10-K 1 hwkn-20220403.htm 10-K hwkn-20220403
0000046250false2022FY00000462502021-03-292022-04-0300000462502021-09-26iso4217:USD00000462502022-05-13xbrli:shares00000462502022-04-0300000462502019-04-012020-03-2900000462502021-03-28iso4217:USDxbrli:shares00000462502020-03-302021-03-280000046250us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-03-292022-04-030000046250us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-302021-03-280000046250us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-04-012020-03-290000046250us-gaap:CommonStockMember2019-03-310000046250us-gaap:AdditionalPaidInCapitalMember2019-03-310000046250us-gaap:RetainedEarningsMember2019-03-310000046250us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-03-3100000462502019-03-310000046250us-gaap:CommonStockMember2019-04-012020-03-290000046250us-gaap:AdditionalPaidInCapitalMember2019-04-012020-03-290000046250us-gaap:RetainedEarningsMember2019-04-012020-03-290000046250us-gaap:CommonStockMember2020-03-290000046250us-gaap:AdditionalPaidInCapitalMember2020-03-290000046250us-gaap:RetainedEarningsMember2020-03-290000046250us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-2900000462502020-03-290000046250us-gaap:CommonStockMember2020-03-302021-03-280000046250us-gaap:AdditionalPaidInCapitalMember2020-03-302021-03-280000046250us-gaap:RetainedEarningsMember2020-03-302021-03-280000046250us-gaap:CommonStockMember2021-03-280000046250us-gaap:AdditionalPaidInCapitalMember2021-03-280000046250us-gaap:RetainedEarningsMember2021-03-280000046250us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-03-280000046250us-gaap:CommonStockMember2021-03-292022-04-030000046250us-gaap:AdditionalPaidInCapitalMember2021-03-292022-04-030000046250us-gaap:RetainedEarningsMember2021-03-292022-04-030000046250us-gaap:CommonStockMember2022-04-030000046250us-gaap:AdditionalPaidInCapitalMember2022-04-030000046250us-gaap:RetainedEarningsMember2022-04-030000046250us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-04-03hwkn:Segmentxbrli:pure0000046250us-gaap:BuildingAndBuildingImprovementsMembersrt:MinimumMember2021-03-292022-04-030000046250us-gaap:BuildingAndBuildingImprovementsMembersrt:MaximumMember2021-03-292022-04-030000046250srt:MinimumMemberus-gaap:MachineryAndEquipmentMember2021-03-292022-04-030000046250us-gaap:MachineryAndEquipmentMembersrt:MaximumMember2021-03-292022-04-030000046250us-gaap:TransportationEquipmentMembersrt:MinimumMember2021-03-292022-04-030000046250us-gaap:OfficeEquipmentMembersrt:MinimumMember2021-03-292022-04-030000046250us-gaap:OfficeEquipmentMembersrt:MaximumMember2021-03-292022-04-030000046250us-gaap:TransportationEquipmentMembersrt:MaximumMember2021-03-292022-04-030000046250srt:WeightedAverageMember2021-03-292022-04-030000046250hwkn:NAPCOChemicalCompanyIncMember2021-12-302021-12-300000046250hwkn:NAPCOChemicalCompanyIncMember2021-12-272022-04-030000046250hwkn:NAPCOChemicalCompanyIncMember2021-12-300000046250hwkn:WaterAndWasteSpecialtiesIncMember2021-10-292021-10-290000046250hwkn:WaterAndWasteSpecialtiesIncMember2021-10-290000046250hwkn:SoutheastWaterSystemsLLCMember2021-09-202021-09-200000046250hwkn:SoutheastWaterSystemsLLCMember2021-09-200000046250hwkn:CLAquaProfessionalsIncAndLCBlendingIncMember2020-03-302021-03-280000046250hwkn:CLAquaProfessionalsIncAndLCBlendingIncMember2021-03-280000046250hwkn:PropertyMember2020-03-302021-03-280000046250hwkn:PropertyMember2021-03-280000046250hwkn:AmericanDevelopmentCorporationOfTennesseeIncMember2020-03-302021-03-280000046250hwkn:AmericanDevelopmentCorporationOfTennesseeIncMember2021-03-280000046250hwkn:ManufacturedblendedorrepackagedproductsMemberhwkn:IndustrialMember2021-03-292022-04-030000046250hwkn:ManufacturedblendedorrepackagedproductsMemberhwkn:WaterTreatmentMember2021-03-292022-04-030000046250hwkn:HealthandNutritionMemberhwkn:ManufacturedblendedorrepackagedproductsMember2021-03-292022-04-030000046250hwkn:ManufacturedblendedorrepackagedproductsMember2021-03-292022-04-030000046250hwkn:DistributedSpecialtyProductsMemberhwkn:IndustrialMember2021-03-292022-04-030000046250hwkn:DistributedSpecialtyProductsMemberhwkn:WaterTreatmentMember2021-03-292022-04-030000046250hwkn:HealthandNutritionMemberhwkn:DistributedSpecialtyProductsMember2021-03-292022-04-030000046250hwkn:DistributedSpecialtyProductsMember2021-03-292022-04-030000046250hwkn:BulkMemberhwkn:IndustrialMember2021-03-292022-04-030000046250hwkn:BulkMemberhwkn:WaterTreatmentMember2021-03-292022-04-030000046250hwkn:HealthandNutritionMemberhwkn:BulkMember2021-03-292022-04-030000046250hwkn:BulkMember2021-03-292022-04-030000046250hwkn:OtherMemberhwkn:IndustrialMember2021-03-292022-04-030000046250hwkn:OtherMemberhwkn:WaterTreatmentMember2021-03-292022-04-030000046250hwkn:HealthandNutritionMemberhwkn:OtherMember2021-03-292022-04-030000046250hwkn:OtherMember2021-03-292022-04-030000046250hwkn:IndustrialMember2021-03-292022-04-030000046250hwkn:WaterTreatmentMember2021-03-292022-04-030000046250hwkn:HealthandNutritionMember2021-03-292022-04-030000046250hwkn:ManufacturedblendedorrepackagedproductsMemberhwkn:IndustrialMember2020-03-302021-03-280000046250hwkn:ManufacturedblendedorrepackagedproductsMemberhwkn:WaterTreatmentMember2020-03-302021-03-280000046250hwkn:HealthandNutritionMemberhwkn:ManufacturedblendedorrepackagedproductsMember2020-03-302021-03-280000046250hwkn:ManufacturedblendedorrepackagedproductsMember2020-03-302021-03-280000046250hwkn:DistributedSpecialtyProductsMemberhwkn:IndustrialMember2020-03-302021-03-280000046250hwkn:DistributedSpecialtyProductsMemberhwkn:WaterTreatmentMember2020-03-302021-03-280000046250hwkn:HealthandNutritionMemberhwkn:DistributedSpecialtyProductsMember2020-03-302021-03-280000046250hwkn:DistributedSpecialtyProductsMember2020-03-302021-03-280000046250hwkn:BulkMemberhwkn:IndustrialMember2020-03-302021-03-280000046250hwkn:BulkMemberhwkn:WaterTreatmentMember2020-03-302021-03-280000046250hwkn:HealthandNutritionMemberhwkn:BulkMember2020-03-302021-03-280000046250hwkn:BulkMember2020-03-302021-03-280000046250hwkn:OtherMemberhwkn:IndustrialMember2020-03-302021-03-280000046250hwkn:OtherMemberhwkn:WaterTreatmentMember2020-03-302021-03-280000046250hwkn:HealthandNutritionMemberhwkn:OtherMember2020-03-302021-03-280000046250hwkn:OtherMember2020-03-302021-03-280000046250hwkn:IndustrialMember2020-03-302021-03-280000046250hwkn:WaterTreatmentMember2020-03-302021-03-280000046250hwkn:HealthandNutritionMember2020-03-302021-03-280000046250hwkn:ManufacturedblendedorrepackagedproductsMemberhwkn:IndustrialMember2019-04-012020-03-290000046250hwkn:ManufacturedblendedorrepackagedproductsMemberhwkn:WaterTreatmentMember2019-04-012020-03-290000046250hwkn:HealthandNutritionMemberhwkn:ManufacturedblendedorrepackagedproductsMember2019-04-012020-03-290000046250hwkn:ManufacturedblendedorrepackagedproductsMember2019-04-012020-03-290000046250hwkn:DistributedSpecialtyProductsMemberhwkn:IndustrialMember2019-04-012020-03-290000046250hwkn:DistributedSpecialtyProductsMemberhwkn:WaterTreatmentMember2019-04-012020-03-290000046250hwkn:HealthandNutritionMemberhwkn:DistributedSpecialtyProductsMember2019-04-012020-03-290000046250hwkn:DistributedSpecialtyProductsMember2019-04-012020-03-290000046250hwkn:BulkMemberhwkn:IndustrialMember2019-04-012020-03-290000046250hwkn:BulkMemberhwkn:WaterTreatmentMember2019-04-012020-03-290000046250hwkn:HealthandNutritionMemberhwkn:BulkMember2019-04-012020-03-290000046250hwkn:BulkMember2019-04-012020-03-290000046250hwkn:OtherMemberhwkn:IndustrialMember2019-04-012020-03-290000046250hwkn:OtherMemberhwkn:WaterTreatmentMember2019-04-012020-03-290000046250hwkn:HealthandNutritionMemberhwkn:OtherMember2019-04-012020-03-290000046250hwkn:OtherMember2019-04-012020-03-290000046250hwkn:IndustrialMember2019-04-012020-03-290000046250hwkn:WaterTreatmentMember2019-04-012020-03-290000046250hwkn:HealthandNutritionMember2019-04-012020-03-2900000462502020-12-270000046250us-gaap:FairValueInputsLevel1Member2022-04-030000046250us-gaap:FairValueInputsLevel1Member2021-03-280000046250us-gaap:FairValueInputsLevel2Member2022-04-030000046250us-gaap:FairValueInputsLevel2Member2021-03-280000046250hwkn:IndustrialMember2021-03-280000046250hwkn:WaterTreatmentMember2021-03-280000046250hwkn:IndustrialMember2020-03-290000046250hwkn:WaterTreatmentMember2020-03-290000046250hwkn:HealthandNutritionMember2020-03-290000046250hwkn:HealthandNutritionMember2021-03-280000046250hwkn:IndustrialMember2022-04-030000046250hwkn:WaterTreatmentMember2022-04-030000046250hwkn:HealthandNutritionMember2022-04-030000046250us-gaap:CustomerRelationshipsMember2022-04-030000046250us-gaap:TrademarksMember2022-04-030000046250us-gaap:OtherIntangibleAssetsMember2022-04-030000046250us-gaap:CustomerRelationshipsMember2021-03-280000046250us-gaap:TrademarksMember2021-03-280000046250us-gaap:OtherIntangibleAssetsMember2021-03-280000046250srt:MinimumMember2021-03-292022-04-030000046250srt:MaximumMember2021-03-292022-04-0300000462502022-03-310000046250srt:MaximumMember2022-04-03utr:Rate0000046250srt:MinimumMember2022-04-030000046250us-gaap:RevolvingCreditFacilityMember2022-04-030000046250us-gaap:RevolvingCreditFacilityMember2021-03-280000046250us-gaap:PerformanceSharesMember2021-03-292022-04-030000046250us-gaap:PerformanceSharesMember2019-03-310000046250us-gaap:PerformanceSharesMember2019-04-012020-03-290000046250us-gaap:PerformanceSharesMember2020-03-290000046250us-gaap:PerformanceSharesMember2020-03-302021-03-280000046250us-gaap:PerformanceSharesMember2021-03-280000046250us-gaap:PerformanceSharesMember2022-04-030000046250us-gaap:PerformanceSharesMembersrt:WeightedAverageMember2021-03-292022-04-030000046250us-gaap:RestrictedStockMember2021-03-292022-04-030000046250us-gaap:RestrictedStockMember2019-03-310000046250us-gaap:RestrictedStockMember2019-04-012020-03-290000046250us-gaap:RestrictedStockMember2020-03-290000046250us-gaap:RestrictedStockMember2020-03-302021-03-280000046250us-gaap:RestrictedStockMember2021-03-280000046250us-gaap:RestrictedStockMember2022-04-030000046250us-gaap:RestrictedStockMembersrt:WeightedAverageMember2021-03-292022-04-030000046250us-gaap:DeferredProfitSharingMemberus-gaap:QualifiedPlanMembersrt:MinimumMember2021-03-292022-04-030000046250us-gaap:DeferredProfitSharingMemberus-gaap:QualifiedPlanMembersrt:MinimumMember2020-03-302021-03-280000046250us-gaap:DeferredProfitSharingMemberus-gaap:QualifiedPlanMembersrt:MaximumMember2021-03-292022-04-030000046250us-gaap:DeferredProfitSharingMemberus-gaap:QualifiedPlanMembersrt:MaximumMember2020-03-302021-03-280000046250hwkn:BargainingUnitEmployeePlansMemberus-gaap:DeferredProfitSharingMemberus-gaap:QualifiedPlanMembersrt:MinimumMember2021-03-292022-04-030000046250hwkn:BargainingUnitEmployeePlansMemberus-gaap:DeferredProfitSharingMemberus-gaap:QualifiedPlanMembersrt:MaximumMember2021-03-292022-04-030000046250hwkn:A401kplanMemberus-gaap:QualifiedPlanMembersrt:MaximumMember2021-03-292022-04-030000046250us-gaap:EmployeeStockOwnershipPlanESOPPlanDomainus-gaap:QualifiedPlanMembersrt:MinimumMember2021-03-292022-04-030000046250us-gaap:EmployeeStockOwnershipPlanESOPPlanDomainus-gaap:QualifiedPlanMembersrt:MinimumMember2020-03-302021-03-280000046250us-gaap:EmployeeStockOwnershipPlanESOPPlanDomainus-gaap:QualifiedPlanMembersrt:MaximumMember2021-03-292022-04-030000046250us-gaap:EmployeeStockOwnershipPlanESOPPlanDomainus-gaap:QualifiedPlanMembersrt:MaximumMember2020-03-302021-03-280000046250us-gaap:NonqualifiedPlanMemberus-gaap:DeferredProfitSharingMembersrt:MaximumMember2021-03-292022-04-030000046250us-gaap:NonqualifiedPlanMemberus-gaap:DeferredProfitSharingMembersrt:MaximumMember2020-03-302021-03-280000046250hwkn:BargainingUnitEmployeePlansMember2021-03-292022-04-030000046250hwkn:BargainingUnitEmployeePlansMember2020-03-302021-03-280000046250hwkn:BargainingUnitEmployeePlansMember2019-04-012020-03-29hwkn:lease0000046250hwkn:IdentifiableMember2022-04-030000046250hwkn:IdentifiableMember2021-03-280000046250hwkn:IdentifiableMember2020-03-290000046250hwkn:UnallocatedMember2022-04-030000046250hwkn:UnallocatedMember2021-03-280000046250hwkn:UnallocatedMember2020-03-29

