<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 February 27, 2000
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)
<TABLE>
<S> <C>
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)
</TABLE>
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 February 27, 2000
----- --------------------------------
<S> <C>
Class A Common Stock, $25 par value 288,348 shares
Class B Common Stock, $25 par value 426,255 shares
</TABLE>
1
<PAGE> 2
HANOVER FOODS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Thirty-Nine Weeks Ended February 27, 2000
<TABLE>
<CAPTION>
Index Page
<S> <C>
Part I -- Financial Information
Item 1 -- Financial Statements:
Condensed Consolidated Balance Sheets
February 27, 2000 (Unaudited) and May 30, 1999.............. 3
Condensed Consolidated Statements of Operations (Unaudited)
Thirty-Nine Weeks and Thirteen Weeks Ended
February 27, 2000 and February 28, 1999..................... 5
Condensed Consolidated Statements of Stockholders'
Equity, Periods Ended February 27, 2000 (Unaudited)
and May 30, 1999............................................ 6
Condensed Consolidated Statements of Cash Flows
(Unaudited), Thirty-Nine Weeks Ended February 27, 2000
and February 28, 1999....................................... 7
Notes to Condensed Consolidated Financial Statements
(Unaudited)................................................. 8
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 19
Part II -- Other Information........................................ 23
Item 1 -- Legal Proceedings................................. 23
Items 2-3 -- None ............................................. 25
Item 4 -- None.............................................. 26
Item 5 -- None.............................................. 26
Item 6 -- Exhibits and Reports on Form 8-K.................. 26
</TABLE>
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
February 27, 2000 May 30, 1999
ASSETS (Unaudited)
----------------- ------------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 5,778,000 $ 2,214,000
Accounts and Notes Receivable, Net 27,526,000 26,281,000
Accounts Receivable from Related Parties, Net 161,000 242,000
Inventories 63,116,000 53,709,000
Prepaid Expenses 1,417,000 1,733,000
Deferred Income Taxes 917,000 917,000
------------ ------------
Total Current Assets 98,915,000 85,096,000
------------ ------------
Property, Plant and Equipment, at Cost:
Land and Buildings 47,418,000 44,006,000
Machinery and Equipment 106,180,000 93,585,000
Leasehold Improvements 397,000 383,000
------------ ------------
153,995,000 137,974,000
Less Accumulated Depreciation and
Amortization 82,680,000 78,573,000
------------ ------------
71,315,000 59,401,000
Construction in Progress 211,000 6,591,000
------------ ------------
Total Property, Plant and Equipment 71,526,000 65,992,000
------------ ------------
Other Assets:
Intangible Assets, Net 4,085,000 2,293,000
Other Assets 4,322,000 3,860,000
------------ ------------
Total Assets $178,848,000 $157,241,000
------------ ------------
</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
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY February 27, 2000 May 30, 1999
(Unaudited)
----------------- -------------
<S> <C> <C>
Current Liabilities:
Notes Payable - Banks $ 49,575,000 $ 39,629,000
Accounts Payable 25,677,000 22,813,000
Accrued Expenses 9,302,000 7,433,000
Current Maturities of Long-Term Debt 1,824,000 1,859,000
Income Taxes Payable 1,799,000 2,103,000
------------- -------------
Total Current Liabilities 88,177,000 73,837,000
------------- -------------
Long-Term Debt, Less Current Maturities 12,532,000 12,500,000
Other Liabilities 2,705,000 2,119,000
Deferred Income Taxes 4,659,000 4,331,000
------------- -------------
Total Liabilities 108,073,000 92,787,000
------------- -------------
Stockholders' Equity:
