Annual Report to Shareholders 2020Contents SS __________ Independent Auditor's Report Consolidated Financial Statements Consolidated Balance Sheets Consolidated Statements of Earnings. Consolidated Statements of Comprehensive Income... Consolidated Statements of Stockholders’ Equity... Consolidated Statements of Cash Flows. Summary of Accounting Policie: Notes to the Consolidated Financial Statement: Officers and Board of Directors. HANOVER FOODS CORPORATION 2020 ANNUAL REPORT TO SHAREHOLDERS(eTNeaat Independent Auditor's Report Board of Directors Hanover Foods Corporation Hanover, Pennsylvania We have audited the accompanying consolidated financial statements of Hanover Foods Corporation and its subsidiaries, which comprise the consolidated balance sheets as of May 31, 2020 and June 2, 2019, and the related consolidated statements of earnings and comprehensive income, stockholders’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements. ‘Management's Responsibility for the Financial Statements Management {s responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility ur responsibility is to express an opinion on these consolidated financial statements based on our audits, We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. ‘An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. HANOVER FOODS CORPORATION 2020 ANNUAL REFORTTO SHAREHOLDERSToENo Independent Auditor's Report Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hanover Foods Corporation and its subsidiaries as of May 31, 2020 and June 2, 2019, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Edo Vsh, cur July 17, 2020 HANOVER FOODS CORPORATION 2020 ANNUAL REPORT TO SHAREHOLDERSConsolidated Balance Sheets May 31, 2020 June 2, 2019 Assets Current assets Cash and cash equivalents $ 14,646,000 $ 9,515,000 Accounts receivable - net of allowance for doubtful accounts of $937,000 and $1,182,000, respectively 34,064,000 32,192,000 Inventories, net: Finished goods 90,653,000 81,129,000 Raw materials and supplies 28,604,000 24,473,000 Prepaid assets 17,578,000 16,685,000 Income tax receivable 5,076,000 4,688,000 Total current assets 190,621,000 168,682,000 Noncurrent assets Property, plant, and equipment - at cost: Land and buildings 112,040,000 97,345,000 Machinery and equipment 200,740,000 194,756,000 Leasehold improvements 845,000 845,000 313,625,000 792,946,000 Less accumulated depreciation and amortization 219,988,000 211,608,000 93,637,000 81,338,000 Construction in progress 9,474,000 9,417,000 Total property, plant, and equipment, net 103,111,000 90,755,000 Goodwill 3,923,000 3,923,000 Intangible assets, net 4,630,000 4,730,000 Right-of-use assets operating 4,677,000 - Other assets 2,788,000 7,638,000 Total noncurrent assets 119,129,000 107,046,000 Total assets $_ 309,750,000 __$_275,728,000 Continued on the next page. HANOVER FOODS CORPORATION 2020 ANNUAL REPORTTO SHAREHOLDERSConsolidated Balance Sheets May 31, 2020 June 2, 2019 Liabilities and Stockholders’ Equity Current liabilities Lines of credit $ 15,440,000 $ 605,000, ‘Accounts payable 15,084,000 13,432,000 ‘Accrued expenses 14,694,000 13,116,000 Operating tease liabilities 1,332,000 : Total current liabilities 46,550,000 27,153,000 Noncurrent liabilities Deferred income taxes 3,222,000 37,000 Operating lease liabilities 3,345,000 - Other liabilities 11,197,000 13,537,000 Total noncurrent lat 17,764,000 13,574,000 Total liabilities 64,314,000 40,727,000 Commitments and contingencies Stockholders’ equity Series A and B 8 1/4% cumulative convertible preferred stock 773,000 776,000 Series C cumulative convertible preferred stock 250,000 250,000 Common stock, Class A - nonvoting 8,734,000 8,733,000 Common stock, Class B - voting 21,213,000 21,213,000 Capital paid in excess of par value 35,046,000 35,044,000 Retained earnings 226,138,000 216,349,000 Treasury stock, at cost (50,031,000) (49,994,000) ‘Accumulated other comprehensive income 3,313,000 2,630,000 Total stockholders’ equity 245,436,000 235,001,000 Total liabilities and stockholders’ equity $ 309,750,000 __$__ 275,728,000 ‘See accompanying summary of accounting policies and notes to consolidated financial statements. HANOVER FOODS CORPORATION 2020 ANNUAL REPORT TO SHAREHOLDERSConsolidated Statements of Earnings Years ende May 31, 2020 June 2, 2019 Net sales $ 401,025,000 $$ 395,018,000 Cost of goods sold 359,653,000 363,180,000 Gross profit 41,372,000 31,838,000 Selling expenses 13,234,000 13,564,000 Administrative expenses 16,209,000 47,920,000 Operating profit 11,929,000 354,000 Interest expense (228,000) (332,000) Other income, net 1,591,000 4,602,000 Earnings before income taxes 13,292,000 1,624,000 Income taxes 2,882,000 (967,000) Net earnings 10,410,000 2,591,000 Dividends on preferred stock 41,000 41,000 Net earnings attributable to common stock $10,369,000 $_ 2,550,000 eens eta net ‘See accompanying summary of accounting policies and notes to consolidated financial statements. HANOVER FOODS CORPORATION 2020 ANNUAL REFORTTO SHAREHOLOERSConsolidated Statements of Comprehensive Income Years ended, May 31, 2020 June 2, 2019 Net earnings. $10,410,000 $2,591,000 ‘Other comprehensive income Unrealized loss on securities, net of reclassification adjustments (net of taxes) (123,000) (34,000) Minimum pension liability adjustment (net of taxes) 1,064,000 668,000 Foreign translation adjustment (60,000) (133,000) Other comprehensive income 881,000 501,000 $_11,291,000 $3,092,000 Comprehensive income. HANOVER FOODS CORPORATION 2020 ANNUAL REPORT TO SHAREHOLDERS jes and notes to consolidated financial statements.SNoOWen Consolidated Statements of Stockholders’ Equity Cumulative Convertible Total Preferred Stock ‘Cumulative Convertible Stockholders’ Series AandB Preferred Stock SeriesC__Common Stock Class A Equity “Shares ‘Amount “Shares ‘Amount “Shares “Amount Balance, June 3, 2018 $232,855,000 31,056 5776000 10,000 $250,000 349,353 $8,733,000 Net earnings 2,591,000 - - s - : - Cash dividends per share: Preferred - $2.0625 annually (41,000) - : - : - - Common - $1.10 annually (78,000) - - - - - - Repurchase of Class B Stock from Employee Stock Ownership Plan Class B 879 shares (127,000) - - : - - - Other comprehensive income 501,000. - : : - : - Balance, June 2, 2019 235,007,000 31,056 776,000 10,000 250,000 349,353 8,733,000 Neteamings ~~«STaTON- SCSCSC~C“=~sCSC<‘ ; COSC Cash dividends per share: Preferred - $2.0625 annually (41,000) - - : - : : Common - $1.10 annually (778,000) - : - - - - Repurchase of Class B Stock from Employee Stock Ownership Plan lass B 271 shates (37,000) - : - - - - Stock conversion - (120) (3,000) = : 9 1,000 Reclassification adjustment due to accounting change, net oftax -- - - : - - Other comprehensive income 881,000 - : : : : : Balance, May 31, 2020 '$245,436,000 30,936 $773,000 10,000 _$250,000 _349,362_ $8,734,000 8 HANOVER FOODS CORPORATION 2070 ANNUAL REPORT TO SHAREHOLDERSConsolidated Statements of Stockholders’ Equity Accumulated Capital Paid Other ‘Common Stock Class B in Excess of Retained Treasury Stock Comprehensive Shar ‘Amount Par Value Earnings ‘Shares ‘Amount Income (Loss) At core ss) 850,572 $21,213,000 __ $35,044,000 $24,577,000 500,071 _$(49,867,000) $2,129,000 - - - 2,591,000 - - : - - - (41,000) ji : - S 7 : (778,000) = . - : - : 879 (127,000) - - - - : : : 501,000 850,572 21,213,000 35,044,000 216,349,000 500,950 (49,994,000) 2,630,000 : ~ 10,410,000 ~ > = = « (41,000) * EE ” fi : = (778,000) - e : : - - - a (37,000) : . - 2,000 - - - - - - : 198,000 : - (198,000) = 7 : : S - 881,000 850,572 $21,213,000 _ $35,046,000 $26,138,000 501,221 _$(50,031,000) $3,313,000 ‘See accompanying summary of accounting policies and notes to consolidated financial statements HANOVER FOODS CORPORATION 2020 ANNUAL REPORT'TO SHAREHOLDERS 2Consolidated Statements of Cash Flows Years ended, May 31, 2020 June 2, 2019 Cash flows from operating activities Net earnings $ 10,410,000 § 2,591,000 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation and amortization 8,527,000 8,343,000 Deferred income taxes 3,185,000 993,000 Goodwill and intangible asset impairment : 2,143,000 Gain on disposal of fixed assets (187,000) (165,000) Change in operating assets and liabilities ‘Accounts receivable, net (1,872,000) (668,000) Inventories, net (13,655,000) 8,265,000 Prepaid assets, other assets and other 3,833,000 796,000 Accounts payable and accrued expenses 3,417,000 (2,528,000) Income taxes receivable / payable (388,000) (2,783,000) Other liabilities (1,336,000) (498,000) Net cash provided by operating activities 11,934,000 16,489,000 Cash flows used in investing activities ‘Acquisitions of property, plant, and equipment (20,782,000) (15,260,000) Proceeds from disposition of property, plant, equipment : 1,000 Net cash used in investing activities (20,782,000) (15,259,000) Cash flows from financing activities Net proceeds on notes payable of line of credit 14,835,000 605,000 Repurchase of stock (37,000) (127,000) Payment of dividends (819,000) (819,000) Net cash used in financing activities 13,979,000 (341,000) ‘Change in cash and cash equivalents 5,131,000 889,000 Cash and cash equivalents, beginning of year 9,515,000 8,626,000 Cash and cash equivalents, end of year $ 14,646,000 __§ _9,515,000 Supplemental disclosure of cash paid for: Interest $ 221,000 $ ~—-322,000 Income taxes $705,000 $__697, 000 “See accompanying summary of accounting policies and notes to consolidated financial statements. rT HANOVER FOODS CORPORATION 2020 ANNUAL REPORT TO SHAREHOLDERSDescription of Business Hanover Foods Corporation, together with its wholly owned subsidiaries (collectively “the Company”) is a vertically-integrated processor of food products in one industry segment. The Company is involved in the growing, processing, canning, freezing, packaging, marketing, and distribution of its products under its own trademarks as well as other branded, customer, and private labels primarily to retail, foodservice and industrial customers primarily in the Eastern United States from Maine to Florida. The Company has operations in ten plants in Pennsylvania, one plant in Delaware, one plant in Maryland, one plant in New Jersey and two plants in Guatemala. The Company's raw materials are readily available and the Company is not dependent on a single supplier or a few suppliers. Revenue Recognition The Company adopted Financial Statement Accounting Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”) as of June 4, 2018. The Company implemented new policies, processes and systems to enable both the Preparation of financial information and internal controls over financial reporting amounts reported in connection with its adoption of ASC 606. The adoption of ASC 606 did not have a material impact on the amounts reported in the Company's consolidated financial statements. The Company manufactures and sells the following: ~ Branded products under the Company’s proprietary brands; ~ Private label products to retailers under the retailers’ own labels; ~ Private label and branded products to the food service industry including foodservice distributors and national restaurant operators; and ~ Products to the Company's industrial customer base for repackaging and for use as ingredients. The Company has three product category groups with the following disaggregated net sales: Years ended, May 31, 2020 June 2, 2019 Frozen and canned vegetables $ 353,216,000 $ 337,214,000 Snacks 40,318,000 44,627,000 Other 7,491,000 13,177,000 Total net sales 401,025,000 $ 39 8,000 A performance obligation is a promise in a contract to transfer a distinct good or service to the Customer and is the unit of account for revenue recognition. Under ASC 606, a contract’ transaction Price is allocated to each distinct performance obligation and recognized as revenue when the HANOVER FOODS CORPORATION 2020 ANNUAL REPORT TO SHAREHOLDERS2 (HANOVER Summary of Accounting Policies performance obligation is satisfied. The Company's performance obligation is the delivery of food products. Performance obligations are generally satisfied within one year. Revenue recognition is completed primarily at a point in time basis when product control is transferred to the customer. In general, control transfers to the customer when the product is shipped and the customer can direct the use and obtain substantially all of the remaining benefits from the asset. Customer contracts generally do not include more than one performance obligation. The performance obligation is generally satisfied within one year. The Company does not have material contract assets or liabilities arising from contracts with customers. ‘The Company’s customer contracts identify the product, quantity, price, payment and final delivery terms. Payment terms usually include early pay discounts. The Company grants payment terms consistent with industry standards. Although some payment terms may be more extended, no terms beyond one year are granted at contract inception. Payments are generally received within 60 days or less from the sale and as such, there are no significant financing components. All shipping and handling costs associated with outbound freight are included in the cost of sales. In addition to fixed contract consideration, some contracts include some form of variable consideration. Trade promotions are an important component of the sales and marketing of the Company's branded products, and are critical to the support of the business. Trade promotion costs, which are recorded as a reduction of sales, include amounts paid to retailers to offer temporary price reductions for the sale of products to consumers. Accruals for trade promotions are recorded primarily at the time of sale to the retailer based on expected levels of performance. Settlement of these liabilities typically occurs in months subsequent to the sale primarily through an authorized process for deductions taken by a retailer from amount otherwise due to the Company. As a result, ‘the ultimate cost of a trade promotion program is dependent on the actions and level of deductions taken by retailers. Final determination of the permissible deduction may take extended periods of time. Fiscal Year End ‘The Company's fiscal year ends at the close of operations on the Sunday nearest to May 31. The fiscal years ended May 31, 2020 and June 2, 2019 were both comprised of 52 weeks. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Hanover Foods Corporation and its wholly owned subsidiaries, which are Spring Glen Fresh Foods, Inc., Bickel’s Snack Foods, Inc., Aunt Kitty's Foods, Inc., Alimentos Congelados, S.A. (formerly Mayapac S.A.), The American Waffle Company, LLC (“AWC”) and Hanover Asset Protection Corporation. HANOVER FOODS CORPORATION 2020 ANNUAL REPORT TO SHAREHOLDERSSummary of Accounting Policies Hanover Asset Protection Corporation has two wholly owned subsidiaries, Nittany Corporation and Hanover Funding, Inc. Nittany Corporation has a wholly owned subsidiary, Sunwise Company. A\l significant intercompany profits, accounts, and transactions have been eliminated upon consolidation. Concentration of Credit Risk Financial instruments that potentially subject the Company to credit risk consist of trade receivables. Wholesale and retail food distributors comprise a significant portion of the trade receivables; collateral is not required. The risk associated with the concentration is generally limited due to the large number of wholesalers and retailers and their geographic dispersion. Cash and Cash Equivalents Cash equivalents of $14,646,000 as of May 31, 2020 and $9,515,000 as of June 2, 2019 consist of short-term interest-bearing investments with original maturities of less than three months. For Purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with original maturities of three months or less to be cash equivalents. The cash balance in the Company’s U.S. bank accounts may exceed federally insured limits. Certain cash accounts are maintained in foreign banks which are not covered by deposit insurance. Trade Accounts Receivable Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable. The Company determines the allowance based on historical write-off experience, current market, and customer factors. Inventories Inventories are stated at the lower of cost (determined by average cost) or net realizable value, including provisions for obsolescence commensurate with known or estimated exposures. Inventories are shown net of a valuation reserve of $2,117,000 at May 31, 2020 and $1,711,000 at June 2, 2019. Property, Plant, and Equipment Property, plant, and equipment are stated at cost. Expenditures for maintenance and repairs are expensed as incurred; additions and improvements that materially increase the lives of the related assets are capitalized. Upon retirement, sale, or other disposition of property, plant, and equipment, cost and accumulated depreciation are eliminated from the accounts and gain or loss is included in operations. HANOVER FOODS CORPORATION 2020 ANNUAL REPORT TO SHAREHOLDERS(HANOVER; Summary of Accounting Policies Depreciation on property, plant, and equipment fs calculated on the straight-line method over the estimated useful lives of the assets. Estimated useful lives range from approximately 3 years to 12 years for equipment and up to 40 years for buildings. Accelerated methods are used for tax reporting purposes. Depreciation expense for the years ended May 31, 2020 and June 2, 2019 was $8,427,000 and $8,087,000, respectively. Goodwill and Intangible Assets Financial Statement Accounting Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 350 requires the Company to perform an impairment test of the goodwill annually, or during the year if an event or other circumstance indicates that it may not be able to recover the carrying amount of the asset. The Company has chosen its fiscal year end as the date to perform the annual impairment test of goodwill. In the first step of evaluating goodwill for impairment, the Company compares the estimated fair value of the reporting unit with its carrying value. If the estimated fair value of the reporting unit exceeds its carrying amount, no further analysis is needed. If the estimated fair value of the reporting unit is less than its carrying amount, the Company proceeds to the second step of the test to calculate the implied fair value of the reporting unit goodwill in order to determine whether any impairment is required. The Company calculates the implied fair value of the reporting unit goodwill by allocating the estimated fair value of the reporting unit to all of the assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. If the carrying value of the reporting unit's goodwill exceeds the implied fair value of the goodwill, the Company recognizes an impairment loss for that excess amount. In allocating the estimated fair value of the reporting unit to all of the assets and liabilities of the reporting unit, the Company uses industry and market data, recent appraisals and knowledge of the industry and past experiences. The Company bases its calculation of the estimated fair value of a reporting unit on a combined income and market approach. For the income approach, the Company uses discounted cash flow ‘models that include, among others, the following assumptions: projections of revenues and expenses and related cash flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated discount rates. The Company bases these assumptions on historical data and experience, third-party appraisals, industry projections, micro and macro general economic condition projections, and its own expectations. For the market approach, the Company uses analyses based primarily on market comparables and assumptions about market capitalization rates, growth rates, and inflation. In August 2018, the Company ceased operating its direct store delivery business. As a result, the Company recorded an impairment charge of $2,143,000 related to shelf rights and customer relationships intangible assets. The impairment charge is