<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 November 28, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number -- 0-17896
HANOVER FOODS CORPORATION
(Exact name of Registrant as specified in its charter)
Commonwealth of Pennsylvania 23-0670710
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1486 York Road, P.O. Box 334, Hanover, PA 17331
(Address of principal executive offices) (Zip Code)
717-632-6000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing for the past 90
days. Yes [X] No [ ]
Indicate the number of shares outstanding of issuer's classes of common stock as
of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at November 28, 1999
<S> <C>
Class A Common Stock, $25 par value 288,702 shares
Class B Common Stock, $25 par value 420,328 shares
</TABLE>
1
<PAGE> 2
HANOVER FOODS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Twenty Six Weeks Ended November 28, 1999
<TABLE>
<CAPTION>
Index Page
<S> <C>
Part I -- Financial Information
Item 1 -- Financial Statements:
Condensed Consolidated Balance Sheets
November 28, 1999 (Unaudited) and May 30, 1999.............. 3
Condensed Consolidated Statements of Operations (Unaudited)
Twenty Six Weeks Ended and Thirteen Weeks Ended
November 28, 1999 and November 29, 1998..................... 5
Condensed Consolidated Statements of Stockholders'
Equity, (Unaudited) Periods Ended November 28, 1999
and May 30, 1999............................................ 6
Condensed Consolidated Statements of Cash Flows
(Unaudited), Twenty Six Weeks Ended November 28, 1999
and November 29, 1998....................................... 7
Notes to Condensed Consolidated Financial Statements
(Unaudited)................................................. 8
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 17
Part II -- Other Information....................................... 22
Item 1 -- Legal Proceedings................................... 22
Items 2-3 -- None ................................................. 25
Item 4 -- None................................................ 25
Item 5 -- None................................................ 25
Item 6 -- Exhibits and Reports on Form 8-K.................... 25
</TABLE>
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
November 28, 1999 May 30,
(Unaudited) 1999
ASSETS
- --------------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 3,091,000 $ 2,214,000
Accounts and Notes Receivable, Net 27,018,000 26,281,000
Accounts Receivable from Related
Parties, Net 191,000 242,000
Inventories 68,492,000 53,709,000
Prepaid Expenses 1,828,000 1,733,000
Deferred Income Taxes 917,000 917,000
- --------------------------------------------------------------------------------
Total Current Assets 101,537,000 85,096,000
- --------------------------------------------------------------------------------
Property, Plant and Equipment, at Cost:
Land and Buildings 47,293,000 44,006,000
Machinery and Equipment 103,052,000 93,585,000
Leasehold Improvements 396,000 383,000
- --------------------------------------------------------------------------------
150,741,000 137,974,000
Less Accumulated Depreciation and
Amortization 81,898,000 78,573,000
- --------------------------------------------------------------------------------
68,843,000 59,401,000
Construction in Progress 61,000 6,591,000
- --------------------------------------------------------------------------------
Total Property, Plant and Equipment 68,904,000 65,992,000
- --------------------------------------------------------------------------------
Other Assets:
Intangible Assets, Net 2,174,000 2,293,000
Other Assets 4,195,000 3,860,000
- --------------------------------------------------------------------------------
Total Assets $176,810,000 $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 November 28, 1999 May 30,
(Unaudited) 1999
- --------------------------------------------------------------------------------
Current Liabilities:
<S> <C> <C>
Notes Payable - Banks $ 46,702,000 $ 39,629,000