8.25% 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
4.40% cumulative convertible preferred, $25 par value;
issuable in series, 10,000 shares authorized; 10,000
shares issued and outstanding 250,000 250,000
Common stock, Class A, non-voting, $25 par value;
800,000 shares authorized, 349,210 shares issued,
288,348 shares at February 27, 2000 and 289,414
shares at May 30, 1999 outstanding 8,729,000 8,729,000
Common stock, Class B, voting, $25 par value;
880,000 shares authorized, 493,123 shares issued,
426,255 shares at February 27, 2000 and 426,474
shares at May 30, 1999 outstanding 12,328,000 12,328,000
Capital Paid in Excess of Par Value 2,143,000 2,143,000
Retained Earnings 54,084,000 47,767,000
Treasury Stock, at Cost (8,137,000) (8,076,000)
Accumulated Other Comprehensive Income 590,000 525,000
------------- -------------
Total Stockholders' Equity $ 70,775,000 $ 64,454,000
------------- -------------
Total Liabilities and Stockholders' Equity $ 178,848,000 $ 157,241,000
</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
February 27, February 28, February 27, February 28,
2000 1999 2000 1999
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net Sales $223,086,000 $212,189,000 $78,926,000 $ 72,946,000
Cost of Goods Sold 166,683,000 159,134,000 59,711,000 54,727,000
------------ ------------ ----------- ------------
Gross Profit 56,403,000 53,055,000 19,215,000 18,219,000
Selling Expenses 32,041,000 30,472,000 11,829,000 10,905,000
Administrative Expenses 8,927,000 8,398,000 3,476,000 3,056,000
------------ ------------ ----------- ------------
Operating Profit 15,435,000 14,185,000 3,910,000 4,258,000
Interest Expense 2,962,000 2,369,000 1,105,000 867,000
Other Expenses (Income), Net 779,000 424,000 ($8,000) 182,000
------------ ------------ ----------- ------------
Earnings Before Income Taxes 11,694,000 11,392,000 2,813,000 3,209,000
Income Taxes 4,677,000 4,629,000 1,135,000 1,324,000
------------ ------------ ----------- ------------
Net Earnings 7,017,000 6,763,000 1,678,000 1,885,000
Dividends on Preferred Stock 33,000 33,000 11,000 10,000
------------ ------------ ----------- ------------
Net Earnings Applicable to
Common Stock $ 6,984,000 $ 6,730,000 1,667,000 $ 1,875,000
------------ ------------ ----------- ------------
Earnings Per Share:
Net Earnings Per Common
Share - Basic $ 9.76 $ 9.39 $ 2.33 $ 2.61
Net Earnings Per Common
Share - Diluted $ 9.62 $ 9.20 $ 2.30 $ 2.56
Dividends Per Share, Common $ 0.825 $ 0.99 $ 0.275 $ 0.275
Basic Weighted Average Shares 715,236 716,974 714,919 717,086
Diluted Weighted Average Shares 729,454 731,895 729,137 732,007
------------ ------------ ----------- ------------
</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 Cumulative
Convertible Convertible
Total Preferred Stock Preferred Stock
Stockholders' Series A and B Series C
Equity Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C>
Balance, May 30, 1999 $ 64,454,000 31,536 $ 788,000 10,000 $250,000
Net Earnings for the Period $ 7,017,000
Cash Dividends Per Share:
Preferred Stock ($ 33,000)
Common Stock ($ 667,000)
Redemption of Common Stock
(Class A 1,066 Shares and
Class B 219 Shares) ($ 61,000)
Other Comprehensive Income $ 65,000
------------ ------ --------- ------ --------
Balance, February 27, 2000 $ 70,775,000 31,536 $ 788,000 10,000 $250,000
============ ====== ========= ====== ========
</TABLE>
<TABLE>
<CAPTION>
Common Stock Common Stock Capital Paid
Class A Class B in Excess of
Shares Amount Shares Amount Par Value
<S> <C> <C> <C> <C> <C>
Balance, May 30, 1999 349,210 $8,729,000 493,123 $12,328,000 $2,143,000
Net Earnings for the Period
Cash Dividends Per Share:
Preferred Stock
Common Stock
Redemption of Common Stock
(Class A 1,066 Shares and
Class B 219 Shares)
Other Comprehensive Income
------- ---------- ------- ----------- ----------
