Hawkins, Inc. — FY2012 Form 10-K Summary
Reporting period: Fiscal year ended April 1, 2012 (52 weeks). This is an annual filing, not a standalone Q4 filing; the filing includes unaudited fourth-quarter data. The comparable FY2011 had 53 weeks.
Business context and financial results
Hawkins distributes bulk chemicals and manufactures, blends and distributes specialty chemicals through its Industrial and Water Treatment segments. Growth priorities include higher-value specialty products and expansion of its distribution network. FY2012 results include a full year of Vertex operations; Vertex was acquired in FY2011.
| Metric | FY2012 | FY2011 |
|---|---|---|
| Sales | $343.8 million | $297.6 million |
| Gross profit / margin | $65.9 million / 19.2% | $61.9 million / 20.8% |
| Operating income / margin | $35.1 million / 10.2% | $32.0 million / 10.7% |
| Continuing-operations income | $21.6 million | $20.3 million |
| Net income | $22.7 million | $20.3 million |
| Diluted EPS from continuing operations | $2.08 | $1.96 |
| Cash provided by operating activities | $33.7 million | $28.5 million |
FY2012 net income includes $1.1 million after tax from discontinued operations. Cash and cash equivalents were $28.6 million and current investments available for sale were $12.2 million at year-end; adding long-term investments, cash and investments totaled $45.9 million. Total current assets were $110.9 million versus current liabilities of $36.3 million. The balance sheet reports no borrowings or debt; total liabilities were $47.5 million. Capital expenditures were $20.1 million, and dividends paid were $6.4 million.
Changes versus prior periods
- Sales rose 15.5%; management attributed $32.9 million of the increase to Vertex, with the remainder mainly reflecting higher commodity-chemical selling prices and sales volumes.
- Industrial sales grew 20.5% to $251.4 million; Water Treatment sales grew 3.9% to $92.4 million. Segment gross profit was $40.4 million and $25.5 million, respectively.
- Gross profit dollars increased $4.0 million, but gross margin fell 1.6 percentage points. The LIFO inventory adjustment reduced FY2012 gross profit by $1.6 million, compared with a $3.9 million reduction in FY2011. Competitive pricing pressure and lower volumes also affected Industrial results.
- Operating income increased $3.1 million. SG&A rose $0.8 million, partly reflecting Vertex expenses; FY2011 had included approximately $1.0 million of costs related to the former CEO’s death and $0.7 million of Vertex acquisition costs.
- Operating cash flow increased $5.1 million year over year. The prior-year comparison also reflects that FY2011 included an extra week.
- In FY2012 Q4, sales were $83.2 million, operating income $5.6 million and net income $3.5 million, compared with $82.0 million, $2.4 million and $1.9 million, respectively, in FY2011 Q4.
Outlook, risks and unusual items
- Management projected FY2013 capital spending of approximately $30 million, including completion of the Rosemount, Minnesota facility; recurring and safety-related spending was expected to be comparable to FY2012. Management expected cash balances and operating cash flow to fund FY2013 requirements. Rosemount was expected to be operational in late FY2013 and is intended to support growth and reduce reliance on flood-prone Mississippi River sites.
- Key business risks include volatile commodity prices and supply, inability or delay in passing cost increases to customers, competitive pricing, cyclical industrial demand, weather-driven Water Treatment seasonality, and flooding or other operational hazards. Hawkins does not hedge commodity purchases with futures or derivatives.
- The company estimated its share of the underfunded Central States multiemployer pension plan liability at approximately $7.9 million if withdrawal had occurred in calendar 2011, up from $5.1 million based on 2009. This was not recorded as a liability; withdrawal could trigger it. Relevant collective bargaining agreements expire in February 2013, and negotiations’ outcome was uncertain.
- Supplier ICL’s lawsuit seeks $7.3 million plus interest and costs over a phosphoric-acid contract; Hawkins counterclaimed for $1.5 million plus additional damages. A court ruling addressed Hawkins’ potential 2009 purchase obligation if the contract is enforceable. Trial was scheduled for July 23, 2012; outcome was uncertain.
- The Cheese-Phos patent was scheduled to expire in November 2013. The company also cited lease renewal exposure for key terminals and manufacturing sites; inability to renew could require relocation and potentially create significant costs.
- The Board increased the semi-annual dividend to $0.32 per share during FY2012. Future dividends remain subject to Board review and financial conditions.
Important facts for investors to verify
- Whether sales growth and earnings gains persist after separating Vertex’s contribution, commodity price changes and the FY2011 extra week.
- Whether gross margins recover amid pricing competition, LIFO effects and raw-material cost volatility.
- Actual FY2013 Rosemount and other capital spending, project timing, and resulting cash generation.
- Developments in the ICL litigation and the potential assessment, timing and cash impact of any pension-plan withdrawal liability.
- Renewal terms for critical facility leases, and the commercial effect of the Cheese-Phos patent expiration.