<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 March 2, 1997
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
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1486 York Road, P.O. Box 334, Hanover, PA 17331
(Address of principal executive offices) (Zip Code)
717-632-6000
(Registrant's telephone number, including area code)
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 March 2, 1997
----- ----------------------------
<S> <C>
Class A Common Stock, $25 par value 292,710 shares
Class B Common Stock, $25 par value 427,131 shares
</TABLE>
<PAGE> 2
HANOVER FOODS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Thirty-Nine Weeks Ended March 2, 1997
<TABLE>
<CAPTION>
Index
Page
<S> <C>
Part I -- Financial Information
Item 1 -- Financial Statements:
Condensed Consolidated Balance Sheets (Unaudited)
March 2, 1997 and June 2, 1996 ...................... 3
Condensed Consolidated Statements of Operations
(Unaudited), Thirteen Weeks and Thirty-Nine
Weeks Ended March 2, 1997 and March 3, 1996 ......... 5
Condensed Consolidated Statements of Stockholders'
Equity (Unaudited), Periods Ended March 2, 1997
and June 2, 1996 .................................... 6
Condensed Consolidated Statements of Cash Flows
(Unaudited), Thirty-Nine Weeks Ended
March 2, 1997 and March 3, 1996 ..................... 7
Notes to Condensed Consolidated Financial Statements
(Unaudited) ......................................... 8
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations ........... 13
Part II -- Other Information .................................... 16
Item 1 -- Legal Proceedings
Items 2-5 -- None
Item 6 -- Exhibits and Reports on Form 8-K ................... 18
</TABLE>
<PAGE> 3
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ASSETS March 2,1997 June 2, 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash and Short-Term Cash Investments $ 3,560,000 $ 1,112,000
Accounts and Notes Receivable, Net 24,537,000 17,249,000
Accounts Receivable from Related Parties, Net 264,000 61,000
Inventories 51,767,000 47,067,000
Prepaid Corporate Income Taxes - 0 - 581,000
Prepaid Expenses 1,868,000 1,796,000
Deferred Income Taxes 885,000 885,000
- --------------------------------------------------------------------------------
Total Current Assets 82,881,000 68,751,000
- --------------------------------------------------------------------------------
Property, Plant and Equipment, at Cost:
Land and Buildings 33,216,000 32,115,000
Machinery and Equipment 80,375,000 77,399,000
Leasehold Improvements 349,000 349,000
- --------------------------------------------------------------------------------
113,940,000 109,863,000
Less Accumulated Depreciation and
Amortization 65,359,000 61,273,000
- --------------------------------------------------------------------------------
48,581,000 48,590,000
Construction in Progress 327,000 176,000
- --------------------------------------------------------------------------------
Total Property, Plant and Equipment 48,908,000 48,766,000
- --------------------------------------------------------------------------------
Other Assets and Deferred Charges:
Intangible Assets, Less Accumulated
Amortization of $2,015,000 and
$ 2,004,000 445,000 456,000
Other Assets 1,871,000 2,407,000
- --------------------------------------------------------------------------------
Total Assets $134,105,000 $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>
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY March 2, 1997 June 2, 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Liabilities:
Cash Overdraft $ 1,836,000 $ -0-
Notes Payable - Banks 28,083,000 24,097,000
Accounts Payable 23,214,000 23,916,000
Accrued Expenses 8,593,000 4,052,000
Current Maturities of Long-Term Debt 1,859,000 1,999,000
Current Maturities of Long-Term Debt to Related Party 500,000 500,000
Current Maturities of Capital Lease Obligations -0- 152,000
Income Taxes Payable 206,000 110,000
- ----------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 64,291,000 54,826,000
- ----------------------------------------------------------------------------------------------------------------------
Long-Term Debt, Less Current Maturities 18,004,000 18,078,000
Long-Term Debt to Related Party, Less Current Maturities -0- 375,000
Other Long-Term Liabilities 1,109,000 805,000
Deferred Income Taxes 5,206,000 5,170,000
- ----------------------------------------------------------------------------------------------------------------------
Total Liabilities 88,610,000 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,
292,986 shares at March 2, 1997 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,
427,204 shares at March 2, 1997 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 30,108,000 25,688.000
Treasury Stock, at Cost (7,867,000) (7,755,000)