Balance, February 27, 2000 349,210 $8,729,000 493,123 $12,328,000 $2,143,000
======= ========== ======= =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Treasury Stock Other
Retained Comprehensive
Earnings Shares Amount Income
<S> <C> <C> <C> <C>
Balance, May 30, 1999 $47,767,000 142,937 ($8,076,000) $525,000
Net Earnings for the Period $ 7,017,000
Cash Dividends Per Share:
Preferred Stock ($ 33,000)
Common Stock ($ 667,000)
Redemption of Common Stock
(Class A 1,066 Shares and
Class B 219 Shares) 1,285 ($ 61,000)
Other Comprehensive Income $ 65,000
----------- ------- ----------- --------
Balance, February 27, 2000 $54,084,000 144,222 ($8,137,000) $590,000
=========== ======= =========== ========
</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>
Period Ended
February 27, 2000 February 28, 1999
----------------- -----------------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Operating Activities:
Net Earnings $ 7,017,000 $ 6,763,000
Adjustments to Reconcile Net Earnings to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 5,439,000 4,629,000
Deferred Income Taxes 328,000 (68,000)
Changes in Assets and Liabilities:
Accounts Receivable 332,000 402,000
Inventories (8,260,000) (12,792,000)
Prepaid Expenses 398,000 (28,000)
Accounts Payable and Accrued Expenses 1,878,000 1,181,000
Income Taxes Payable (304,000) 1,005,000
Other Liabilities 586,000 415,000
------------ ------------
Net Cash Provided by Operating Activities 7,414,000 1,507,000
------------ ------------
Investing Activities:
Increase in Other Assets (384,000) (608,000)
Acquisitions of Property, Plant and Equipment (8,047,000) (11,498,000)
Purchase of Business, Net of Cash Acquired (4,524,000) 0
------------ ------------
Net Cash Used in Investing Activities (12,955,000) (12,106,000)
------------ ------------
Financing Activities:
Increase in Notes Payable 9,946,000 11,229,000
Payments on Long-Term Debt (80,000) (73,000)
Payment of Dividends (700,000) (743,000)
Redemption of Common Stock (61,000) (60,000)
------------ ------------
Net Cash Provided by Financing Activities 9,105,000 10,353,000
------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents 3,564,000 (246,000)
Cash and Cash Equivalents, Beginning of Period 2,214,000 2,337,000
------------ ------------
Cash and Cash Equivalents, End of Period 5,778,000 2,091,000
------------ ------------
</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
February 27, 2000 and February 28, 1999
(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 thirty-nine week periods ended February 27, 2000 and
February 28, 1999.
It is suggested that these condensed consolidated financial statements be
read in conjunction with the consolidated financial statements and notes
thereto included in Form 10-K for the Corporation's fiscal year ended May
30, 1999.
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 of the interim period.
The results for the 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
$85.0 million, of which $49,575,000 was borrowed at February 27, 2000. The
average cost of funds during the thirty-nine week period ended February
27, 2000 was 6.36%.
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>
February 27, 2000 May 30, 1999
----------------- ------------
<S> <C> <C>
8.74% unsecured senior notes payable
to an insurance company, due
through 2007 $14,285,000 $14,285,000
Installment obligation payable to a related
party, due in equal annual
installments through 2007 interest at prime rate
(8.50% at February 28, 1999) 0 74,000
Other 71,000 0
----------- -----------
14,356,000 14,359,000
Less current maturities 1,824,000 1,859,000
----------- -----------
Net Long-Term Debt 12,532,000 $12,500,000
----------- -----------
</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 as amended or waived as of February 27, 2000.
