<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 26, 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)
Commonwealth of Pennsylvania 23-0670710
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1486 York Road, P.O. Box 334, Hanover, PA 17331
(Address of principal executive offices) (Zip Code)
717-632-6000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing
for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of issuer's classes of common stock as
of the latest practicable date.
Class Outstanding at November 26, 2000
----- --------------------------------
Class A Common Stock, $25 par value 288,247 shares
Class B Common Stock, $25 par value 426,250 shares
1
<PAGE> 2
HANOVER FOODS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Twenty Six Weeks Ended November 26, 2000
<TABLE>
<CAPTION>
Index Page
<S> <C>
Part I -- Financial Information
Item 1 -- Financial Statements:
Condensed Consolidated Balance Sheets
November 26, 2000 (Unaudited) and May 28, 2000...........................................3
Condensed Consolidated Statements of Operations (Unaudited)
Twenty Six Weeks Ended and Thirteen Weeks Ended
November 26, 2000 and November 28, 1999..................................................5
Condensed Consolidated Statements of Stockholders'
Equity, (Unaudited) Periods Ended November 26, 2000
and May 28, 2000.........................................................................6
Condensed Consolidated Statements of Cash Flows
(Unaudited), Twenty Six Weeks Ended November 26, 2000
and November 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....................................................17
Part II -- Other Information.......................................................................21
Item 1 -- Legal Proceedings.............................................................21
Items 2-5 -- None..........................................................................21
Item 6 -- Exhibits and Reports on Form 8-K..............................................21
</TABLE>
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
November 26, 2000 May 28,
(Unaudited) 2000
ASSETS
------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 3,970,000 $ 6,978,000
Accounts and Notes Receivable, Net 28,658,000 28,382,000
Accounts Receivable from Related Parties, Net 0 129,000
Inventories:
Finished Goods 61,563,000 44,777,000
Raw Materials & Supplies 14,361,000 14,415,000
Prepaid Expenses 1,412,000 1,563,000
Deferred Income Taxes 917,000 812,000
------------------------------------------------------------------------------------------
Total Current Assets 110,881,000 97,056,000
------------------------------------------------------------------------------------------
Property, Plant and Equipment, at Cost:
Land and Buildings 49,827,000 47,438,000
Machinery and Equipment 110,994,000 106,691,000
Leasehold Improvements 535,000 531,000
------------------------------------------------------------------------------------------
161,356,000 154,660,000
Less Accumulated Depreciation and
Amortization 88,421,000 84,697,000
------------------------------------------------------------------------------------------
72,935,000 69,963,000
Construction in Progress 2,045,000 3,521,000
------------------------------------------------------------------------------------------
Total Property, Plant and Equipment 74,980,000 73,484,000
------------------------------------------------------------------------------------------
Other Assets:
Intangible Assets, Net 3,870,000 4,013,000
Other Assets 4,949,000 4,959,000
------------------------------------------------------------------------------------------
Total Assets $194,680,000 $179,512,000
------------------------------------------------------------------------------------------
</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 26, 2000 May 28,
(Unaudited) 2000
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Liabilities:
Notes Payable - Banks $ 56,858,000 $ 52,380,000
Accounts Payable 27,810,000 26,533,000
Accounts payable to related parties, net 651,000 0
Accrued Expenses 11,104,000 7,696,000
Current Maturities of Long-Term Debt 1,809,000 1,821,000
Income Taxes Payable 1,556,000 1,060,000
------------------------------------------------------------------------------------------------------
Total Current Liabilities 99,788,000 89,490,000
------------------------------------------------------------------------------------------------------
Long-Term Debt, Less Current Maturities 10,733,000 10,741,000
Other Liabilities 3,085,000 2,799,000
Deferred Income Taxes 4,778,000 4,170,000
------------------------------------------------------------------------------------------------------
Total Liabilities 118,384,000 107,200,000
------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Series A & B 8.25%cumulative convertible preferred,
$25 par value; 120,000 shares authorized;
31,256 shares at May 28, 2000 and 31.216 shares
at November 26, 2000 issued, 14,764 shares at
May 28, 2000 and 14,724 shares at November 26, 2000
outstanding 780,000 781,000
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, 349,282 shares at
May 28, 2000 and 349,292 shares at November 26, 2000 issued,
288,420 shares at May 28, 2000 and 288,247 shares at
