<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ------ SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 1, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ------ SECURITIES EXCHANGE ACT OF 1934
Commission File Number - 0-17896
HANOVER FOODS CORPORATION
(Exact name of Registrant as specified in its charter)
Commonwealth of Pennsylvania 23-0670710
(Jurisdiction of Incorporation) (I.R.S. Employer
Identification No.)
1486 York Road, P.O. Box 334, Hanover, PA 17331
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 717-632-6000
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 12 months, and (2) has been subject to such filing
for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of issuer's classes of common stock
as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at September 1, 1996
----- --------------------------------
<S> <C>
Class A Common Stock, $25 par value 294,292 shares
Class B Common Stock, $25 par value 427,277 shares
</TABLE>
<PAGE> 2
HANOVER FOODS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Thirteen Weeks Ended September 1, 1996
<TABLE>
<CAPTION>
Index
Page
<S> <C>
Part I - Financial Information
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets (Unaudited) September 1, 1996
and June 2, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations (Unaudited),
Thirteen weeks ended September 1, 1996 and September 3, 1995 . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
periods ended September 1, 1996 and June 2, 1996 . . . . . . . . . . . . . . . . . . . . 6
Condensed Consolidated Statements of Cash Flows (Unaudited),
Thirteen weeks ended September 1, 1996 and September 3, 1995 . . . . . . . . . . . . . . 7
Notes to Condensed Consolidated Financial Statements (Unaudited) . . . . . . . . . . . . . . . 8
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
==============================================================================================
September 1, June 2,
ASSETS 1996 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and short-term cash investments $ 1,888,000 1,112,000
Accounts and notes receivable, net 20,668,000 17,249,000
Accounts receivable from related parties, net - 61,000
Inventories 51,944,000 47,067,000
Prepaid corporate income taxes - 581,000
Prepaid expenses 2,311,000 1,796,000
Deferred income taxes 885,000 885,000
- ----------------------------------------------------------------------------------------------
Total current assets 77,696,000 68,751,000
- ----------------------------------------------------------------------------------------------
Property, plant, and equipment, at cost:
Land and buildings 33,052,000 32,115,000
Machinery and equipment 78,234,000 77,399,000
Leasehold improvements 349,000 349,000
- ----------------------------------------------------------------------------------------------
111,635,000 109,863,000
Less accumulated depreciation and amortization 62,579,000 61,273,000
- ----------------------------------------------------------------------------------------------
49,056,000 48,590,000
Construction in progress 47,000 176,000
- ----------------------------------------------------------------------------------------------
49,103,000 48,766,000
- ----------------------------------------------------------------------------------------------
Other assets and deferred charges:
Intangible assets, less accumulated amortization of
$2,008,000 and $2,004,000 452,000 456,000
Other assets 1,665,000 2,407,000
- ----------------------------------------------------------------------------------------------
$ 128,916,000 120,380,000
==============================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets, Continued
(Unaudited)
<TABLE>
<CAPTION>
================================================================================================
September 1, June 2,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Notes payable - banks $ 28,485,000 24,097,000
Accounts payable 24,411,000 23,916,000
Accounts payable to related parties, net 253,000 -
Accrued expenses 6,638,000 4,052,000
Current maturities of long-term debt 1,999,000 1,999,000
Current maturities of long-term debt to related party 500,000 500,000
Current maturities of capital lease obligations 93,000 152,000
Income taxes payable 127,000 110,000
- ------------------------------------------------------------------------------------------------
Total current liabilities 62,506,000 54,826,000
Long-term debt, less current maturities 18,078,000 18,078,000
Long-term debt to related party, less current maturities 125,000 375,000
Other liabilities 909,000 805,000
Deferred income taxes 5,166,000 5,170,000
- ------------------------------------------------------------------------------------------------
Total liabilities 86,784,000 79,254,000
- ------------------------------------------------------------------------------------------------
Stockholders' equity:
8-1/4% cumulative convertible preferred, $25 par value;
issuable in series, 120,000 shares authorized;
31,536 shares issued, 15,044 shares outstanding 788,000 788,000
Common stock, Class A, non-voting, $25 par value;
800,000 shares authorized, 349,210 shares issued,
294,292 shares at September 1, 1996 and 294,824
shares at June 2, 1996 outstanding 8,729,000 8,729,000
Common stock, Class B, voting, $25 par value;
880,000 shares authorized, 493,123 shares
issued, 427,277 shares at September 1, 1996 and
427,350 shares at June 2, 1996 outstanding 12,328,000 12,328,000
Capital paid in excess of par value 1,623,000 1,623,000
Retained earnings 26,732,000 25,688,000
Treasury stock, at cost (7,787,000) (7,755,000)
Other (281,000) (275,000)