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>
Thirty-Nine Weeks Ended Thirteen Weeks Ended
February 27 February 28, February 27 February 28,
2000 1999 2000 1999
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Park 100 Foods, Inc. $2,028,000 $2,132,000 $599,000 $385,000
Corporate Charges:
Snyder's of Hanover, Inc. $ 110,000 $ 140,000 $ 14,000 $ 47,000
Expenditures:
Park 100 Foods, Inc. $ 46,000 $ 85,000 $ 16,000 $ 51,000
ARWCO Corporation $ 11,000 $ 12,000 $ 6,000 $ 4,000
Warehime Enterprises, Inc. $ 3,000 $ 77,000 $ 1,000 $ 64,000
John A. & Patricia M. Warehime $ 37,000 $ 44,000 $ 5,000 $ 14,000
James G. Sturgill $ 26,000 $ 48,000 $ 8,000 $ 12,000
Lippy Brothers, Inc. $ 675,000 $ 956,000 $565,000 $702,000
Schaier Travel, Inc. $ 5,000 $ 0 $ 2,000 $ 0
</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)
The respective February 27, 2000 and May 30, 1999 account balances with related
companies are as follows:
<TABLE>
<CAPTION>
February 27, 2000 May 30, 1999
----------------- ------------
<S> <C> <C>
Accounts Receivable:
Snyder's of Hanover, Inc. $ 27,000 $ 32,000
Park 100 Foods, Inc. $134,000 $210,000
Notes Payable:
Cyril T. Noel $ 0 $ 74,000
-------- --------
</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) ACQUISITIONS - YORK FOODS, YORK SNACKS, BON TON FOODS
During the thirteen week period ended February 27, 2000, the Corporation
purchased assets and assumed certain liabilities of York Foods, Inc. and
its wholly owned subsidiaries, York Snacks Inc. and Bon Ton Foods, Inc.
This acquisition was accounted for under the purchase method and was not
considered to be material to the Corporations results of operations. The
allocation of the purchase prices is as follows:
<TABLE>
<S> <C>
Accounts receivable $ 1,496,000
Inventory 1,147,000
Prepaid expenses 82,000
Property, plant and equipment 2,737,000
Intangible assets 1,981,000
Other assets 13,000
Accounts payable &
accrued expenses (2,855,000)
Debt (77,000)
-----------
Total purchase price $ 4,524,000
===========
</TABLE>
12
<PAGE> 13
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(6) COMPREHENSIVE INCOME
Comprehensive income is determined as follows:
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended Thirteen Weeks Ended
February 27 February 28, February 27 February 28,
2000 1999 2000 1999
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net Income $7,017,000 $6,763,000 $ 1,678,000 $1,885,000
Other Comprehensive
Income (Loss):
Unrealized Gain (Loss)
on Investments 65,000 224,000 (111,000) 58,000
---------- ---------- ----------- ----------
Comprehensive Income $7,082,000 $6,987,000 $ 1,567,000 $1,943,000
---------- ---------- ----------- ----------
</TABLE>
13
<PAGE> 14
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(7) RECONCILIATION OF NUMERATOR AND DENOMINATOR FOR BASIC
AND DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended Thirteen Weeks Ended
February 27 February 28, February 27, February 28
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator for basic earnings per share:
Net earnings applicable to
common stock $6,984,000 $6,730,000 $1,667,000 $1,875,000
Preferred stock dividends 33,000 33,000 11,000 10,000
---------- ---------- ---------- ----------
Net earnings assuming dilution 7,017,000 $6,763,000 1,678,000 $1,885,000
---------- ---------- ---------- ----------
Denominator:
Basic weighted average shares 715,236 716,974 714,919 717,086
Effect of dilutive securities 14,218 14,921 14,218 14,921
---------- ---------- ---------- ----------
Diluted weighted average shares 729,454 731,895 729,137 732,007
---------- ---------- ---------- ----------
</TABLE>
14
<PAGE> 15
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(8) CONTINGENCIES
LEGAL PROCEEDINGS
1995 Warehime Family Litigation
On February 1, 1995, Michael A. Warehime, J. William Warehime and
Elizabeth W. Stick, three Class B shareholders of the Corporation, filed a
compliant in the Court of Common Pleas of York County, Pennsylvania
against the Corporation and John A. Warehime (Chairman of the
Corporation), in his capacity as voting trustee of two voting trusts
entitling him to vote approximately 52% of the Class B common stock. The
Court has dismissed various claims and parties in the lawsuit and the only
remaining parties are Michael A. Warehime as plaintiff and John A.
Warehime as defendant. The only remaining claims are: (i) a claim for
breach of fiduciary duty based on exercise of powers beyond those granted
by certain voting trust agreements, (ii) a claim for breach of fiduciary
duty for use of the voting trusts in a manner harmful to their
beneficiaries, (iii) a count requesting removal of John A. Warehime as the
voting trustee of the voting trusts.
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 complaint). The suit also names 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 director's fees. (Since the filing of this lawsuit, John A.