November 26, 2000 outstanding 8,732,000 8,731,000
Common stock, Class B, voting, $25 par value;
880,000 shares authorized, 493,123 shares issued,
426,250 shares at May 28, 2000 and November 26,
2000 outstanding 12,328,000 12,328,000
Capital Paid in Excess of Par Value 2,148,000 2,148,000
Retained Earnings 59,604,000 55,478,000
Treasury Stock, at Cost (8,147,000) (8,134,000)
Accumulated Other Comprehensive Income 601,000 730,000
------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 76,296,000 72,312,000
------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 194,680,000 $ 179,512,000
------------------------------------------------------------------------------------------------------
</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 26, November 28, November 26, November 28,
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $151,603,000 $144,160,000 86,569,000 $82,539,000
Cost of Goods Sold 113,159,000 106,972,000 63,974,000 61,221,000
------------------------------------------------------------------------------------------------------------------------------
Gross Profit 38,444,000 37,188,000 22,595,000 21,318,000
Selling Expenses 22,779,000 20,212,000 13,220,000 11,701,000
Administrative Expenses 5,670,000 5,451,000 2,781,000 2,533,000
------------------------------------------------------------------------------------------------------------------------------
Operating Profit 9,995,000 11,525,000 6,594,000 7,084,000
Interest Expense 2,407,000 1,857,000 1,276,000 1,036,000
Other Expenses, Net 406,000 787,000 170,000 133,000
------------------------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 7,182,000 8,881,000 5,148,000 5,915,000
Income Taxes 2,643,000 3,542,000 1,860,000 2,336,000
------------------------------------------------------------------------------------------------------------------------------
Net Earnings 4,539,000 5,339,000 3,288,000 3,579,000
Dividends on Preferred Stock 21,000 22,000 11,000 10,000
------------------------------------------------------------------------------------------------------------------------------
Net Earnings Applicable to Common Stock 4,518,000 $5,317,000 3,277,000 $3,569,000
------------------------------------------------------------------------------------------------------------------------------
Earnings Per Share:
Net Earnings Per Common Share - Basic $6.32 $7.43 $4.59 $4.99
------------------------------------------------------------------------------------------------------------------------------
Net Earnings Per Common Share - Diluted $6.23 $7.32 $4.52 $4.91
------------------------------------------------------------------------------------------------------------------------------
Dividends per Share, Common $.0550 $0.550 $0.275 $0.275
------------------------------------------------------------------------------------------------------------------------------
Basic Weighted Average Shares 714,550 715,347 714,536 715,242
------------------------------------------------------------------------------------------------------------------------------
Diluted Weighted Average Shares 728,230 729,565 728,216 729,460
------------------------------------------------------------------------------------------------------------------------------
</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 Preferred Convertible Preferred
Stock Stock Common Stock Common Stock
Series A and B Series C Class A Class B
Total
Stockholders'
Equity Shares Amount Shares Amount Shares Amount Shares Amount
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, May 28, 2000 $72,312,000 31,256 $781,000 10,000 $250,000 349,282 $8,731,000 493,123 $12,328,000
Net Earnings for the Period 4,539,000
Cash Dividends Per Share:
Preferred Stock (21,000)
Common Stock (392,000)
Redemption of Common Stock
(Class A 183 Shares) (13,000)
Stock Conversions (40) (1,000) 10 1,000
Other Comprehensive Income (129,000)
-----------------------------------------------------------------------------------------------------------------------------------
Balance, November 26, 2000 $76,296,000 31,216 $780,000 10,000 $250,000 349,292 $8,732,000 493,123 $12,328,000
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
Treasury Stock Accumulated
Capital Paid Other
in Excess of Retained Comprehensive
Par Value Earnings Shares Amount Income
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, May 28, 2000 $2,148,000 $55,478,000 144,227 ($8,134,000) $730,000
Net Earnings for the Period 4,539,000
Cash Dividends Per Share:
Preferred Stock (21,000)
Common Stock (392,000)
Redemption of Common Stock
(Class A 183 Shares) 183 (13,000)
Stock Conversions
Other Comprehensive Income (129,000)
---------------------------------------------------------------------------------------------------
Balance, November 26, 2000 $2,148,000 $59,604,000 144,410 ($8,147,000) $601,000
---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<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. 26, 2000 Nov. 28,1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Operating Activities:
Net Earnings $ 4,539,000 $ 5,339,000
Adjustments to Reconcile Net Earnings to Net
Cash (Used In) Provided by Operating Activities:
Depreciation and Amortization 3,867,000 3,571,000
Deferred Income Taxes 503,000 328,000
