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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 1, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number -- 0-17896
HANOVER FOODS CORPORATION
(Exact name of Registrant as specified in its charter)
Commonwealth of Pennsylvania 23-0670710
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1486 York Road, P.O. Box 334, Hanover, PA 17331
(Address of principal executive offices) (Zip Code)
717-632-6000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing for the past 90
days. Yes [X] No [ ]
Indicate the number of shares outstanding of issuer's classes of common stock as
of the latest practicable date.
Class Outstanding at December 1, 2002
----- -------------------------------
Class A Common Stock, $25 par value 288,284 shares
Class B Common Stock, $25 par value 582,198 shares
1
HANOVER FOODS CORPORATION AND SUBSIDIARIES
FORM 10-Q
For the Twenty-Six Weeks Ended December 1, 2002
Index Page
Part I -- Financial Information
Item 1 -- Financial Statements:
Condensed Consolidated Balance Sheets
December 1, 2002 (Unaudited) and June 2, 2002............................................3
Condensed Consolidated Statements of Operations (Unaudited)
Twenty-Six Weeks Ended and Thirteen Weeks Ended December 1, 2002
and December 2, 2001.....................................................................5
Condensed Consolidated Statements of Stockholders'
Equity, (Unaudited) Twenty-Six Weeks Ended December 1, 2002 .............................6
Condensed Consolidated Statements of Cash Flows
(Unaudited), Twenty-Six Weeks Ended December 1, 2002
and December 2, 2001.....................................................................7
Notes to Condensed Consolidated Financial Statements
(Unaudited)..............................................................................8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................................19
Item 3 - Quantitative and Qualitative Disclosure About Market Risk............................23
Item 4 - Controls and Procedures..............................................................24
Part II - Other Information...................................................................25
Item 1-- Legal Proceedings....................................................................25
Item 2-- Changes in Securities and Use of Proceeds............................................25
Item 3-- Defaults upon Senior Securities......................................................25
Item 4-- Submission of Matters to a Vote of Security Holders..................................25
Item 5-- Other Information....................................................................25
Item 6-- Exhibits and Reports on Form 8-K.....................................................25
Exhibit 99.1 Certification by John A. Warehime, Chief Executive Officer Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 99.2 Certification by Gary T. Knisely, Chief Financial Officer Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
2
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
- ----------------------------------------------------------------------------------------------------------
December 1, 2002 June 2, 2002
ASSETS
- ----------------------------------------------------------------------------------------------------------
Current Assets:
Cash and Cash Equivalents $3,280,000 $ 2,816,000
Accounts and Notes Receivable, Net 28,884,000 26,917,000
Accounts Receivable from Related Parties, Net 0 167,000
Inventories
Finished Goods 53,324,000 44,933,000
Raw Materials and Supplies 17,636,000 16,622,000
Prepaid Expenses 960,000 2,361,000
Prepaid Income Taxes 330,000 0
Deferred Income Taxes 917,000 276,000
- ----------------------------------------------------------------------------------------------------------
Total Current Assets 105,331,000 94,092,000
- ----------------------------------------------------------------------------------------------------------
Property, Plant and Equipment, at Cost:
Land and Buildings 53,661,000 52,966,000
Machinery and Equipment 126,812,000 124,048,000
Leasehold Improvements 544,000 544,000
- ----------------------------------------------------------------------------------------------------------
181,017,000 177,558,000
Less Accumulated Depreciation and
Amortization 106,527,000 101,749,000
- ----------------------------------------------------------------------------------------------------------
74,490,000 75,809,000
Construction in Progress 696,000 830,000
- ----------------------------------------------------------------------------------------------------------
Total Property, Plant and Equipment 75,186,000 76,639,000
- ----------------------------------------------------------------------------------------------------------
Other Assets:
Intangible Assets, Net 3,429,000 3,549,000
Other Assets 5,020,000 4,736,000
- ---------------------------------------------------------------------------------------------------------
