<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 December 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
(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.
Class Outstanding at December 1, 1996
----- -------------------------------
Class A Common Stock, $25 par value 292,986 shares
Class B Common Stock, $25 par value 427,204 shares
<PAGE> 2
HANOVER FOODS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Twenty-six Weeks Ended December 1, 1996
Index
Page
----
Part I -- Financial Information
Item 1 -- Financial Statements:
Condensed Consolidated Balance Sheets (Unaudited) December 1, 1996
and June 2, 1996..................................................3
Condensed Consolidated Statements of Operations (Unaudited),
Thirteen weeks and Twenty-six weeks ended December 1, 1996
and December 3, 1995..............................................5
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
periods ended December 1, 1996 and June 2, 1996...................6
Condensed Consolidated Statements of Cash Flows (Unaudited),
Twenty-six weeks ended December 1, 1996 and December 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 1 -- Legal Proceedings...............................................14
Items 2-5 -- None.........................................................14
Item 6 -- Exhibits and Reports on Form 8-K................................14
================================================================================
<PAGE> 3
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
=============================================================================================
December 1, June 2,
ASSETS 1996 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and short-term cash investments $ 4,494,000 1,112,000
Accounts and notes receivable, net 23,855,000 17,249,000
Accounts receivable from related parties, net - 61,000
Inventories 60,026,000 47,067,000
Prepaid corporate income taxes - 581,000
Prepaid expenses 1,708,000 1,796,000
Deferred income taxes 885,000 885,000
- ---------------------------------------------------------------------------------------------
Total current assets 90,968,000 68,751,000
- ---------------------------------------------------------------------------------------------
Property, plant, and equipment, at cost:
Land and buildings 33,125,000 32,115,000
Machinery and equipment 79,298,000 77,399,000
Leasehold improvements 349,000 349,000
- ---------------------------------------------------------------------------------------------
112,772,000 109,863,000
Less accumulated depreciation and amortization 63,969,000 61,273,000
- ---------------------------------------------------------------------------------------------
48,803,000 48,590,000
Construction in progress 77,000 176,000
- ---------------------------------------------------------------------------------------------
48,880,000 48,766,000
- ---------------------------------------------------------------------------------------------
Other assets and deferred charges:
Intangible assets, less accumulated amortization of
$2,012,000 and $2,004,000 448,000 456,000
Other assets 1,911,000 2,407,000
- ---------------------------------------------------------------------------------------------
$ 142,207,000 120,380,000
=============================================================================================
</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>
=============================================================================================
December 1, June 2,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Notes payable - banks $ 32,898,000 24,097,000
Accounts payable 29,223,000 23,916,000
Accounts payable to related parties, net 682,000 -
Accrued expenses 7,261,000 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 - 152,000
Income taxes payable 992,000 110,000
- ---------------------------------------------------------------------------------------------
Total current liabilities 73,555,000 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 1,010,000 805,000
Deferred income taxes 5,206,000 5,170,000
- ---------------------------------------------------------------------------------------------
Total liabilities 97,974,000 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 December 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, 427,204 shares at December 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 28,840,000 25,688,000
Treasury stock, at cost (7,872,000) (7,755,000)
Other (203,000) (275,000)
- ---------------------------------------------------------------------------------------------
44,233,000 41,126,000
- ---------------------------------------------------------------------------------------------
$ 142,207,000 120,380,000
=============================================================================================
</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>
====================================================================================================================
Twenty-six weeks ended Thirteen weeks ended
------------------------------------- ----------------------------------
December 1, December 3, December 1, December 3,
1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 125,155,000 126,567,000 69,036,000 74,850,000
Cost of goods sold 94,694,000 103,569,000 51,454,000 62,869,000
- --------------------------------------------------------------------------------------------------------------------
Gross profit 30,461,000 22,998,000 17,582,000 11,981,000
Selling expenses 17,565,000 15,024,000 10,025,000 7,648,000