Other (214,000) (275,000)
- ----------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 45,495,000 41,126,000
- ----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 134,105,000 $ 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 Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Thirty Nine Weeks Ended Thirteen Weeks Ended
March 2, 1997 March 3, 1996 March 2, 1997 March 3, 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $190,935,000 $196,932,000 $65,780,000 $70,365,000
Cost of Goods Sold 145,407,000 161,145,000 50,713,000 57,576,000
- -----------------------------------------------------------------------------------------------
Gross Profit 45,528,000 35,787,000 15,067,000 12,789,000
Selling Expenses 25,995,000 22,886,000 8,430,000 7,862,000
Administrative Expenses 7,893,000 6,950,000 3,168,000 2,295,000
- -----------------------------------------------------------------------------------------------
Operating Profit 11,640,000 5,951,000 3,469,000 2,632,000
Interest Expense 2,957,000 3,941,000 996,000 1,257,000
Other Expenses, Net 584,000 319,000 178,000 333,000
- -----------------------------------------------------------------------------------------------
Earnings Before Income
Taxes 8,099,000 1,691,000 2,295,000 1,042,000
Income Taxes 3,060,000 410,000 821,000 385,000
- -----------------------------------------------------------------------------------------------
Net Earnings 5,039,000 1,281,000 1,474,000 657,000
Dividends on Preferred Stock 23,000 23,000 7,000 7,000
- -----------------------------------------------------------------------------------------------
Net Earnings Applicable to
Common Stock $ 5,016,000 $ 1,258,000 $ 1,467,000 $ 650,000
- -----------------------------------------------------------------------------------------------
Earnings Per Share:
Net Earnings, Primary $ 6.96 $ 1.72 $ 2.03 $ .89
Dividends Per Share,
Common $ 0.825 $ 0.825 $ 0.275 $ 0.275
Average Shares Outstanding 720,556 729,895 720,556 730,337
- -----------------------------------------------------------------------------------------------
</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 March 2, 1997 and June 2, 1996
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Convertible Preferred
Stock Common Stock Common Stock
Series A and Series B Class A Class B
--------------------- ------- -------
Total
Stockholders'
Equity Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1996 $ 42,509,000 31,536 $788,000 349,210 $8,729,000 493,123 $ 12,328,000
Net Loss for the Period (1,131,000) -- -- -- -- -- --
Cash Dividends Per Share:
Preferred Stock (8,000) -- -- -- -- -- (8,000)
Common Stock (199,000) -- -- -- -- -- (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 $8,729,000 493,123 $ 12,328,000
Net Earnings for the Period 5,039,000 -- -- -- -- -- --
Cash Dividends Per Share:
Preferred Stock (23,000) -- -- -- -- -- --
Common Stock (596,000) -- -- -- -- -- --
Redemption of Common Stock
(Class A 1,838 Shares and
Class B 146 Shares) (112,000) -- -- -- -- -- --
Unrealized Gain on Investments 61,000 -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Balance, March 2, 1997 $ 45,495,000 31,536 $788,000 349,210 $8,729,000 493,123 $ 12,328,000
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Treasury
Stock
-----
Capital Paid
in Excess of Retained
Par Value Earnings Shares Amount Other
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1996 $1,623,000 $ 27,026,000 135,675 $(7,708,000) $(277,000)
Net Loss for the Period -- (1,131,000) -- -- --
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 $1,623,000 $ 25,688,000 136,609 $(7,755,000) $(275,000)
Net Earnings for the Period -- 5,039,000 -- -- --
Cash Dividends Per Share:
Preferred Stock -- (23,000) -- -- --
Common Stock -- (596,000) -- -- --
Redemption of Common Stock
(Class A 1,838 Shares and
Class B 146 Shares) -- -- 1,964 (112,000) --
Unrealized Gain on Investments -- -- -- -- 61,000
- ----------------------------------------------------------------------------------------------------------
Balance, March 2, 1997 $1,623,000 $ 30,108,000 138,593 $(7,867,000) $(214,000)
- ----------------------------------------------------------------------------------------------------------
</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 Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Thirty Nine Weeks Ended
March 2,1997 March 3, 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Operating Activities:
Net Earnings $ 5,039,000 $ 1,281,000
Adjustments to Reconcile Net Earnings to Net
Cash Provided by (Used in) Operating Activities:
Depreciation and Amortization 4,097,000 4,131,000
Deferred Income Taxes 36,000 (31,000)
Changes in Assets and Liabilities:
Accounts Receivable (7,491,000) (5,251,000)
Inventory (4,700,000) (2,413,000)