Changes in Assets and Liabilities:
Accounts Receivable (147,000) (653,000)
Inventories (16,732,000) (14,783,000)
Prepaid Expenses 151,000 (95,000)
Accounts Payable and Accrued Expenses 5,336,000 6,944,000
Income Taxes Payable 496,000 (119,000)
Other Liabilities 286,000 361,000
--------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Operating Activities (1,701,000) 893,000
--------------------------------------------------------------------------------------------------------------
Investing Activities:
Increase in Other Assets (119,000) (318,000)
Acquisitions of Property, Plant and Equipment (5,220,000) (6,238,000)
--------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (5,339,000) (6,556,000)
--------------------------------------------------------------------------------------------------------------
Financing Activities:
Increase in Notes Payable 4,478,000 7,073,000
Long-term debt payments (20,000) 0
Payment of Dividends (413,000) (493,000)
Redemption of Common Stock (13,000) (40,000)
--------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 4,032,000 6,540,000
--------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (3,008,000) 877,000
Cash and Cash Equivalents, Beginning of Period 6,978,000 2,214,000
--------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period 3,970,000 3,091,000
--------------------------------------------------------------------------------------------------------------
</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
November 26, 2000 and November 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 accounting principles generally accepted in
the United States of America 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, 2000. Accordingly, these financial statements
reflect activity for the thirteen week periods ended November 26, 2000
and November 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 28, 2000.
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 $56,858,000 was borrowed at
November 26, 2000. The average cost of funds during the 6 month period
ended November 26, 2000 was 7.07%.
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 26, 2000 May 28, 2000
-----------------------------------------------------------------------------------------
<S> <C> <C>
8.74% unsecured senior notes payable
to an insurance company, due
through 2007 $12,500,000 $12,500,000
Other 42,000 62,000
-----------------------------------------------------------------------------------------
12,542,000 12,562,000
Less current maturities 1,809,000 1,821,000
-----------------------------------------------------------------------------------------
Net Long-Term Debt $10,733,000 $10,741,000
-----------------------------------------------------------------------------------------
</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 26, 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.
<TABLE>
<CAPTION>
Twenty Six Weeks Ended Thirteen Weeks Ended
Nov. 26, Nov. 28, Nov. 26, Nov. 28,
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Park 100 Foods, Inc. $952,000 $1,429,000 $508,000 $693,000
CORPORATE CHARGES:
Snyder's of Hanover, Inc. $ 0 $ 96,000 $ 0 $ 64,000
EXPENDITURES:
Park 100 Foods, Inc. $ 8,000 $ 30,000 $ 8,000 $ 30,000
ARWCO Corporation $ 73,000 $ 5,000 $ 72,000 $ 1,000
Warehime Enterprises, Inc. $ 2,000 $ 2,000 $ 1,000 $ 1,000
John A. & Patricia M. Warehime $ 33,000 $ 32,000 $ 18,000 $ 14,000
James G. Sturgill $ 14,000 $ 18,000 $ 8,000 $ 7,000
Lippy Brothers, Inc. $512,000 $ 110,000 $278,000 $110,000
Schaier Travel, Inc. $ 4,000 $ 3,000 $ 2,000 $ 1,000
------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
--------------------------------------------------------------------------------
The respective November 26, 2000 and May 28, 2000 account balances with related
companies are as follows:
November 26, 2000 May 28, 2000
--------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE:
Snyder's of Hanover, Inc. $ 0 $26,000
Park 100 Foods, Inc. $157,000 $96,000
Lippy Brothers $ 0 $ 7,000
--------------------------------------------------------------------------------
Accounts Payable:
Lippy Brothers $806,000 $ 0
Schaier Travel $ 2,000 $ 0
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. 26, Nov. 28, Nov. 26, Nov. 28,
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income $4,539,000 $5,339,000 $3,288,000 $3,579,000
Other Comprehensive Income (Loss)
Unrealized Gain (Loss) on Investments (129,000) 176,000 (311,000) 143,000
Comprehensive Income $4,410,000 $5,515,000 $2,977,000 $3,722,000
</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. 26, Nov. 28, Nov. 26, Nov. 28,
2000 1999 2000 1999
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings applicable to
common stock $4,518,000 $5,317,000 $3,277,000 $3,569,0000
Preferred stock dividends 21,000 22,000 11,000 10,000
Net earnings assuming dilution $4,539,000 $5,339,000 $3,288,000 $3,579,000
Denominator:
Basic weighted average shares 714,550 715,347 714,536 715,242
Effect of dilutive securities 13,680 14,218 13,680 14,218
Diluted weighted average shares 728,230 729,565 728,216 729,460
</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 held that John A. Warehime
breached his fiduciary duties in voting for the Amended and Restated
Articles as trustee of the Warehime voting trust.