Total Assets $188,966,000 $179,016,000
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
3
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
- --------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY December 1, 2002 June 2, 2002
- --------------------------------------------------------------------------------------------------------------
Current Liabilities:
Notes Payable - Banks $21,184,000 $ 18,987,000
Accounts Payable 21,083,000 19,890,000
Accounts Payable to Related Parties - Net 339,000 0
Accrued Expenses 15,204,000 13,189,000
Current Maturities of Long-Term Debt 4,286,000 4,297,000
Income Taxes Payable 1,614,000 1,182,000
- --------------------------------------------------------------------------------------------------------------
Total Current Liabilities 63,710,000 57,545,000
- --------------------------------------------------------------------------------------------------------------
Long-Term Debt, Less Current Maturities 27,149,000 29,643,000
Other Liabilities 4,645,000 4,060,000
Deferred Income Taxes 4,582,000 3,777,000
- --------------------------------------------------------------------------------------------------------------
Total Liabilities 100,086,000 95,025,000
- --------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Series A & B 8 1/4% cumulative convertible preferred, $25
Par Value, 120,000 shares authorized;
31,056 shares issued at December 1, 2002 and
June 2, 2002; 14,564 shares outstanding at
December 1, 2002 and June 2, 2002 776,000 776,000
Series C 4.4% cumulative convertible preferred, $25
Par Value, 10,000 shares authorized, issued and
outstanding At December 1, 2002 and June 2, 2002 250,000 250,000
Common stock, Class A, non-voting, $25 Par Value;
800,000 shares authorized, 349,329 shares issued
at December 1, 2002 and June 2, 2002; 288,284 shares
outstanding at December 1, 2002 and June 2, 2002 8,733,000 8,733,000
Common stock, Class B, voting, $25 Par Value;
880,000 shares authorized, 649,072 shares issued at
December 1, 2002
and 635,072 shares issued at June 2, 2002; 430,507
shares outstanding December 1, 2002 and June 2, 2002 16,227,000 15,889,000
Capital Paid in Excess of Par Value 16,385,000 15,238,000
Retained Earnings 72,536,000 67,560,000
Treasury Stock, at Cost (8,148,000) (8,148,000)
Value of Shares held in Employee Benefit Trust - 138,191 shares
at June 2, 2002 and 151,691 at December 1, 2002 (17,653,000) (16,168,000)
Accumulated Other Comprehensive Loss (226,000) (139,000)
- --------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 88,880,000 83,991,000
- --------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $188,966,000 $179,016,000
- --------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
4
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations - Unaudited
- -----------------------------------------------------------------------------------------------------------------------------------
Twenty-Six Weeks Ended Thirteen Weeks Ended
December 1, 2002 December 2, 2001 December 1, 2002 December 2, 2001
- -----------------------------------------------------------------------------------------------------------------------------------
Net Sales $ $146,470,000 $ $144,621,000 $ $82,956,000 $ $83,644,000
Cost of Goods Sold 116,092,000 114,872,000 65,010,000 65,519,000
- -----------------------------------------------------------------------------------------------------------------------------------
Gross Profit 30,378,000 29,749,000 17,946,000 18,125,000
Selling Expenses 13,395,000 13,719,000 8,376,000 8,252,000
Administrative Expenses 6,912,000 6,207,000 3,181,000 2,908,000
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Profit 10,071,000 9,823,000 6,389,000 6,965,000
Interest Expense 1,510,000 1,874,000 766,000 1,005,000
Other (Income) Expenses, Net 155,000 119,000 (23,000) 114,000
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 8,406,000 7,830,000 5,646,000 5,846,000
Income Taxes 2,931,000 2,531,000 1,953,000 1,988,000
- -----------------------------------------------------------------------------------------------------------------------------------
Net Earnings 5,475,000 5,299,000 3,693,000 3,858,000
Dividends on Preferred Stock 21,000 21,000 11,000 11,000
- -----------------------------------------------------------------------------------------------------------------------------------
Net Earnings Applicable to
Common Stock $5,454,000 $5,278,000 $3,682,000 $3,847,000
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings Per Share:
Net Earnings Per Common
Share - Basic $7.59 $7.39 $5.12 $5.38
Net Earnings Per Common
Share - Diluted $7.48 $7.28 $5.05 $5.30
Dividends per Share, Common $0.550 $0.550 $0.275 $0.275
Basic Weighted Average Shares 718,791 714,496 718,791 714,496
Diluted Weighted Average Shares 731,857 727,919 731,857 727,919
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
5
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity
Twenty-Six Weeks Ended December 1, 2002
(Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative Cumulative
