Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 25, 2004 Commission File Number 0-01989
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Seneca Foods Corporation
------------------------
(Exact name of Company as specified in its charter)
New York 16-0733425
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
3736 South Main Street, Marion, New York 14505
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(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code 315/926-8100
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Not Applicable
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Former name, former address and former fiscal year,
if changed since last report
Check mark indicates whether Company (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 (or for such shorter period that the Company was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
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Indicate by check mark whether the Company is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act).
Yes X No
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The number of shares outstanding of each of the issuer's classes of common stock
at the latest practical date are:
Class Shares Outstanding at October 31, 2004
Common Stock Class A, $.25 Par 3,950,380
Common Stock Class B, $.25 Par 2,764,005
PART I ITEM 1 FINANCIAL INFORMATION
SENECA FOODS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
Unaudited
9/25/04 3/31/04
------- -------
ASSETS
Current Assets:
Cash and Cash Equivalents $ 4,386 $ 4,570
Marketable Securities - 4,465
Accounts Receivable, Net 59,543 46,180
Inventories:
Finished Goods 383,948 202,573
Work in Process 42,307 15,365
Raw Materials 38,951 52,345
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465,206 270,283
Off-Season Reserve (Note 2) (41,380) -
Deferred Income Tax Asset, Net 6,615 6,615
Assets Held For Sale 2,655 2,931
Refundable Income Taxes 954 451
Other Current Assets 10,850 12,098
-------------- ---------------
Total Current Assets 508,829 347,593
Property, Plant and Equipment, Net 178,579 181,907
Other Assets 3,639 4,403
-------------- ---------------
Total Assets $691,047 $533,903
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes Payable $ 57,345 $ 58,395
Accounts Payable 171,051 37,362
Accrued Expenses 54,998 42,553
Current Portion of Long-Term Debt and Capital
Lease Obligations 27,523 21,519
--------------- ---------------
Total Current Liabilities 310,917 159,829
Long-Term Debt 154,445 154,428
Capital Lease Obligations 6,438 6,559
Deferred Income Tax Liability 15,133 15,048
Other Long-Term Liabilities 9,254 7,790
Commitments - -
10% Preferred Stock, Series A, Voting, Cumulative,
Convertible, $.025 Par Value Per Share 10 10
10% Preferred Stock, Series B, Voting, Cumulative,
Convertible, $.025 Par Value Per Share 10 10
6% Preferred Stock, Voting, Cumulative, $.25 Par Value 50 50
Convertible, Participating Preferred Stock, $12.00
Stated Value 41,268 41,268
Convertible, Participating Preferred Stock, $15.50
Stated Value 15,000 15,000
Common Stock 2,859 2,859
Paid in Capital 15,989 15,989
Accumulated Other Comprehensive Income - 2,324
Retained Earnings 119,674 112,739
--------------- ---------------
Stockholders' Equity 194,860 190,249
--------------- ---------------
Total Liabilities and Stockholders' Equity $691,047 $533,903
======== ========
<FN>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
</FN>
SENECA FOODS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF NET EARNINGS
(Unaudited)
(In Thousands, Except Per Share Data)
Three Months Ended
------------------
9/25/04 9/27/03
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Net Sales $ 219,140 $ 248,194
Costs and Expenses:
Cost of Product Sold 202,546 228,207
Selling, General, and Administrative 7,900 9,491
Plant Restructuring 619 -
------------------ -----------------
Total Costs and Expenses 211,065 237,698
------------------ -----------------
Operating Income 8,075 10,496
Other Income (net) (42) -
Interest Expense (net) 4,110 4,087
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Earnings Before Income Taxes 4,007 6,409
Income Taxes 1,562 2,499
------------------ -----------------
Net Earnings $ 2,445 $ 3,910
================= ================
Basic:
Earnings Per Common Share $ .22 $ .35
================= ================
Weighted Average Shares