- ------------------------------------------------------------------------------------------------
42,132,000 41,126,000
- ------------------------------------------------------------------------------------------------
$ 128,916,000 120,380,000
================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
======================================================================================
Thirteen weeks ended
--------------------------------
September 1, September 3,
1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 56,119,000 51,717,000
Cost of goods sold 43,240,000 40,700,000
- --------------------------------------------------------------------------------------
Gross profit 12,879,000 11,017,000
Selling expenses 7,540,000 7,376,000
Administrative expenses 2,189,000 2,504,000
- --------------------------------------------------------------------------------------
Operating profit 3,150,000 1,137,000
Interest expense 934,000 1,366,000
Other expense, net 196,000 72,000
- --------------------------------------------------------------------------------------
Earnings (loss) before income taxes 2,020,000 (301,000)
Income taxes 769,000 (222,000)
- --------------------------------------------------------------------------------------
Net earnings (loss) 1,251,000 (79,000)
Dividends on preferred stock 8,000 8,000
- --------------------------------------------------------------------------------------
Net earnings (loss) applicable to common stock $ 1,243,000 (87,000)
======================================================================================
Earnings per share:
Net earnings (loss), primary $ 1.72 (0.12)
======================================================================================
Dividends per share, common $ 0.275 0.275
======================================================================================
Average shares outstanding $ 721,935 732,213
======================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity
Periods ended September 1, 1996 and June 2, 1996
(Unaudited)
<TABLE>
<CAPTION>
=====================================================================================================================
Cumulative convertible
preferred stock Common stock
Series A and Series B Class A
---------------------- ---------------------------------
TOTAL
STOCKHOLDERS'
EQUITY Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1996 $42,509,000 31,536 $ 788,000 349,210 $ 8,729,000
Net loss for the period (1,131,000) - - - -
Cash dividends per share:
Preferred stock (8,000) - - - -
Common stock (199,000) - - - -
Redemption of common stock
(Class A 825 shares and
Class B 109 shares) (47,000) - - - -
Unrealized gain on investments 2,000 - - - -
- ---------------------------------------------------------------------------------------------------------------------
Balance, June 2, 1996 41,126,000 31,536 788,000 349,210 8,729,000
Net earnings for the period 1,251,000 - - - -
Cash dividends per share:
Preferred stock (8,000) - - - -
Common stock (199,000) - - - -
Redemption of common stock
(Class A 532 shares and
Class B 73 shares) (32,000) - - - -
Unrealized loss on investments (6,000) - - - -
- ---------------------------------------------------------------------------------------------------------------------
Balance, September 1, 1996 $42,132,000 31,536 $ 788,000 349,210 $ 8,729,000
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Common stock
Class B
------------------------------
Capital
paid in
excess
of par Retained
Shares Amount value earnings
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, March 31, 1996 493,123 $ 12,328,000 1,623,000 27,026,000
Net loss for the period - - - (1,131,000)
Cash dividends per share:
Preferred stock - - - (8,000)
Common stock - - - (199,000)
Redemption of common stock
(Class A 825 shares and
Class B 109 shares) - - - -
Unrealized gain on investments - - - -
- ----------------------------------------------------------------------------------------------------
Balance, June 2, 1996 493,123 12,328,000 1,623,000 25,688,000
Net earnings for the period - - - 1,251,000
Cash dividends per share:
Preferred stock - - - (8,000)
Common stock - - - (199,000)
Redemption of common stock
(Class A 532 shares and
Class B 73 shares) - - - -
Unrealized loss on investments - - - -
- ----------------------------------------------------------------------------------------------------
Balance, September 1, 1996 493,123 $ 12,328,000 1,623,000 26,732,000
====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Treasury stock
----------------------------
Shares Amount Other
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, March 31, 1996 135,675 $ (7,708,000) (277,000)
Net loss for the period - - -
Cash dividends per share:
Preferred stock - - -
Common stock - - -
Redemption of common stock
(Class A 825 shares and -
Class B 109 shares) 934 (47,000) -
Unrealized gain on investments - 2,000
- ---------------------------------------------------------------------------------------
Balance, June 2, 1996 136,609 (7,755,000) (275,000)
Net earnings for the period - - -
Cash dividends per share:
Preferred stock - - -
Common stock - - -
Redemption of common stock
(Class A 532 shares and
Class B 73 shares) 605 (32,000) -
Unrealized loss on investments - - (6,000)
- ---------------------------------------------------------------------------------------
Balance, September 1, 1996 137,214 $ (7,787,000) (281,000)
=======================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
================================================================================================
Thirteen weeks ended