Administrative expenses 4,725,000 4,655,000 2,536,000 2,151,000
- --------------------------------------------------------------------------------------------------------------------
Operating profit 8,171,000 3,319,000 5,021,000 2,182,000
Interest expense 1,961,000 2,684,000 1,027,000 1,318,000
Other expense (income), net 406,000 (14,000) 210,000 (86,000)
- --------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 5,804,000 649,000 3,784,000 950,000
Income taxes 2,239,000 25,000 1,470,000 247,000
- --------------------------------------------------------------------------------------------------------------------
Net earnings 3,565,000 624,000 2,314,000 703,000
Dividends on preferred stock 16,000 16,000 8,000 8,000
- --------------------------------------------------------------------------------------------------------------------
Net earnings applicable to common stock $ 3,549,000 608,000 2,306,000 695,000
====================================================================================================================
Earnings per share:
Net earnings, primary $ 4.93 0.83 3.21 .95
====================================================================================================================
Dividends per share, common $ 0.55 0.55 .275 .275
====================================================================================================================
Average shares outstanding 720,556 732,213 719,177 732,213
====================================================================================================================
</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 December 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 3,565,000 -- -- -- --
Cash dividends per share:
Preferred stock (16,000) -- -- -- --
Common stock (397,000) -- -- -- --
Redemption of common stock
(Class A 1,838 shares and
Class B 146 shares) (117,000) -- -- -- --
Unrealized gain on investments 72,000 -- -- -- --
- --------------------------------------------------------------------------------------------------
Balance, December 1, 1996 $44,233,000 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 -- -- -- 3,565,000
Cash dividends per share:
Preferred stock -- -- -- (16,000)
Common stock -- -- -- (397,000)
Redemption of common stock
(Class A 1,838 shares and
Class B 146 shares) -- -- -- --
Unrealized gain on investments -- -- -- --
- -----------------------------------------------------------------------------------------
Balance, December 1, 1996 493,123 $12,328,000 1,623,000 28,840,000
=========================================================================================
</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 1,838 shares and
Class B 146 shares) 1,984 (117,000) --
Unrealized gain on investments -- -- 72,000
- --------------------------------------------------------------------------
Balance, December 1, 1996 138,593 $(7,872,000) (203,000)
==========================================================================
</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>
=====================================================================================================
Twenty-six weeks ended
-------------------------------
December 1, December 3,
1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Operating activities:
Net earnings $ 3,565,000 624,000
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization 2,704,000 2,840,000
Deferred income taxes 36,000 175,000
Change in assets and liabilities:
Accounts receivable (6,545,000) (4,398,000)
Inventory (12,959,000) (8,399,000)
Prepaid items 669,000 3,670,000
Accounts payable and accrued expenses 9,198,000 (8,927,000)
Income taxes payable 882,000 (88,000)
Other liabilities 205,000 355,000
- ------------------------------------------------------------------------------------------------------
Net cash used in operating activities (2,245,000) (14,148,000)
- ------------------------------------------------------------------------------------------------------
Investing activities:
Decrease in other non-current assets 568,000 167,000
Acquisitions of property, plant, and equipment (2,810,000) (2,660,000)
- ------------------------------------------------------------------------------------------------------
Net cash used in investing activities (2,242,000) (2,493,000)
- ------------------------------------------------------------------------------------------------------
Financing activities:
Increase in notes payable 8,801,000 19,465,000
Payments on long-term debt and capital leases (402,000) (512,000)
Payment of dividends (413,000) (417,000)
Redemption of common stock (117,000) (576,000)
- ------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 7,869,000 17,960,000
- ------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 3,382,000 1,319,000
Cash and cash equivalents, beginning of period 1,112,000 881,000
- ------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 4,494,000 2,200,000
======================================================================================================
</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
December 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
twenty-six week periods ended December 1, 1996 and December 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 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 $32,898,000 was borrowed at
December 1, 1996. The average cost of funds during the period ended
December 1, 1996 was 5.95%.
(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>
December 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 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.