Prepaid Items 509,000 5,015,000
Accounts Payable and Accrued Expense 3,839,000 (10,554,000)
Income Taxes Payable 96,000 (133,000)
Other Liabilities 304,000 340,600
- ----------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Operating Activities 1,729,000 (7,615,000)
- ----------------------------------------------------------------------------------------------
Investing Activities:
(Increase) Decrease in Other Non-Current Assets 536,000 (665,000)
Acquisitions of Property, Plant and Equipment (4,228,000) (3,363,000)
- ----------------------------------------------------------------------------------------------
Net Cash Used in Investing (3,692,000) (4,028,000)
- ----------------------------------------------------------------------------------------------
Financing Activities:
Increase in Notes Payable 5,822,000 14,118,000
Payments on Long-Term Debt and
Capital Leases (741,000) (798,000)
Payment of Dividends (619,000) (624,000)
Redemption of Common Stock (112,000) (719,000)
Other 61,000 (41,000)
- ----------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 4,411,000 11,936,000
- ----------------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 2,448,000 293,000
Cash and Cash Equivalents, Beginning of Period 1,112,000 881,000
- ----------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $ 3,560,000 $ 1,174,000
- ----------------------------------------------------------------------------------------------
</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
March 2, 1997 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
thirty-nine week periods ended March 2, 1997 and March 3, 1996.
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 the Corporation's 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 fiscal 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 $80.0 million of which $28,083,000 was borrowed at March
2, 1997. The average cost of funds during the period ended March 2,
1997 was 6.0%.
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>
March 2, 1997 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 - 0 - 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) 220,000 294,000
6.33% installment obligation payable to a
related party, due fiscal years ending
1996-1998 500,000 875,000
- -------------------------------------------------------------------------
20,363,000 20,952,000
Less current maturities 2,359,000 2,499,000
- -------------------------------------------------------------------------
18,001,000 18,453,000
- -------------------------------------------------------------------------
</TABLE>
The term loan agreements with the insurance company, the agreements for seasonal
borrowing with financial institutions, and the installment agreements with
municipal 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.
9
<PAGE> 10
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Condensed 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>
Thirty Nine Weeks Ended Thirteen Weeks Ended
March 2, 1997 March 3, 1996 March 2, 1997 March 3, 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Park 100 Foods, Inc. $1,362,000 $-0- $638,000 $ -0-
Corporate Charges:
Snyder's of Hanover, Inc. 131,000 131,000 44,000 44,000
Expenditures:
Park 100 Foods, Inc. 240,000 -0- 79,000 -0-
Patty & John's, Inc. 10,000 25,000 -0- 11,000
The Cannery Press, Inc. 14,000 282,000 14,000 59,000
Arwco Corporation 11,000 11,000 4,000 4,000
Warehime Enterprises, Inc. 177,000 192,000 130,000 93,000
John A. & Patricia M
Warehime 37,000 32,000 14,000 11,000
James G. Sturgill 70,000 -0- 32,000 -0-
Sturgill & Associates 25,000 -0- 18,000 -0-
Lippy Brothers, Inc. 1,044,000 749,000 865,000 749,000
- -------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Condensed Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
The respective March 2, 1997 and June 2, 1996 account balances with related
companies are as follows:
<TABLE>
<CAPTION>
March 2, 1997 June 2, 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Accounts Receivable:
Snyder's of Hanover, Inc. $ 1,000 $ 11,000
Patty & John's, Inc. - 0 - 4,000
Park 100 Foods, Inc. 265,000 56,000
Accounts Payable:
Park 100 Foods, Inc. 1,000 - 0 -
The Cannery Press, Inc. - 0 - 4,000
Patty & John's, Inc. - 0 - 6,000
Arwco Corporation 1,000 - 0 -
Notes Payable:
Warehime Enterprises, Inc. 500,000 875,000
Cyril T. Noel 220,000 294,000
- --------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
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.
See "Legal Proceedings" for a description of certain legal proceedings
in which the Corporation is currently involved.
MANUFACTURER COUPONS
The Corporation is contingently liable at March 2, 1997 for unredeemed
manufacturer coupons on various products which will expire during the
current fiscal year.