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
April 3, 2022
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-7647
HAWKINS, INC.
(Exact Name of Registrant as Specified in its Charter)
Minnesota 41-0771293
(State of Incorporation) (I.R.S. Employer
Identification No.)
2381 Rosegate, Roseville, Minnesota
 55113
(Address of Principal Executive Offices) (Zip Code)
(612331-6910
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:    
Title of each classTrading Symbol:Name of exchange on which registered:    
Common Shares, par value $.01 per shareHWKNNasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:    None
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 Accelerated filer
Non-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 26, 2021 (the last business day of the Registrant’s most recently completed second fiscal quarter) was approximately $706.8 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 13, 2022, the Registrant had 21,078,132 shares of common shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our definitive Proxy Statement for the annual meeting of shareholders to be held August 3, 2022, 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 2023" means our fiscal year ending April 2, 2023, “fiscal 2022” means our fiscal year ended April 3, 2022, “fiscal 2021” means our fiscal year ended March 28, 2021, “fiscal 2020” means our fiscal year ended March 29, 2020, and “fiscal 2019” means our fiscal year ended March 31, 2019.
ii


Hawkins, Inc.
Annual Report on Form 10-K
For the Fiscal Year Ended April 3, 2022
 
  Page
PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 9C.
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV
ITEM 15.
ITEM 16.

iii


PART I
 
ITEM 1. BUSINESS

We are a leading specialty chemical and ingredients company that formulates, distributes, blends and manufactures products for our Industrial, Water Treatment and Health and Nutrition customers. 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 food-grade and pharmaceutical salts and ingredients.

The Industrial Group:

Manufactures sodium hypochlorite (bleach), agricultural products and certain food-grade and pharmaceutical products, including liquid phosphates, lactates and other blended products;

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;

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, products, equipment, services 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 37 warehouses supplying products and services to customers primarily in the central United States, and along the south from Florida to Texas. In fiscal 2022, we added four locations, all by acquisition. 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 2022, 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 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 March through November as caustic soda inventory levels increase with most of our barges received during this period.

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 200 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.


2


The manufacture, packaging, labeling, advertising, promotion, distribution and sale of our agricultural, food, pharmaceutical, pesticide 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 Environmental Protection Agency, 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, 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"). Through communication, enhanced resources and leadership, we were able to support our employees, serve our customers and keep our facilities operating 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 April 3, 2022, we had 813 employees across the United States, of which 807 were full-time employees,. Approximately 38% of our employees were female or racially and ethnically diverse, and approximately 10% were covered by a collective bargaining agreement. Of the eight members of our Board of Directors, two are female, six are male, one is Asian American and seven 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. The SEC also maintains an internet site that contains reports, proxy and information statements, and other information regarding our company at http://www.sec.gov.
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.

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.

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 release 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.

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.

4


Adverse publicity or negative public perception regarding particular ingredients or products or the dietary supplement 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 dietary supplement 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.

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 phishing or 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 vulnerable to phishing attacks and cyber-assault, 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. 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. Downturns in these industries could adversely affect our sales and our financial results by affecting demand for and pricing of our products.

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.

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.



6


OPERATIONAL RISKS

Disruptions within our supply chain have negatively impacted, and could continue to negatively impact, our production, financial condition and results of operations.

We have been, and could continue to be, adversely affected by disruptions within our supply chain and transportation network. The raw materials we need are transported by truck, rail, barge or ship by third-party providers. The costs of transporting our products or necessary raw materials could be negatively affected by factors outside of our control, including rail service interruptions or rate increases, extreme weather events, tariffs, rising fuel costs and capacity constraints. Recently, the unprecedented congestion in ocean shipping has, and will continue to, adversely impact the reliability of our imported raw materials, and transport driver shortages have caused extended lead times for domestic shipments. In addition, rail shipments have become increasingly unreliable, with significant delays in service and increased costs. Significant delays or increased costs relating to transportation could materially affect our financial condition and results of operations.

Similar supply chain issues have impacted and could continue to impact both our suppliers and our customers. The supply of our necessary raw materials could be interrupted due to shortages of raw materials, effects of economic, political or financial market conditions on a supplier's operations, labor disputes or weather conditions affecting products or shipments, transportation disruptions, natural disasters, outbreaks of disease, information system disruptions or other reasons beyond our control. Similar disruptions at our customers could reduce demand for our products, reducing our sales and profitability. Product shortages or delays in deliveries, along with other factors such as price inflation and higher transportation costs, have also resulted in price increases from our suppliers. We may be unable to pass these price increases on to our customers, which could erode our profit margins. These supply chain constraints, increased product costs and inflationary pressures could continue or escalate in the future, which would have an adverse impact on our business and results of operations.