Outstanding 11,126 11,126
================== =================
Diluted:
Earnings Per Common Share $ .22 $ .35
================= ================
Weighted Average Shares
Outstanding 11,193 11,193
================== ==================
<FN>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
</FN>
SENECA FOODS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF NET EARNINGS
(Unaudited)
(In Thousands, Except Per Share Data)
Six Months Ended
----------------
9/25/04 9/27/03
------- -------
Net Sales $ 382,773 $ 399,490
Costs and Expenses:
Cost of Product Sold 351,260 363,942
Selling, General, and Administrative 14,798 15,621
Plant Restructuring 619 -
------------------ -----------------
Total Costs and Expenses 366,677 379,563
------------------ -----------------
Operating Income 16,096 19,927
Other Income (net) (3,376) -
Interest Expense (net) 8,084 7,498
------------------ -----------------
Earnings Before Income Taxes 11,388 12,429
Income Taxes 4,441 4,847
------------------ -----------------
Net Earnings $ 6,947 $ 7,582
================= ================
Basic:
Earnings Per Common Share $ .62 $ .70
================ ================
Weighted Average Shares
Outstanding 11,126 10,803
================== ==================
Diluted:
Earnings Per Common Share $ .62 $ .70
================ =================
Weighted Average Shares
Outstanding 11,193 10,871
================== ==================
<FN>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
</FN>
SENECA FOODS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Six Months Ended
----------------
9/25/04 9/27/03
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Cash Flows From Operating Activities:
Net Earnings $ 6,947 $ 7,582
Adjustments to Reconcile Net Earnings
to Net Cash Provided by Operations:
Depreciation and Amortization 14,223 14,022
Gain on the Sale of Assets (3,904) -
Other Expense 528 -
Deferred Income Taxes 646 1,649
Changes in Working Capital:
Accounts Receivable (13,363) (15,030)
Inventories (194,923) (244,009)
Off-Season Reserve 41,380 61,784
Other Current Assets 1,248 (1,659)
Refundable Income Taxes 361 (510)
Accounts Payable, Accrued
Expenses, and Other Liabilities 147,466 178,620
------------------ -----------------
Net Cash Provided by Operations 609 2,449
------------------ -----------------
Cash Flows From Investing Activities:
Additions to Property, Plant,
and Equipment (11,278) (8,685)
Proceeds from the Sale of Assets 5,622 46,077
Acquisition - (113,691)
Cash Received with Acquisition - 2,560
------------------ -----------------
Net Cash Used in Investing
Activities (5,656) (73,739)
------------------ -----------------
Cash Flows From Financing Activities:
Borrowings on Notes Payable 122,071 240,011
Payments on Notes Payable (123,121) (238,712)
Proceeds from Issuance of Long-Term Debt 8,767 42,500
Payments of Long-Term Debt and Capital
Lease Obligations (2,867) (32,976)
Other 13 180
------------------ -----------------
Net Cash Provided by
Financing Activities 4,863 11,003
------------------ -----------------
Net (Decrease) in Cash and Cash
Equivalents (184) (60,287)
Cash and Cash Equivalents,
Beginning of Period 4,570 64,984
------------------ -----------------
Cash and Cash Equivalents,
End of Period $ 4,386 $ 4,697
================== ==================
<FN>
Supplemental information on non-cash investing and financing activities:
$16.1 million of Preferred Stock was issued in partial consideration for the CPF
acquisition. The Company assumed $9.1 million of long-term debt related to the
CPF acquisition (see Note 7).
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
</FN>
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In Thousands)
September 25, 2004
1. Unaudited Condensed Consolidated Financial Statements
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, which are
normal and recurring in nature, necessary to present fairly the
financial position of the Company as of September 25, 2004 and results
of its operations and its cash flows for the interim periods presented.
All significant intercompany transactions and accounts have been
eliminated in consolidation. The March 31, 2004 balance sheet was
derived from the audited consolidated financial statements.
The results of operations for the three and six month periods ended
September 25, 2004 are not necessarily indicative of the results to be
expected for the full year.