On September 12, 2000, the Superior Court of Pennsylvania stated, in a
Memorandum decision, that the June 25, 1997 shareholder vote, which
adopted the Amended and Restated Articles of Incorporation of the
Corporation should be set aside, and remanded the case to the Court of
Common Pleas of York County to determine what further relief would be
appropriate. See Form 8-K dated September 12, 2000 which discusses the
Superior Court decision.
On November 27, 2000, the Supreme Court of Pennsylvania reversed and
remanded the Order of the Superior Court issued on September 12, 2000.
In reversing the Superior Court's Order, the Supreme Court of
Pennsylvania held that John A. Warehime, the trustee of the voting
trust, did not breach his fiduciary duties in voting the trust shares
in favor of the Amended and Restated Articles of Incorporation. The
Supreme Court remanded the case to the Pennsylvania Superior Court to
consider other issues raised by Michael A. 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.
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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 Annual Report, 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 regulations, environmental considerations, and foreign operations. Such
factors, which are discussed in the Form 10-Q, could affect the Company's
financial performance and could cause the Company's actual result 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 28, 2000.
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 product 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 $151.6 million for the twenty-six week period ended
November 26, 2000. This represents an increase of 5.2% over the twenty-six week
period ended November 28, 1999 consolidated net sales of $144.2 million.
Consolidated net sales were $86.6 million for the
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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 26, 2000, a 4.9% increase from consolidated
net sales of $82.5 million for the corresponding period in the prior year. The
increase was primarily due to increases in sales of York Foods, Inc., York
Snacks, and Bon-Ton Foods, Inc. acquired in January 2000 and increases in frozen
Industrial Sales. These increases were partially offset by decreases in canned
branded retail sales, decreases in private label sales and decreases in canned
mushroom sales.
COST OF GOODS SOLD
Cost of goods sold were $113.2 million, or 74.6% of consolidated net sales in
the twenty-six week period ended November 26, 2000 and $107.0 million, or 74.2%
of consolidated net sales, for the corresponding period in 1999. Cost of goods
sold was $64.0 million, or 73.9% of consolidated net sales for the thirteen week
period ended November 26, 2000 as compared to $61.2 million or 74.2% of
consolidated net sales for the corresponding period in 1999. The increase in
cost of goods sold as a percentage of net sales resulted from a reduction in
higher margin premium branded retail sales. Also, decreased canned mushroom and
private label sales as well as increased frozen storage expense and higher
energy costs contributed to lower margins. The sales decreases were offset by
increases in lower margin snack food sales and frozen industrial sales.
SELLING EXPENSES
Selling expenses were $22.8 million, or 15.0% of consolidated net sales for the
twenty-six period ended November 26, 2000 as compared to $20.2 million or 14.0%
of consolidated net sales for the corresponding period in 1999. Selling expenses
were $13.2 million or 15.3% of consolidated net sales for the thirteen week
period ended November 26, 2000 compared to $11.7 million, or 14.2% of
consolidated net sales during the corresponding period in 1999. The increases in
selling expense primarily reflects increases at York Foods, Inc., York Snacks,
Inc., and Bon-Ton Foods, Inc., acquired in January 2000 and increased promotions
needed to gain back market share and to launch new frozen products during the
second quarter of the current fiscal year.