------------------------------------
September 1, September 3,
1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Operating activities:
Net earnings (loss) $ 1,251,000 (79,000)
Adjustments to reconcile net earnings (loss) to net cash
used in operating activities:
Depreciation and amortization 1,310,000 1,420,000
Deferred income taxes (4,000) 159,000
Change in assets and liabilities:
Accounts receivable (3,358,000) 1,161,000
Inventory (4,877,000) (16,287,000)
Prepaid items 66,000 1,125,000
Accounts payable and accrued expenses 3,334,000 (5,274,000)
Income taxes payable 17,000 8,000
Other liabilities 104,000 -
- ------------------------------------------------------------------------------------------------
Net cash provided by operating activities (2,157,000) (17,767,000)
- ------------------------------------------------------------------------------------------------
Investing activities:
(Increase) decrease in other non-current assets 736,000 115,000
Acquisitions of property, plant, and equipment (1,643,000) (1,819,000)
- ------------------------------------------------------------------------------------------------
Net cash used in investing activities (907,000) (1,704,000)
- ------------------------------------------------------------------------------------------------
Financing activities:
Increase (decrease) in notes payable 4,388,000 21,149,000
Payments on long-term debt and capital leases (309,000) 89,000
Payment of dividends (207,000) (210,000)
Redemption of common stock (32,000) (506,000)
- ------------------------------------------------------------------------------------------------
Net cash used in financing activities 3,840,000 20,522,000
- ------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 776,000 1,051,000
Cash and cash equivalents, beginning of period 1,112,000 881,000
- ------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,888,000 1,932,000
================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE> 8
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 1, 1996 and June 2, 1996
(Unaudited)
================================================================================
(1) BASIS OF PRESENTATION
The condensed consolidated financial statements of the Registrant
included herein have been prepared, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission.
Although, certain information normally included in financial
statements prepared in accordance with generally accepted accounting
principles has been omitted, the Registrant believes that the
disclosures are adequate to make the information presented not
misleading.
Effective June 2, 1996, the Corporation changed its fiscal year to end
at the close of operations on the Sunday nearest to May 31.
Accordingly, these financial statements reflect activity for the
thirteen week periods ended September 1, 1996 and September 3, 1995.
It is suggested that these condensed consolidated financial statements
be read in conjunction with the consolidated financial statements and
the notes thereto included in Form 10-K for its fiscal year ended
March 31, 1996.
The condensed consolidated financial statements included herein
reflect all adjustments (consisting only of normal recurring accruals)
which, in the opinion of management, are necessary to present a fair
statement of the results for the interim period.
The results for interim periods are not necessarily indicative of
trends or results to be expected for a full year.
(2) SHORT-TERM BORROWINGS
The Corporation and its subsidiaries maintain short-term unsecured
lines of credit with various banks providing credit availability
amounting to $55 million of which $28,485,000 was borrowed at
September 1, 1996. The average cost of funds during the period ended
September 1, 1996 was 6.1%.
(Continued)
8
<PAGE> 9
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
================================================================================
(3) LONG-TERM DEBT
The long-term debt of the Corporation and its subsidiaries consist of:
<TABLE>
<CAPTION>
September 1, 1996 June 2, 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
8.74% - 9.24% unsecured senior notes payable to an insurance
company, due fiscal years ending 1995-2007 $ 19,643,000 19,643,000
Installment obligation payable to a municipality, due
fiscal years ending 1995-1997 140,000 140,000
Installment obligation payable to a related party, due in equal
annual installments in fiscal years ending 1996-2000
interest at prime rate (8.25% at June 2, 1996) 294,000 294,000
6.33% installment obligation payable to a related party,
due fiscal years ending 1996-1998 625,000 875,000
- --------------------------------------------------------------------------------------------------
20,702,000 20,952,000
Less current maturities 2,499,000 2,499,000
- --------------------------------------------------------------------------------------------------
$ 18,203,000 18,453,000
==================================================================================================
</TABLE>
The term loan agreements with the insurance company, the agreements
for seasonal borrowing with financial institutions, and installment
agreements with industrial development authorities contain various
restrictive provisions including those relating to mergers and
acquisitions, additional borrowing, guarantees of obligations, lease
commitments, limitations on declaration and payment of dividends,
repurchase of the Corporation's stock, and the maintenance of working
capital and certain financial ratios. The Corporation is in
compliance with the restrictive provisions in the agreements.