12
<PAGE> 13
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 Condition and Results of Operations
appearing in the Corporation's Annual Report on Form 10-K for the fiscal year
ended March 31, 1996, which was filed on July 2, 1996.
RESULTS OF OPERATIONS
NET SALES
Consolidated net sales were $190.9 million for the thirty-nine week
period ended March 2, 1997. This represents a decrease of 3.0% from the
thirty-nine week period ended March 3, 1996 during which consolidated
net sales were $196.9 million. Consolidated net sales were $65.8
million for the thirteen week period ended March 2, 1997, a 6.5%
decrease from consolidated net sales of $70.4 million for the
corresponding period in the prior year. The decrease was due to
decreases in private label and food service sales offset by increased
canned and frozen branded sales.
COST OF GOODS SOLD
Cost of goods sold were $145.4 million, or 76.2% of consolidated net
sales, for the thirty-nine week period ended March 2, 1997 as compared
to $161.1 million, or 81.8% of consolidated net sales, for the
corresponding period in 1996. Cost of goods sold was $50.7 million, or
77.1% of consolidated net sales, for the thirteen week period ended
March 2, 1997 as compared to $57.8 million, or 81.8% of consolidated
net sales, for the corresponding period in 1996. The decrease in cost
of goods sold as a percentage of net sales resulted from an increase in
the average selling prices per case of product as well as reductions in
costs of operations.
13
<PAGE> 14
PART I -- FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
SELLING EXPENSES
Selling expenses were $26.0 million, or 13.6% of consolidated net
sales, for the thirty-nine week period ended March 2, 1997 as compared
to $22.9 million, or 11.6% of consolidated net sales, during the
corresponding period in 1996. Selling expenses were $8.4 million or
12.8% of consolidated net sales for the thirteen week period ended
March 2, 1997 compared to $7.9 million or 11.2% of consolidated net
sales during the corresponding period in the prior year. The increase
in selling expenses as a percentage of net sales reflects higher
expenses related to promotional programs to support a $2.9 million
increase in branded canned and frozen sales during the period.
ADMINISTRATIVE EXPENSES
Administration expenses as a percentage of consolidated net sales were
4.1% for the thirty-nine week period ended March 2, 1997 compared to
3.5% for the corresponding period of 1996. Administrative expenses as a
percentage of consolidated net sales were 4.8% for the thirteen week
period ended March 2, 1997 compared to 3.3% of consolidated net sales
during the corresponding period in the prior year. This increase is
attributed to an accrual of $863,000 for bonuses for the current
period.
INTEREST EXPENSE
Interest expense was $2,957,000 for the thirty-nine week period ended
March 2, 1997 as compared to $3,941,000 for the same period in 1995.
Interest expense was $1.0 million for the thirteen week period ended
March 2, 1997 compared to $1.3 million during the corresponding period
in the prior year. The decrease is mainly due to lower average
short-term borrowings during the current year.
LIQUIDITY AND CAPITAL RESOURCES
Management's discussion of the Corporation's financial condition should
be read in conjunction with the condensed consolidated statements of
cash flow appearing in Part I, Item 1 of this report.
14
<PAGE> 15
PART I -- FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
The combination of increased accounts receivable and inventory levels,
offset by the increase of net earnings, trade accounts payable and
accrued expenses generated additional cash flow. Cash generated by
operating activities for the thirty-nine week period ended March 2,
1997 was $1.7 million as compared to $7.6 million cash used during the
same period of 1996. By comparison during the same period of 1996 the
Corporation utilized less cash for increased inventory levels and
receivable, which was offset by an increase in cash used to reduce
payables.
INVESTING ACTIVITIES
During the thirty-nine week period ended March 2, 1997 the Corporation
used approximately $4.2 million for the purchase of land, and plant
upgrades and expansions. This compares to $3.4 million used during the
same period last year for capital projects.
FINANCING ACTIVITIES
The increase in notes payable of approximately $5.8 million during the
thirty-nine week period ended March 2, 1997 represents borrowings made
against available seasonal lines-of-credit from financial institutions
for use in operations.
The Corporation has available seasonal lines-of-credit from financial
institutions in the amount of $80.0 million of which $28.1 million was
utilized as of March 2, 1997. Additional borrowings are permitted
within prescribed parameters in existing debt agreements. The
Corporation has entered into a new credit arrangement with First
National City Bank of Pennsylvania. Management believes these credit
facilities provide adequate cash availability for seasonal operating
requirements.