Accounts Payable 22,407,000 22,813,000
Accrued Expenses 14,783,000 7,433,000
Current Maturities of Long-Term Debt 1,859,000 1,859,000
Income Taxes Payable 1,984,000 2,103,000
------------- -------------
Total Current Liabilities 87,735,000 73,837,000
------------- -------------
Long-Term Debt, Less Current Maturities 12,500,000 12,500,000
Other Liabilities 2,480,000 2,119,000
Deferred Income Taxes 4,659,000 4,331,000
------------- -------------
Liabilities 107,374,000 92,787,000
------------- -------------
Stockholders' Equity:
Series A & B 8.25%cumulative convertible
preferred, $25 par value; 120,000
shares authorized; 31,536 shares issued,
15,044 shares outstanding 788,000 788,000
Series C cumulative convertible preferred,
$25 par value; 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, 289,414 shares at May 30,
1999 and 288,702 shares at November 28,
1999 outstanding 8,729,000 8,729,000
Common stock, Class B, voting, $25 par
value; 880,000 shares authorized, 493,123
shares issued, 426,474 shares at May 30,
1999 and 426,328 shares at November 28,
1999 outstanding 12,328,000 12,328,000
Capital Paid in Excess of Par Value 2,143,000 2,143,000
Retained Earnings 52,613,000 47,767,000
Treasury Stock, at Cost (8,116,000) (8,076,000)
Accumulated Other Comprehensive Income 701,000 525,000
------------- -------------
Total Stockholders' Equity 69,436,000 64,454,000
------------- -------------
Total Liabilities and Stockholders' Equity $ 176,810,000 $ 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>
26 WEEKS 13 WEEKS
ENDED ENDED
November 28, November 29, November 28, November 29,
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $144,160,000 $139,243,000 $ 82,539,000 $ 80,705,000
Cost of Goods Sold 106,972,000 104,407,000 61,221,000 60,482,000
- -------------------------------------------------------------------------------------------------
Gross Profit 37,188,000 34,836,000 21,318,000 20,223,000
Selling Expenses 20,212,000 19,567,000 11,701,000 11,341,000
Administrative Expenses 5,451,000 5,342,000 2,533,000 2,565,000
- -------------------------------------------------------------------------------------------------
Operating Profit 11,525,000 9,927,000 7,084,000 6,317,000
Interest Expense 1,857,000 1,502,000 1,036,000 738,000
Other Expenses, Net 787,000 242,000 133,000 165,000
- -------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 8,881,000 8,183,000 5,915,000 5,414,000
Income Taxes 3,542,000 3,305,000 2,336,000 2,172,000
- -------------------------------------------------------------------------------------------------
Net Earnings 5,339,000 4,878,000 3,569,000 3,242,000
Dividends on Preferred Stock 22,000 23,000 10,000 11,000
- -------------------------------------------------------------------------------------------------
Net Earnings Applicable to Common
Stock $ 5,317,000 $ 4,855,000 $ 3,569,000 $ 3,231,000
- -------------------------------------------------------------------------------------------------
Earnings Per Share:
Net Earnings Per Common Share - Basic $ 7.43 $ 6.77 $ 4.99 $ 4.51
- -------------------------------------------------------------------------------------------------
Net Earnings Per Common Share -
Diluted $ 7.32 $ 6.66 $ 4.91 $ 4.43
- -------------------------------------------------------------------------------------------------
Dividends per Share, Common $ 0.550 $ 0.715 $ 0.275 $ 0.275
- -------------------------------------------------------------------------------------------------
Basic Weighted Average Shares 715,347 717,085 715,242 717,197
- -------------------------------------------------------------------------------------------------
Diluted Weighted Average Shares 729,565 732,006 729,460 732,118
- -------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative Cumulative
Convertible Preferred Convertible Preferred
Total Stock Stock Common Stock
Stockholders' Series A and B Series C Class A