(Continued)
9
<PAGE> 10
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
================================================================================
(4) RELATED PARTY TRANSACTIONS
The Corporation and its subsidiaries, in the normal course of
business, purchase and sell goods and services to related parties.
The Corporation believes that the cost of such purchases and sales
are competitive with alternative sources of supply and markets.
<TABLE>
<CAPTION>
Thirteen weeks ended
---------------------------------
September 1, September 3,
1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Park 100 Foods, Inc. $ 278,000 -
Corporate charges:
Snyder's of Hanover, Inc. 44,000 73,000
Expenditures:
Park 100 Foods, Inc. 92,000 -
The Cannery Press, Inc. 14,000 142,000
Patti & John's, Inc. 10,000 11,000
ARWCO Corporation 4,000 3,000
Warehime Enterprises, Incorporated 46,000 46,000
John A. and Patricia M. Warehime 11,000 11,000
James G. Sturgill 20,000 -
George E. Lawrence - 8,000
Sturgill & Associates 16,000 -
=========================================================================================
</TABLE>
The respective September 1, 1996 and June 2, 1996 account balances
with related companies are as follows:
<TABLE>
<CAPTION>
September 1, June 2,
1996 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Accounts receivable:
Snyder's of Hanover, Inc. $ 15,000 11,000
Patti & John's, Inc. - 4,000
Park 100 Foods, Inc. 102,000 56,000
Accounts payable:
The Cannery Press, Inc. - 4,000
Lippy Bros. 358,000 -
Patti & John's, Inc. 5,000 6,000
Sturgill & Associates 7,000 -
Notes payable:
Warehime Enterprises, Incorporated 625,000 875,000
Cyril T. Noel 294,000 294,000
=============================================================================================
</TABLE>
(Continued)
10
<PAGE> 11
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
================================================================================
(5) CONTINGENCIES
LEGAL MATTERS
It is the opinion of management and counsel that various claims and
litigation in which the Corporation is currently involved will not
materially affect the Corporation's financial position, results of
operations or liquidity.
On September 13, 1996, Jeffrey T. Petow, I. Wistar Morris, III, Martha
H. Morris, William M. Davison, IV, Paul Spears, Elizabeth W. Stick,
J. William Warehime, Jeffrey Herr, as custodian for his daughter
Julie Herr, Warehime Enterprises, and Stephen Port filed a Complaint
In Equity against six of the Corporation's directors and the Estate
of a former director in the Court of Common Pleas of York County,
Pennsylvania, Civil Action - Equity No. 96-SU-04275-07. This suit
also names the Corporation as a nominal defendent. The suit seeks
various forms of relief including, but not limited to, rescission of
the board's April 28, 1995 approval of John A. Warehime's executive
compensation package and the board's February 10, 1995 adjustment of
directors' fees. In addition, the plaintiffs seek costs and fees
incident to bringing suit. The defendants intend to vigorously
defend this action.
MANUFACTURER COUPONS
The Corporation is contingently liable for unredeemed manufacturer
coupons on various products at September 1, 1996 which will expire
during the current fiscal year.
================================================================================
11
<PAGE> 12
PART I FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
HANOVER FOODS CORPORATION AND SUBSIDIARIES
================================================================================
The following comments should be read in conjunction with Management's
Discussion and Analysis of Financial Conditions and Results of Operations
appearing in the Corporation's 1995-96 Annual Report to Shareholders.
RESULTS OF OPERATIONS
NET SALES
Consolidated net sales were $56.1 million for the thirteen week period
ended September 1, 1996. This represents an increase of 8.5% over the
thirteen week period ended September 3, 1995 consolidated net sales of
$51.7 million. The increase of $4.4 million was primarily due to
increased canned and frozen branded retail sales offset by decreases in
private label and food service sales.
COST OF GOODS SOLD
Cost of goods sold were $43.2 million or 77.1% of consolidated net
sales in the thirteen week period ended September 1, 1996 and $40.7
million, or 78.7%, of consolidated net sales for the corresponding
period in 1995. The decrease in cost of goods sold as a percentage of
net sales resulted primarily from an increase in the average selling
prices per case of product as well as reduction in cost of operation.