15
<PAGE> 16
PART II -- OTHER INFORMATION
HANOVER FOODS CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
1 Legal Proceedings
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.
The Board of Directors scheduled a special meeting of the holders of
the Class B common stock for February 24, 1997 (the "Special Meeting")
to consider and vote upon a proposal by the Board of Directors to amend
and restate the Corporation's Articles of Incorporation ("Proposed
Amendments"). The Proposed Amendments generally contemplate that if all
of the following Class B shareholders (or their Estates, if they die)
agree in writing to the composition of the Board of Directors on or
after the 1998 annual shareholders meeting, their decision will be
controlling: Michael A. Warehime, John A. Warehime, Sally W. Yelland,
J. William Warehime and Elizabeth W. Stick. If these Class B
shareholders do not unanimously agree in writing on the composition of
the Board of Directors, the Proposed Amendments permit the trustees of
the Corporation's 401(k) Savings Plan (or a similar employee benefit
plan), acting as fiduciaries for the employees who participate in the
Plan, and the Class A shares to vote in the manner described below.
The Proposed Amendments create a Series C Convertible Preferred Stock
and authorize the board of directors to issue up to 10,000 shares of
such stock to the trustees of the Corporation's 401(k) Savings Plan (or
a similar employee benefit plan). At least a majority of the trustees
of the Hanover Foods Corporation 401(k) Savings Plan (or similar
employee benefit plan), who are appointed by the board of directors,
must be "disinterested directors" of the Corporation, as defined in
Section 1715 of the Pennsylvania Business Corporation Law. If the Class
B shareholders named above cannot unanimously agree in writing on the
composition of the board of directors, the Proposed Amendments permit
each of the 10,000 shares of Series C Convertible Preferred Stock the
right to cast 35 votes in the election of directors, and each share of
Class A Common Stock would have one-tenth (1/10) of a vote per share,
thereby enabling them to influence the ultimate result of the election
by the Class B shares. The Proposed Amendments also permit the trustees
and the Class A shares to similarly vote on proposals to remove
directors, and in connection with any proposal (not previously approved
by the board of directors) to further amend the Articles of
Incorporation or By-laws or to effectuate a merger, consolidation,
division, or sale of substantially all of the assets of the
Corporation. The voting power of the Series C Convertible Preferred
Stock would cease five (5) years after its issuance.
16
<PAGE> 17
PART II -- OTHER INFORMATION
HANOVER FOODS CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
The Series C Convertible Preferred Stock authorized under the Proposed
Amendments would be convertible into 10,000 shares of Class A Common
Stock and would not be entitled to vote except in the event that
members of the Warehime family previously named cannot agree in writing
on the composition of the board of directors. The Proposed Amendments
also classify the terms of the board of directors commencing with the
election at the annual shareholders meeting to be held in 1997 and
permit directors to be elected for four year terms as permitted by
Pennsylvania law.
On February 21, 1997, motions for a preliminary injunction against the
Proposed Amendments were filed in the Court of Common Pleas of York
County, Pennsylvania and the Corporation agreed to postpone the Special
Meeting until the Court had ruled on the motions. The motions for a
preliminary injunction were filed by attorneys on behalf of Michael A.
Warehime in the voting trust litigation described in the Annual Report
on Form 10-K for the fiscal year ended April 2, 1995, and on behalf of
certain Class A shareholders who are the plaintiffs in the derivative
litigation described under "Legal Proceeding" in the Quarterly Report
on Form 10-Q for the period ended September 1, 1996. A hearing on the
motions for a preliminary injunction has been scheduled for April 23,
1997, April 25, 1997, May 2, 1997 and May 30, 1997.
Except as set forth above, there were no further developments with
respect to the derivative litigation described under "Legal
Proceedings" in the Corporation's Quarterly Report on Form 10-Q for the
period ended September 1, 1996. The Corporation has determined not to
pursue the proposal to reincorporate in Delaware which is described
under "Legal Proceedings" in the Quarterly Report on Form 10-Q for the
period ended December 1, 1996.
There were no other material developments in previously reported
litigation in which the Corporation is currently involved. (See Annual
Report on Form 10-K for the fiscal year ended March 31, 1996, which was
filed on July 2, 1996.)
On December 12, 1996, the Occupational Safety and Health Administration
(OSHA) cited the Corporation with two violations of OSHA regulations
arising out of accidents which occurred at its Clayton, Delaware plant.