included in Administrative expenses in the Consolidated Statements of Earnings for the year ended June 2, 2019. HANOVER F000 CORPORATION 2020 ANNUAL REPORT TO SHAREHOLDERSSummary of Accounting Policies Intangible assets consist of the Company's trademarks, recipes and customer relationships. The trademarks were determined not to have a finite life and are not amortized. The gross carrying amount of these indefinite life assets was $4,227,000 at both May 31, 2020 and June 1, 2019. Customer relationships and recipes are amortized over a period ranging from 13 to 15 years. The gross carrying amount of these finite life assets was $1,390,000 at both May 31, 2020 and June 2, 2019. Accumulated amortization of these finite life assets was $987,000 and $887,000 at May 31, 2020 and June 2, 2019, respectively. Amortization expense was $100,000 and $256,000 for the years ended May 31, 2020 and June 2, 2019, respectively. Amortization for the next five years is expected to be approximately $100,000 per year. In accordance with FASB ASC Topic 350, the Company performs an annual review of its indefinite life intangible assets to determine whether impairments exist. As of May 31, 2020 and June 2, 2019, the Company did not recognize any impairment charges related to these assets. Impairment of Long-Lived Assets Long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized equal to the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Fair Value Measurements Generally accepted accounting principles (“GAAP”) establishes a hierarchy used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements Wolving significant unobservable inputs (Level 3 measurements) as follows: Level 1 Valuation is based on unadjusted quoted prices for identical assets or liabilities in active markets, Level 2 Valuation is based on quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data in correlation or other means. Level 3 Valuation is based on unobservable inputs in which little or no market data is available. HANOVER FO00S CORPORATION 2020 ANNUAL REPORT TO SHAREHOLDERS6 Summary of Accounting Policies The Company’s securities investments that are bought and held principally for future corporate needs are classified as available for sale securities, are all Level 1 in the fair value hierarchy, and represent the Company’s only significant asset or liability measured at fair value on a recurring basis. At May 31, 2020 and June 2, 2019, there was $2,738,000 and $7,599,000, respectively, of marketable equity and debt securities included in Other Assets. In January 2016, the FASB issued guidance which requires an entity to measure equity investments at fair value with changes in fair value recognized in net income. Under prior guidance, changes in fair value of equity investments available for sale were recognized in accumulative other comprehensive income. The Company adopted this guidance at the beginning of the current fiscal year and recorded $198,000, net of tax, reclassification adjustment between retained earnings and accumulative other comprehensive income. The marketable debt securities available for sale are recorded at fair value with the change in fair value during the period included in accumulated other comprehensive income. The amortized costs, unrealized gains and losses and fair market values of the marketable debt securities available for sale at May 31, 2020 and June 2, 2019 are as follow: Years ended, May 31, 2020 June 2, 2019 Cost $ 773,000 $ 3,048,000 Unrealized Gains (Losses) 26,000 (15,000) Fair Value § 799,000 $ 3,033,000 Goodwill and intangible assets reflect the Company's assets measured at fair value on a nonrecurring basis using Level 3 inputs when there is a write down to fair value, totaling $3,923,000 and $4,630,000 for the year ended May 31, 2020, and $3,923,000 and $4,730,000 for the year ended June 2, 2019, respectively. As described above, impairment charges related to finite lived intangible assets totaled $2,143,000 for the year ended June 2, 2019. Insurance Reserves ‘The Company carries commercial insurance for most business risks but is self-insured with respect to certain liabilities, namely workers’ compensation claims, for which excess insurance coverage is maintained. The liability related to workers’ compensation is included in Accrued Expenses on the Consolidated Balance Sheets. It includes provisions for claims reported and claims incurred but not reported based upon the advice of the primary insurer on the ultimate liability of the Company. In the absence of such an evaluation, the provision is based upon the best estimate of the ultimate liability of the Company considering historical claims experience and cost trends. The reserve is not reported on a discounted basis. The Company recorded a liability of $3,536,000 and $3,948,000 as of May 31, 2020 and June 2, 2019, respectively. HANOVER FOODS CORPORATION 2020 ANNUAL REPORTTO SHAREMOLDERSSummary of Accounting Policies Environmental Liability The Company is involved with environmental compliance and remediation efforts related to its Vineland, New Jersey site. The Company accrues environmental liabilities for which costs or minimum costs can be reasonably estimated. All accrued amounts are recorded on a discounted basis. The long-term portion of environmental-related accruals is included in other long-term liabilities while current portions are accrued in current liabilities on the Consolidated Balance Sheets. Such accruals are adjusted as further information develops or circumstances change. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Prior to the 2017 tax year, earnings of foreign operations are reinvested in the business and no provision for domestic income tax or foreign withholding tax is made on such earnings until distributed, however a ‘transition tax’ is now contemplated (see Note 6). The Company recognizes the effect of uncertain tax positions only if those positions are more likely than not of being sustained. Recognized positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period ‘in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits within income taxes in the Consolidated Statement of Earnings. Research and Development Research and development costs are expensed as incurred. Research and development costs amounted to $1,206,000 and $1,276,000, for the years ended May 31, 2020 and June 2, 2019, respectively. The expense related to research and development is included in Administrative expenses on the Consolidated Statements of Earnings. Advertising Costs Advertising costs are expensed as incurred. Advertising expenses amounted to $699,000 and $918,000 for the years ended May 31, 2020 and June 2, 