Equity Shares Amount Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, May 30, 1999 $64,454,000 31,536 $788,000 10,000 $250,000 349,210 $8,729,000
Net Earnings for the Period 5,339,000
Cash Dividends Per Share:
Preferred Stock (22,000)
Common Stock (471,000)
Redemption of Common Stock
(Class A 712 Shares and
Class B 146 Shares) (40,000)
Other Comprehensive Income 176,000
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, November 28, 1999 $69,436,000 31,536 $788,000 10,000 $250,000 349,210 $8,729,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Common Stock
Class B Accumulated
Capital Paid Treasury Stock Other
in Excess of Retained Comprehensive
Shares Amount Par Value Earnings Shares Amount Income
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, May 30, 1999 493,123 $12,328,000 $2,143,000 $47,767,000 142,937 $(8,076,000) $525,000
Net Earnings for the Period 5,339,000
Cash Dividends Per Share:
Preferred Stock (22,000)
Common Stock (471,000)
Redemption of Common Stock
(Class A 712 Shares and
Class B 146 Shares) 858 (40,000)
Other Comprehensive Income 176,000
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, November 28, 1999 493,123 $12,328,000 $2,143,000 $52,613,000 143,795 $(8,116,000) $701,000
- ----------------------------------------------------------------------------------------------------------------------------------
</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>
26 Weeks Ended
Nov. 28, 1999 Nov. 29, 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Cash and
Cash Equivalents
Operating Activities:
Net Earnings $5,339,000 $4,878,000
Adjustments to Reconcile Net Earnings
to Net
Cash (Used In) Provided by Operating
Activities:
Depreciation and Amortization 3,571,000 2,956,000
Deferred Income Taxes 328,000 (68,000)
Changes in Assets and Liabilities:
Accounts Receivable (686,000) (3,338,000)
Inventories (14,783,000) (14,781,000)
Prepaid Expenses (95,000) (415,000)
Accounts Payable and Accrued Expenses 6,944,000 5,649,000
Income Taxes Payable (119,000) (236,000)
Other Liabilities 361,000 277,000
- --------------------------------------------------------------------------------
Net Cash Provided by (Used in) Operating
Activities 860,000 (5,078,000)
- --------------------------------------------------------------------------------
Investing Activities:
Increase in Other Assets (285,000) (440,000)
Acquisitions of Property, Plant and
Equipment (6,238,000) (8,597,000)
- --------------------------------------------------------------------------------
Net Cash Used in Investing Activities (6,523,000) (9,037,000)
- --------------------------------------------------------------------------------
Financing Activities:
Increase in Notes Payable 7,073,000 13,891,000
Payment of Dividends (493,000) (536,000)
Redemption of Common Stock (40,000) (40,000)
- --------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 6,540,000 13,315,000
- --------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 877,000 (800,000)
Cash and Cash Equivalents, Beginning of Period 2,214,000 2,337,000
- --------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period 3,091,000 1,537,000
- --------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
November 28, 1999 and November 29, 1998
(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 November 28, 1999 and
November 29, 1998.
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 $46,702,000 was borrowed at November 28, 1999. The
average cost of funds during the 6 month period ended November 28, 1999
was 6.03%.
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>
November 28, 1999 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 November 28,
1999) 74,000 74,000
- --------------------------------------------------------------------------------
14,359,000 14,359,000
Less current maturities 1,859,000 1,859,000
- --------------------------------------------------------------------------------
Net Long-Term Debt $12,500,000 $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 November 28, 1999.