In the six months ended September 25, 2004, the Company sold for cash,
on a bill and hold basis, $66,875,000 of Green Giant finished goods
inventory to General Mills Operations, Inc. ("GMOI"). At the time of the
sale of the Green Giant vegetables to GMOI, title to the specified
inventory transferred to GMOI. In addition, the aforementioned finished
goods inventory was complete, ready for shipment and segregated from the
Company's other finished goods inventory. Further, the Company had
performed all of its obligations with respect to the sale of the
specified Green Giant finished goods inventory.
The accounting policies followed by the Company are set forth in Note 1
to the Company's Consolidated Financial Statements in the 2004 Seneca
Foods Corporation Annual Report and Form 10-K.
Other footnote disclosures normally included in annual financial
statements prepared in accordance with accounting principles U. S.
generally accepted accounting principles have been condensed or omitted.
These unaudited condensed consolidated financial statements should be
read in conjunction with the financial statements and notes included in
the Company's 2004 Annual Report and Form 10-K.
2. The seasonal nature of the Company's food processing business results in
a timing difference between expenses (primarily overhead expenses)
incurred and absorbed into product cost. All Off-Season Reserve balances,
which essentially represent a contra-inventory account, are zero at
fiscal year end. Depending on the time of year, Off-Season Reserve is
either the excess of absorbed expenses over incurred expenses to date or
the excess of incurred expenses over absorbed expenses to date. Other
than the first quarter of each year, absorbed expenses exceed incurred
expenses due to timing of production.
3. Comprehensive income consisted of net earnings and net unrealized gains
on securities classified as available-for-sale. The following table
provides the results for the periods presented:
Six Months Ended
----------------
9/25/04 9/27/03
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Net Earnings $6,947 $7,582
Other Comprehensive
Earnings, Net of Tax:
Net Reclassification of
Accumulated Other
Comprehensive Income (2,356) -
Net Unrealized Gains on
Investment 32 396
--------------------------
Comprehensive
Income $4,623 $7,978
==========================
4. Recently issued accounting standards have been considered by the Company
and are not expected to have a material effect on the Company's financial
position or results of operations.
5. Current quarter pre-tax results include a charge of $1,280,000 related to
the previously announced product recall which is included in Cost of
Product Sold in the Unaudited Condensed Consolidated Statements of Net
Earnings.
6. During the quarter ended September 25, 2004, the Company incurred a
$619,000 charge for severance expense related to exiting a line of
contract packing business which is included in Plant Restructuring in the
Unaudited Condensed Consolidated Statements of Net Earnings. In addition,
the Company incurred a $682,000 charge for inventory impairment which is
also related to exiting the same line of contract packing business and is
included in Cost of Product Sold in the Unaudited Condensed Consolidated
Statements of Net Earnings.
7. As previously reported, during the quarter ended June 26, 2004, the
Company sold its investment in the Class B Common Stock of Moog Inc. for
$4,578,000 and recorded a gain of $3,862,000 before income taxes, which
is included in Other Income (net) in the Unaudited Condensed Consolidated
Statements of Net Earnings. This investment had been classified as
Marketable Securities on the Unaudited Condensed Consolidated Balance
Sheet at March 31, 2004.
8. On June 24, 2004, the Company issued a mortgage to GE Capital for $8
million with an interest rate of 6.35% and a term of 15 years. The
proceeds were used to finance new warehouse construction in Janesville
and Cambria, Wisconsin.
On May 27, 2003, the Company completed its acquisition of Chiquita
Processed Foods, L.L.C. ("CPF") from Chiquita Brands International, Inc.
The primary reason for the acquisition was to acquire additional
production capacity in the Canned Vegetable business. The purchase price
totaled $126.1 million plus the assumption of certain liabilities. This
acquisition was financed with cash, proceeds from a new $200 million
revolving credit facility, and $16.1 million of the Company's
Participating Convertible Preferred Stock.
