<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 August 31, 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.
Class Outstanding at August 31, 1997
Class A Common Stock, $25 par value 291,976 shares
Class B Common Stock, $25 par value 427,058 shares
<PAGE> 2
HANOVER FOODS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Thirteen Weeks Ended August 31, 1997
<TABLE>
<CAPTION>
Index
Page
<S> <C>
Part I -- Financial Information
Item 1 -- Financial Statements:
Condensed Consolidated Balance Sheets
August 31, 1997 (Unaudited) and June 1, 1997........................... 3
Condensed Consolidated Statements of Operations
(Unaudited), Thirteen Weeks Ended August 31, 1997
and September 1, 1996.................................................. 5
Condensed Consolidated Statements of Stockholders'
Equity (Unaudited), Periods Ended August 31, 1997
and June 1, 1997....................................................... 6
Condensed Consolidated Statements of Cash Flows
(Unaudited), Thirteen Weeks Ended August 31, 1997
and September 1, 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
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
ASSETS August 31, 1997 June 1, 1997
(Unaudited)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash and Short-Term Cash Investments $ 3,560,000 $ 3,312,000
Accounts and Notes Receivable, Net 21,966,000 22,954,000
Accounts Receivable from Related Parties, Net 717,000 890,000
Inventories 50,598,000 41,424,000
Prepaid Expenses 2.917,000 2,064,000
Deferred Income Taxes 733,000 733,000
- -----------------------------------------------------------------------------------------------
Total Current Assets 80,491,000 71,377,000
- -----------------------------------------------------------------------------------------------
Property, Plant and Equipment, at Cost:
Land and Buildings 33,788,000 33,398,000
Machinery and Equipment 83,339,000 82,037,000
Leasehold Improvements 359,000 349,000
- -----------------------------------------------------------------------------------------------
117,486,000 115,784,000
Less Accumulated Depreciation and
Amortization 68,242,000 66,822,000
- -----------------------------------------------------------------------------------------------
49,244,000 48,962,000
Construction in Progress 273,000 760,000
- -----------------------------------------------------------------------------------------------
Total Property, Plant and Equipment 49,517,000 49,722,000
- -----------------------------------------------------------------------------------------------
Other Assets and Deferred Charges:
Intangible Assets, Less Accumulated
Amortization of $2,008,000 and
$2,001,000 438,000 441,000
Other Assets 1,590,000 2,491,000
- -----------------------------------------------------------------------------------------------
Total Assets $132,036,000 $124,031,000
- -----------------------------------------------------------------------------------------------
</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
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY August 31, 1997 June 1, 1996
(Unaudited)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Liabilities:
Notes Payable - Banks $ 26,209,000 $ 24,114,000
Accounts Payable 21,159,000 21,038,000
Accrued Expenses 10,601,000 6,511,000
Current Maturities of Long-Term Debt 2,109,000 2,234,000
Income Taxes Payable 689,000 358,000
- -----------------------------------------------------------------------------------------------------
Total Current Liabilities 60,767,000 54,255,000
- -----------------------------------------------------------------------------------------------------
Long-Term Debt, Less Current Maturities 18,218,000 16,219,000
Other Long-Term Liabilities 1,343,000 1,226,000
Deferred Income Taxes 5,273,000 5,174,000
- -----------------------------------------------------------------------------------------------------
Total Liabilities 83,601,000 76,874,000
- -----------------------------------------------------------------------------------------------------
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, 349,234 shares
issued, 292,986 shares at August
31, 1997 and 292,710
shares at June 1, 1997 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 August
31, 1997 and 427,131
shares at June 1, 1997 outstanding 12,328,000 12,328,000
Capital Paid in Excess of Par Value 1,623,000 1,623,000
Retained Earnings 32,891,000 31,570,000
Treasury Stock, at Cost ( 7,909,000) ( 7,887,000)
Other ( 15,000) 6,000
- -----------------------------------------------------------------------------------------------------
Total Stockholders' Equity 48,435,000 47,157,000
- -----------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $132,036,000 $124,031,000
- -----------------------------------------------------------------------------------------------------
</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