Warehime's 1995 Employment Agreement was amended.) 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 was filed from the court's June 24, 1997 Order. On
December 2, 1998, the Superior Court of Pennsylvania held that the
derivative plaintiffs had made adequate demand.
On May 12, 1997, a written demand was received by the Corporation from the
attorney for those Class A common stockholders containing similar
allegations and the allegations raised by the Class A common stockholders
were investigated by a special independent
15
<PAGE> 16
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
committee of the Board of Directors and found to be without merit.
The director defendants filed an Answer and New Matter to the Amended
Complaint on March 17, 1999.
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 of such stockholders),
Michael A. Warehime, John A. Warehime, Sally W. Yelland, J. William
Warehime, and Elizabeth W. Stick (all members of the Warehime family), do
not agree in writing to the 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 in the document. Pursuant to the
Company's Bylaws, nominations for director must be submitted to the
Company in the manner prescribed by the Bylaws no later than June 1 of the
year in which the meeting is to occur.
The Amended and Restated Articles create a Series C Convertible Preferred
Stock and 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.
16
<PAGE> 17
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 and
to enjoin the Amendment. This Motion was denied on August 11, 1997. 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 17159(e)
of the Pennsylvania Business Corporations 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 and 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.
Michael Warehime filed an appeal from the denial of his motion to enjoin the
previously described Amendment to the Company's Amended and Restated Articles.
On December 2, 1998, a majority panel of the Superior Court of Pennsylvania
issued a decision holding that although John Warehime had acted in good faith in
voting for the Amendment to the Amended and Restated Articles as trustee of the
Warehime voting trust, Mr. Warehime breached his fiduciary duty to the
beneficiaries of the Warehime voting trust in voting for the Amendment. On
December 16, 1998, John Warehime filed a motion for reargument en banc with the
Superior Court. On December 16, 1998, Michael Warehime filed a motion for
clarification requesting that the Superior Court issue an order invalidating the
Amendment to the Amended and Restated Articles. On December 23, 1998, the
Superior Court denied Michael Warehime's motion for clarification. On February
8, 1999, the Superior Court denied the motion for reargument en banc. On March
10, 1999, John Warehime and the other directors filed a petition for allowance
of appeal with the Supreme Court of Pennsylvania. On March 29, 1999, Michael
Warehime
17
<PAGE> 18
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
filed a response to the petition for allowance of appeal and a cross-petition
for allowance of appeal with the Supreme Court of Pennsylvania. On April 13,
1999, John Warehime and the independent directors of the Company filed a brief
in opposition to the conditional cross-petition for allowance of appeal filed
with Michael Warehime.
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
Corporation's consolidated financial position, results of operations or
liquidity.
18
<PAGE> 19
PART I -- FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
HANOVER FOODS CORPORATION AND SUBSIDIARIES
FORWARD LOOKING STATEMENTS
When used in this Form 10-Q, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "projected," or
similar expressions are intended to identify "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties, including, but not
limited to, quarterly fluctuations in operating results, competition, state and
federal regulation, environmental considerations, foreign operations and risks
associated with the Year 2000 Issue. Such factors, which are discussed in the
Form 10-Q, could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from any
opinion or statements expressed herein with respect to future periods. As a
result, the Company wishes to caution readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date made.
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 May 30, 1999.
GENERAL
Prices for processed food tend to rise with overall inflation and not in line
with prices of raw farm products. Generally, price surges in farm products due
to supply shocks and crop problems are not passed on to consumers dollar for
dollar. Management believes consumers often switch from one food product that
has risen to another which has not changed in price. As a result, food
processors tend to absorb raw farm product price increases to remain
competitive. However, when raw farm product prices drop, food processors try to
retain some of the savings. The Company does not expect the overall number of
pounds of frozen and canned vegetables consumed to significantly increase over
the next several years. Generally, the Company expects sales growth by
processors beyond expected inflation rates and population growth will come at
the expense of and loss of market share by another processor. Sales growth can
increase internationally and through promotions to increase consumption through
the introduction of new or improved food products.