2019, respectively. HANOVER E00DS CORPORATION 2020 ANNUAL REPORT TO SHAREHOLDERSSummary of Accounting Policies Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Contracts In the normal course of business, the Company entered into various contracts to purchase produce. These contracts do not qualify as derivatives under the guidance of FASB ASC Topic 815, and Hedging,” and are excluded from mark-to-market accounting. HANOVER FOODS CORPORATION 2020 ANNUAL REPORT TO SHAREHOLDERS(Dp EINoV=ian Notes to the Consolidated Financial Statements 1. Notes Payable - Lines of Credit The Company maintains short-term unsecured lines of credit with various banks providing credit availability amounting to $95,000,000 at both May 31, 2020 and June 2, 2019, of which $12,445,000 and $0 was borrowed at May 31, 2020 and June 2, 2019, respectively. The Company borrows funds under these lines of credit under a method where the cost of short-term borrowings is based upon LIBOR plus 1.00% to 1.25%. The weighted-average interest rate on short-term borrowings at May 31, 2020 and June 2, 2019 and was 2.15% and 3.36%, respectively. The $45 million credit agreement and $50 million seasonal borrowing agreement with financial institutions expire on December 31, 2020 and December 15, 2020, respectively, and contain various restrictive provisions including those relating to mergers and acquisitions, additional borrowing, guarantee of obligations, lease commitments, limitations to declare or pay dividends, repurchase stock, and the maintenance of working capital and certain financial ratios and changes in control. As of May 31, 2020, the Company was in compliance with all restrictive financial provisions in these agreements. From time to time, the Company may have overdraft payables with these financial institutions that, for financial reporting purposes, are classified within Notes Payable - Lines of Credit of the Consolidated Balance Sheets. 2. Leases The Company has various operating leases, primarily for equipment, that expire over the next several years. These leases generally contain renewal options for periods ranging from three to five years and require the Company to pay all executory costs such as maintenance and insurance. In February 2016, the FASB issued guidance on lease accounting which requires that an entity recognize most leases on its balance sheet. The guidance retains a dual lease accounting model for Purposes of income statement recognition, continuing the distinction between what are currently known as “capital” and “operating” leases for lessees. The Company adopted the guidance on June 3, 2019. The Company elected the package of practical expedients available under the lease accounting guidance and made an accounting policy election to exclude short-term leases with an initial term of 12 months or less from the Consolidated Balance Sheets. ‘As a result of adoption, we recognized $5,891,000 each for a right-of-use asset and lease liability in the consolidated financial statements. The adoption did not impact the opening balance of retained earnings, the consolidated statements of earnings or cash flows. ‘The discount rate for leases if not explicitly stated in the lease, is the incremental borrowing rate, which is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The Company used the discount rate to calculate the present value of the lease liability at the date of HANOVER FOODS CORPORATION 2020 ANNUAL REPORT TO SHAREHOLDERS20 Notes to the Consolidated Financial Statements adoption. As of June 3, 2019, the weighted-average discount rate of the Company’s operating leases was 3.5%. The total operating lease costs in Cost of goods sold and Operating profit during the year ended May 31, 2020 were $1,421,000. The cash paid for amounts included in the measurement of lease liabilities during the year-end May 31, 2020 is $1,421,000. Rental expense for operating leases during the years ended May 31, 2020 and June 2, 2019 amounted to $3,209,000 and $4,622,000, respectively. As of May 31, 2020, future minimum lease payments under operating leases (with initial lease terms {in excess of one year) are as follows: Years ending, 2021 s 1,496,000 2022 1,405,000 2023 1,223,000 2024 630,000 2025 and thereafter 321,000 Total minimum lease payments $ 5,075,000 Less amount representing interest 398,000 Total minimum lease payments 7,000, As of May 31, 2020, the total amount of principal payments due within one year and beyond one year is $1,332,000 and $3,345,000, respectively. These amounts are recorded in the Consolidated Balance Sheets as of May 31, 2020. The weighted-average remaining term of the operating leases is 2.4 years. 3. Capital Stock The Company's capital stock consists of Class A Non-Voting Common Stock, Class B Voting Common Stock, 8 1/4% Series A and B Cumulative Convertible Preferred Stock, and 4.4% Series C Cumulative Convertible Preferred Stock. Holders of Class B Common Stock have one vote per share. No other classes of stock have voting rights except as discussed below. During fiscal year 2001, the Company established an Employee Stock Trust (the “Trust”) to fund future stock-related and other obligations of the Company’s compensation and benefit plans, including a concurrently established Employee Stock Ownership Plan (“ESOP”). For financial reporting purposes, the Trust is consolidated with the Company. On April 26, 2013, the Company purchased for its treasury, from the Trust, all 340,180 shares of Class B Common Stack owned by the Trust for $110 per share and issued a Promissory Note (“Note”) for $37,419,800 representing the full purchase price. All proceeds of such Note are to be used by the Trust to fund and/or to HANOVER FOODS CORPORATION 2029 ANNUAL REPORT TO SHAREHOLDERSNotes to the Consolidated Financial Statements es facilitate the operations of Designated Employee Benefit Plans maintained or to which there is an obligation to contribute for the benefit of employees of the Company or any of its subsidiaries (regardless of tier) who continue after the date of the Note to remain beneficiaries of the Trust. The term “Designated Employee Benefit Plans” means the medical plan, life insurance plan, long- term disability plan, 401(k) plans, and other employee benefit plans now or hereafter maintained by the Company or any of its subsidiaries (regardless of tier) or to which the Company or any of its subsidiaries (regardless of tier) have an obligation to contribute. As of May 31, 2020 and June 2, 2019, the Trust owned no shares of the Company's Class B Common Stock. On April 26, 2013, the Company also decided to terminate the ESOP, to provide no further benefits for ESOP participants, and