Convertible Convertible
Total Preferred Stock Preferred Stock Common Stock Common Stock
Stockholders' Series A & B Series C Class A Class B
Equity Shares Amount Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 2, 2002 $83,991,000 31,056 $776,000 10,000 $250,000 349,329 $8,733,000 635,572 $15,889,000
Net Earnings for the Period 5,475,000
Cash Dividends Per Share:
Preferred - $1.03125 for 26 weeks (21,000)
Common - $.55 for 26 weeks (478,000)
Issuance of Common stock to
Employee Stock Trust 13,500 338,000
Class B 13,500 Shares 0
Other Comprehensive Loss (87,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 1, 2002 $88,880,000 31,056 $776,000 10,000 $250,000 349,329 $8,733,000 649,072 $16,227,000
- -----------------------------------------------------------------------------------------------------------------------------------
[RESTUBBED TABLE]
- ------------------------------------------------------------------------------------------------------------------------
Capital
Paid In Accumulated
Excess Treasury Stock Employee Stock Trust Other
Of Par Retained Comprehensive
Value Earnings Shares Amount Shares Amount Loss
- -------------------------------------------------------------------------------------------------------------------------
Balance, June 2, 2002 $15,238,000 $67,560,000 144,411 ($8,148,000) 138,191 ($16,168,000) ($139,000)
Net Earnings for the Period 5,475,000
Cash Dividends Per Share:
Preferred - $1.03125 for 26 weeks (21,000)
Common - $.55 for 26 weeks (478,000)
Issuance of Common stock to
Employee Stock Trust 1,147,000 13,500 (1,485,000)
Class B 13,500 Shares
Other Comprehensive Loss (87,000)
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 1, 2002 $16,385,000 $72,536,000 144,411 ($8,148,000) 151,691 ($17,653,000) ($226,000)
- --------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
6
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
- ------------------------------------------------------------------------------------------------------------
Twenty-Six Weeks Ended
Dec. 1, 2002 Dec. 2, 2001
- ------------------------------------------------------------------------------------------------------------
Cash Flows From:
Operating Activities:
Net Earnings $ 5,475,000 $ 5,299,000
Adjustments to Reconcile Net Earnings:
To Net Cash Provided by (Used In) Operating Activities:
Depreciation and Amortization 4,898,000 4,485,000
Deferred Income Taxes 164,000 (200,000)
Changes in Assets and Liabilities:
Accounts Receivable (1,800,000) (1,269,000)
Inventories (14,503,000) (12,375,000)
Inventories (9,405,000) (19,520,000)
Prepaid Expenses 1,071,000 (221,000)
Accounts Payable and Accrued Expenses 3,547,000 9,972,000
Income Taxes Payable 432,000 847,000
Other Liabilities 585,000 368,000
- ------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used In) Operating Activities 4,967,000 (239,000)
- ------------------------------------------------------------------------------------------------------------
Investing Activities:
Decrease (Increase) in Other Assets (371,000) (420,000)
Acquisitions of Property, Plant and Equipment (3,325,000) (3,660,000)
- ------------------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities (3,696,000) (4,080,000)
- ------------------------------------------------------------------------------------------------------------
Financing Activities:
Increase in Notes Payable 2,197,000 (17,508,000)
Proceeds from Issuance of Long-Term Debt 0 25,000,000
Payments on Long-Term Debt (2,505,000) (8,000)
Payment of Dividends (499,000) (492,000)
- ------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used In) Financing Activities (807,000) 6,992,000
- ------------------------------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 464,000 2,673,000
Cash and Cash Equivalents, Beginning of Period 2,816,000 1,824,000
- ------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $ 3,280,000 $ 4,497,000
- ------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
7
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
December 1, 2002
(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 31st. Accordingly, these financial statements
reflect activity for the thirteen and twenty-six week periods ended
December 1, 2002 and December 2, 2001.
It is suggested that these consolidated financial statements should be
read in conjunction with the consolidated financial statements and
notes thereto included in Form 10-K for the Corporation's fiscal year
ended June 2, 2002.
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.
Certain reclassifications were made to the prior period financial
statements to be consistent with the current period reporting
presentation.
(2) SHORT-TERM BORROWINGS
The Corporation and its subsidiaries maintain short-term unsecured
lines of credit with various banks providing credit availability
amounting to $50,000,000 of which $21,184,000 was borrowed at December
1, 2002. The average cost of funds during thirteen and twenty-six week
periods ended December 1, 2002 was 2.33%.
