholders' Equity, Cash Flows, and Notes to Consolidated Financial Statements[324][325] - Financial statement schedule II, 'Valuation and Qualifying Accounts,' is included for fiscal years 2022, 2021, and 2020[327][338] - A comprehensive Exhibit Index details various documents, including articles of incorporation, by-laws, credit agreements, incentive plans, and certifications, with their respective filing methods[330] ITEM 16. Form 10-K Summary This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided[331] SIGNATURES The report is duly signed on behalf of Hawkins, Inc. by its CEO and President, Patrick H. Hawkins, and its Executive VP and CFO, Jeffrey P. Oldenkamp, as of May 18, 2022 - The report is signed by Patrick H. Hawkins (CEO, President, and Director) and Jeffrey P. Oldenkamp (Executive VP, CFO, and Principal Accounting Officer) on May 18, 2022[333][335][336] - Other directors' signatures are provided by Patrick H. Hawkins as attorney-in-fact[335][336]