all participants in the ESOP were fully vested in their respective accounts as of that date. As of May 31, 2020 and June 2, 2019, the ESOP owned 8,276 and 8,547 shares of Class B Common Stock, respectively. During fiscal year 2020, the Company repurchased 271 shares from ESOP participants for a total purchase price of approximately $37,000. During fiscal year 2019, the Company repurchased 879 shares from ESOP participants for a total purchase price of approximately $127,000 The following summarizes the number of shares of the Company's capital stock: May 31, 2020 Issued Outstanding Series A 8 4% cumulative convertible preferred stock - $25 Par value, 60,000 shares authorized 14,948 6,228 Series B 8 4% cumulative convertible preferred stock - $25 Par value, 60,000 shares authorized 15,988 8,216 Series C 4.4% cumulative convertible preferred stock - $25 Par value, 10,000 shares authorized 10,000 10,000 Class A non-voting common stock - $25 Par value, 800,000 shares authorized 349,362 285,183 Class B voting common stock - $25 Par value, 880,000, shares authorized 850,572 430,022 dune 2, 2019 Issued Outstanding Series A 8 4% cumulative convertible preferred stock - $25 Par value, 60,000 shares authorized 14,948 6,228 Series B 8 4% cumulative convertible preferred stock - $25 Par value, 60,000 shares authorized 16,108 8,336 Series C 4.4% cumulative convertible preferred stock - $25 Par value, 10,000 shares authorized 10,000 10,000 Class A non-voting common stock - $25 Par value, 800,000 shares authorized 349,353 285,174 Class B voting common stock - $25 Par value, 880,000 shares authorized 850,572 430,293 HANOVER FOODS CORPORATION 2020 ANNUAL REFORT'TO SHAREHOLDERS 22 i" Notes to the Consolidated Financial Statements At any time, the holders of the Series A and B Cumulative Convertible Preferred Stock have the option to convert their shares to shares of Class A Non-Voting Common Stock based on the book value of the Class A Non-Voting Common Stock at the time of conversion. At May 31, 2020, 13.69 shares of Series A or B Preferred Stock could be converted into one share of Class A Non-Voting Common Stock. 4, Related Party Transactions ‘The Company and its subsidiaries, in the normal course of business, may purchase and sell goods and services to related parties. The Company purchased $1,188,000 and $716,000 of vegetable crops from Lippy Brothers, Inc. through the normal course of business for the years ended May 31, 2020 and June 2, 2019, respectively. The President of Lippy Brothers, Inc. isa member of the Company’s Board of Directors. 5, Employee Benefits (a) Defined Contribution Plan The Company offers a 401(k) plan covering certain of its employees. The Company makes an employer matching contribution equal to 50% for union and non-union employee’s salary deferral Up to 5.0% of the employee's annual salary for the years ended May 31, 2020 and June 2, 2019. Effective July 25, 1997, the plan was amended to permit matching contributions to be made in cash and/or securities of the Company. The Company's contribution to the 401(k) plan for the years ended May 31, 2020 and June 2, 2019 was $557,000 and $521,000, respectively. (b) Single Employer - Company Sponsored Defined Benefit Pension Plan Certain employees are members of the United Food and Commercial Workers Union 56 (UFCW) from New Jersey. The agreement provides for a union defined benefit pension, which the Company offers to eligible employees who are members of the UFCW. On April 1, 2004, the Company acquired the assets of Venice Maid Foods. In connection with the acquisition, the Company assumed the existing defined benefit pension plan, now known as the Aunt Kitty’s Foods, Inc. Pension Plan (the Plan). The Plan was frozen in September 2008. In October 2018, the Company terminated the Plan by either paying participants a single ump sum amount or by purchasing an annuity for the participants from a financial institution. As a result of the termination, the Company recognized $956,000 in the Consolidated Statements of Earnings, the net unrecognized actuarial loss that was previously reported in the Accumulated other comprehensive income. Since the termination of the Plan, the Company does not have any continuing involvement with the Plan or the annuities purchased for the participants. HANOVER FOODS CORPORATION 2020 ANNUAL REPORTTO SHAREHOLDERS.Notes to the Consolidated Financial Statements SS During the year ended June 2, 2019, the Plan's investments were liquidated to purchase annuities for the Plan’s termination as described above which were all previously categorized as level 1 investments under the GAAP fair value hierarchy. (c) Multi-employer Plan ‘The Company contributes to the UFCW Local 1776 and Participating Employers Pension Fund 23- 6461717/001) (‘UFCW Plan") for certain union employees. For the fiscal years 2020 and 2019, contributions to the UFCW Plan were $352,000 and $437,000 million, respectively. The contributions to this plan are paid monthly based upon the number of hours worked by covered employees. They represent less than 5% of the total contributions received by this plan during the most recent plan year. The risks of participating in multi-employer plans are different from single-employer plans in the following aspects: (a) assets contributed to a multi-employer plan by one employer may be used to provide benefits to employees of other participating employers, (b) if a participating ‘employer stops contributing to the multi-employer plan, the unfunded obligations of the plan may be borne by the remaining participating employers and (c) if the Company chooses to stop participating in the plan, the Company may be required to pay a withdrawal liability based on the underfunded status of the plan. The UFCW Plan received a Pension Protection Act “green” zone status for the plan year beginning January 1, 2018. The zone status is based on information the Company received from the plan and is certified by the plan's actuary. Among other factors, plans in the green zone are at least 80 percent funded. (d) Employment and Deferred Compensation Agreements The Company entered into employment agreements with certain key officers. The employment agreements provide for annual supplemental pension benefits, commencing upon the earlier of (a) five years after termination of the employee (or one year following his death or disability) or (b) the date of retirement, payable during the life of each covered employee and after one ‘employee’s death, the life of his spouse. All persons covered by these agreements are retired and / or deceased as of May 31, 2020. Such annual supplemental pension benefits are equal to 60% of