The revolving credit facility has a five-year term. During the quarter
ended September 27, 2003, the Company refinanced $42.5 million of debt
outstanding under the revolving credit facility with new term debt from
an insurance company. During the quarter ended September 25, 2004, the
Company provided notice to its bank lenders of its intention to reduce
the revolving credit facility from $200 million to $150 million and took
a non-cash charge of $528,000 reflecting the write-down of the
corresponding pro-rata amount of deferred financing costs, which is
included in Other Income (net) in the Unaudited Condensed Consolidated
Statements of Net Earnings. The $150 million revolving credit facility is
expected to satisfy the Company's working capital needs for the
foreseeable future.
The Company's Unaudited Condensed Consolidated Statement of Net Earnings
for the six months ended September 27, 2003 includes four months of the
acquired CPF operations. A pro forma unaudited condensed consolidated
statement of net earnings, as if the operations were acquired at the
April 1, 2003, follows:
Six Months Ended
----------------
9/25/04 9/27/03
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Net Sales $382,773 $430,295
Cost of Product Sold 350,578 393,119
Selling, General, and
Administrative 14,798 18,185
Plant Restructuring 1,301 -
----------------------
Total Costs and Expenses 366,677 411,304
----------------------
Operating Income 16,096 18,991
Other (Income) Expense (3,376) 1,882
Interest Expense 8,084 8,348
----------------------
Earnings Before Income Taxes 11,388 8,761
Income Taxes 4,441 3,416
----------------------
Net Earnings 6,947 5,345
======================
Basic Earnings Per Share $ 0.62 $ 0.49
======================
Diluted Earnings Per Share $ 0.62 $ 0.49
======================
The September 27, 2003 column of the pro forma comparisons above exclude sales
and related costs of the four plants that were later sold to Lakeside Foods from
the acquired CPF operations.
10. Earnings per share (In thousands, except per share data):
Three Months Ended
9/25/04 9/27/03
------- -------
Basic Net Earnings Applicable to Common Stock:
Net Earnings $2,445 $3,910
Deduct Preferred Cash Dividends 6 6
-------------------
Net Earnings Applicable to Common Stock $2,439 $3,904
===================
Weighted Average Common Shares Outstanding 6,715 6,715
Weighted Average Participating Preferred Shares
Outstanding 4,411 4,411
-------------------
Weighted Average Shares Outstanding
for Basic Earnings Per Common Share 11,126 11,126
===================
Basic Earnings Per Common Share $ .22 $ .35
===================
Diluted Net Earnings Applicable to Common Stock:
Net Earnings Applicable to Common Stock $2,439 $3,904
Add Back Preferred Cash Dividends 5 5
-------------------
Net Earnings Applicable to Common Stock Diluted $2,444 $3,909
===================
Weighted Average Shares Outstanding
for Basic Earnings Per Common Share 11,126 11,126
Effect of Convertible Preferred Stock 67 67
-------------------
Weighted Average Shares Outstanding
for Diluted Earnings Per Common Share 11,193 11,193
===================
Diluted Earnings Per Common Share $ .22 $ .35
===================
Six Months Ended
9/25/04 9/27/03
------- -------
Basic Net Earnings Applicable to Common Stock:
Net Earnings $6,947 $7,582
Deduct Preferred Cash Dividends 12 12
-------------------
Net Earnings Applicable to Common Stock $6,935 $7,570
===================
Weighted Average Common Shares Outstanding 6,715 6,679
Weighted Average Participating Preferred Shares
Outstanding 4,411 4,124
-------------------
Weighted Average Shares Outstanding
for Basic Earnings Per Common Share 11,126 10,803
===================
Basic Earnings Per Common Share $ .62 $ .70
===================
Diluted Net Earnings Applicable to Common Stock:
Net Earnings Applicable to Common Stock $6,935 $7,570
Add Back Preferred Cash Dividends 10 10
-------------------
Net Earnings Applicable to Common Stock Diluted $6,945 $7,580
===================
Weighted Average Shares Outstanding
for Basic Earnings Per Common Share 11,126 10,803