(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>
Twenty-six weeks ended Thirteen weeks ended
-------------------------- ---------------------------
December 1, December 3, December 1, December 3,
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Park 100 Foods, Inc. $ 724,000 17,000 446,000 17,000
Corporate charges:
Snyder's of Hanover, Inc. 87,000 87,000 43,000 14,000
Expenditures:
New Horizons 14,000 23,000 - -
Park 100 Foods, Inc. 161,000 - 69,000 -
The Cannery Press, Inc. - 223,000 - 104,000
Patti & John's, Inc. 10,000 14,000 - 3,000
ARWCO Corporation 7,000 7,000 3,000 4,000
Warehime Enterprises, Incorporated 47,000 99,000 1,000 53,000
John A. and Patricia M. Warehime 23,000 21,000 12,000 10,000
James G. Sturgill 38,000 - 19,000 -
Sturgill & Associates 7,000 - 7,000 -
Lippy Bros., Inc. 179,000 - 179,000 -
=================================================================================================
</TABLE>
The respective December 1, 1996 and June 2, 1996 account balances
with related Companies are as follows:
<TABLE>
<CAPTION>
December 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. 184,000 56,000
Accounts payable:
The Cannery Press, Inc. - 4,000
Lippy Bros., Inc. 865,000 -
Patti & John's, Inc. - 6,000
James G. Sturgill 10,000 -
Warehime Enterprises, Incorporated 1,000 -
Notes payable:
Warehime Enterprises, Incorporated 625,000 875,000
Cyril T. Noel 294,000 294,000
==================================================================================================
</TABLE>
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 October 11, 1996, the Corporation mailed to all stockholders notice
of a special meeting of Class B stockholders to consider and act on a
merger of the Corporation into a newly formed Delaware corporation, for
the purpose of redomesticating the Corporation in Delaware. This
proposal was approved by the Corporation's board of directors on
September 13, 1996. On October 21, 1996, the plaintiffs in both the
derivative litigation described in the Quarterly Report on Form 10-Q
for the period ended September 1, 1996, which was filed on October 15,
1996, and the voting trust litigation described in the Annual Report on
Form 10-K for the fiscal year ended April 2, 1995, which was filed on
July 3, 1995 and updated in the Annual Report on Form 10-K for the
fiscal year ended March 31, 1996, which was filed on July 2, 1996,
moved to enjoin the Corporation's proposed redomestication in Delaware.
The Court of Common Pleas of York County declined to hear the
plaintiffs' claims at that time and continued the matter until it could
be heard on its merits. The Corporation intends to vigorously assert
its position at the hearing scheduled to begin on April 27, 1997.
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 the
violations and the proposed penalties.
MANUFACTURER COUPONS
The Corporation is contingently liable at December 1, 1996 for
unredeemed manufacturer coupons on various products 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 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 $125.2 million for the twenty-six week
period ended December 1, 1996. This represents a decrease of 1.1% from
the twenty-six week period ended December 3, 1995 during which
consolidated net sales were $126.6 million. Consolidated net sales were
$69.0 million for the thirteen week period ended December 1, 1996, a
7.8% decrease from consolidated net sales of $74.9 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 $94.7 million, or 75.7% of consolidated net
sales, for the twenty-six week period ended December 1, 1996 as
compared to $103.6 million, or 81.8% of consolidated net sales, for the
corresponding period in 1995. Cost of goods sold was $51.5 million, or
74.5% of consolidated net sales, for the thirteen week period ended
December 1, 1996 as compared to $62.9 million, or 84.0% of consolidated
net sales, for the corresponding period in 1995. 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.
SELLING EXPENSES
Selling expenses were $17.6 million, or 14.0% of consolidated net
sales, for the twenty-six week period ended December 1, 1996 as
compared to $15.0 million, or 11.9% of consolidated net sales, during
the corresponding period in 1995. Selling expenses were $10.0 million
or 14.5% of consolidated net sales for the thirteen week period ended
December 1, 1996 compared to $7.6 million or 10.2% 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 $6.9 million
increase in branded canned and frozen sales during the period.
ADMINISTRATIVE EXPENSES
Administrative expenses as a percentage of consolidated net sales were
3.8% for the twenty-six week period ended December 1, 1996 compared to
3.7% for the corresponding period of 1995. Administrative expenses as a
percentage of consolidated net sales were 3.7% for the thirteen week
period ended December 1, 1996 compared to 2.9% of consolidated net
sales during the corresponding period in the prior year. This increase
is attributed to an accrual of $200,000 for bonuses for the current
period.
INTEREST EXPENSE
Interest expense was $1,961,000 for the twenty-six week period ended
December 1, 1996 as compared to $2,684,000 for the same period in 1995.
Interest expense was $1.0 million for the thirteen week period ended
December 1, 1996 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 period.
12
(Continued)
<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 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.