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, workforce shortages 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. The availability and reliability of 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.


7


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.

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, wars, 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.

8


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.

In addition, we operate a fleet of more than 200 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.


9


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 pesticide 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 Environmental Protection Agency, 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:

•    stopping the sale of products,
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.


10


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 $250.0 million. The Revolving Loan Facility includes a $10.0 million letter of credit subfacility and $25.0 million swingline subfacility. At April 3, 2022, we had $126.0 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 2027. 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. 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.
11


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 33 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.
GroupLocationApprox.
Square Feet
Corporate headquartersRoseville, MN50,000
Health and NutritionFullerton, CA (1)55,800
Florida, NY (2)107,000
IndustrialMinneapolis, MN (3)177,000
Centralia, IL (4)77,000
Dupo, IL (5)64,000
St. Paul, MN (6)32,000
Rosemount, MN (7)105,000
Industrial and Water TreatmentSt. Paul, MN (8)59,000
Camanche, IA95,000
Memphis, TN41,000
Water TreatmentApopka, FL32,100
(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 12 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.
12


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 13, 2022, shares of our common shares were held by approximately 387 shareholders of record.

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 2, 2017, and reinvestment of all dividends.
hwkn-20220403_g1.jpg
13


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 2022 and 2021. 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 2021, filed with the SEC on June 2, 2021. You are encouraged to reference Part II, Item 7, within that report, for a discussion of our financial condition and results of operations for fiscal 2020 compared to fiscal 2021.

Overview

We derive substantially all of our revenues from the sale of specialty chemicals and ingredients that we formulate, distribute, blend and manufacture for our Industrial, Water Treatment and Health and Nutrition customers.

Financial Overview

Highlights of fiscal 2022 include:

Sales of $774.5 million, a 30% increase from fiscal 2021;

Gross profit of $146.5 million, an increase of $22.8 million, or 18% from fiscal 2021;

An increase in selling, general and administrative (“SG&A”) expenses of $7.4 million year over year, but a decrease of 160 basis points as a percentage of sales when compared to fiscal 2021;

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 as raw material prices rise and fall, particularly in our Industrial and Water Treatment segments. The costs for certain of our raw materials can rise or fall rapidly, causing fluctuations in gross profit as a percentage of sales.

We use the last in, first out (“LIFO”) method of valuing the majority of our inventory in our Industrial and Water Treatment segments, which causes the most recent product costs to be recognized in our income statement. The 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

On December 30, 2021, we acquired substantially all the assets of NAPCO Chemical Company, Inc. and its affiliates ("NAPCO") under the terms of an asset purchase agreement among us, NAPCO and certain other parties thereto. NAPCO manufactures and distributes water treatment chemicals from three locations in Texas. The results of operations are included as part of our Water Treatment segment from the date of acquisition forward.

On October 29, 2021, we acquired substantially all the assets of Water and Waste Specialties, LLC, under the terms of an asset purchase agreement with Water and Waste Specialties and its shareholders. Water and Waste Specialties was a water treatment chemical distribution company operating primarily in Alabama. The results of operations since the acquisition date are included in our Water Treatment segment.

14


On September 20, 2021, we acquired substantially all the assets of Southeast Water Systems LLC, under the terms of an asset purchase agreement with Southeast Water Systems and its shareholders. Southeast Water Systems supplied and installed water treatment chemical equipment to its customers located primarily in Alabama, southern Georgia and the Florida panhandle. The results of operations since the acquisition date are included in our Water Treatment segment.

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.

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 of the three businesses acquired in fiscal 2022 totaled approximately $17 million, as determined using the applicable twelve-month period preceding each respective acquisition date. The aggregate annual revenue from the fiscal 2021 acquisitions totaled approximately $25 million, as determined using the applicable twelve-month period preceding each respective acquisition date.

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

During the pandemic caused by COVID-19, federal, state and local governments around the world implemented 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 most 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.

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 the public health crisis, we 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 country's critical infrastructure.



15




Results of Operations

The following table sets forth certain items from our statement of income as a percentage of sales for fiscal 2022 and 2021: 
Fiscal 2022Fiscal 2021
Sales100.0 %100.0 %
Cost of sales(81.1)%(79.3)%
Gross profit18.9 %20.7 %
Selling, general and administrative expenses(9.7)%(11.3)%
Operating income9.2 %9.4 %
Interest expense, net(0.2)%(0.2)%
Other income— %0.2 %
Income before income taxes9.0 %9.4 %
Income tax provision(2.3)%(2.5)%
Net income6.7 %6.9 %

Fiscal 2022 Compared to Fiscal 2021

Sales

Sales were $774.5 million for fiscal 2022, an increase of $177.7 million, or 30%, from sales of $596.9 million for fiscal 2021. We estimated the impact of the 53rd week in fiscal 2022 to be approximately $17.5 million in additional sales.

Industrial Segment.  Industrial segment sales increased $113.6 million, or 42%, to $386.9 million for fiscal 2022, as compared to $273.4 million for fiscal 2021. Sales of bulk commodity products in the Industrial segment were approximately 16% of sales dollars in fiscal 2022 and 14% of sales dollars in fiscal 2021. We estimated the impact of the 53rd week in fiscal 2022 to be approximately $10.0 million in additional sales in our Industrial segment. In addition, the increase in sales was driven by increased selling prices on many of our products driven by higher costs on many of our raw materials, as well as increased sales of our bulk and our manufactured, blended and repackaged products.

Water Treatment Segment.  Water Treatment segment sales increased $58.1 million, or 34%, to $228.1 million for fiscal 2022, as compared to $170.0 million for fiscal 2021. Sales of bulk commodity products in the Water Treatment segment were approximately 9% of sales dollars in both fiscal 2022 and fiscal 2021. We estimated the impact of the 53rd week in fiscal 2022 to be approximately $3.9 million in additional sales in our Water Treatment segment. In addition, sales increased as a result of increased demand for our products as well as the added sales from acquisitions.

Health and Nutrition Segment. Health and Nutrition segment sales increased $6.0 million, or 4%, to $159.5 million for fiscal 2022, as compared to $153.5 million for fiscal 2021. We estimated the impact of the 53rd week in fiscal 2022 to be approximately $3.6 million in additional sales in our Health and Nutrition segment. In addition, sales increased as a result of an increase in sales of our specialty distributed products, which was partially offset by the normalizing of demand for our manufactured products when compared to the temporary COVID-driven increase in demand these products experienced in the prior year.