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
Nov. 28, Nov. 29, Nov. 28, Nov. 29
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Park 100 Foods, Inc. $1,429,000 $1,747,000 $693,000 $817,000
CORPORATE CHARGES:
Snyder's of Hanover, Inc. $ 96,000 $93,000 $ 64,000 $ 47,000
EXPENDITURES:
Park 100 Foods, Inc. $ 30,000 $ 34,000 $ 30,000 $ 11,000
ARWCO Corporation $ 5,000 $ 8,000 $ 1,000 $ 4,000
Warehime Enterprises, Inc. $ 2,000 $ 13,000 $ 1,000 $ 1,000
John A. & Patricia M. Warehime $ 32,000 $ 30,000 $ 14,000 $ 19,000
James G. Sturgill $ 18,000 $ 36,000 $ 7,000 $ 18,000
Lippy Brothers, Inc. $ 110,000 $254,000 $110,000 $253,000
Schaier Travel, Inc. $ 3,000 $ 0 $ 1,000 $ 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 November 28, 1999 and May 30, 1999 account balances with related
companies are as follows:
<TABLE>
<CAPTION>
November 28, 1999 May 30, 1999
- --------------------------------------------------------------------------------
<S> <C> <C>
ACCOUNTS RECEIVABLE:
Snyder's of Hanover, Inc. $32,000 $32,000
Park 100 Foods, Inc. $160,000 $210,000
ACCOUNTS PAYABLE:
ARWCO Corporation $ 1,000 $ 0
NOTES PAYABLE:
Cyril T. Noel $74,000 $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) COMPREHENSIVE INCOME
Comprehensive income is determined as follows:
<TABLE>
<CAPTION>
26 Weeks Ended 13 Weeks Ended
Nov. 28, Nov. 29, Nov. 28, Nov. 29,
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income $5,339,000 $4,878,000 $3,579,000 $3,242,000
Other Comprehensive Gain
Unrealized Gain on Investments 176,000 166,000 143,000 237,000
---------- ---------- ---------- ----------
Comprehensive Income $5,515,000 $5,044,000 $3,722,000 $3,479,000
========== ========== ========== ==========
</TABLE>
(6) RECONCILIATION OF NUMERATOR AND DENOMINATOR FOR BASIC
AND DILUTED EARNINGS PER SHARE
Numerator for basic earnings per share:
<TABLE>
<CAPTION>
26 Weeks Ended 13 Weeks Ended
Nov. 28, Nov. 29, Nov. 28, Nov. 29,
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings applicable to $5,317,000 $4,855,000 $3,569,000 $3,231,000
common stock
Preferred stock dividends 22,000 23,000 10,000 11,000
------ ------ ------ ------
Net earnings assuming dilution $5,339,000 $4,878,000 $3,579,000 $3,242,000
========== ========== ========== ==========
Denominator:
Basic weighted average shares 715,347 717,085 715,242 717,197
Effect of dilutive securities 14,218 14,921 14,218 14,921
------- ------- ------- -------
Diluted weighted average shares 729,565 732,006 729,460 732,118
======= ======= ======= =======
</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)
- -------------------------------------------------------------------------------
(7) 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
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
which, before their expiration in 1998, entitled 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 committee of the Board of
Directors and found to be without merit.
13
<PAGE> 14
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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.
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
14
<PAGE> 15
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 by the court
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 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. On
November 29, 1999 the Supreme Court of Pennsylvania granted the petitions
for allowance of appeal of John Warehime and granted some of the petitions
of Michael Warehime.
15
<PAGE> 16
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
On August 13, 1999, Michael Warehime filed a complaint in equity in the
Court of Common Pleas of York County, Pennsylvania, naming as defendants
Arthur S. Schaier, Cyril T. Noel, Clayton J. Rohrbach, Jr., John A.
Warehime, and the Company. The complaint seeks a court order declaring
that the September 1999 election for the board of directors of the Company
be conducted in accordance with the Articles of Incorporation of the
Company as they existed prior to June 25, 1997, an order declaring that
the Series C Convertible Preferred Stock cannot be voted, and an order
that the following candidates for the board of directors of the Company
proposed by Michael Warehime, Sally Yelland, Elizabeth Stick and J.
William Warehime be accepted by the Company and listed on the ballot to be
distributed at the annual meeting of shareholders of the Company to be
held on September 16, 1999: Michael Warehime, Daniel Meckley, Elizabeth
Stick, Sonny Bowman, and John Denton. The basis for the complaint was the
December 2, 1998 decision of the Pennsylvania Superior Court, which is
currently on appeal to the Pennsylvania Supreme Court, which held that
John A. Warehime breached his fiduciary duties in voting for the Amended
and Restated Articles as trustee of the Warehime voting trust. The
complaint also requested that John A. Warehime pay all costs incurred by
the Company in response to the suit as well as award Michael Warehime
costs and fees and grant such other relief as equity and justice require.