The proposed penalty for each violation is $70,000. On December 18,
1996, the Corporation filed its Notice of Contest, contesting both
alleged violations and the proposed penalties.
17
<PAGE> 18
PART II -- OTHER INFORMATION
HANOVER FOODS CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
On March 24, 1997, the Occupational Safety and Health Administration
(OSHA) cited the Corporation with twenty-two violations of OSHA
regulations arising out of plant inspections which occurred at its
Clayton, Delaware plant. The proposed penalty for said violations is
$498,000. On April 11, 1997, the Corporation filed its Notice of
Contest, contesting all of the alleged violations and the proposed
penalties.
2-5 None
6 Exhibits and Reports on 8-K.
(a) Exhibits
10 - Amendment No. 1 to Employment Agreement
between Hanover Foods Corporation and
John A. Warehime
11 - Computation of Earnings Per Share
27 - Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during the period from
which this report is filed.
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: April 15, 1997
HANOVER FOODS CORPORATION
BY /s/ GARY T. KNISELY
------------------------------
Gary T. Knisely
Executive Vice President
BY /s/ PIETRO GIRAFFA
------------------------------
Pietro Giraffa, Controller
18
<PAGE> 1
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT BETWEEN
HANOVER FOODS CORPORATION AND JOHN A. WAREHIME
This document, dated as of February 11,1997, shall constitute Amendment No. 1 to
an Employment Agreement dated as of June 12, 1995 (the "Employment Agreement")
between Hanover Foods Corporation (the "Employer") and John A. Warehime (the
"Employee").
Background
As of June 12, 1995, Employer and Employee entered into the Employment
Agreement. The parties desire to amend the Employment Agreement as set forth
herein.
NOW, THEREFORE, the parties, intending to be legally bound, agree as follows:
1. Definitions
The definitions contained in the Employment Agreement shall apply
to this Amendment No. 1.
2. Amendments
The following provisions of the Employment Agreement shall be
amended as follows:
Section 4.1.1 Change this Section to read in full as follows,
effective retroactively as if such change were originally contained in the
Employment Agreement:
"4.1.1 During the initial Contract Year of the Term from April
1, 1994 to April 1, 1995, at the rate of Four Hundred and Ninety-eight Thousand,
Eight Hundred and Sixty-six ($498,866) Dollars per annum."
Section 7.: Change this Section to read in full as follows,
effective retroactively as if such change were originally contained in the
Employment Agreement:
"7. BONUSES The Employer shall pay an annual bonus in cash or
Class A common stock of the Employer of equal value, at the sole option of the
Employee.
"7.1 The bonus shall be equal to the sum of the following:
<PAGE> 2
"7.1.1. if Pre-tax Earnings of the Employer are $5 million or
more in any Contract Year of the Term, the bonus shall equal $100,000 plus ten
(10%) percent of Pre-tax Earnings over $5 million, but in no event shall the
total bonus payable under this Section 7.1.1, plus the total amount payable
under Section 4 hereof, exceed $1 million in any Contract Year; if Pre-tax
Earnings of the Employer are below $5 million in any Contract Year of the Term,
no bonus is payable under this Section 7.1.1.
PLUS
"7.1.2. a bonus equal to the gross dollar value (if any) of
1,500 performance units which shall be valued at the end of each Contract Year
of the Term as set forth in Addendum No. 2 hereto. The bonus computed pursuant
to Addendum No. 2 is based upon the relative prior five-year performance of the
Employer (using the five-year average sales growth and operating profits) as
compared to an industry peer group. The industry peer group shall consist of the
following companies: Curtice Burns Foods (Rochester, NY), Seneca Foods Corp.
(Pittsford, NY), Stokely USA, Inc. (Green Bay, WI), United Foods, Inc. (Bells,
TN) and Dean Foods (Franklin Park, IL). It is the intention of the parties that
the industry peer group data will be appropriately and fairly adjusted to
provide, to the extent feasible, a consistent method of comparing the
performance of the Employee against the performance of top management in the
industry peer group. In the case of any dispute concerning the interpretation of
Addendum No. 2, the firm of Towers Perrin shall resolve such dispute and their
determination shall be final, binding and conclusive upon the Employer and the
Employee.