Gross Profit

Gross profit increased $22.8 million, or 18%, to $146.5 million, or 19% of sales, for fiscal 2022, from $123.8 million, or 21% of sales, for fiscal 2021. During fiscal 2022, the LIFO reserve increased, and gross profits decreased, by $15.8 million, primarily due to rising input costs. In fiscal 2021, the LIFO reserve decreased, and gross profits increased, by $0.1 million. We estimated the impact of the 53rd week in fiscal 2022 to be approximately $3.6 million in additional gross profit.


16


Industrial Segment.  Gross profit for the Industrial segment increased $16.3 million, or 38%, to $59.6 million, or 15% of sales, for fiscal 2022, from $43.3 million, or 16% of sales, for fiscal 2021. During fiscal 2022, the LIFO reserve increased, and gross profits decreased, by $10.4 million, primarily due to rising raw material costs. In fiscal 2021, the LIFO reserve decreased, and gross profits increased, by $0.2 million. We estimated the impact of the 53rd week in fiscal 2022 to be approximately $1.9 million in additional gross profit in our Industrial segment. In addition, gross profit increased as a result of the increase in sales, partially offset by the negative impact resulting from the increase in the LIFO reserve.

Water Treatment Segment.  Gross profit for the Water Treatment segment increased $7.8 million, or 17%, to $54.6 million, or 24% of sales, for fiscal 2022, from $46.8 million, or 28% of sales, for fiscal 2021. During fiscal 2022, the LIFO reserve increased, and gross profits decreased, by $5.4 million, primarily due to rising raw material costs. During fiscal 2021, the LIFO reserve increased, and gross profit decreased, by $0.1 million. We estimated the impact of the 53rd week in fiscal 2022 to be approximately $1.0 million in additional gross profit in our Water Treatment segment. In addition, gross profit increased as a result of the increase in sales.

Health and Nutrition Segment. Gross profit for our Health and Nutrition segment decreased $1.3 million, or 4%, to $32.3 million, or 20% of sales, for fiscal 2022, from $33.6 million, or 22% of sales, for fiscal 2021. We estimated the impact of the 53rd week in fiscal 2022 to be approximately $0.7 million in additional gross profit in our Health and Nutrition segment. This increase from the 53rd week was more than offset by a decrease in gross profit resulting from a decline in sales of our manufactured products which generally have higher per-unit margins than our specialty distributed products.

Selling, General and Administrative Expenses

SG&A expenses increased $7.4 million to $75.3 million, or 10% of sales, for fiscal 2022, from $67.9 million, or 11% of sales, for fiscal 2021. We estimated the impact of the 53rd week in fiscal 2022 to be approximately $1.0 million in additional SG&A expense. In addition, expenses increased in part due to the added costs from the acquired businesses in the Water Treatment segment, an increase in variable incentive compensation, increased costs due to added personnel and other resources as we invest to grow the business, and normalization of travel and other variable expenses to pre-COVID levels.

Operating Income

Operating income was $71.2 million, or 9% of sales, for fiscal 2022, as compared to $55.9 million, or 9% of sales, for fiscal 2021 due to the combined impact of the factors discussed above. We estimated the impact of the 53rd week in fiscal 2022 to be approximately $3 million in additional operating income.

Interest Expense, Net

Interest expense was $1.4 million for fiscal 2022, a decrease of $0.1 million from interest expense of $1.5 million for fiscal 2021. Lower borrowing rates compared to the prior year more than offset the increase in outstanding borrowings in the current year.
Income Tax Provision

Our effective tax rate was approximately 26.5% for both fiscal 2022 and fiscal 2021. The effective tax rate is impacted by projected levels of annual taxable income, permanent items, and state taxes.



17


Selected Quarterly Financial Data

Selected financial data for our fiscal quarters is shown below. No changes have been made to previously reported information.

 
(In thousands, except per share data) Fiscal 2022
 FirstSecondThirdFourthTotal
Sales$181,241 $183,277 $187,050 $222,973 $774,541 
Gross profit38,974 37,287 33,940 36,319 146,520 
Selling, general, and administrative expenses16,856 17,679 19,681 21,110 75,326 
Operating income22,118 19,608 14,259 15,209 71,194 
Net income16,628 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 
 Fiscal 2021
 FirstSecondThirdFourth
Sales$143,172 $147,801 $142,927 $162,971 $596,871 
Gross profit30,976 32,797 28,239 31,750 123,762 
Selling, general, and administrative expenses15,038 16,221 17,750 18,875 67,884 
Operating income15,938 16,576 10,489 12,875 55,878 
Net income11,788 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 
Fiscal 2020
FirstSecondThirdFourth
Sales$147,336 $140,043 $120,406 $132,413 $540,198 
Gross profit28,797 27,994 21,478 22,648 100,917 
Selling, general, and administrative expenses14,836 14,817 14,702 14,891 59,246 
Operating income13,961 13,177 6,776 7,757 41,671 
Net income9,807 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 

Earnings per share may not equal the face of the Consolidated Statements of Income due to rounding.

Liquidity and Capital Resources

Cash provided by operating activities in fiscal 2022 was $42.8 million compared to $43.8 million in fiscal 2021. The decrease in cash provided by operating activities in fiscal 2022 as compared to fiscal 2021 was driven by higher inventory levels and increases in customer receivables resulting from higher sales, mostly offset by an increase in net income and accounts payable. The inventory increase was driven by increased raw material costs as well as a conscious management decision to increase inventory levels due to increased customer demand and supply chain issues. 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 March through November as caustic soda inventory levels increase as most of our barges are received during this period.
18


Cash used in investing activities was $49.8 million in fiscal 2022 compared to $71.4 million in fiscal 2021. Capital expenditures were $28.5 million in fiscal 2022 and $20.8 million in fiscal 2021. Total cash used in investing activities in fiscal 2022 included an aggregate of $21.5 million for Water Treatment group acquisitions compared to $51.0 million in Water Treatment group acquisition spending in fiscal 2021. Capital expenditures in fiscal 2022 included vehicles and trucks, facility improvements, and pharmaceutical ingredient manufacturing capabilities, along with other new and replacement equipment. Capital expenditures in fiscal 2021 included pharmaceutical ingredient manufacturing capabilities, vehicles and trucks, and the purchase of a previously leased Water Treatment branch facility, along with other new and replacement equipment.