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Thirteen Weeks Ended
August 31, 1997 September 1, 1996
(Unaudited)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $ 55,892,000 $ 56,119,000
Cost of Goods Sold 42,693,000 43,240,000
- ---------------------------------------------------------------------------------------
Gross Profit 13,199,000 12,879,000
Selling Expenses 7,367,000 7,540,000
Administrative Expenses 2,336,000 2,189,000
- ---------------------------------------------------------------------------------------
Operating Profit 3,496,000 3,150,000
Interest Expense 885,000 934,000
Other Expenses, Net 236,000 196,000
- ---------------------------------------------------------------------------------------
Earnings Before Income Taxes 2,375,000 2,020,000
Income Taxes 848,000 769,000
- ---------------------------------------------------------------------------------------
Net Earnings 1,527,000 1,251,000
Dividends on Preferred Stock 8,000 8,000
- ---------------------------------------------------------------------------------------
Net Earnings Applicable to Common Stock $ 1,519,000 $ 1,243,000
- ---------------------------------------------------------------------------------------
Earnings Per Share:
Net Earnings, Primary $ 2.11 $ 1.72
Dividends Per Share, Common $ 0.275 $ 0.275
Average Shares Outstanding 719,496 721,935
- ---------------------------------------------------------------------------------------
</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
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
<S> <C> <C> <C> <C> <C> <C>
Balance, June 1, 1997 $47,157,000 31,536 $788,000 349,210 $8,729,000 493,123
Net Earnings for the Year 1,527,000
Cash Dividends Per Share:
Preferred Stock ( 8,000)
Common Stock ( 198,000)
Redemption of Common Stock
(Class A 378 Shares and
Class B 73 Shares) ( 22,000)
Unrealized Gain on Investments (21,000)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, August 31, 1997 $48,435,000 31,536 $788,000 349,210 $8,729,000 493,123
==================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Treasury
Common Stock Stock
Class B -----
------------ Capital Paid
in Excess of Retained
Amount Par Value Earnings Shares Amount Other
<S> <C> <C> <C> <C> <C> <C>
Balance, June 1, 1997 $12,328,000 $1,623,000 $31,570,000 138,952 $(7,887,000) $ 6,000
Net Earnings for the Year 1,527,000
Cash Dividends Per Share:
Preferred Stock ( 8,000)
Common Stock ( 198,000)
Redemption of Common Stock
(Class A 378 Shares and
Class B 73 Shares) 429 ( 22,000)
Unrealized Gain on Investments ( 21,.000)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, August 31, 1997 $12,328,000 $1,623,000 $32,891,000 139,381 $(7,909,000) $( 15,000)
==================================================================================================================================
</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>
- ---------------------------------------------------------------------------------------------------
Thirteen Weeks Ended August 31, 1997 September 1, 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Operating Activities:
Net Earnings $ 1,527,000 $ 1,251,000
Adjustments to Reconcile Net Earnings to Net
Cash Used in Operating Activities:
Depreciation and Amortization 1,423,000 1,310,000
Deferred Income Taxes 99,000 ( 4,000)
Changes in Assets and Liabilities:
Accounts Receivable 1,161,000 ( 3,358,000)
Inventory ( 9,174,000) ( 4,877,000)
Prepaid Items ( 853,000) 66,000
Accounts Payable and Accrued Expense 4,211,000 3,333,000
Income Taxes Payable 331,000 18,000
Other Liabilities 117,000 104,000
- ---------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities ( 1,159,000) ( 2,157,000)
- ---------------------------------------------------------------------------------------------------
Investing Activities:
(Increase) Decrease in Other Non-Current Assets 880,000 736,000
Acquisitions of Property, Plant and Equipment ( 1,215,000) ( 1,643,000)
- ---------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities ( 335,000) ( 907,000)
- ---------------------------------------------------------------------------------------------------
Financing Activities:
Increase (Decrease) in Notes Payable 2,095,000 4,388,000
Payments on Long-Term Debt and Capital Leases ( 125,000) ( 309,000)
Payment of Dividends ( 206,000) ( 207,000)
Redemption of Common Stock ( 22,000) ( 32,000)
- ---------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 1,741,000 3,840,000
- ---------------------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 248,000 776,000
Cash and Cash Equivalents, Beginning of Period 3,312,000 1,112,000
- ---------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $ 3,560,000 $ 1,888,000
- ---------------------------------------------------------------------------------------------------
</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
August 31,1997 and September 1, 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.
