Makes about 3 dozen cookies.

1⅓ cups walnuts, divided
⅓ cup granulated sugar
1 cup evaporated milk, divided
½ cup (1 stick) butter
¼ cup firmly packed brown sugar
¼ cup sifted powdered sugar
¼ teaspoon salt
1 egg
1 teaspoon vanilla extract
2 cups flour
Round, colored toothpicks
1 (14-ounce) package caramels, unwrapped
1 to 2 tablespoons water, if necessary

To prepare filling: In a food processor fitted with a metal blade, pulse walnuts until finely chopped. In a small saucepan over medium heat, combine 1/3 cup of ground walnuts (reserve remaining walnuts), granulated sugar and 1/3 cup evaporated milk, and cook, stirring constantly, until very thick, about 5 minutes. Cool and reserve.

To prepare dough: Preheat oven to 350 degrees and line baking sheets with parchment paper.
In a bowl of an electric mixer on medium-high speed, beat butter, brown sugar, powdered sugar and salt until light and fluffy, about 2 minutes. Add egg and vanilla extract and beat until thoroughly combined. Reduce speed to low, add flour and mix until just incorporated.

Shape dough into 1-inch balls. Make a depression in ball with your thumb and drop ¼ teaspoon filling into depression. Reshape cookie into a ball, enclosing the filling. Place cookies 2 inches apart on prepared baking sheets and bake 15 to 18 minutes, or until lightly browned. Remove from oven and cool 2 minutes before transferring cookies to a wire rack. Insert a rounded colored wooden toothpick into top of each cookie and cool completely.

To prepare caramel coating: In a double boiler over gently simmering water, combine caramels and remaining 2/3 cup evaporated milk and heat until caramels melt, stirring occasionally (if too thick, thin with water, 1 tablespoon at a time). Remove from heat but keep mixture warm over hot water (If using a microwave oven, melt caramels in 1-minute intervals, stirring and repeating until caramel is melted).

Dip cookies into caramel coating, allowing excess caramel to drop off (cookies can be double-dipped). Dip bottom of cookie in remaining ground walnuts and place on wax or parchment paper to set.

2003 Winner: Sherryl Joos of Plymouth, Minnesota