Effect of Convertible Preferred Stock 67 67
-------------------
Weighted Average Shares Outstanding
for Diluted Earnings Per Common Share 11,193 10,870
===================
Diluted Earnings Per Common Share $ .62 $ .70
===================
11. The net periodic benefit cost for pension plans consist of:
Six Months Ended
----------------
9/25/04 9/27/03
------- -------
Service Cost $ 1,405 $ 1,370
Interest Cost 1,942 1,894
Expected Return on Plan Assets (2,123) (2,074)
Amortization of Transition Asset (153) (148)
Amortization of Net Gain 356 350
-------------------
Net Periodic Benefit Cost $1,427 $1,392
===================
During the Six Months Ended September 25, 2004, the Company made a
contribution of $35,000 to its defined benefit pension plans. The Company
presently anticipates contributing an additional $2,786,000 to fund its
pension plans in 2005 for a total of $2,821,000.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION RESULTS AND OF OPERATIONS
September 25, 2004
Seneca Foods Corporation is primarily a vegetable processing company with
manufacturing facilities located throughout the United States. Its products are
sold under the Libby's(R), Aunt Nellie's Farm Kitchen(R), Stokely's(R), READ(R),
and Seneca(R) labels as well as through the private label and industrial
markets. In addition, under an alliance with General Mills Operations, Inc., a
successor to the Pillsbury Company and a subsidiary of General Mills, Inc.,
Seneca produces canned and frozen vegetables, which are sold by General Mills
Operations, Inc. under the Green Giant(R) label.
The Company's raw product is harvested mainly between May through October. The
2004 planting, harvest and pack was delayed due to weather conditions. This
resulted in lower yield and the costs per unit are higher as a result.
During the quarter ended September 25, 2004, the Company announced a product
recall which resulted in the establishment of a $1,280,000 charge to operations.
Results of Operations:
Sales: Total sales reflect decreases of 11.7% and 4.2% for the quarter and six
months, respectively, versus the quarter and six months ended September 27,
2003. The sales decrease for the three and six month periods ended September 25,
2004 primarily reflects sales volume reductions in the Contract Packing, Private
Label Retail and Green Giant Alliance areas of the business.
Costs and Expenses:
The following table shows costs and expenses as a percentage of sales:
Three Months Ended Six Months Ended
------------------ ----------------
9/25/04 9/27/03 9/25/04 9/27/03
------- ------- ------- -------
Cost of Product Sold 92.4% 92.0% 91.7% 91.1%
Selling 3.0 3.4 3.3 3.3
Administrative 0.6 0.4 0.6 0.6
Plant Restructuring 0.3 0.0 0.2 0.0
-----------------------------------------------
96.3% 95.8% 95.8% 95.0%
===============================================
The higher cost of product sold percentage in the second quarter ended September
25, 2004 reflects the establishment of a $1,280,000 provision for the product
recall announced on September 28, 2004.
Income Taxes:
The effective tax rate was 39% for the three and six month periods ended
September 25, 2004 and September 27, 2003.
Financial Condition:
The financial condition of the Company is summarized in the following table and
explanatory review (In Thousands):
For the Quarter For the Year
Ended September Ended March
--------------- ------------
2004 2003 2004 2003
---- ---- ---- ----
Working Capital:
Balance $197,912 $191,313 $187,764 $172,382
Change in Quarter 3,281 64,238 - -
Notes Payable 57,345 26,674 - -
Long-Term Debt 160,883 180,302 160,987 133,337
Current Ratio 1.64:1 1.62:1 2.18:1 3.42:1
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 25, 2004
The Working Capital increase for the quarter ended September 25, 2004 reflects
lower capital expenditures ($3,956,000) than depreciation ($7,032,000). The
change in Working Capital for the September 2003 quarter is largely due to the
proceeds from the sale of assets and the proceeds from the issuance of debt to
partially finance the acquisition of in Chiquita Processed Foods, L.L.C.