SELLING EXPENSES
Selling expenses were $7.5 million or 13.4% of consolidated net sales
for the thirteen week period ended September 1, 1996 versus $7.4
million or 14.3% of consolidated net sales during the corresponding
period in 1995. The decrease in selling expenses as a percentage of
net sales reflects lower expenses related to promotional programs,
advertising, and customer allowances.
ADMINISTRATIVE EXPENSES
Administrative expenses as a percentage of consolidated net sales were
3.9% for the thirteen week period ended September 1, 1996 compared to
4.8% for the corresponding period of 1995. This decrease is
attributed to reductions in personnel and outside consulting services.
INTEREST EXPENSE
Interest expense was $934,000 for the thirteen week period ended
September 1, 1996 as compared to $1,366,000 for the same period in
1995. The decrease in interest is mainly due to lower average
borrowings during the current period.
(Continued)
12
<PAGE> 13
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
================================================================================
LIQUIDITY AND FINANCIAL RESOURCES
Management's discussion of the Corporation's financial condition
should be read in conjunction with the condensed consolidated
statements of cash flow appearing on page 7 of this report.
OPERATING ACTIVITIES
Cash used by operating activities for the thirteen week period ended
September 1, 1996 was $2.2 million as compared to $17.8 million during
the same period of 1995. The combination of increased accounts
receivable and inventory levels, offset by the increase of trade
accounts payable and accrued expenses utilized cash flow. By
comparison the same period of 1995 consumed more cash for increased
inventory levels and reduced payables, which was offset by a small
reduction in receivables.
INVESTING ACTIVITIES
During the thirteen week period ended September 1, 1996 the
Corporation spent approximately $1.6 million for the purchase of land
and plant upgrades and expansions. This compares to $1.8 million
spent during the same period last year for capital projects.
FINANCING ACTIVITIES
The increase in notes payable of approximately $4.4 million during the
thirteen week period ended September 1, 1996 represents borrowings
made against available seasonal lines of credit from financial
institutions for use in operations and to redeem 532 shares of
Class A common stock and 73 shares of Class B common stock at a cost
of $32,000.
The Corporation has available seasonal lines-of-credit from financial
institutions in the amount of $55 million. Additional borrowings are
permitted within prescribed parameters in existing debt agreements.
Management believes these credit facilities provide adequate cash
availability for seasonal operating requirements.
================================================================================
13
<PAGE> 14
PART II - OTHER INFORMATION
HANOVER FOODS CORPORATION AND SUBSIDIARIES
================================================================================
Item:
1 Legal Proceedings
There have been no material developments in previously reported
litigation in which the Corporation is currently involved. (See
Form 10-K filed by Corporation on July 2, 1996).
On September 13, 1996, Jeffrey T. Petow, I. Wistar Morris, III, Martha
H. Morris, William M. Davison, IV, Paul Spears, Elizabeth W. Stick, J.
William Warehime, Jeffrey Herr, as custodian for his daughter Julie
Herr, Warehime Enterprises, and Stephen Port filed a Complaint in
Equity against six of the Corporation's directors and the Estate of a
former director in the Court of Common Pleas of York County,
Pennsylvania, Civil Action-Equity No. 96-SU-04275-07. This suit also
names the Corporation as a nominal defendant. The suit seeks various
forms of relief including, but not limited to, rescission of the
board's April 28, 1995 approval of John A. Warehime's executive
compensation package and the board's February 10, 1995 adjustment of
directors' fees. In addition, the plaintiffs seek costs and fees
incident to bringing suit. The defendants intend to vigorously defend
this action.
2-3 None
4 Votes of Security Holders
On June 21, 1996, the Corporation held its annual meeting of Class B
Stockholders. The Corporation did not solicit proxies and the Board of
Directors, as previously reported to the Commission was re-elected in
its entirety. Votes for the Board of Directors were as follows:
FOR AGAINST ABSTENTION
------------------------------------------------------------------
T. Edward Lippy 224,180 -- 132,068
Cyril T. Noel 224,180 -- 132,068
Clayton J. Rohrbach, Jr. 224,180 -- 132,068
Arthur S. Schaier 224,180 -- 132,068
James G. Sturgill 224,180 -- 132,068
John A. Warehime 224,180 -- 132,068
James A. Washburn 224,180 -- 132,068
-----------------------------------------------------------------
In addition, the stockholders approved the appointment of KPMG Peat
Marwick LLP as its certifying accountants for the fiscal year ending
June 1, 1997 by a vote of 224,180 for and 132,068 abstentions.
5 None
6 - Exhibits and Reports on 8-K.