19
<PAGE> 20
PART I -- FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
HANOVER FOODS CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS
NET SALES
Consolidated net sales were $223.1 million for the thirty-nine week period ended
February 27, 2000. This represents an increase of 5.1% over the thirty-nine week
period ended February 28, 1999 consolidated net sales of $212.2 million.
Consolidated net sales were $78.9 million for the thirteen week period ended
February 27, 2000, an 8.2% increase from consolidated net sales of $72.9 million
for the corresponding period in the prior year. The increase was due primarily
to increases in the sales of Bickel's Potato Chip Co., (Bickel's) acquired in
October 1998, sales from York Foods, Inc., York Snacks, Inc., and Bon Ton Foods,
Inc. acquired in January 2000, and increases in Retailed Branded, Food Service
and Private Label sales offset by decreased Canned and Frozen Industrial sales.
COST OF GOODS SOLD
Cost of goods sold were $166.7 million, or 74.7% of consolidated net sales, in
the thirty-nine week period ended February 27, 2000 and $159.1 million, or 75.0%
of consolidated net sales, for the corresponding period in 1999. Cost of goods
sold was $59.7 million, or 75.7% of consolidated net sales, for the thirteen
week period ended February 27, 2000 as compared to $54.7 million, or 75.0% of
consolidated net sales, for the corresponding period in 1999. The decrease in
cost of goods sold as a percentage of net sales for the thirty-nine week period
ended February 27, 2000 resulted primarily from a reduction in outside frozen
storage expense and lower canned commodity prices for dry beans. The increase in
the cost of goods as a percentage of net sales for the thirteen week period
ended February 27, 2000 resulted primarily from start up costs associated with a
major frozen industrial customer acquired during November 1999.
SELLING EXPENSES
Selling expenses were $32.0 million, or 14.4% of consolidated net sales, for the
thirty-nine week period ended February 27, 2000 as compared to $30.5 million, or
14.4% of consolidated net sales, during the corresponding period in 1999.
Selling expenses were $11.8 million, or 15.0% of consolidated net sales, for the
thirteen week period ended February 27, 2000 compared to $10.9 million, or 14.9%
of consolidated net sales, during the corresponding period in 1999. The increase
in selling expense dollars for both the thirty-nine and thirteen week periods
ended February 27, 2000, reflects high retail promotions to support increased
retail sales for the period and the increased dollars spent in Bickel's Potato
Chip Co. (Bickel's) acquired during October 1998 and York Foods, Inc., York
Snacks, Inc., and Bon Ton Foods, Inc. acquired during January 2000.
20
<PAGE> 21
PART I -- FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
HANOVER FOODS CORPORATION AND SUBSIDIARIES
ADMINISTRATIVE EXPENSES
Administrative expenses as a percentage of consolidated net sales were 4.0% for
the thirty-nine week period ended February 27, 2000 and for corresponding period
of 1999. Administrative expenses as a percentage of consolidated net sales were
4.4% for the thirteen week period ended February 27, 2000 compared to 4.2% of
consolidated net sales during the corresponding period in 1999. The increase in
dollars was attributed to special one time discretionary executive bonuses paid
to seven (7) executives of the Company during December 1999 and administrative
expenses of York Foods, Inc., York Snacks, Inc., and Bon Ton Foods, Inc.
acquired during January 2000.
INTEREST EXPENSE
Interest expense was $3.0 million for the thirty-nine week period ended February
27, 2000 as compared to $2.4 million for the same period in 1999. Interest
expense was $1.1 million for the thirteen week period ended February 27, 2000
compared to $867,000 for the same period in 1999. The increases are due to
higher average borrowings during the period to cover inventory increases and
acquisitions, as well as higher average borrowing rates for the period.
OTHER EXPENSES
Other expenses, net was $779,000 for the thirty-nine week period ended February
27, 2000 as compared to $424,000 for the same period in 1999. Other income, net
of $8,000 was generated for the thirteen week period ended February 27, 2000 as
compared to $182,000 of other expenses, net for the same period in 1999. The
increase in other expenses is primarily due to increased foreign translation
loss of $348,000 for the thirty-nine week period ended February 27, 2000. The
foreign translation adjustment for the thirteen week period ended February 27,
2000 resulted in income of $137,000.