On September 7, 1999 the Court of Common Pleas of York County denied
Michael Warehime's request for an emergency order to enjoin the voting of
the Series C Convertible Preferred Stock at the September 16, 1999
shareholders' meeting. On September 10, 1999, the Court of Common Pleas of
York County denied Michael Warehime's request to stay the vote at the
September 16, 1999 shareholders' meeting. Michael Warehime appealed the
trial court's order to the Pennsylvania Superior Court. On September 15,
1999 the Pennsylvania Superior Court denied Michael Warehime's request for
a stay of the vote at the September 16, 1999 shareholders' meeting and
also denied Michael Warehime's request for a expedited appeal.
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.
16
<PAGE> 17
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 Corporation's financial performance and could cause
the Corporation'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 Corporation 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 Corporation does not expect the overall number
of pounds of frozen and canned vegetables consumed to significantly increase
over the next several years. Generally, the Corporation 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.
RESULTS OF OPERATIONS
NET SALES
Consolidated net sales were $144.2 million for the twenty six week period ended
November 28, 1999. This represents an increase of 3.5% over the twenty six week
period ended November 29, 1998 consolidated net sales of $139.2 million.
Consolidated net sales were $82.5 million for the
17
<PAGE> 18
PART I -- FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
HANOVER FOODS CORPORATION AND SUBSIDIARIES
thirteen week period ended November 28, 1999, a 2.3% increase from consolidated
net sales of $80.7 million for the corresponding period in the prior year. The
increase was primarily due to increases in the sales of Bickel's Potato Chip Co.
("Bickel's") our new acquisition during October 98. Retail Branded, Food Service
and Private Label sales, offset by decreased Frozen Industrial sales.
COST OF GOODS SOLD
Cost of goods sold were $107.0 million, or 74.2% of consolidated net sales in
the twenty six week period ended November 28, 1999 and $104.4 million, or 75.0%
of consolidated net sales, for the corresponding period in 1998. Cost of goods
sold was $61.2 million, or 74.2% of consolidated net sales for the thirteen week
period ended November 28, 1999 as compared to $60.5 million or 74.9% of
consolidated net sales for the corresponding period in 1998. The decrease in
cost of goods sold as a percentage of net sales resulted primarily from a
reduction in costs of operations, primarily related to lower plant production
expenditures, lower canned commodity prices for dry beans, and lower outside
storage expense.
SELLING EXPENSES
Selling expenses were $20.2, or 14.0% of consolidated net sales for the twenty
six week period ended November 28, 1999 as compared to $19.6 million or 14.1% of
consolidated net sales for the corresponding period in 1998. Selling expenses
were $11.7 million or 14.2% of consolidated net sales for the thirteen week
period ended November 28, 1999 compared to $11.3 million, or 14.1% of
consolidated net sales during the corresponding period in 1998. The decrease in
selling expenses as a percentage of net sales reflects lower expenses related to
coupon programs, for the twenty six week period ended November 28, 1999. The
increase in selling as a percentage of net sales for the thirteen week period
ended November 28, 1999 reflects higher retail promotion to support increased
retail sales in the second quarter.
ADMINISTRATIVE EXPENSES
Administrative expenses as a percentage of consolidated net sales were 3.8% for
the twenty six week period ended November 28, 1999 and for the corresponding
period of 1998. Administrative expenses as a percentage of consolidated net
sales were 3.1% for the thirteen week period ended November 28, 1999 compared to
3.2% of consolidated net sales during the corresponding period in 1998. The
increase in dollars is attributed to increases in outside professional
consulting services and administrative expenses of Bickel's.
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
INTEREST EXPENSE
Interest expense was $1,857000 for the twenty six week period ended November 28,
1999 as compared to $1,502,000 for the same period in 1998. Interest expenses
was $1,036,000 for the thirteen week period ended November 28, 1999 compared to
$738,000 for the same period in 1998. The increases are due to higher average
borrowings during the period to cover inventory increases as well as higher
average borrowing rates for the period.