The Corporation's fiscal year ends at the close of operations on the
Sunday nearest to May 31. Accordingly, these financial statements reflect
activity for the thirteen week periods ended August 31, 1997 and September
1, 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 June 1, 1997.
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 $26,209,000 was borrowed at August 31, 1997. The
average cost of funds during the period ended August 31, 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>
August 31, 1997 June 1, 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
8.74% unsecured senior notes payable
to an insurance company, due
fiscal years ending 1995-2007 $17,857,000 $17,857,000
Installment obligation payable to a
related party, due in equal annual
installments in fiscal years ending
1996-2000 interest at prime rate (8.50%
at August 31, 1997) 221,000 221,000
6.33% installment obligation payable to a
related party, due fiscal years ending
1996-1998 250,000 375,000
- ---------------------------------------------------------------------------------------------------------
18,328,000 18,453,000
Less current maturities 2,109,000 2,234,000
- ---------------------------------------------------------------------------------------------------------
Net Long Term Debt 16,219,000 16,219,000
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The term loan agreements with the insurance company and the agreements for
seasonal borrowing with financial institutions 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>
Thirteen Weeks Ended
August 31, 1997 September 1, 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Park 100 Foods, Inc. $1,747,000 $ 278,000
Corporate Charges:
Snyder's of Hanover, Inc. 44,000 44,000
Expenditures:
Park 100 Foods, Inc. 142,000 92,000
Patty & John's, Inc. - 0 - 10,000
The Cannery Press, Inc. - 0 - 14,000
ARWCO Corporation 4,000 3,000
Warehime Enterprises, Inc. 1,000 46,000
John A. & Patricia M. Warehime 16,000 11,000
James G. Sturgill 24,000 20,000
Sturgill & Associates - 0 - 16,000
- ---------------------------------------------------------------------------
</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 August 31, 1997 and June 1, 1997 account balances with related
companies are as follows:
<TABLE>
<CAPTION>
August 31, 1997 June 1, 1997
- -----------------------------------------------------------------------
<S> <C> <C>
Accounts Receivable:
Snyder's of Hanover, Inc. $ - 0 - $ 16,000
Park 100 Foods, Inc. 742,000 906,000
Accounts Payable:
Park 100 Foods, Inc. 23,000 30,000
Arwco Corporation 2,000 - 0 -
Warehime Enterprises, Inc. - 0 - 1,000
Notes Payable:
Warehime Enterprises, Inc. 250,000 375,000
Cyril T. Noel 221,000 221,000
- -----------------------------------------------------------------------
</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 June 1, 1997.
RESULTS OF OPERATIONS
NET SALES
Consolidated net sales were $55.9 million for the thirteen week period ended
August 31, 1997. This represents a decrease of .4% over the thirteen week period
ended September 1, 1996 consolidated net sales of $56.1 million. The decrease of
$.2 million was primarily due to decreased canned and frozen branded retail
sales offset by increases in private label, food service sales, and industrial
sales.
COST OF GOODS SOLD
Cost of goods sold were $42.7 million, or 76.4% of consolidated net sales in the
thirteen week period ended August 31, 1997 and $43.2 million, or 77.1%, of
consolidated net sales for the corresponding period in 1996. 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.
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 $7.4 million, or 13.2% of consolidated net sales, for the
thirteen week period ended August 31, 1997 versus $7.5 million or 13.4% of
consolidated net sales during the corresponding period in 1996. The decrease in
selling expenses as a percentage of net sales reflects lower expenses related to
coupon programs.
ADMINISTRATIVE EXPENSES
Administration expenses as a percentage of consolidated net sales were 4.2% for
the thirteen week period ended August 31, 1997 compared to 3.9% for the
corresponding period of 1996. This increase is attributed to increases in
outside consulting services, both legal and financial.
INTEREST EXPENSE
Interest expense was $885,000 for the thirteen week period ended August 31, 1997
as compared to $934,000 for the same period in 1996. The decrease in interest is
mainly due to lower average borrowings during the current period.
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
on page 7 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
Cash used by operating activities for the thirteen week period ended August 31,
1997 was $1.2 million as compared to $2.2 million during the same period of
1996. The combination of increased inventory levels, offset by decreases in
accounts receivable and increases in accounts payable and accrued expenses
utilized less cash flow. By comparison the same period in 1996 consumed more
cash for increased accounts receivable offset by less cash consumed for
increased inventory levels and less cash generated from increased accounts
payable and accrued expenses.