Inventory decreased $8.1 million from September 27, 2003. The Inventory decrease
primarily reflects the fact that the 2004 pack is delayed and lower in overall
yield. Actual unit costs are higher than expected which partially mitigated this
decrease.
See Unaudited Condensed Consolidated Statements of Cash Flows for further
details.
During the quarter ended September 25, 2004, the Company incurred a $619,000
charge for severance expense related to exiting a line of contract packing
business which is included in Plant Restructuring in the Unaudited Condensed
Consolidated Statements of Net Earnings. In addition, the Company incurred a
$682,000 charge for inventory impairment which is also related to exiting the
same line of contract packing business and is included in Cost of Product Sold
in the Unaudited Condensed Consolidated Statements of Net Earnings.
As previously reported, during the quarter ended June 26, 2004, the Company sold
its investment in the Class B Common Stock of Moog Inc. for $4,578,000 and
recorded a gain of $3,862,000 before income taxes, which is included in Other
Income (net) in the Unaudited Condensed Consolidated Statements of Net Earnings.
This investment had been classified as marketable securities on the Unaudited
Condensed Consolidated Balance Sheets.
On June 26, 2004, the Company issued a mortgage to GE Capital for $8 million
with an interest rate of 6.35% and a term of 15 years. The proceeds were used to
finance new warehouse construction in Janesville and Cambria, Wisconsin.
On May 27, 2003, the Company completed its acquisition of Chiquita Processed
Foods, L.L.C. ("CPF") from Chiquita Brands International, Inc. The primary
reason for the acquisition was to acquire additional production capacity in the
Canned Vegetable business. The purchase price totaled $126.1 million plus the
assumption of certain liabilities. This acquisition was financed with cash,
proceeds from a new $200 million revolving credit facility, and $16.1 million of
the Company's Participating Convertible Preferred Stock.
The revolving credit facility has a five-year term. During the quarter ended
September 27, 2003, the Company refinanced $42.5 million of debt outstanding
under the revolving credit facility with new term debt from an insurance
company. During the quarter ended September 25, 2004, the Company provided
notice to its bank lenders of its intention to reduce the revolving credit
facility from $200 million to $150 million and took a non-cash charge of
$528,000 reflecting the write-down of the corresponding pro-rata amount of
deferred financing costs, which is included in Other Income (net) in the
Unaudited Condensed Consolidated Statements of Net Earnings. The $150 million
revolving credit facility is expected to satisfy the Company's working capital
needs for the foreseeable future.
The Company's Unaudited Condensed Consolidated Statement of Net Earnings for the
six months ended September 27, 2003 includes four months of the acquired CPF
operations. A pro forma unaudited condensed consolidated statement of net
earnings, as if the operations were acquired at the April 1, 2003, follows:
Six Months Ended
----------------
9/25/04 9/27/03
------- -------
Net Sales $382,773 $430,295
Cost of Product Sold 350,578 393,119
Selling, General, and
Administrative 14,798 18,185
Plant Restructuring 1,301 -
----------------------
Total Costs and Expenses 366,677 411,304
----------------------
Operating Income 16,096 18,991
Other (Income) Expense (3,376) 1,882
Interest Expense 8,084 8,348
----------------------
Earnings Before Income Taxes 11,388 8,761
Income Taxes 4,441 3,416
----------------------
Net Earnings 6,947 5,345
======================
Basic Earnings Per Share $ 0.62 $ 0.49
======================
Diluted Earnings Per Share $ 0.62 $ 0.49
======================
The September 27, 2003 column of the pro forma comparisons above exclude sales
and related costs of the four plants that were later sold to Lakeside Foods from
the acquired CPF operations.
The net periodic benefit cost for pension plans consist of:
Six Months Ended
9/25/04 9/27/03
------- -------
Service Cost $ 1,405 $ 1,370
Interest Cost 1,942 1,894
Expected Return on Plan Assets (2,123) (2,074)
Amortization of Transition Asset (153) (148)
Amortization of Net Gain 356 350
-------------------
Net Periodic Benefit Cost $1,427 $1,392
===================
During the Six Months Ended September 25, 2004, the Company made a contribution
of $35,000 to its defined benefit pension plans. The Company presently
anticipates contributing an additional $2,786,000 to fund its pension plans in
2005 for a total of $2,821,000.