OTHER EXPENSES
Other expenses, net was $787,000 for the twenty six week period ended November
28, 1999 as compared to $242,000 for the same period in 1998. Other expenses,
net was $133,000 for the thirteen week period ended November 28, 1999 as
compared to $165,000 for the same period in 1998. The increase in other expenses
is primarily due to increased foreign translation loss of $485,000 for the
twenty six week period ended November 28, 1999. The exchange rate remained the
same for the thirteen week period ended November 28, 1999.
INCOME TAXES
The provision for corporate federal and state income taxes for the twenty six
week period ended November 28, 1999 was $3.5 million, or 39.9% of pretax
earnings, as compared to $3.3 million, or primarily 40.4% of pre-tax earnings
for the same period in 1998. The provision for income taxes was 39.5% of pretax
earnings for the thirteen week period ended November 28, 1999 as compared to
40.1% for the same period in 1998. The decrease in the effective tax rate is due
to increased earnings in foreign jurisdictions with lower tax rates in the
current year period as compared to the prior 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 flows
appearing on page 7 of this report.
OPERATING ACTIVITIES
Net working capital was $13.8 million and $11.3 million at November 28, 1999 and
May 30, 1999 respectively. The current ratios were 1.16 and 1.15 on November 28,
1999 and May 30, 1999, respectively.
Cash provided by operating activities for the twenty six week period ended
November 28, 1999 was $0.9 million as compared to cash used by operations of
$5.1 million during the same period of 1998. The combination of increased
accounts payable and accrued expense offset by increased inventory levels and
increased accounts receivable, utilized less cash flow. By
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
comparison for the same period in 1998, the combination of increased accounts
receivable and inventory levels, offset by increases in accounts payable and
accrued expenses utilized more cash flow.
INVESTING ACTIVITIES
During the twenty six week period ended November 28, 1999, the Corporation spent
approximately $6.2 million for the purchase of land and plant upgrades and
expansions. This compares to $8.6 million spent during the same period last year
for capital projects.
FINANCING ACTIVITIES
The increase in notes payable of approximately $7.1 million during the twenty
six week period ended November 28, 1999 represents borrowings made against
available seasonal lines of credit from financial institutions for use in
operations and plant upgrades and expansions.
The Corporation has available seasonal lines of credit from financial
institutions in the amount of $85.0 million, of which $46.7 million was utilized
as of November 28, 1999. Additional borrowings are permitted within parameters
in existing debt agreements.
Management believes these credit facilities provide adequate availability for
seasonal operating requirements.
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
YEAR 2000
Many existing computer programs, including those utilized by the Corporation,
used only two digits to identify a year in the date field. These programs were
designed and developed without considering the impact of the upcoming change in
the century. If not corrected, any computer applications could fail or create
erroneous results by or at the Year 2000 (the "Year 2000 Issue"). The
Corporation retained an outside consultant to manage the Corporation's efforts
to bring its computer system into Year 2000 compliance. The Corporation also
contacted its customers, key suppliers and its equipment manufacturers in an
attempt to ensure third party compliance.
In 1997, the Corporation established a management team to assess the
Corporation's Year 2000 issues and to implement the Corporation's Year 2000
compliance program. The management team included members of the Corporation's
Management Information, Accounting and Finance Departments and certain officers
of the Corporation. The Corporation has completed the implementation and testing
program and all of its information technology systems as well as non-information
technology systems (which include the Corporation's telecommunications systems
and food processing equipment). The Corporation also developed a contingency
plan in the event its systems are not Year 2000 compliant. The total costs
associated with addressing the Year 2000 Issue were approximately $490,000.
To date, the Corporation has not experienced any Year 2000 Issues. The
Corporation will continue to monitor its systems as well as vendors and
customers for any Year 2000 Issues.
21
<PAGE> 22
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 which, before their expiration in 1998, entitled
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 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.
22
<PAGE> 23
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 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.