Cash provided by financing activities was $7.4 million in fiscal 2022, as compared to $26.4 million in fiscal 2021. Cash provided by financing activities included net debt borrowings of $27.0 million in fiscal 2022, compared to net debt borrowings of $39.0 million in fiscal 2021, which was used primarily to fund our acquisitions in both fiscal years. We paid out cash dividends of $11.1 million in fiscal 2022 and $10.0 million in fiscal 2021. In fiscal 2022, we used $8.5 million to repurchase shares under our board-authorized share repurchase program, and in fiscal 2021, we used $4.1 million to repurchase shares under the program.

Our cash balance was $3.5 million at April 3, 2022, an increase of $0.5 million as compared with March 28, 2021. Cash flows generated by operations and financing activities during fiscal 2022 were offset by the cash expended for acquisitions in fiscal 2022, capital expenditures and dividend payments.

We were party to an amended and restated credit agreement (the “Prior 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 was also serving as Administrative Agent. The Prior Credit Agreement provided us with senior secured revolving credit facilities (the “Prior Revolving Loan Facility”) totaling $150.0 million. The Prior Revolving Loan Facility included a $5.0 million letter of credit subfacility and $15.0 million swingline subfacility. The Prior Revolving Loan Facility was scheduled to terminate on November 30, 2023, and was secured by substantially all of our personal property assets and those of our subsidiaries.

On March 31, 2022, we entered into a second amended and restated credit agreement (the “Credit Agreement”) with U.S. Bank National Association (“U.S. Bank”) as Sole Lead Arranger and Sole Book Runner, and other lenders from time to time party thereto (collectively, the “Lenders”), whereby U.S. Bank is also serving as Administrative Agent. The Credit Agreement refinanced the revolving loan under our previous credit agreement with U.S. Bank and provides us with senior secured revolving credit facilities (the “Revolving Loan Facility”) totaling $250 million. The Revolving Loan Facility includes a $10 million letter of credit subfacility and $25 million swingline subfacility. The Revolving Loan Facility has a five-year maturity date, maturing on April 30, 2027. The Revolving Loan Facility is secured by substantially all of our personal property assets and those of our subsidiaries.

We used $126.0 million of the proceeds from the Revolving Loan Facility to refinance the obligations under the previous credit facility. We may use the remaining amount of the Revolving Loan Facility for working capital, capital expenditures, share repurchases, restricted payments and acquisitions permitted under the Credit Agreement, and other general corporate purposes.

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) Term SOFR, which includes a credit spread adjustment of 0.10%, for an interest period of one, 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 Term SOFR for U.S. dollars plus 1.0%. The Term SOFR 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. At April 3, 2022, the effective interest rate on our borrowings was 1.2%.

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 April 3, 2022, the unamortized balance of these costs was $0.4 million, and is reflected as a reduction of debt on our balance sheet.


19


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 enter into 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 April 3, 2022 and expect to remain in compliance with all covenants for the next 12 months.
The Credit Agreement contains customary events of default, including failure to comply with covenants in the Credit Agreement and other loan documents, cross default to other material indebtedness, failure by us to pay or discharge material judgments, bankruptcy, and change of control. The occurrence of an event of default would permit the lenders to terminate their commitments and accelerate loans under the Credit Facility.

We have in place an interest rate swap agreement to manage the risk associated with a portion of our variable-rate long-term debt. We do not utilize derivative instruments for speculative purposes. The interest rate swap involves the exchange of fixed-rate and variable-rate payments without the exchange of the underlying notional amount on which the interest payments are calculated. The notional amount of the swap agreement is $60 million and it will terminate on May 1, 2027.

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.

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 Obligation20232024202520262027More than
5  Years
Total
 (In thousands)
Senior secured revolver (1)$— $— $— $— $— $126,000 $126,000 
Interest payments (2)$1,833 $1,833 $1,833 $1,833 $1,833 $152 $9,317 
Operating lease obligations (3)$1,889 $1,515 $1,450 $1,388 $1,359 $5,171 $12,772 
Pension withdrawal liability (4)$467 $467 $467 $467 $467 $3,037 $5,372 

(1)    Represents balance outstanding as of April 3, 2022, 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 April 3, 2022.
(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 Estimates

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 have determined we have no critical accounting estimates material to our consolidated financial position, results of operations or cash flow.

20




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 $0.3 million. Other types of market risk, such as foreign currency risk, do not arise in the normal course of our business activities.
21


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
22


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 April 3, 2022, 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 April 3, 2022, 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 April 3, 2022, and our report dated May 18, 2022 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 NAPCO Chemical Company, Inc. (“NAPCO”), a wholly-owned subsidiary, whose financial statements reflect total assets and revenues constituting less than 4% and less than 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended April 3, 2022. As indicated in Management’s Report, NAPCO was acquired during fiscal 2022. Management’s assertion on the effectiveness of the Company’s internal control over financial reporting excluded internal control over financial reporting of NAPCO.

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
May 18, 2022

23


Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Hawkins, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Hawkins, Inc. (a Minnesota corporation) and subsidiaries (the “Company”) as of April 3, 2022 and March 28, 2021 and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the years 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 April 3, 2022 and March 28, 2021, and the results of its operations and its cash flows for the years 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 April 3, 2022 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 May 18, 2022 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
May 18, 2022


24



Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Hawkins, Inc.

Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows of Hawkins, Inc. and subsidiaries (the Company) for the year 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 results of operations of the Company and its cash flows for the year ended March 29, 2020, in conformity with U.S. generally accepted accounting principles.

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 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 the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit 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 audit 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 audit provides 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
25




HAWKINS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per-share data)
April 3, 2022March 28, 2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$3,496 $2,998 
Trade accounts receivables, net122,826 90,603 
Inventories94,985 63,864 
Prepaid expenses and other current assets6,431 5,542 
Total current assets227,738 163,007 
PROPERTY, PLANT, AND EQUIPMENT:
Land16,640 15,235 
Buildings and improvements118,369 120,410 
Machinery and equipment114,763 109,353 
Transportation equipment43,968 37,646 
Office furniture and equipment10,315 17,760 
304,055 300,404 
Less accumulated depreciation142,209 155,792 
Net property, plant, and equipment161,846 144,612 
OTHER ASSETS:
Right-of-use assets10,606 11,630 
Goodwill77,401 70,720 
Intangible assets, net80,193 76,368 
Deferred compensation plan asset6,783 5,726 
Other2,761 487 
Total other assets177,744 164,931 
Total assets$567,328 $472,550 
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable — trade$66,693 $37,313 
Accrued payroll and employee benefits19,034 18,048 
Current portion of long-term debt9,913 9,907 
Short-term lease liability1,657 1,587 
Container deposits1,558 1,452 
Other current liabilities2,611 2,155 
Total current liabilities101,466 70,462 
LONG-TERM DEBT, LESS CURRENT PORTION115,644 88,845 
LONG-TERM LEASE LIABILITY9,143 10,231 
PENSION WITHDRAWAL LIABILITY4,276 4,631 
DEFERRED INCOME TAXES23,422 24,445 
DEFERRED COMPENSATION LIABILITY8,402 7,322 
OTHER LONG-TERM LIABILITIES2,374 1,368 
Total liabilities264,727 207,304 
COMMITMENTS AND CONTINGENCIES (Note 13)
SHAREHOLDERS’ EQUITY:
Common shares; authorized: 60,000,000 shares of $0.01 par value; 20,889,777 and 20,969,746 shares issued and outstanding for 2022 and 2021, respectively
209 210 
Additional paid-in capital46,717 51,138 
Retained earnings254,384 213,898 
Accumulated other comprehensive income1,291  
Total shareholders’ equity302,601 265,246 
Total liabilities and shareholders’ equity$567,328 $472,550 