INCOME TAXES
The provision for federal and state income taxes for the thirty-nine week period
ended February 27, 2000 was $4.7 million, or 40.0% of pretax earnings, as
compared to $4.6 million, or 40.6% of pretax earnings for the same period in
1999. The provision for income taxes was 40.3% of pretax earnings for the
thirteen week period ended February 27, 2000 as compared to 41.3% for the same
period in 1999. The decrease in the effective tax rate is due to increased
earnings in lower tax rate foreign jurisdictions in the current year period as
compared to the prior period.
21
<PAGE> 22
PART I -- FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
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 flows
appearing on page 7 of this report.
OPERATING ACTIVITIES
Net working capital was $10.7 million and $11.3 million at February 27, 2000 and
May 30, 1999 respectively. The current ratios were 1.12 and 1.15 at February 27,
2000 and May 30, 1999 respectively.
Cash provided by operating activities for the thirty-nine week period ended
February 27, 2000 was $7.4 million as compared to cash provided by operations of
$1.5 million during the same period of 1999. The combination of increased
inventory levels and increases in accounts payable and accrued expenses utilized
less cash flow in the current period compared to the prior year period.
INVESTING ACTIVITIES
During the thirty-nine week period ended February 27, 2000, the Corporation
spent approximately $8.0 million for the purchase of land and plant upgrades and
expansions. This compares to $11.5 million spent during the same period last
year for capital projects. During the thirteen week period ended February 27,
2000 the Corporation spent approximately $4.5 million (net of cash acquired) for
the purchase of assets of York Foods, Inc., York Snacks, Inc., and Bon Ton
Foods, Inc. The Corporation also assumed certain liabilities of approximately
$2.9 million in connection with this acquisition.
FINANCING ACTIVITIES
The increase in notes payable of approximately $9.9 million during the
thirty-nine week period ended February 27, 2000 represents borrowings made
against available seasonal lines of credit from financial institutions for use
in operations, plant upgrades and expansions, and acquisitions.
The Corporation has available seasonal lines of credit from financial
institutions in the amount of $85.0 million, of which $49.6 million was utilized
as of February 27, 2000. Additional borrowings are permitted within parameters
of existing debt agreements.
Management believes these credit facilities provide adequate availability for
seasonal operating requirements.
22
<PAGE> 23
PART II - OTHER INFORMATION
HANOVER FOODS CORPORATION AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
1995 Warehime Family Litigation
On February 1, 1995, Michael A. Warehime, J. William Warehime and Elizabeth W.
Stick, three Class B shareholders of the Corporation, filed a complaint in the
Court of Common Pleas of York County, Pennsylvania against the Corporation and
John A. Warehime (Chairman of the Corporation), in his capacity as voting
trustee of two voting trusts entitling him to vote approximately 52% of the
Class B common stock. The Court has dismissed various claims and parties in the
lawsuit and the only remaining parties are Michael A. Warehime as plaintiff and
John A. Warehime as defendant. The only remaining claims are: (i) a claim for
breach of fiduciary duty based on exercise of powers beyond those granted by
certain voting trust agreements, (ii) a claim for breach of fiduciary duty for
use of the voting trusts in a manner harmful to their beneficiaries, (iii) a
count requesting removal of John A. Warehime as the voting trustee of the voting
trusts.
Derivation 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
complaint). The suit also names 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 director's fees. (Since the
filing of this lawsuit, John A. Warehime's 1995 Employment Agreement was
amended.) 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 was filed from the court's June 24,
1997 Order. On December 2, 1998, the Superior Court of Pennsylvania held that
the derivative plaintiffs had made adequate demand.
On May 12, 1997, a written demand was received by the Corporation from the
attorney for those Class A common stockholders containing similar allegations
and the allegations raised by the Class A common stockholders were investigated
by a special independent committee of the Board of Directors and found to be
without merit.
The director defendants filed an Answer and New Matter to the Amended Complaint
on March 17, 1999.
23
<PAGE> 24
PART II - OTHER INFORMATION
HANOVER FOODS CORPORATION AND SUBSIDIARIES
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 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 of such stockholders), Michael A.