Seasonality
The Company's revenues typically have been higher in the second and third
quarters, primarily because the Company sells, on a bill and hold basis, Green
Giant canned and frozen vegetables to General Mills Operations, Inc. at the end
of each pack cycle. The two largest commodities are peas and corn, which are
sold in the second and third quarters, respectively. See the Critical Accounting
Policies section below for further details. In addition, our non Green Giant
sales have exhibited seasonality with the third quarter generating the highest
sales. This quarter reflects increased sales of the Company's products during
the holiday period.
Forward-Looking Statements
Statements that are not historical facts, including statements about
management's beliefs or expectations, are forward-looking statements as defined
in the Private Securities Litigation Reform Act (PSLRA) of 1995. The Company
wishes to take advantage of the "safe harbor" provisions of the PSLRA by
cautioning that numerous important factors which involve risks and uncertainties
in the future could affect the Company's actual results and could cause its
actual consolidated results to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, the Company. These factors
include, among others: general economic and business conditions; cost and
availability of commodities and other raw materials such as vegetables, steel
and packaging materials; transportation costs; climate and weather affecting
growing conditions and crop yields; leverage and ability to service and reduce
the Company's debt; foreign currency exchange and interest rate fluctuations;
effectiveness of marketing and trade promotion programs; changing consumer
preferences; competition; product liability claims; the loss of significant
customers or a substantial reduction in orders from these customers; changes in,
or the failure or inability to comply with, U.S., foreign and local governmental
regulations, including environmental regulations; and other factors discussed in
the Company's filings with the Securities and Exchange Commission.
Readers are cautioned not to place undue reliance on forward-looking statements,
which reflect management's analysis only as the date hereof. The Company assumes
no obligation to update forward-looking statements.
Critical Accounting Policies
In the six months ended September 25, 2004, the Company sold for cash, on a bill
and hold basis, $66,875,000 of Green Giant finished goods inventory to General
Mills Operations, Inc. ("GMOI"). At the time of the sale of the Green Giant
vegetables to GMOI, title of the specified inventory transferred to GMOI. In
addition, the aforementioned finished goods inventory was complete, ready for
shipment and segregated from the Company's other finished goods inventory.
Further, the Company had performed all of its obligations with respect to the
sale of the specified Green Giant finished goods inventory.
The seasonal nature of the Company's Food Processing business results in a
timing difference between expenses (primarily overhead expenses) incurred and
absorbed into product cost. All Off-Season Reserve balances, which essentially
represent a contra-inventory account, are zero at fiscal year end. Depending on
the time of year, Off-Season Reserve is either the excess of absorbed expenses
over incurred expenses to date or the excess of incurred expenses over absorbed
expenses to date. Other than the first quarter of each year, absorbed expenses
exceed incurred expenses due to timing of production.
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 net sales, include
amounts paid to encourage retailers to offer temporary price reductions for the
sale of our products to consumers, amounts paid to obtain favorable display
positions in retailers' stores, and amounts paid to retailers for shelf space in
retail stores. Accruals for trade promotions are recorded primarily at the time
of sale of product to the retailer based on expected levels of performance.
Settlement of these liabilities typically occurs in subsequent periods primarily
through an authorized process for deductions taken by a retailer from amounts
otherwise due to us. As a result, the ultimate cost of a trade promotion program
is dependent on the relative success of the events and the actions and level of
deductions taken by retailers for amounts they consider due to them. Final
determination of the permissible deductions may take extended periods of time.
Recently issued accounting standards have been considered by the Company and are
not expected to have a material effect on the Company's financial position or
results of operations.