ADMINISTRATIVE EXPENSES
Administrative expenses as a percentage of consolidated net sales were 3.7% for
the twenty-six week period ended November 26, 2000 and 3.8% for the
corresponding period in 1999. Administrative expenses as a percentage of
consolidated net sales were 3.2% for the thirteen week period ended November 26,
2000 compared to 3.1% of consolidated net sales during the corresponding period
in 1999. The increases in dollars is attributed to administrative expense
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PART I -- FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
HANOVER FOODS CORPORATION AND SUBSIDIARIES
of York Foods, Inc., York Snacks, Inc., and Bon-Ton Foods, Inc., acquired in
January 2000.
INTEREST EXPENSE
Interest expense was $2,407,000 for the twenty-six week period ended November
26, 2000 as compared to $1,857,000 for the same period in 1999. Interest expense
was $1,276,000 for the thirteen week period ended November 26, 2000 compared to
$1,036,000 for the same period in 1999. The increases are due to higher average
borrowings to cover inventory increases as well as higher average cost of funds
for the period.
OTHER EXPENSES
Other expenses, net was $406,000 for the twenty-six week period ended November
26, 2000 as compared to $787,000 for the same period in 1999. Other expenses,
net was $170,000 for the thirteen week period ended November 26, 2000 as
compared to $133,000 for the same period in 1999. The decrease in other expenses
for the twenty-six week period is primarily due to decreased foreign translation
adjustment compared to the prior period. The minor increase in the second
quarter resulted from lower gain on the sale of investments for the period.
INCOME TAXES
The provision for corporate federal and state income taxes for the twenty-six
week period ended November 26, 2000 was $2.6 million, or 36.8% of pre-tax
earnings, as compared to $3.5 million, or 39.9% of pre-tax earnings for the same
period in 1999. The provision for income taxes was 36.1% of pre-tax earnings for
the thirteen week period ended November 26, 2000 as compared to 39.5% for the
same period in 1999. The decrease in the effective tax rate is primarily due to
increased earnings, that were not subject to income taxes, in foreign
jurisdictions in the current periods as compared to the prior periods.
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 $11.1 million at November 26, 2000 and $7.6 million at
May 28, 2000. The current ratio was 1.11 and 1.08 on November 26, 2000 and May
28, 2000, respectively.
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PART I -- FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Cash used in operating activities for the twenty-six week period ended November
26, 2000, $1.7 million as compared to cash provided by operating activities of
$.9 million during the same period of 1999. The combination of increased
inventory levels as well as lower net earnings offset by increased accounts
payable and accrued expenses utilized more cash flow in the twenty-six week
period ended November 26, 2000 compared to the prior year period.
INVESTING ACTIVITIES
During the twenty-six week period ended November 26, 2000, the Corporation spent
approximately $5.2 million for the purchase of land and plant upgrades and
expansions. This compares to $6.2 million spent during the same period last year
for capital projects.
FINANCING ACTIVITIES
The increase in notes payable of approximately $4.5 million during the
twenty-six week period ended November 26, 2000 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 $56.9 million was utilized
as of November 26, 2000. Additional borrowing is permitted within prescribed
parameters in existing debt agreements, which contain certain performance
covenants.
The Company believes that it has sufficient working capital and availability
from seasonal lines of credit to meet its cash flow needs.
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PART II - OTHER INFORMATION
HANOVER FOODS CORPORATION AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
See Note 7 of the Notes to Consolidated Financial Statements in this Form 10-Q
for information regarding the 1995 Warehime Family Litigation, the Derivative
Action and the 1997 Injunction Proceeding.
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
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
(a) Exhibits
S-K Exhibit
Number Description of Exhibit
------ ----------------------
27 Financial Data Schedule
(b) Reports on Form 8-K.
Form 8-K was filed on September 19, 2000.
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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 10, 2001 By: /s/ Gary T. Knisely
-------------------------------------
Gary T. Knisely
Executive Vice President
By: /s/ Pietro Giraffa
-------------------------------------
Pietro Giraffa
Controller
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