(a) Exhibits
4(d) - July 1, 1996 Second Amendment to December 1, 1991 Note
Agreement between the Corporation and Allstate Life Insurance
Company (the "Note Agreement") is attached as Exhibit 4(d).
11 - Computation of Earnings Per Share
27 - Financial Data Schedule
(b) Reports on Form 8-K:
On August 10, 1996, the Corporation filed an amended report on
Form 8-K/A clarifying that the Corporation would be filing a Form
10-Q for the transition period April 1, 1996 to June 2, 1996,
rather than a Form 10-K for that period.
================================================================================
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: October 15, 1996
HANOVER FOODS CORPORATION
BY /s/ GARY T. KNISELY
--------------------------
Gary T. Knisely
Executive Vice President
BY /s/ PIETRO GIRAFFA
--------------------------
Pietro Giraffa
Vice President and Controller
15
<PAGE> 1
==============================================================================
HANOVER FOODS CORPORATION
SECOND AMENDMENT
Dated As Of July 1, 1996
To
NOTE AGREEMENT
Dated As Of December 1, 1991
Re: $25,000,000 8.74% Senior Notes,
Due March 15, 2007
==============================================================================
<PAGE> 2
SECOND AMENDMENT TO NOTE AGREEMENT
THIS SECOND AMENDMENT to Note Agreement dated as of July 1, 1996 (the
or this "Second Amendment"), is entered into between Hanover Foods Corporation,
a Pennsylvania corporation (the "Company"), and Allstate Life Insurance Company
(the "Purchaser").
RECITALS:
A. The Company and the Purchaser have heretofore entered into the
Note Agreement dated as of December 1, 1991 and the First Amendment to Note
Agreement dated as of June 20, 1995 (as amended, the "Note Agreement").
B. The Company and the Purchaser now desire to amend certain of
the terms of the Note Agreement in order to reduce the level of financial
performance that the Company must achieve for the next year.
C. Capitalized terms used herein shall have the respective
meanings ascribed thereto in the Note Agreement unless herein defined or the
context shall otherwise require.
D. All requirements of law have been fully complied with and all
other acts and things necessary to make this Second Amendment a valid, legal
and binding instrument according to its terms for the purposes herein expressed
have been done or performed.
NOW, THEREFORE, the Company and the Purchaser, in consideration of good
and valuable consideration the receipt and sufficiency of which is hereby
acknowledged, do hereby agree as follows:
SECTION 1. AMENDMENT.
Section 1.1. Section 5.8(a)(3) of the Note Agreement shall be and is
hereby amended in its entirety to read as follows:
"(3) additional Funded Debt of the Company; provided that at
the time of creation, issuance, assumption, guarantee, or incurrence
thereof and after giving effect thereto and to the application of the
proceeds thereof:
(i) Consolidated Funded Debt would not exceed an amount equal
to the relevant percentage of Consolidated Total Capitalization
(determined as of the end of the most recent quarter) hereinafter
specified during the applicable period set forth below:
<PAGE> 3
If Funded Debt Maximum Percentage
is Incurred of Consolidated
During the Period: Total Capitalization:
------------------ ---------------------
Closing Date to and
including December 1, 1996 55%
December 2, 1996 to
March 2, 1997 52%
March 3, 1997 to
June 1, 1997 51%
June 2, 1997 and thereafter 50%
and
(ii) in the case of the incurrence of any Funded Debt of
the Company secured by Liens permitted by Section 5.10(g), the
aggregate amount of all Consolidated Funded Debt secured by Liens
permitted by Sections 5.10(f) and (g) would not exceed 15% of
Consolidated Tangible Net Worth;"
Section 1.2. Section 5.8(a)(4) of the Note Agreement shall be and is
hereby amended in its entirety to read as follows:
(4) Current Debt of the Company; provided that for
purposes of determining whether additional Funded Debt may be incurred
pursuant to Section 5.8(a)(3), if there shall not have been a period
of at least 60 consecutive days during the twelve-month period
immediately preceding the date of such determination during which no
Current Debt of the Company shall have been outstanding, then the
daily average outstanding balance of the Company's Current Debt during
any period of 60 consecutive days selected by the Company occurring
during such twelve-month period shall be deemed to constitute Funded
Debt for purposes of such determination; and
Section 1.3. Section 5.9 of the Note Agreement shall be and is hereby
amended in its entirety to read as follows:
"Section 5.9. Interest Charges Coverage Ratio. The Company
will keep and maintain the ratio of Net Income Available for Interest
Charges to Interest Charges for each period of four consecutive fiscal
quarters most recently ended at not less than: (a) 1.10 to 1.00 at all
times during the period from and including the Closing Date to, but
not including, December 1, 1996, (b) 1.15 to 1.00 at all times during
the period from and including December 1, 1996 to, but not including,
March 2, 1997, (c) 1.40 to 1.00 at all times during the period from
and including March 2, 1997 to, but not including, June 2, 1997, (d)
2.40 to 1.00 at all times during the period from
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<PAGE> 4
and including June 2, 1997 to, but not including, August 31, 1997,
(e) 2.65 to 1.00 at all times during the period from and including
August 31, 1997 to, but not including, November 30, 1997 and (f)
2.75 to 1.00 at all times from and after November 30, 1997."