"7.2 For purposes of determining the Employee's bonuses under
this Section 7, the Pre-Tax Earnings of the Employer shall be adjusted to
account for the impact of any changes in accounting methods and to eliminate the
effect of any unusual or non-recurring items."
The Employee hereby agrees to waive any accrued rights he may have under the
unamended Employment Agreement to a bonus for the Contract Year beginning April
1, 1996, which bonus the Employee and Employer acknowledge could amount, based
upon the projected Pre-tax Earnings of the Employer, to over $2 million, and,
instead, Employee hereby agrees to accept the bonus formula set forth in this
Amendment No.1 for the Contract Year beginning April 1, 1996.
The Employee shall repay to the Employer the amount of the net excess
compensation overpayment for Contract Years beginning prior to April 1, 1996 as
a result of the changes made in this Amendment No. 1 to Section 4 and Section 7
of the Employment Agreement, which changes are retroactive to the date of the
Employment Agreement; such repayment to the Employer shall be made without
interest. It is agreed that the amount of the repayment due from the Employee to
the Employer for such net excess compensation overpayment with respect to
Contract Years beginning prior to April 1,
<PAGE> 3
1996 is $83,024. The $83,024 shall be repaid by the Employee to the Employer
solely out of the amount of the Salary increases hereafter due to the Employee
for Contract Years beginning on and after April 1,1997 by reason of the
provisions of Section 4.1.2, and the Employee shall have no other liability for
such repayment.
Section 9.1: Add the following sentence to the end of Section
9.1:
"Notwithstanding the foregoing, if the Employer,
acting through its Board of Directors (provided that a majority of its members
were also directors on January 1, 1997), at any time after January 1, 1998,
requests that the Employee cease to be Chairman of the Board and Chairman of the
Employer, but continue as Chief Executive Officer and President of the Employer,
the Employee shall relinquish his title as Chairman of the Board and Chairman of
the Employer, but shall continue as Chief Executive Officer and President of the
Employer with all of the powers, duties and authorities normally associated with
those positions; in such event, the By-Laws of the Employer shall be amended to
reflect that the Chief Executive Officer need not be Chairman of the Board or
Chairman of the Employer."
Section 12: Add the following sentence to the end of Section
12:
"Notwithstanding the foregoing, in no event may the total
vacation time exceed six weeks during any Contract Year."
Section 22.5: Change the words "termination pay" to
"supplemental pension payments" in Section 22.5 and change the words
"termination benefits" to "supplemental pension benefits."
Section 22.5.1.1 Change the words in Section 22.5.1.1 from
"Without cause; or " to "Without cause by the Employer; or"
Section 23: Change the first sentence to read in full as
follows: "At any time after January 1, 1998, the Employee may retire from the
employ of the Employer if the Employee, at least thirty (30) days before the
intended date of retirement, gives the Employer written notice specifying the
intended date of retirement." Add the following sentence at the end of Section
23: "If the Employee elects to retire prior to the age of 65, the supplemental
pension payments provided for in Section 24 shall be reduced by using the
following formula: for each of the first sixty (60) calendar months by which the
retirement date precedes the age of 65, the supplemental pension payments shall
be reduced by five-ninths (5/9) of one percent and for each such calendar month
in excess of sixty (60) calendar months the supplemental pension payments shall
be reduced by five-eighteenths (5/18) of one percent.
<PAGE> 4
Section 24: Change the first sentence of this Section to read
in full as follows: "Commencing not later than thirty (30) days after the
applicable Triggering Date or, if earlier, the date the Employee elects to
retire, and in consideration of Employee's past services, Employer shall pay
compensation to Employee or to his surviving spouse at a per annum rate equal to
60% of the amount of the Employee's Average Annual Compensation during the
Measurement Period, subject to reduction pursuant to Section 23 in the event the
Employee elects to retire prior to age 65."
Section 25: Change the words "termination benefits" to
"supplemental pension benefits" in Section 25.
Section 25.1.2: Delete this provision.
Section 25.2: Delete this provision.
Section 25.3: Delete this provision.
Section 25.4: Delete this provision.