INVESTING ACTIVITIES
During the thirteen week period ended August 31, 1997 the Corporation spent
approximately $1.2 million for the purchase of land and plant upgrades and
expansions. This compares to $1.6 million spent during the same period last year
for capital projects.
FINANCING ACTIVITIES
The increase in notes payable of approximately $2.1 million during the thirteen
week period ended August 31, 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 $26.2 million was utilized
as of August 31, 1997. Additional borrowings are permitted within prescribed
parameters in existing debt agreements. The Corporation 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.
Derivative Action
On September 13, 1996 certain Class A common stockholders 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. The suit also named the Corporation as a nominal defendant.
The suit sought various forms of relief including, but not limited to,
rescission of the board's April 28, 1995 approval of John A. Warehime's
1995 Employment Agreement and the board's February 10, 1995 adjustment of
directors' fees. (Since the filing of this lawsuit, John A. Warehime's
1995 Employment Agreement was amended. See Note 6 to Consolidated
Financial Statements contained in the Form 10-K Report of the Corporation
for the fiscal year ended June 1, 1997.) In addition, the plaintiffs
sought costs and fees incident to bringing suit. On November 4, 1996, the
complaint was amended to add additional plaintiffs. On June 24, 1997, the
Court dismissed the amended complaint for failure to make a prior demand.
An appeal has been filed from the Court's June 24, 1997 Order. On May 12,
1997, a written demand was received by the Corporation from the attorney
for these Class A common stockholders containing similar allegations and
these allegations are currently being investigated by a special committee
of the Board of Directors.
1997 Warehime Family Litigation
On February 21, 1997, Michael A. Warehime, a Class B shareholder, and
certain Class A shareholders filed motions for a preliminary injunction
against the Corporation. John A. Warehime, in his capacity as voting
trustee, and all certain directors of the Corporation in the Court of
Common Pleas of York County, Pennsylvania against a proposal of the Board
of Directors to amend and restate the Corporation's Articles of
Incorporation in the manner hereafter described.
On February 13, 1997, the Board of Directors proposed an amendment and
restatement of the Corporation's Articles of Incorporation (the "Amended
and Restated Articles") which provides that if all of the following Class
B shareholders (or their Estates upon the death
16
<PAGE> 17
of such stockholders) do not agree in writing to composition of the Board
of Directors or other important matters specified below on or after the
1998 annual shareholders meeting, 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 shareholders may become entitled to vote in the manner described below:
Michael A. Warehime, John A. Warehime, Sally W. Yelland, J. William
Warehime and Elizabeth W. Stick. The above-named Class B shareholders are
all members of the Warehime family.
The Amended and Restated Articles 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
Corporation's 401(k) Savings Plan (or similar employee benefit plan), who
are appointed by the Board of Directors, must be "disinterested directors"
of the Corporation. If the Class B shareholders named above cannot
unanimously agree in writing on the composition of the Board of Directors
or on other matters specified below, the Amended and Restated Articles
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 Amended and Restated Articles also permit the
trustees and the Class A shareholders 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. Under the Amended and Restated
Articles, each of the shares of Series C Convertible Preferred Stock is
convertible into one share of Class A Common Stock and is not entitled to
vote except in the event that the Class B shareholders previously named
cannot agree in writing on the composition of the Board of Directors or
on the important matters specified above.
The Amended and Restated Articles also classified the terms of the Board
of Directors commencing with the election at the 1997 annual shareholders
meeting and permit directors to be elected for four year terms as
permitted by Pennsylvania law.
The motions for a preliminary injunction were dismissed by the Court on
June 24, 1997. The Class B shareholders on June 25, 1997 approved the
Amended and Restated Articles (John A. Warehime being the sole Class B
shareholder voting affirmatively, in his capacity as voting trustee) and
the Amended and Restated Articles became effective June 25, 1997. Appeals
have been filed from the denial of the plaintiffs' motion for a
preliminary injunction.