See accompanying notes to consolidated financial statements.
26


HAWKINS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per-share data)
  
Fiscal Year Ended
 April 03, 2022March 28, 2021March 29, 2020
Sales$774,541 $596,871 $540,198 
Cost of sales(628,021)(473,109)(439,281)
Gross profit146,520 123,762 100,917 
Selling, general and administrative expenses(75,326)(67,884)(59,246)
Operating income71,194 55,878 41,671 
Interest expense, net(1,404)(1,467)(2,511)
Other income (expense)189 1,440 (204)
Income before income taxes69,979 55,851 38,956 
Income tax expense(18,437)(14,871)(10,589)
Net income$51,542 $40,980 $28,367 
Weighted average number of shares outstanding-basic20,947,234 21,024,344 21,159,978 
Weighted average number of shares outstanding-diluted21,135,258 21,260,296 21,308,800 
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 


See accompanying notes to consolidated financial statements.
27


HAWKINS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
 
Fiscal Year Ended
April 3, 2022March 28, 2021March 29, 2020
Net income$51,542 $40,980 $28,367 
Other comprehensive income, net of tax:
   Unrealized gain (loss) on interest rate swap1,291 79 (396)
Total other comprehensive income (loss)1,291 79 (396)
Total comprehensive income$52,833 $41,059 $27,971 


See accompanying notes to consolidated financial statements.
28


HAWKINS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except share data)
 Common SharesAdditional
Paid-in
Capital
Retained
Earnings
Accumulated Other Comprehensive Income (Loss)Total
Shareholders’
Equity
SharesAmount
BALANCE — March 31, 201921,184,900 $212 $52,927 $164,405 $317 $217,861 
Cash dividends declared   (9,825) (9,825)
Share-based compensation expense  2,273   2,273 
Vesting of restricted stock71,944      
Shares surrendered for payroll taxes(18,320) (343)  (343)
ESPP shares issued77,100 1 1,399   1,400 
Shares repurchased(291,166)(2)(5,851)  (5,853)
Other comprehensive loss, net of tax    (396)(396)
Net Income   28,367  28,367 
BALANCE — March 29, 202021,024,458 $211 $50,405 $182,947 $(79)$233,484 
Cash dividends declared and paid   (10,029) (10,029)
Share-based compensation expense  3,343   3,343 
Vesting of restricted stock26,542      
Shares surrendered for payroll taxes(3,314) (54)  (54)
ESPP shares issued88,148 1 1,582   1,583 
Shares repurchased(166,088)(2)(4,138)  (4,140)
Other comprehensive loss, net of tax    79 79 
Net income   40,980  40,980 
BALANCE — March 28, 202120,969,746 $210 $51,138 $213,898 $ $265,246 
Cash dividends declared and paid   (11,056) (11,056)
Share-based compensation expense  3,818   3,818 
Vesting of restricted stock134,230 1 (1)   
Shares surrendered for payroll taxes(45,390) (1,467)  (1,467)
ESPP shares issued71,692  1,772   1,772 
Shares repurchased(240,501)(2)(8,543)  (8,545)
Other comprehensive income, net of tax    1,291 1,291 
Net income   51,542  51,542 
BALANCE — April 3, 202220,889,777 $209 $46,717 $254,384 $1,291 $302,601 


See accompanying notes to consolidated financial statements.
29


HAWKINS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
  
Fiscal Year Ended
 April 3, 2022March 28, 2021March 29, 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$51,542 $40,980 $28,367 
Reconciliation to cash flows provided by operating activities:
Depreciation and amortization24,129 22,669 21,584 
Operating leases1,899 1,896 2,033 
(Gain) loss on deferred compensation assets(189)(1,440)233 
Deferred income taxes(1,501)(689)(1,421)
Stock compensation expense3,818 3,343 2,273 
Other545 203 656 
Changes in operating accounts (using) providing cash, net of acquisitions:
Trade receivables(30,526)(21,323)(3,387)
Inventories(30,034)(7,960)6,045 
Accounts payable25,138 2,551 4,228 
Accrued liabilities2,723 7,554 663 
Lease liabilities(1,907)(1,837)(2,025)
Income taxes214 (235)586 
Other(3,014)(1,919)(933)
Net cash provided by operating activities42,837 43,793 58,902 
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment(28,512)(20,794)(24,549)
Acquisitions(21,546)(51,000) 
Other302 362 346 
Net cash used in investing activities(49,756)(71,432)(24,203)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid(11,056)(10,029)(9,825)
New shares issued1,772 1,583 1,400 
Shares surrendered for payroll taxes(1,467)(54)(343)
Shares repurchased(8,545)(4,140)(5,853)
Payments for debt issuance costs(287)  
Payments on senior secured revolving loan(15,000)(37,000)(44,000)
Borrowings on senior secured revolving loan42,000 76,000 19,000 
Net cash provided by (used in) financing activities7,417 26,360 (39,621)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS498 (1,279)(4,922)
CASH AND CASH EQUIVALENTS - beginning of year2,998 4,277 9,199 
CASH AND CASH EQUIVALENTS - end of year$3,496 $2,998 $4,277 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION-
Cash paid during the year for income taxes$19,726 $15,783 $11,415 
Cash paid for interest1,197 1,288 2,413 
Noncash investing activities - Capital expenditures in accounts payable3,733 626 1,041 


See accompanying notes to consolidated financial statements.
30


HAWKINS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Nature of Business and Significant Accounting Policies

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, products, equipment, services 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 2022 was 53 weeks and our fiscal 2021 fiscal 2020 were both 52 weeks. Fiscal 2023 will be 52 weeks.

Principles of Consolidation - The consolidated financial statements include the accounts of Hawkins, Inc. and its wholly-owned subsidiaries. All intercompany transactions and accounts have been eliminated.