average total compensation (including bonuses) over the latest three-year period prior to retirement. Supplemental pension benefits are reduced based upon an established formula to the extent the employee retires prior to age 65. The net present value of the cost of providing these future benefits is recognized by the Company over the remaining expected years of service. The net periodic pension expense recognized under these agreements was approximately $421,000 and $478,000, for the years ended May 31, 2020 and June 2, 2019, respectively. The projected benefit obligation was approximately $12,336,000 and $14,656,000 at May 31, 2020 and June 2, 2019, respectively. For HANOVER FOODS CORPORATION 2020 ANNUAL REPORT'TO SHAREHOLDERS 23m4 Notes to the Consolidated Financial Statements the years ended May 31, 2020 and June 2, 2019, $1,220,000 and $1,205,000, respectively were contributed by the Company and distributed to retirees and / or the surviving spouse. The current portion of the projected benefit obligation is included in Accrued Expenses and long-term portion included in Other Liabilities on the Consolidated Balance Sheets. Expected cash flows for the Company's future benefit payments expected to be paid from plan or Company assets for its deferred compensation plan are as follows: Years ending, 2024 $ 1,221,000 2022 1,160,000 2023 1,117,000 2024 1,170,000 2025 1,018,000 2026-2030 4,189,000 (e) Employee Stock Ownership Plan ‘The Company had a noncontributory ESOP in which substantially all non-union employees were eligible to participate. Effective April 2013, the Board of Directors voted to terminate the ESOP, which resulted in freezing future contributions and current participants becoming fully vested in their benefits. Prior to the ESOP termination, the Company made annual contributions to the ESOP in an amount determined by a resolution of the Board of Directors. Compensation expense is recorded for the amount of the annual contribution to the plan as determined by resolution of the Board of Directors of the Company. As a result, there was no stock compensation expense during both fiscal years 2020 and 2019. 6. Income Taxes Income tax expense (benefit) attributable to earnings from operations consists of: Year Ended May 31, 2020 Current Deferred Total U.S. Federal $ (829,000) $ 2,475,000 $ 1,646,000 State 497,000 489,000 986,000 Foreign 250,000 : 250,000 82,000) $ 2,964,000 $ 2,882,000 HANOVER FOODS CORPORATION 2020 ANNUAL REPORT TO SHAREHOLDERSNotes to the Consolidated Financial Statements Year Ended June 2, 2019 Current Deferred Total U.S. Federal $ (2,309,000) $ 991,000 $ (1,318,000) State 201,000 (139,000) 62,000 Foreign 289,000 : 289,000 S__ (1,819,000) _$___852,000_$__ (967,000) Areconciliation of the Company's effective tax rate to the amount computed by applying the federal income tax rate (21.0% for fiscal years 2020 and 2019) to earnings before taxes attributable to earnings from operations expressed in percentages follows: Years Ended, May 31, 2020 June 2, 2019 Federal income tax rate 21.0 % 21.0% Increase (decrease) in taxes: State taxes - net of federal tax benefit 6.6 4.3 Taxes related to foreign subsidiaries 8 18.4 Federal RED credits and Section 199 (0.1) (10.9) Tax rate change (TCJA) 6 16.9 ‘Adjustment for amended returns (10.6) : Change in uncertain tax positions and other permanent items (0.7) (106.2) Effective income tax rate 21.6% (59.5)% (On March 27, 2020 the Coronavirus Aid, Relief and Economic Security Act ("CARES"), which included a variety of corporate tax provisions including two technical corrections from the Tax Cuts and Jobs Act that were applicable to the Company. As a result of the CARES Act, the Company was able to amend previously filed tax returns to increase its taxable loss for Fiscal Year 2018 and Fiscal Year 2019 through additional depreciation deductions. The losses generated were then carried back to years prior to Fiscal Year 2018, which is anticipated to result in cash tax refunds of $2.1 million. This also created a $1.0 million impact on the effective tax rate for the year ended May 31, 2020. The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows: HANOVER FOODS CORPORATION 2020 ANNUAL REPORT TO SHAREHOLDERSNotes to the Consolidated Financial Statements 6 Asof, May 34, 2020 June 2, 2019 Deferred tax assets: Inventory costs $ 679,000 $ 521,000 Accrued expenses and other reserves 1,474,000 1,728,000 State net operating losses 1,617,000 1,876,000 Lease liability 981,000 Pension and postretirement benefits 3,979,000 4,221,000 Total gross deferred tax assets 8,730,000 8,346,000 Deferred tax liabilities: Depreciation (8,409,000) (6,273,000) Net unrealized gain on marketable securities (101,000) (101,000) Right of use asset (981,000) - Amortization and other (2,461,000) (2,009,000) Total gross deferred tax liabilities (11,952,000) (8,383,000) Net deferred tax (liability) asset (3,222,000) (37,000) Im assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and Projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences. The amount of the deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced. |n accordance with GAAP, the Company evaluates whether any unrecognized tax benefits related to certain tax positions taken on its various income tax returns should be recorded using a more likely than not threshold criteria. As of May 31, 2020 and June 2, 2019 the Company did not identify any uncertain tax positions taken or expected to be taken meeting the criteria and therefore no liability was recorded. For the year ended June 2, 2019, there was a release of the previously accrued unrecognized tax benefits, penalties, and interest of approximately $171,000, $93,000, and $49,000 respectively, included within income taxes in the Consolidated Statement of Earnings. As of May 31, 2020, the Company is subject to U.S. Federal income tax examinations for the tax years 2013, and 2015 through 2019. State net operating losses do not start expiring until fiscal year 2033. HANOVER FOODS CORPORATION 2020 ANNUAL REPORT TO SHAREHOLDERSNotes to the Consolidated Financial Statements 7. Commitments and Contingencies (a) Letter of Credit ‘At May 31, 2020, the Company had outstanding letters of credit of approximately $7,912,000 issued under an agreement, expiring December 31, 2020. The letters are maintained as security for the reimbursement of losses arising from the reinsurance assumed by the Company. The agreement provides a maximum commitment for letters of credit of $9,000,000, (b) Legal Matters The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters is not expected to have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. (c) Stock