OPERATING ACTIVITIES
Cash used by operating activities for the twenty-six week period ended
December 1, 1996 was $2.2 million as compared to $14.1 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
during the same period of 1995 the Corporation utilized less cash for
increased inventory levels and receivables, which was offset by an
increase in cash used to reduce payables.
INVESTING ACTIVITIES
During the twenty-six week period ended December 1, 1996 the
Corporation used approximately $2.8 million for the purchase of land
and plant upgrades and expansions. This compares to $2.7 million used
during the same period last year for capital projects.
FINANCING ACTIVITIES
The increase in notes payable of approximately $8.8 million during the
twenty-six week period ended December 1, 1996 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 $32.9 million was
utilized as of December 1, 1996. 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.
================================================================================
13
<PAGE> 14
PART II -- OTHER INFORMATION
HANOVER FOODS CORPORATION AND SUBSIDIARIES
================================================================================
Item:
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.
On October 11, 1996, the Corporation mailed to all stockholders notice
of a special meeting of Class B stockholders to consider and act on a
merger of the Corporation into a newly formed Delaware corporation, for
the purpose of redomesticating the Corporation in Delaware. This
proposal was approved by the Corporation's board of directors on
September 13, 1996. On October 21, 1996, the plaintiffs in both the
derivative litigation described in the Quarterly Report on Form 10-Q
for the period ended September 1, 1996, which was filed on October 15,
1996, and the voting trust litigation described in the Annual Report on
Form 10-K for the fiscal year ended April 2, 1995, which was filed on
July 3, 1995 and updated in the Annual Report on Form 10-K for the
fiscal year ended March 31, 1996, which was filed on July 2, 1996,
moved to enjoin the Corporation's proposed redomestication in Delaware.
The Court of Common Pleas of York County declined to hear the
plaintiffs' claims at that time and continued the matter until it could
be heard on its merits. The Corporation intends to vigorously assert
its position at the hearing scheduled to begin on April 27, 1997.
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 by Corporation 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 the
violations and the proposed penalties.
2-5 None
6 - Exhibits and Reports on 8-K.
(a) Exhibits
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 for
which this report is filed.
================================================================================
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: January 15, 1997
HANOVER FOODS CORPORATION
BY /s/ GARY T. KNISELY
------------------------
Gary T. Knisely
Executive Vice President
BY /s/ PIETRO GIRAFFA
--------------------------
Pietro Giraffa, Controller
15
<PAGE> 1
Exhibit 11
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Computation of Earnings Per Share
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Twenty-six weeks ended Thirteen weeks ended
------------------------ ------------------------
December 1, December 3, December 1, December 3,
1996 1995 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY
Earnings:
Net earnings $3,565,000 624,000 2,314,000 703,000
Preferred stock dividends (16,000) (16,000) (8,000) (8,000)
- --------------------------------------------------------------------------------
Net earnings applicable to
common stock $3,549,000 608,000 2,306,000 695,000
- --------------------------------------------------------------------------------
SHARES
Weighted average number of
shares outstanding 720,556 732,213 719,177 732,213
- --------------------------------------------------------------------------------
Net earnings per share --
primary $ 4.93 .83 3.21 .95
- --------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-01-1997
<PERIOD-START> JUN-03-1996
<PERIOD-END> DEC-01-1996
<CASH> 4,494
<SECURITIES> 0
<RECEIVABLES> 23,855
<ALLOWANCES> 0
<INVENTORY> 60,026
<CURRENT-ASSETS> 90,968
<PP&E> 112,772
<DEPRECIATION> 63,969
<TOTAL-ASSETS> 142,207
<CURRENT-LIABILITIES> 73,555
<BONDS> 18,203
0
788
<COMMON> 21,057
<OTHER-SE> 22,388
<TOTAL-LIABILITY-AND-EQUITY> 142,207
<SALES> 125,155
<TOTAL-REVENUES> 125,155
<CGS> 94,694
<TOTAL-COSTS> 94,694
<OTHER-EXPENSES> 22,696
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,961
<INCOME-PRETAX> 5,804
<INCOME-TAX> 2,239
<INCOME-CONTINUING> 3,565
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,565
<EPS-PRIMARY> 4.93
<EPS-DILUTED> 4.93
</TABLE>