8
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:
December 1, 2002 June 2, 2002
- ---------------------------------------------------------------------------------------------------
8.74% unsecured senior notes payable
to an insurance company, due
through 2007 $8,929,000 $8,929,000
7.01% unsecured senior notes payable
to an insurance company, due through 2011 22,500,000 25,000,000
Other 6,000 11,000
- ---------------------------------------------------------------------------------------------------
Total Long-Term Debt 31,435,000 33,940,000
Less current maturities 4,286,000 4,297,000
- ---------------------------------------------------------------------------------------------------
Net Long-Term Debt $27,149,000 $29,643,000
- ---------------------------------------------------------------------------------------------------
On September 1, 2001, the Company entered into a note agreement for the
issuance $25,000,000 of Senior Notes which bear interest of 7.01%
(payable quarterly) and are repayable in annual installments beginning
September 15, 2002.
The senior note agreements 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 of December 1, 2002.
9
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. Transactions
with related parties are summarized below:
Twenty-Six Weeks Ended Thirteen Weeks Ended
Dec. 1, 2002 Dec. 2, 2001 Dec. 2, 2002 Dec. 2, 2001
- -------------------------------------------------------------------------------------------------------------------
Revenues:
Park 100 Foods, Inc. $1,250,000 $ 793,000 $ 737,000 $ 501,000
Expenditures:
Park 100 Foods, Corp. 10,000 8,000 7,000 5,000
Warehime Enterprises, Inc. 2,000 79,000 1,000 78,000
John A. & Patricia M. Warehime 33,000 26,000 16,000 12,000
Lippy Brothers, Inc. 442,000 1,158,000 200,000 844,000
Schaier Travel, Inc. 3,000 4,000 0 2,000
- -------------------------------------------------------------------------------------------------------------------
10
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
The respective December 1, 2002 and June 2, 2002 account balances with related
parties are as follows:
December 1, 2002 June 2, 2002
- -------------------------------------------------------------------------------------------
Accounts Receivable:
Park 100 Foods, Inc. $ 375,000 $164,000
Lippy Brothers, Inc. 0 3,000
- -------------------------------------------------------------------------------------------
Accounts Payable:
Lippy Brothers, Inc. 709,000 0
James Sturgill 1,000 0
John & Patricia Warehime 4,000 0
11
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:
26 Weeks Ended 13 Weeks Ended
Dec. 1, 2002 Dec. 2, 2001 Dec. 1, 2002 Dec.2, 2001
- ----------------------------------------------------------------------------------------------------------------------
Net Income $5,475,000 $5,299,000 $3,693,000 $3,858,000
Other Comprehensive Income (Loss) -
Unrealized Gain (Loss) on Investments (87,000) (40,000) 56,000 175,000
---------- ---------- ---------- ----------
Comprehensive Income $5,388,000 $5,259,000 $3,749,000 $4,033,000
========== ========== ========== ==========
(6) RECONCILIATION OF NUMERATOR AND DENOMINATOR FOR BASIC AND DILUTED
EARNINGS PER SHARE
Numerator for basis earnings per share:
26 Weeks Ended 13 Weeks Ended
Dec. 1, 2002 Dec. 2, 2001 Dec. 1, 2002 Dec.2, 2001
Net earnings applicable to common stock $5,454,000 $5,278,000 $3,682,000 $3,847,000
Preferred stock dividends 21,000 21,000 11,000 11,000
---------- ---------- ---------- ----------
Net earnings assuming dilution 5,475,000 5,299,000 3,693,000 3,858,000
========== ========== ========== ==========
Denominator:
Basic weighted average shares 718,791 714,496 718,791 714,496
Effect of dilutive securities 13,066 13,423 13,066 13,423
---------- ---------- ---------- ----------
Diluted weighted average shares 731,857 727,919 731,857 727,919
========== ========== ========== ==========
12
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(7) STOCK OPTION PLAN
On June 20, 2002, the Corporation's Board of Directors adopted the Hanover
Foods Corporation 2002 Stock Option Plan (the "Stock Option Plan"). All
officers and key employees of the Corporation and of any present or future
parent or subsidiary of the Corporation are eligible to receive options
under the Stock Option Plan, excluding John A. Warehime. No individual may
receive options under the Stock Option Plan for more than 15% of the total
number of shares of the Corporation's Class B common stock authorized for
issuance under the Stock Option Plan. 34,600 shares of the Corporation's
Class B common stock, par value $25.00 per share, are authorized for
issuance under the Stock Option Plan, and options to purchase 13,500 shares
were granted on June 20, 2002. Under the Plan, the exercise price of stock
options is equal to the fair market value of the common stock on the grant
date. The maximum term of stock options is 10 years. Stock options are
accounted for under Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations.