Section 1.4. A new Section 5.19 of the Note Agreement shall be added
as follows:
"Section 5.19. Maintenance of Bank Facilities. The Company
will, at all times, keep and maintain committed credit facilities from
one or more financial institutions aggregating at any one time not
less than $60,000,000, each in form and substance reasonably
satisfactory to the holders of the Notes."
Section 1.5. Section 6.1(d) of the Note Agreement shall be and is
hereby amended in its entirety to read as follows:
"(d) Default shall occur in the observance or performance of
any covenant or agreement contained in Section 5.6 through Section
5.13 or Section 5.19; or"
Section 1.6. Section 6.1(f) of the Note Agreement shall be and is
hereby amended in its entirety to read as follows:
"(f) Default shall be made in the payment when due (whether by
lapse of time, by declaration, by call for redemption or otherwise) of
the principal of or interest on any Funded Debt or Current Debt (other
than the Notes) of the Company or any Restricted Subsidiary in the
aggregate unpaid principal amount of $1,000,000 or more and such
default shall continue beyond the period of grace, if any, allowed
with respect thereto (whether or not any default resulting from such
failure shall have been waived by the holders of such Current Debt or
Funded Debt); or"
Section 1.7. Section 6.1(g) of the Note Agreement shall be and is
hereby amended in its entirety to read as follows:
"(g) Default or the happening of any event shall occur under
any indenture, agreement or other instrument under which any Funded
Debt or Current Debt of the Company or any Restricted Subsidiary in
the aggregate unpaid principal amount of $1,000,000 or more may be
issued and such default or event shall continue for a period of time
sufficient to permit the acceleration of the maturity of any Funded
Debt or Current Debt of the Company or any Restricted Subsidiary
outstanding thereunder (whether or not any default resulting from such
failure shall have been waived by the holders of such Current Debt or
Funded Debt); or"
Section 1.8. From and after January 1, 1996 until November 30, 1997
interest on the Notes shall accrue at a rate per annum equal to the rate set
forth in the Notes or the Note Agreement, plus 0.50%.
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<PAGE> 5
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Section 2.1. To induce the Purchaser to execute and deliver this
Second Amendment, the Company represents and warrants to the Purchaser (which
representations shall survive the execution and delivery of this Second
Amendment) that:
(a) this Second Amendment has been duly authorized,
executed and delivered by it and this Second Amendment constitutes the
legal, valid and binding obligation, contract and agreement of the
Company enforceable against it in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws or equitable principles relating to or
limiting creditors' rights generally;
(b) the Note Agreement, as amended by this Second
Amendment, constitutes the legal, valid and binding obligation,
contract and agreement of the Company enforceable against it in
accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws or
equitable principles relating to or limiting creditors' rights
generally;
(c) the execution, delivery and performance by the Company
of this Second Amendment (i) has been duly authorized by all requisite
corporate action and, if required, shareholder action, (ii) does not
require the consent or approval of any governmental or regulatory body
or agency, and (iii) will not (A) violate (1) any provision of law,
statute, rule or regulation or its certificate of incorporation or
bylaws, (2) any order of any court or any rule, regulation or order of
any other agency or government binding upon it, or (3) any provision
of any material indenture, agreement or other instrument to which it
is a party or by which its properties or assets are or may be bound,
or (B) result in a breach or constitute (alone or with due notice or
lapse of time or both) a default under any indenture, agreement or
other instrument referred to in clause (iii)(A)(3) of this Section
2.1(c); and
(d) as of the date hereof and after giving effect to this
Second Amendment, no Default or Event of Default has occurred which is
continuing.
SECTION 3. CONDITIONS TO EFFECTIVENESS OF SECOND AMENDMENT.