Repurchase Plan There were no shares of the Company's Class A Common Stock repurchased under the plan for the fiscal years ended May 31, 2020 and June 2, 2019. The Company has agreed to purchase the Company’s Class A Common Stock purchased or owned by employees prior to April 20, 1988 at appraised value. This guarantee of repurchase by the Company is for an indefinite period of time. As of May 31, 2020, there are 1,658 shares outstanding that would be eligible for this plan. The maximum commitment, if requested, for all eligible shares would be approximately $218,000 based on the most recent appraised value per share as of December 31, 2019. (d) Collective Bargaining Agreements Approximately 46% of the Company's workforce is covered under collective bargaining agreements with various unions under multiple agreements. As of May 31, 2020, the Company has agreements in place that are scheduled to expire at various times from December 2020 through March 2023. In April 2019, a certain group of employees at one of the Company's plants ceased to be subject, to a collective bargaining agreement. As a result, it is expected that the Company will experience a partial withdrawal from the UFCW Plan. As of May 31, 2020, the amount of the withdrawal liability to the UFCW Plan associated with the partial withdrawal is not reasonably estimable and therefore, the Company did not record an accrual for this contingency. (e) COVID-19 Pandemic On January 30, 2020 the World Health Organization ("WHO") announced a global health emergency because of a new strain of coronavirus. In March 2020, the WHO classified the COVID- HANOVER FOODS CORPORATION 2020 ANNUAL AEPORT TO SHAREHOLDERS 228 Notes to the Consolidated Financial Statements 19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the global situation and its impact on the Company's financial condition, liquidity, operations, suppliers, industry, and workforce. Specifically, the Company has experienced a change in its product revenue mix as well as implemented additional employee safety protocols. The change in revenue mix has resulted in higher sales of branded retail and private label products offsetting lower sales of food service products from March 2020 through June 2020. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, The Company is not able to estimate the effects that the COVID-19 outbreak will have on its results of operations, financial condition, or liquidity in fiscal year 2021. ‘As noted in Note 6, the CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvernent property. The Company will continue to examine the provisions of the CARES Act and is investigating whether any of these provisions will impact future tax years. 8. Foreign Operations The Company's foreign subsidiary, Alimentos Congelados, S.A. (formerly Mayapac, S.A.) produces food products in Guatemala, which are sold to the Company and its subsidiaries in the United States. The revenues generated by the operations in Guatemala and the assets employed in generating those revenues are as follows: ‘As of and for the years ended May 31, 2020 June 2, 2019 Net revenues $ 26,160,000 $ 27,016,000 Cost of goods sold 25,387,000 27,094,000 Assets 10,827,000 ___ 10,579,000 Alimentos Congelados, S.A. maintains its accounting records in Quetzals (“Q”). The financial position and results of operations of Alimentos Congelados, S.A. are measured using the foreign subsidiary’s local currency as the functional currency. Revenues and expenses of such subsidiaries have been translated into U.S. dollars at average exchange rates prevailing during the period, except for depreciation of fixed assets, which is based on the historical rate. Assets and liabilities have been translated at the rates of exchange on the balance sheet date. The resulting translation gain and loss adjustments are recorded directly as a separate component of stockholders’ equity. Foreign currency translation adjustments resulted in loss of $60,000 and $133,000, as of May 31, 2020 and June 2, 2019, respectively. At May 31, 2020, the prevailing exchange rate was Q.7.70 to U.S. $1.00. HANOVER FOODS CORPORATION 2020 ANNUAL REPORT TO SHAREHOLDERS(Oye NN Te=ia} Notes to the Consolidated Financial Statements Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated ina currency other than the functional currency are included in the results of operations under the caption “Other income - net”. Foreign currency transaction gains included in operations totaled $80,000 and $335,000, respectively for the years ended May 31, 2020 and June 2, 2019, respectively. The Company has recorded a receivable from the Guatemalan government amounting to $689,000 and $782,000, at May 31, 2020 and June 2, 2019, respectively, net of a valuation allowance of $119,000 for the value of taxes paid by the Company to the government, which are expected to be refunded. 9, Subsequent Events We have evaluated all events subsequent to the balance sheet date of May 31, 2020 through the date of issuance of these consolidated financial statements, July 17, 2020, and have determined there were no subsequent events that required disclosure in these consolidated financial statements. HANOVER FOODS CORPORATION 2020 ANNUAL REPORTTO SHAREHOLDERS 2»Officers and Board of Directors OFFICERS JEFFREY A. WAREHIME Chairman of the Board Chief Executive Officer J. ANDREW WAREHIME President GARY T. KNISELY, ESQ. STEVEN E. ROBERTSON Secretary Comptroller/Treasurer BOARD OF DIRECTORS JEFFREY A, WAREHIME J. ANDREW WAREHIME Chairman of the Board & CEO President Hanover Foods Corporation Hanover Foods Corporation JAMES G. STURGILL, CPA, CVA, ABV, CFF GARY T. KNISELY, ESQ. JENNIFER W. CARTER Partner Retired Assistant to the Chairman Sturgill & Associates LLP, Executive Vice President Hanover Foods Corporation an accounting firm, Westminster, MD Hanover Foods Corporation T. EDWARD LIPPY T. MICHAEL HAUGH LAWRENCE J. LAMAINA, JR President President Chairman of the Board Lippy Brothers, Inc,,a farming Hospitality Management Corporation, and Chief Executive Officer-Retired company Hampstead, MD a contract food service company Farmers Bank & Trust Company Abbottstown, PA EXECUTIVE OFFICES 1486 York Street, P.O. Box 334, Hanover, PA 17331-0334 717-632-6000 SHAREHOLDER INQUIRIES should be directed to the following office and address: Computershare 462 South 4th Street, Suite 1600 Louisville, KY 40202 Shareholder inqui www.computershare.com/investor All telephone inquiries should be made by using the toll-free telephone number 800-522-6645 Foreign Shareowners: 201-680-6578 LEGAL COUNSEL Blank Rome, LLP, Philadelphia, Pennsylvania » HANOVER FOODS CORPORATION 2020 ANNUAL REPORT TO SHAREHOLDERS