Accordingly, no compensation expense is recorded for stock option grants.
Concurrent with the stock option grant on June 20, 2002, the Corporation
contributed an additional 13,500 shares of Hanover Class B common stock to
the Employee Stock Trust for the purpose of funding obligations under the
Stock Option Plan.
(8) NEW ACCOUNTING STANDARDS
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141
required that the purchase method of accounting be used for all business
combinations completed after June 30, 2001 and specifies criteria for the
recognition and reporting of intangible assets apart from goodwill.
Statement 142 requires that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead tested for impairment at
least annually in accordance with the provisions of Statement 142.
Statement 142 also required that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment. The Corporation
adopted this statement in the first quarter of fiscal 2003. Adoption of
this statement did not have a material effect on the Corporation's
financial statements.
13
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements, Continued
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(9) LEGAL MATTERS
Derivative Action
On September 13, 1996, certain Class A shareholders 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 on 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 shareholders 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. On September 5, 2001, director defendants
filed a Motion to Dismiss the Derivative Action. On September 20, 2001,
plaintiffs filed an answer to director defendants' Motion to Dismiss.
On May 17, 2002, the court entered an order denying defendants' Motion
to Dismiss.
On May 14, 2002, Albert Blakey, Esquire, counsel for certain of the
derivative plaintiffs filed a Petition for Fees seeking an award of
$1,585,716 in attorney's fees. On December 31, 2002 the Court denied
the petition for fees in its entirety.
Warehime Family Litigation
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
shareholders), 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)
who qualify as "disinterested directors", acting as fiduciaries for the
employees who participate in the 401(k) Savings Plan, and the Class A
shareholders may become entitled to vote in the manner described in the
document.
14
The Amended and Restated Articles created a Series C Convertible
Preferred Stock, which, in case of a dispute among the above mentioned
members of the Warehime family on Board of Directors composition or
other important matters, would be entitled to 35 votes per share (a
total of 350,000 votes based on 10,000 shares of Series C Convertible
Preferred Stock issued to and held by the trustees of the Corporation's
401(k) Savings Plan); if Series C Convertible Preferred Stock were
entitled to vote because of such dispute, each share of Class A Common
Stock would be entitled to 1/10th of a vote per share.
The Amended and Restated Articles also classified the terms of the
Board of Directors commencing with the election at the 1997 annual
shareholders' meeting and permitted directors to be elected for
four-year terms as permitted by Pennsylvania law. Pursuant to the
Corporation's Bylaws, as then in effect, nominations for directors must
be submitted to the Corporation in the manner prescribed by the Bylaws
no later than June 1 of the year in which the meeting is to occur.
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 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 described herein.
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, in his capacity as
voting trustee) on August 14, 1997 and the Amendment became effective
on August 14, 1997.
15
Under the Amendment, the definition of "disinterested directors" means
a person who, in the opinion of counsel for the Corporation, meets any
of the following criteria: (i) disinterested directors as defined in
Section 1715(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 A. Warehime filed an appeal from the denial of his motion to
enjoin the previously described Amendment to the Corporation'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 A. Warehime had acted in good faith in voting for the Amendment to
the Amended and Restated Articles as trustee of the Warehime voting
trust, he had breached his fiduciary duty to the beneficiaries of the
Warehime voting trust in voting for the Amendment. On November 29,
1999, the Supreme Court of Pennsylvania granted a petition for
allowance of appeal, filed by John A. Warehime, and granted a
cross-petition for appeal filed by Michael A. Warehime.
On August 13, 1999, Michael A. 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 Corporation. The complaint sought a court
order declaring that the September 1999 election for the Board of
Directors of the Corporation be conducted in accordance with the
Articles of Incorporation of the Corporation 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 Corporation proposed by
Michael A. Warehime, Sally Yelland, Elizabeth Stick and J. William
Warehime be accepted by the Corporation and listed on the ballot to be
distributed at the annual meeting of shareholders of the Corporation to
be held on September 16, 1999: Michael A. Warehime, Daniel Meckley,
Elizabeth Stick, Sonny Bowman, and John Denton. The basis for the
complaint was the December 2, 1998 decision of the Superior Court of
Pennsylvania 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 requested relief was denied by the Court
of Common Pleas of York County and Michael Warehime appealed to the
Superior Court of Pennsylvania.