Section 3.1. This Second Amendment shall not become effective
until, and shall become effective when, each and every one of the following
conditions shall have been satisfied:
(a) executed counterparts of this Second Amendment, duly
executed by the Company and the Purchaser, shall have been delivered
to the Purchaser;
(b) the Purchaser shall have received a fee equal to
$10,000;
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<PAGE> 6
(c) the Purchaser shall have received a copy of the
resolutions of the Board of Directors of the Company authorizing the
execution, delivery and performance by the Company of this Second
Amendment, certified by its Secretary or an Assistant Secretary;
(d) the representations and warranties of the Company set
forth in Section 2 hereof shall be true and correct on and with
respect to the date hereof;
(e) the Purchaser shall have received the favorable opinion
of counsel to the Company as to the matters set forth in Sections
2.1(a), 2.1(b) and 2.1(c) hereof, which opinion shall be in form
and substance satisfactory to the Purchaser; and
(f) executed counterparts of Credit Agreements, duly
executed by the Company and the Banks, which Credit Agreements shall
be in form and substance satisfactory to the Purchaser, shall have
been delivered to the Purchaser.
Upon receipt of all of the foregoing, this Second Amendment shall become
effective.
SECTION 4. PAYMENT OF PURCHASER'S COUNSEL FEES AND EXPENSES.
Section 4.1. The Company agrees to pay upon demand, the reasonable
fees and expenses of Chapman and Cutler, counsel to the Purchaser, in
connection with the negotiation, preparation, approval, execution and delivery
of this Second Amendment.
SECTION 5. MISCELLANEOUS.
Section 5.1. Except as modified and expressly amended by this Second
Amendment, the Note Agreement is in all respects ratified, confirmed and
approved and all of the terms, provisions and conditions thereof shall be and
remain in full force and effect.
Section 5.2. Any and all notices, requests, certificates and other
instruments executed and delivered after the execution and delivery of this
Second Amendment may refer to the Note Agreement without making specific
reference to this Second Amendment but nevertheless all such references shall
include this Second Amendment unless the context otherwise requires.
Section 5.3. This Second Amendment shall be governed by and
construed in accordance with the laws of the State of Pennsylvania.
Section 5.4. This Second Amendment may be executed and delivered in
any number of counterparts, each of such counterparts constituting an original,
but all together only one Second Amendment.
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<PAGE> 7
IN WITNESS WHEREOF, the Company and the Purchaser have caused this
instrument to be executed, all as of the day and year first above written.
HANOVER FOODS CORPORATION
By /s/ GARY T. KNISELY
---------------------------------
Its: Executive Vice President
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<PAGE> 8
Accepted and Agreed to:
ALLSTATE LIFE INSURANCE COMPANY
By /s/ PATRICIA W. WILSON
-----------------------------
Authorized Officer
By /s/ RONALD A. MENDEL
-----------------------------
Authorized Officer
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<PAGE> 1
Exhibit 11
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Computation of Earnings Per Share
<TABLE>
<CAPTION>
==================================================================================
Thirteen weeks ended
---------------------------
September 1, September 3,
1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
PRIMARY
Earnings:
Net earnings (loss) $ 1,251,000 (79,000)
Preferred stock dividends (8,000) (8,000)
- ----------------------------------------------------------------------------------
Net earnings (loss) applicable to
common stock $ 1,243,000 (87,000)
==================================================================================
SHARES
Weighted average number of shares outstanding 721,935 732,213
==================================================================================
Net earnings (loss) per share - primary $ 1.72 (0.12)
==================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-01-1997
<PERIOD-START> JUN-03-1996
<PERIOD-END> SEP-01-1996
<CASH> 1,888
<SECURITIES> 0
<RECEIVABLES> 20,668
<ALLOWANCES> 0
<INVENTORY> 51,944
<CURRENT-ASSETS> 77,696
<PP&E> 111,635
<DEPRECIATION> 62,579
<TOTAL-ASSETS> 128,916
<CURRENT-LIABILITIES> 62,506
<BONDS> 18,203
0
788
<COMMON> 21,057
<OTHER-SE> 20,287
<TOTAL-LIABILITY-AND-EQUITY> 128,916
<SALES> 56,119
<TOTAL-REVENUES> 56,119
<CGS> 43,240
<TOTAL-COSTS> 43,240
<OTHER-EXPENSES> 9,925
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 934
<INCOME-PRETAX> 2,020
<INCOME-TAX> 769
<INCOME-CONTINUING> 2,020
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,251
<EPS-PRIMARY> 1.72
<EPS-DILUTED> 1.72
</TABLE>