Warehime, John A. Warehime, Sally W. Yelland, J. William Warehime, and Elizabeth
W. Stick (all members of the Warehime family), do not agree in writing to the
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 in the
document. Pursuant to the Company's Bylaws, nominations for director must be
submitted to the Company in the manner prescribed by the Bylaws no later than
June 1 of the year in which the meeting is to occur.
The Amended and Restated Articles create a Series C Convertible Preferred Stock
and 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.
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
24
<PAGE> 25
PART II - OTHER INFORMATION
HANOVER FOODS CORPORATION AND SUBSIDIARIES
trustee from voting on these proposals and to enjoin the Amendment. This Motion
was denied on August 11, 1997. 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 the
following criteria: (i) disinterested directors as defined in Section 17159(e)
of the Pennsylvania Business Corporations 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 and 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.
Michael Warehime filed an appeal from the denial of his motion to enjoin the
previously described Amendment to the Company's Amended and Restated Articles.
On December 2, 1998, a majority panel of the Superior Court of Pennsylvania
issued a decision holding that although John Warehime had acted in good faith in
voting for the Amendment to the Amended and Restated Articles as trustee of the
Warehime voting trust, Mr. Warehime breached his fiduciary duty to the
beneficiaries of the Warehime voting trust in voting for the Amendment. On
December 16, 1998, John Warehime filed a motion for reargument en banc with the
Superior Court. On December 16, 1998, Michael Warehime filed a motion for
clarification requesting that the Superior Court issue an order invalidating the
Amendment to the Amended and Restated Articles. On December 23, 1998, the
Superior Court denied Michael Warehime's motion for clarification. On February
8, 1999, the Superior Court denied the motion for reargument en banc. On March
10, 1999, John Warehime and the other directors filed a petition for allowance
of appeal with the Supreme Court of Pennsylvania. On March 29, 1999, Michael
Warehime filed a response to the petition for allowance of appeal and a
cross-petition for allowance of appeal with the Supreme Court of Pennsylvania.
On April 13, 1999, John Warehime and the independent directors of the Company
filed a brief in opposition to the conditional cross-petition for allowance of
appeal filed with Michael Warehime.
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
Corporation's consolidated financial position, results of operations or
liquidity.
ITEM 2. CHANGES IN SECURITIES -- None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES -- None
25
<PAGE> 26
PART II - OTHER INFORMATION
HANOVER FOODS CORPORATION AND SUBSIDIARIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -- None
ITEM 5. OTHER INFORMATION -- None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -- None
(a) Exhibits
S-K Exhibit
Number Description of Exhibit
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended February
27, 2000.
26
<PAGE> 27
SIGNATURE
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.
HANOVER FOODS CORPORATION
Date: April 11, 2000 By: /s/ Gary T. Knisely
--------------------------------
Gary T. Knisely
Executive Vice President
By: /s/ Pietro Giraffa
--------------------------------
Pietro Giraffa
Controller
27
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from the unaudited
quarterly financial statements of Hanover Foods Corporation and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-28-2000
<PERIOD-START> MAY-31-1999
<PERIOD-END> FEB-27-2000
<CASH> 5,778
<SECURITIES> 0
<RECEIVABLES> 27,526
<ALLOWANCES> 0
<INVENTORY> 63,116
<CURRENT-ASSETS> 98,915
<PP&E> 153,995
<DEPRECIATION> 82,680
<TOTAL-ASSETS> 178,848
<CURRENT-LIABILITIES> 88,177
<BONDS> 12,532
0
1,038
<COMMON> 21,057
<OTHER-SE> 48,680
<TOTAL-LIABILITY-AND-EQUITY> 178,848
<SALES> 223,086
<TOTAL-REVENUES> 223,086
<CGS> 166,683
<TOTAL-COSTS> 166,683
<OTHER-EXPENSES> 40,968
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,962
<INCOME-PRETAX> 11,694
<INCOME-TAX> 4,677
<INCOME-CONTINUING> 7,017
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,017
<EPS-BASIC> 9.76
<EPS-DILUTED> 9.62
</TABLE>