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 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. On
remand, the Court of Common Pleas of York County entered an Order on
October 10, 2000 declaring that the Amended and Restated Articles were
set aside and that an election should be held without the Amended or
Restated Articles. On October 11, 2000, the Supreme Court of
Pennsylvania entered an Order staying the Order of the Court of Common
Pleas of York County.
16
On November 27, 2000, the Supreme Court of Pennsylvania reversed and
remanded the Order of the Superior Court issued on December 2, 1998
and, in effect, the Order of the Superior Court issued 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. The Supreme Court
remanded the case to the Superior Court of Pennsylvania to consider
other issues raised by Michael A. Warehime.
On May 4, 2001, the Superior Court of Pennsylvania, on remand from the
Supreme Court of Pennsylvania to decide several remaining issues, held
that the 1997 amendments to the Corporation's Amended and Restated
Articles "violated principles of corporate democracy" and should be
invalidated even though the Superior Court found the directors acted in
good faith and their actions in approving the amendments did not result
in a breach of their fiduciary duties. A petition for allocatur was
filed with the Supreme Court of Pennsylvania requesting that the
Supreme Court of Pennsylvania review the Superior Court's May 4, 2001
ruling. On September 17, 2002, the Supreme Court of Pennsylvania
granted defendant's Petition for Allowance of 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.
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 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 regulation, 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 June 2, 2002
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 $146.5 million for the twenty-six week period ended
December 1, 2002. This represents an increase of 1.3% over the twenty-six week
period ended December 2, 2001 consolidated net sales of $144.6 million.
Consolidated net sales were $83.0 million for the thirteen week period ended
December 1, 2002, a .8% decrease from consolidated net sales of
18
PART I -- FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
HANOVER FOODS CORPORATION AND SUBSIDIARIES
$83.6 million for the corresponding period in the prior year. The increase in
consolidated net sales for the twenty-six week period was due to increased
branded retail, food service, private label, fresh food sales. This increase was
partially offset by decreases in canned mushrooms and snack sales. The decrease
in consolidated net sales for the thirteen week period was due to decreases in
branded, private label, canned mushrooms and snack sales partially offset by
increases in food service and fresh food sales.
COST OF GOODS SOLD
Costs of goods sold were $116.1 million, or 79.3% of consolidated net sales in
the twenty-six week period ended December 1, 2002 and $114.9 million, or 79.4%
of consolidated net sales for the corresponding period in 2001. Cost of goods
sold was $65.0 million, or 78.4% of consolidated net sales for the thirteen week
period ended December 1, 2002 as compared to $65.5 million, or 78.3% of
consolidated net sales for the corresponding period in 2001. The decrease in
cost of goods sold as a percentage of net sales for the twenty-six week period
was due to reduced operating expenses at our Lancaster plant and the increase in
branded and fresh food sales, which sells at a higher margin as compared to
other sales products of the Company. The small increase in cost of goods sold as
a percentage of net sales for the thirteen-week period was due to increases in
food service and fresh food sales offset by reduced operating expenses at our
Lancaster plant and decreases in branded retail sales, which carries sells at a
higher margin as compared to other sales products of the Company.
SELLING EXPENSES
Selling expenses were $13.4 million, or 9.1% of consolidated net sales for the
twenty-six week period ended December 1, 2002 as compared to $13.7 million or
9.5% of consolidated net sales for the corresponding period in 2001. Selling
expenses were $8.4 million or 10.1% of consolidated net sales for the thirteen
week period ended December 1, 2002 compared to $8.3 million, or 9.9% of
consolidated net sales during the corresponding period in 2001. The decrease in
selling expenses for the twenty-six week period reflects lower coupon
redemptions, media advertising, customer incentive programs and customer
advertising dollars partially offset by increases in prior year customer
promotion audit payouts. The increase in selling expenses for the thirteen week
period reflects higher prior year customer promotion audits partially offset by
lower coupon redemptions, media advertising, customer incentive programs and
customer advertising dollars.
ADMINISTRATIVE EXPENSES
Administrative expenses were $6.9 million, or 4.7% of consolidated net sales for
the twenty-six week period ended December 1, 2002 as compared to $6.2 million,
or 4.3% of consolidated net sales for the corresponding period in 2001.