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 by the court 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,
23
<PAGE> 24
PART II - OTHER INFORMATION
HANOVER FOODS CORPORATION AND SUBSIDIARIES
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. On November 29, 1999 the Supreme Court of
Pennsylvania granted the petitions for allowance of appeal of John Warehime and
granted some of the petitions of Michael Warehime.
On August 13, 1999, Michael Warehime filed a complaint in equity in the Court of
Common Pleas of York County, Pennsylvania, naming as defendants Arthur S.
Schaier, Cyril T. Noel, Clayton J. Rohrbach, Jr., John A. Warehime, and the
Company. The complaint seeks a court order declaring that the September 1999
election for the board of directors of the Company be conducted in accordance
with the Articles of Incorporation of the Company as they existed prior to June
25, 1997, an order declaring that the Series C Convertible Preferred Stock
cannot be voted, and an order that the following candidates for the board of
directors of the Company proposed by Michael Warehime, Sally Yelland, Elizabeth
Stick and J. William Warehime be accepted by the Company and listed on the
ballot to be distributed at the annual meeting of shareholders of the Company to
be held on September 16, 1999: Michael Warehime, Daniel Meckley, Elizabeth
Stick, Sonny Bowman, and John Denton. The basis for the complaint was the
December 2, 1998 decision of the Pennsylvania Superior Court, which is currently
on appeal
24
<PAGE> 25
PART II - OTHER INFORMATION
HANOVER FOODS CORPORATION AND SUBSIDIARIES
to the Pennsylvania Superior Court, which held that John A. Warehime had
breached his fiduciary duties in voting for the Amended and Restated Articles as
trustee of the Warehime voting trust. The complaint also requested that John A.
Warehime pay all costs incurred by the Company in response to the suit as well
as award Michael Warehime costs and fees and grant such other relief as equity
and justice require. On September 7, 1999 the Court of Common Pleas of York
County denied Michael Warehime's request for an emergency order to enjoin the
voting of the Series C Convertible Preferred Stock at the September 16, 1999
shareholders' meeting. On September 10, 1999, the Court of Common Pleas of York
County denied Michael Warehime's request to stay the vote at the September 16,
1999 shareholders' meeting. Michael Warehime appealed the trial court's order to
the Pennsylvania Superior Court. On September 15, 1999 the Pennsylvania Superior
Court denied Michael Warehime's request for a stay of the vote at the September
16, 1999 shareholders' meeting and also denied Michael Warehime's request for a
expedited appeal.
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.
<TABLE>
<S> <C>
ITEM 2. CHANGES IN SECURITIES -- None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None
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
</TABLE>
(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 November
28, 1999.
25
<PAGE> 26
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: January 12, 2000 By: /s/ Gary T. Knisely
-----------------------------------
Gary T. Knisely
Executive Vice President
By: /s/ Pietro Giraffa
-----------------------------------
Pietro Giraffa
Controller
26
<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> 6-MOS
<FISCAL-YEAR-END> MAY-28-2000
<PERIOD-START> MAY-31-1999
<PERIOD-END> NOV-28-1999
<CASH> 3,091
<SECURITIES> 0
<RECEIVABLES> 27,018
<ALLOWANCES> 0
<INVENTORY> 68,492
<CURRENT-ASSETS> 101,537
<PP&E> 150,741
<DEPRECIATION> 81,898
<TOTAL-ASSETS> 176,810
<CURRENT-LIABILITIES> 87,735
<BONDS> 12,500
0
1,038
<COMMON> 21,057
<OTHER-SE> 47,341
<TOTAL-LIABILITY-AND-EQUITY> 176,810
<SALES> 144,160
<TOTAL-REVENUES> 144,160
<CGS> 106,972
<TOTAL-COSTS> 106,972
<OTHER-EXPENSES> 25,663
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,857
<INCOME-PRETAX> 8,881
<INCOME-TAX> 3,542
<INCOME-CONTINUING> 5,339
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,339
<EPS-BASIC> 7.43
<EPS-DILUTED> 7.32
</TABLE>