Section 26: Change the title of Section 26 from "Security" to
"Security and Acceleration." Change Section 26 to read in full as follows:
"26.1 In order to secure Employer's obligations to Employee
and his surviving spouse under this Agreement, Employer shall, if and when
requested by the Employee or his surviving spouse at any time after January 1,
1998, and provided that the cost does not exceed $25,000 per annum, cause a
reputable bank reasonably acceptable to Employee to issue a Letter of Credit, in
the face amount designated by Employee and in form attached as Exhibit "A"
("Letter of Credit"), to be issued to the Employee or his surviving spouse as
beneficiary,or, in lieu thereof, establish a mutually acceptable escrow
arrangement. The Letter of Credit shall not expire sooner than one year and
thirty (30) days after the date of its issuance. Employer shall maintain the
Letter of Credit in effect at all times during the Term and any other period of
time during which the Employee is entitled to any payments or benefits under
Sections 22.5, 24 or 25 of this Agreement.
"26.2 Employee will not present a draft under the Letter of
Credit for payment unless (i) he shall have first made written demand on
Employer for direct payment of the amount sought and Employer has not made full
payment in cash to the Employee as required by this Agreement within thirty (30)
days after the date of delivery of the written demand or (ii) a renewed Letter
of Credit is not provided to the Employer at least thirty (30) days prior to the
expiration date of the existing Letter of Credit. Employee shall not draw funds
under the Letter of Credit with respect to costs or expenses already reimbursed
to him by Employer.
<PAGE> 5
"26.3 If the Employer fails to pay the Employee any of the
compensation or benefits (including, but not limited to, the supplemental
pension payments and benefits) due to him under this Agreement, within thirty
(30) days after having received written notice from the Employee of such failure
to pay, the Employee shall have the right to accelerate future payments of all
sums due to Employee under this Agreement."
3. Amended Employment Agreement Continues in Full Force and Effect.
There are no amendments to the Employment Agreement except as
specified herein. The Employment Agreement, as amended hereby, shall continue,
in full force and effect and constitutes the entire understanding of the parties
with respect to its subject matter. Employee agrees that the compensation set
forth in this Amendment No. 1 for the Contract Year of the Term beginning April
1, 1996 shall constitute his sole compensation due from the Employer with
respect to such Contract Year, and hereby waives any rights to additional
compensation for any period prior to the date of this Amendment No. 1.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the day and year first above written.
ATTEST/WITNESS: HANOVER FOODS CORPORATION
By: /s/ PATRICIA H. TOWNSEND By: /s/ GARY T. KNISLEY
- ----------------------------- -------------------------------
WITNESS/ATTEST: EMPLOYEE:
By: /s/ DIANE C. BEAVER By: /s/ JOHN A. WAREHIME
- ----------------------------- -------------------------------
<PAGE> 1
Exhibit 11
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Computation of Earnings Per Share
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Thirty-Nine Weeks Ended Thirteen Weeks Ended
-------------------------------- -------------------------------
March 2, March 3, March 2, March 3,
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY
Earnings:
Net Earnings $ 5,039,000 $ 1,281,500 $ 1,474,000 $ 657,000
Preferred stock dividends (23,000) (23,000) (7,000) (7,000)
- ---------------------------------------------------------------------------------------------------
Net earnings applicable to
common stock $ 5,016,000 1,258,000 1,467,000 650,000
- ---------------------------------------------------------------------------------------------------
SHARES
Weighted average number of
shares outstanding 720,556 729,895 720,556 730,337
- ---------------------------------------------------------------------------------------------------
Net earnings per share --
primary $ 6.96 $ 1.72 $ 2.03 $ .89
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-01-1997
<PERIOD-START> JUN-03-1996
<PERIOD-END> MAR-02-1997
<CASH> 3,560
<SECURITIES> 0
<RECEIVABLES> 24,537
<ALLOWANCES> 0
<INVENTORY> 51,767
<CURRENT-ASSETS> 82,881
<PP&E> 113,940
<DEPRECIATION> 65,359
<TOTAL-ASSETS> 134,105
<CURRENT-LIABILITIES> 64,291
<BONDS> 18,004
0
788
<COMMON> 21,057
<OTHER-SE> 23,650
<TOTAL-LIABILITY-AND-EQUITY> 134,105
<SALES> 190,935
<TOTAL-REVENUES> 190,935
<CGS> 145,407
<TOTAL-COSTS> 145,407
<OTHER-EXPENSES> 34,472
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,957
<INCOME-PRETAX> 8,099
<INCOME-TAX> 3,060
<INCOME-CONTINUING> 5,039
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,039
<EPS-PRIMARY> 6.96
<EPS-DILUTED> 6.96
</TABLE>