Administrative expenses were $3.2 million, or 3.8% of consolidated net sales for
the thirteen week period ended December 1, 2002 as compared to
19
PART I -- FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
HANOVER FOODS CORPORATION AND SUBSIDIARIES
$2.9 million, or 3.5% of consolidated net sales for the corresponding period in
2001. The increase in administrative expenses for both the twenty-six week and
thirteen week period reflects increases in outside legal and accounting fees and
services, the provision for the supplemental pension benefits and general annual
wage increases.
INTEREST EXPENSE
Interest expense was $1.5 million for the twenty-six week period ended December
1, 2002 as compared to $1.9 million for the same period in 2001. Interest
expense was $.8 million for the thirteen week period ended December 1, 2002 as
compared to $1.0 million for the same period in 2001. The decrease in both
periods reflects lower average borrowings as well as lower average borrowing
rates for the periods compared to 2001.
OTHER (INCOME) EXPENSES
Other (income) expenses, net was $155,000 for the twenty-six week period ended
December 1, 2002 as compared to $119,000 for the same period in 2001. Other
income, net was $23,000 for the thirteen week period ended December 1, 2002 as
compared to other expenses, net of $114,000 for the same period in 2001. The
increase in other expenses for the twenty-six week period is due to a larger
foreign translation adjustment loss. The decrease in other expenses for the
thirteen week period reflects higher returns on the sale of investments, and a
smaller foreign translation adjustment loss.
INCOME TAXES
The provision for corporate federal and state income taxes for the twenty-six
week period ended December 1, 2002 was $2.9 million, or 34.9% of pretax
earnings, as compared to $2.5 million, or 32.3% of pre-tax earnings for the same
period in 2001. The provisions for corporate federal and state income taxes for
the thirteen week period ended December 1, 2002 was $2.0 million, or 34.6% of
pre-tax earnings as compared to $2.0 million, or 34.0% of pre-tax earnings for
the same period in 2001. The increase in the effective tax rate for both periods
is primarily due to increased earnings in jurisdictions with higher effective
tax rates in the current year periods as compared to prior periods.
LIQUIDITY AND CAPITAL RESOURCES
The discussion and analysis of the Corporation's liquidity and capital resources
should be read in conjunction with the Consolidated Statements of Cash Flows,
contained elsewhere herein.
20
PART I -- FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
HANOVER FOODS CORPORATION AND SUBSIDIARIES
OPERATING ACTIVITIES
Net working capital was $41.6 million at December 1, 2002 and $36.5 million at
June 2, 2002. The current ratios were 1.65 on December 1, 2002 and 1.64 on June
2, 2002.
Cash provided from operating activities for the twenty-six week period ended
December 1, 2002 was $5.0 million as compared to cash used in operating
activities of $.2 million during the same period of 2001. The combination of
increased earnings and lower inventory levels generated more cash flow in the
twenty-six week period ended December 1, 2002 compared to the prior year period.
INVESTING ACTIVITIES
During the twenty-six week period ended December 1, 2002, the Corporation spent
approximately $3.3 million for the purchase plant upgrades and expansions. This
compares to $3.7 million spent during the same period last year for capital
projects.
FINANCING ACTIVITIES
The increase in notes payable of approximately $2.2 million during the
twenty-six week period ended December 1, 2002 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 $50.0 million, of which $21.2 million was utilized
as of December 1, 2002. Additional borrowing is permitted within prescribed
parameters in existing debt agreements, which contain certain performance
covenants.
As of September 1, 2001, the Corporation entered in the Note Purchase Agreement
with a group of lenders led by John Hancock Insurance Company (the "Lenders")
and issued 7.01% Senior Notes (the "Notes") due September 15, 2011 in the
aggregate principal amount of $25.0 million to the Lenders. The Corporation is
required to make a prepayment of $2.5 million of the principal amount of the
Notes on September 15, 2002 and on each September 15 thereafter to and including
September 15, 2011. In the event of any change of control of the Corporation,
the Corporation has an obligation to prepay the Notes in the amount equal to
100% of the outstanding principal amount of the Notes and accrued interest
thereon, together with a premium equal to the applicable Make-Whole Amount, as
defined in the Note Purchase Agreement. A "change in control" as defined in the
Note Purchase Agreement means the date on which (i) John A. Warehime ceases to
hold the positions of Chairman, President and Chief Executive Officer of the
Corporation or (ii) Gary T. Knisely ceases to hold the position of Executive
21
PART I -- FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Vice President and Secretary of the Corporation. To the extent a change in
control were to occur and the Lenders demand repayment of the Notes, the
Corporation would be required to obtain an alternative funding source to repay
these obligations as the Corporation currently does not have the financial
resources to repay these obligations. While the Corporation currently believes
it would be successful in obtaining additional financing, no assurance can be
given as to whether the Corporation would be successful in obtaining additional
debt financing or if such financing will be on terms and conditions that are
acceptable to the Corporation. The Note Purchase Agreement contains certain
limitations on the Corporation's ability to enter into merger agreements, incur
debt, and/or sell its assets, other than in the ordinary course of business. The
Corporation received $25.0 million on September 1, 2001 from proceeds for the
Notes.