Estimates - The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, particularly receivables, inventories, property, plant and equipment, right-of-use assets, goodwill, intangibles, accrued expenses, short-term and long-term lease liability, income taxes and related accounts and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition - Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products. Revenue is recognized when we satisfy our performance obligations under the contract. We recognize revenue upon transfer of control of the promised products to the customer, with revenue recognized at the point in time the customer obtains control of the products. Net sales include products and shipping charges, net of estimates for product returns and any related sales rebates. We estimate product returns based on historical return rates. Using probability assessments, we estimate sales rebates expected to be paid over the term of the contract. The majority of our contracts have a single performance obligation and are short term in nature. Sales taxes that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales. We offer certain customers cash discounts and volume rebates as sales incentives. The discounts and volume rebates are recorded as a reduction in sales at the time revenue is recognized in an amount estimated based on historical experience and contractual obligations.

Shipping and Handling - All shipping and handling amounts billed to customers are included in revenues. Costs incurred related to the shipping and the handling of products are included in cost of sales.


31

HAWKINS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
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 April 3, 2022, we had a significant concentration of credit risk, with a single customer representing approximately 13% 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 73% of our inventory determined using the last-in, first-out (“LIFO”) method. Cost for the other 27% of our total inventory is determined using the first-in, first-out (“FIFO”) method.

Leases - We determine 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 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.


32

HAWKINS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 $17.7 million for fiscal 2022, $16.8 million for fiscal 2021 and $16.5 million for fiscal 2020.

Significant improvements that add to productive capacity or extend the lives of properties are capitalized. Costs for repairs and maintenance are charged to expense as incurred. When property is retired or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from the accounts and any related gains or losses are included in income.

We review the recoverability of long-lived assets to be held and used, such as property, plant and equipment, when events or changes in circumstances occur that indicate the carrying value of the asset group may not be recoverable, such as prolonged industry downturn or significant reductions in projected future cash flows. The assessment of possible impairment is based on our ability to recover the carrying value of the asset group from the expected future pre-tax cash flows (undiscounted) of the related 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 did not incur any asset write-off charge in fiscal 2022 related to the impairment of long-lived assets. Asset write-off charges were $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 27, 2021, 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 2021 and 2020 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 a remaining useful life of approximately 12 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 2022, 2021 or 2020. 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 2022, 2021 or 2020.


33

HAWKINS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Income Taxes - We account 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.

We recognize the effect of income tax positions only if those positions are more-likely-than-not to be sustained. Recognized income tax positions are measured at the largest amount of tax with a greater than 50 percent likelihood of being realized upon ultimate settlement with the related tax authority. Changes in recognition or measurement are reflected in the period in which the 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.

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:
April 03, 2022March 28, 2021March 29, 2020
Weighted average common shares outstanding — basic20,947,234 21,024,344 21,159,978 
Dilutive impact of stock performance units and restricted stock188,024 235,952 148,822 
Weighted average common shares outstanding — diluted21,135,258 21,260,296 21,308,800 

There were no shares or stock options excluded from the calculation of weighted average common shares for diluted EPS for fiscal 2022, 2021 or 2020.
Stock Split - In fiscal 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 have in place an interest rate swap agreement which has been designated as a cash flow hedge, the purpose of which is to eliminate the cash flow impact of interest rate changes on a portion of our variable-rate debt. The interest rate swap is measured at fair value on the contract date and is subsequently remeasured to fair value at each reporting date. Changes in the fair value of a derivative that is highly effective, and that is designated and qualifies as a cash flow hedge, are recorded in other comprehensive income, until the consolidated statement of income is affected by the variability in cash flows of the designated hedged item. To the extent that the hedge is ineffective, changes in the fair value are recognized in the Statement of Income.

Recently Issued Accounting Pronouncements

We do not expect that any recently issued accounting pronouncements will have a material effect on our financial statements.
 
Recently Adopted 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. We adopted this guidance at the beginning of fiscal 2022. Our adoption of this ASU did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.

34

HAWKINS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 2 — Acquisitions

Acquisition of NAPCO Chemical Company, Inc.: On December 30, 2021, we acquired substantially all the assets of NAPCO Chemical Company, Inc. ("NAPCO"), under the terms of an asset purchase agreement with NAPCO and certain other parties thereto, to further the geographic reach of our Water Treatment segment. We paid $18.5 million at closing for the acquisition, and an additional $0.5 million for a working capital adjustment. NAPCO manufactures and distributes water treatment chemicals from three locations in Texas. 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 NAPCO 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 total $19 million purchase price, we allocated $9.4 million to finite-lived intangible assets, primarily customer relationships to be amortized over 18 years, $3.6 million to property, plant and equipment and $1.5 million to net working capital. The residual amount of $4.5 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 Water and Waste Specialties, Inc.: On October 29, 2021, we acquired substantially all the assets of Water and Waste Specialties, Inc., under the terms of a purchase agreement with Water and Waste Specialties and its shareholders, to further the geographic reach of our Water Treatment segment. We paid $1.4 million at closing for the acquisition. Water and Waste Specialties was a water treatment chemical distribution company operating primarily in Alabama. 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 Water and Waste Specialties 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 total $1.4 million purchase price, we allocated $0.5 million to finite-lived intangible assets, primarily customer relationships to be amortized over 11 years, and $0.4 million to property, plant and equipment. The residual amount of $0.5 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 Southeast Water Systems LLC: On September 20, 2021, we acquired substantially all the assets of Southeast Water Systems LLC, under the terms of an asset purchase agreement with Southeast Water Systems and its shareholders, to further the geographic reach of our Water Treatment segment. We paid $1.2 million at closing for the acquisition and may pay up to an additional $1.0 million over the next three years based on achieving certain goals. Southeast Water Systems supplied and installed water treatment chemical equipment to its customers located primarily in Alabama, southern Georgia and the Florida panhandle. 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 Southeast Water Systems 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 total $2.2 million purchase price, which includes a contingent consideration liability of $1.0 million, we allocated $0.4 million to finite-lived intangible assets, primarily customer relationships to be amortized over 10 years, and $0.1 million to property, plant and equipment. The residual amount of $1.7 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.


35

HAWKINS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Acquisition of C&L Aqua Professionals, Inc. and LC Blending, Inc.: In 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, to further the geographic reach of our Water Treatment segment. We paid $16 million for 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.

Acquisition of Property: In fiscal 2021, 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 American Development Corporation of Tennessee, Inc.: In 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, to further the geographic reach of our Water Treatment segment. We paid $25 million for 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.

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 recog