17
<PAGE> 18
In August 1997, the Board of Directors proposed a further amendment (the
"Amendment") to the Amended and Restated Articles to expand the definition
of "disinterested directors" in the manner described below, and to approve
certain performance based compensation for John A. Warehime solely for the
purpose of making the Corporation eligible for a federal income tax
deduction pursuant to Section 162(m) of the Internal Revenue Code of 1986,
as amended. A special meeting was scheduled for August 14, 1997 (the
"Special Meeting") to vote on these proposals. On August 8, 1997, Michael
A. Warehime filed a motion in the Court of Common Pleas of York County,
Pennsylvania to prevent John A. Warehime, in his capacity as voting
trustee, from voting on these proposals. This motion was denied on August
11, 1997. Michael A. Warehime has filed an appeal. The Amendment and the
proposal under Section 162(m) were approved by Class B Shareholders (John
A. Warehime was the sole Class B shareholder to vote affirmatively, in his
capacity as voting trustee) on August 14, 1997 and the Amendment became
effective on August 14, 1997.
Under the Amendment, the definition of "disinterested directors" means the
person who, in the opinion of counsel for the Corporation, meet any of the
following criteria: (i) disinterested directors as defined in Section
1715(e) of the Pennsylvania Business Corporation Law of 1988, as amended;
(ii) persons who are not "interested" directors as defined in Section 1.23
of The American Law Institute "Principles of Corporate Governance:
Analysis of Recommendations" (1994); or (iii) persons who qualify as
members of the Audit Committee pursuant to Section 303.00 of the New York
Stock Exchange's Listed Company Manual.
Other Litigation
On December 12, 1996, 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 violations is $70,000. On
December 18, 1996, the Corporation filed its Notice of Contest, contesting
both alleged violations and the proposed penalties. On September 22, 1997,
pursuant to a final order of the U.S. Occupational Safety and Health
Review Commission, the two violations were settled between the parties
without admission of liability for $4,750 and $35,000, respectively.
On March 24, 1997, 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. On
September 22, 1997, pursuant to a final order of the U.S. Occupational
18
<PAGE> 19
Safety and Health Review Commission, three of the twenty-two violations
were settled between the parties without admission of liability for a
total of $65,000. The balance of the violations remain contested by the
Company.
The Corporation is involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of management,
the ultimate disposition of these matters will not have a material adverse
effect on the Company's consolidated financial position, results of
operations or liquidity.
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 from which
this report is filed.
19
<PAGE> 20
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 14, 1997
HANOVER FOODS CORPORATION
BY /s/ GARY T. KNISELY
-------------------------------------
Gary T. Knisely
Executive Vice President
BY /s/ PIETRO GIRAFFA
-------------------------------------
Pietro Giraffa, Controller
20
<PAGE> 1
Exhibit 11
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Computation of Earnings Per Share
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Thirteen Weeks Ended
--------------------------------
August 31, September 1,
1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
PRIMARY
Earnings:
Net Earnings $ 1,527,000 $ 1,251,000
Preferred stock dividends ( 8,000) ( 8,000)
- ----------------------------------------------------------------------
Net earnings applicable to
common stock 1,519,000 1,243,000
- ----------------------------------------------------------------------
SHARES
Weighted average number of
shares outstanding 719,496 721,935
- ----------------------------------------------------------------------
Net earnings per share --
primary $ 2.11 $ 1.72
- ----------------------------------------------------------------------
</TABLE>
21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-02-1997
<PERIOD-END> AUG-31-1997
<CASH> 3,560
<SECURITIES> 0
<RECEIVABLES> 22,683
<ALLOWANCES> 0
<INVENTORY> 50,598
<CURRENT-ASSETS> 80,491
<PP&E> 117,486
<DEPRECIATION> 68,242
<TOTAL-ASSETS> 132,036
<CURRENT-LIABILITIES> 60,767
<BONDS> 18,327
0
788
<COMMON> 21,057
<OTHER-SE> 26,890
<TOTAL-LIABILITY-AND-EQUITY> 132,036
<SALES> 55,892
<TOTAL-REVENUES> 55,892
<CGS> 42,693
<TOTAL-COSTS> 42,693
<OTHER-EXPENSES> 9,939
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 885
<INCOME-PRETAX> 2,375
<INCOME-TAX> 848
<INCOME-CONTINUING> 1,527
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,527
<EPS-PRIMARY> 2.11
<EPS-DILUTED> 2.11
</TABLE>