The Company believes that it has sufficient working capital and availability
from seasonal lines of credit to meet its cash flow needs.
The following table summarizes the Corporation's contractual obligations and
other commitments as of December 1, 2002:
Payment Due by Period
-----------------------------------------------------------------
Contractual Obligation After
Total 1 Year 2-3 Years 4-5 Years 5 Years
----------- ----------- ---------- ---------- -----------
Short-Term Notes Payables $21,184,000 $21,184,000 $-0- $-0- $-0-
Long-Term Debt 31,435,000 4,286,000 8,572,000 8,572,000 10,005,000
Operating Leases 978,000 475,000 394,000 109,000 -0-
----------- ----------- ---------- ---------- -----------
Total contractual obligations $53,597,000 $25,945,000 $8,966,000 $8,681,000 $10,005,000
=========== =========== ========== ========== ===========
Currently, the Company is obligated to purchase 6,000,000 pounds of
tomato paste from California Tomato Products, Colusa, California in each of the
fiscal years from 2003 through 2006, at a price based on annual cost of
production.
The Company's sources of liquidity are primarily funds from operation and
available amounts under seasonal lines of credit. (Two of these lines expire on
October 31, 2003 and one on January 28, 2003). They are expected to be renewed
in the ordinary course of business.
22
PART I - FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Financial Condition and Results of Operations
HANOVER FOODS CORPORATION AND SUBSIDIARIES
There are no material changes to the disclosures on this matter provided in the
Company's Annual Report on Form 10-K for the fiscal year ended June 2, 2002.
23
PART I - FINANCIAL INFORMATION
Item 4. Controls and Procedures
Financial Condition and Results of Operations
HANOVER FOODS CORPORATION AND SUBSIDIARIES
Based on the most recent review, which was completed within 90 days of the
filing of Form 10-Q, the Company's principal executive officer and principal
financial officer concluded as of the evaluation date that the Company's
disclosure controls and procedures were effective in timely alerting them to
material information required to be disclosed by the Company in the reports that
it files with the SEC under the Securities Exchange Act of 1934, as amended,
during the period that the report is being prepared. There were no significant
changes in the Company's internal controls or in other factors that could
significantly affect those controls subsequent to the date of their evaluation.
As a result, no corrective actions were taken.
24
PART II - OTHER INFORMATION
HANOVER FOODS CORPORATION AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
See note 9 of the Notes of Condensed Consolidated Financial Statements in this
form 10-Q for information regarding the 1995 Warehime Family Litigation and the
Derivative Action.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS -- 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
EXHIBIT 99.1 CERTIFICATION BY JOHN A. WAREHIME, CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 99.2 CERTIFICATION BY GARY T. KNISELY, CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(b) REPORTS ON FORM 8-K - None
25
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 15, 2003 By: /s/ Pietro Giraffa
----------------------------------
Pietro Giraffa
Vice President & Controller
Chief Accounting Officer
(Principal Accounting Officer)
By: /s/ Gary T. Knisely
----------------------------------
Gary T. Knisely
Executive Vice President
Chief Financial Officer
26
CERTIFICATION
I, John A. Warehime, Chief Executive Officer of Hanover Foods Corporation,
certify that:
1. I have reviewed the quarterly report on Form 10-Q of Hanover Foods
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: January 15, 2003 /s/ John A. Warehime
-------------------------------------
John A. Warehime
Chief Executive Officer
27
CERTIFICATION
I, Gary T. Knisely, Chief Financial Officer of Hanover Foods Corporation,
certify that:
1. I have reviewed the quarterly report on Form 10-Q of Hanover Foods
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: January 15, 2003 /s/ Gary T. Knisely
------------------------------------
Gary T. Knisely
Chief Financial Officer
28