ITEM 3 Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
As a result of its regular borrowing activities, the Company's operating results
are exposed to fluctuations in interest rates, which it manages primarily
through its regular financing activities, which involves borrowing with a
combination of floating rate and fixed rate instruments. In connection with the
acquisition of CPF, the Company entered into a new $200 million revolving credit
facility (subsequently reduced to $150 million) with a five-year term to finance
its seasonal working capital requirements. Interest is based on LIBOR plus a
spread. Repayment is required at the expiration date of the facility, which is
May 27, 2008. Long-term debt represents secured and unsecured debentures,
certain notes payable to insurance companies used to finance long-term
investments such as business acquisitions, and capital lease obligations.
Long-term debt bears interest at fixed and variable rates. Except for the
effects of reduction in the revolving credit facility discussed above and the
new debt referred to in Management's Discussion of Financial Condition and
Results of Operations, Long-Term Debt, Short Term Debt and Short Term
Investments are consistent with March 31, 2004. Therefore, refer to the March
31, 2004 report for the table of Interest Rate Sensitivity.
ITEM 4 Controls and Procedures
(a) Disclosure controls and procedures. We evaluated the effectiveness of the
design and operation of our disclosure controls and procedures. Our disclosure
controls and procedures are the controls and other procedures that we designed
to ensure that we record, process, summarize and report in a timely manner the
information we must disclose in reports that we file with or submit to the SEC.
Kraig H. Kayser, our President and Chief Executive Officer, and Philip G. Paras,
our Chief Financial Officer, reviewed and participated in this evaluation. Based
on this evaluation, Messrs. Kayser and Paras have concluded that as of the end
of our most recent fiscal quarter, our disclosure controls were effective.
(b) Internal controls. During the period covered by this report, there have not
been any significant changes in our internal controls over financial reporting
that has materially affected, or is reasonable likely to materially affect, the
Company's internal controls over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securites and Use of Proceeds
Maximum Number (or
Total Number of Approximate Dollar
Shares Purchased as Value) or Shares
Part of Publicly that May Yet Be
Total Number of Shares Average Price Paid Announced Plans or Purchased Under the
Period Purchased (1) per Share Programs Plans or Programs
- ------------------- ------------------------ ----------------------- ---------------------- ----------------------
Class A Class B Class A Class B
Common Common Common Common
- ------------------- ------------ ----------- ----------- ----------- ---------------------- ----------------------
7/01/04 - 7/31/04 - 4,000 - $18.80 N/A N/A
- ------------------- ------------ ----------- ----------- ----------- ---------------------- ----------------------
8/01/04 - 8/31/04 3,500 - $18.45 N/A N/A
- ------------------- ------------ ----------- ----------- ----------- ---------------------- ----------------------
9/01/04 - 9/30/04 - 2,500 - $18.50 N/A N/A
- ------------------- ------------ ----------- ----------- ----------- ---------------------- ----------------------
Total 3,500 6,500 $18.45 $18.68 N/A N/A
- ------------------- ------------ ----------- ----------- ----------- ---------------------- ----------------------
<FN>
(1) These purchases were made in open market transactions by the trustees under
the Seneca Foods Corporation Employees' Savings Plan and the Seneca Foods,
L.L.C. 401(k) Retirement Savings Plan to provide employee matching contributions
under the plans.
</FN>
Item 3. Defaults on Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The annual meeting of shareholders of the Registrant was
held on August 6, 2004 and the following were the voting
results: (1) Management's nominees for Director positions
(Thomas Paulson, Andrew M. Boas, Douglas F. Brush, Susan W.
Stuart) were elected, (2) a management proposal to ratify
the appointment of Ernst & Young LLP as independent auditors
was adopted. The following director's terms continue: Arthur
H. Baer, Robert T. Brady, G. Brymer Humphreys, Kraig H.
Kayser, and Arthur S. Wolcott.
Item 5. Other Information
None.
Item 6. Exhibits
31.1 Certification of Kraig H. Kayser pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith)
31.2 Certification of Philip G. Paras pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith)
32 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(filed herewith)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Seneca Foods Corporation
(Company)
/s/Kraig H. Kayser
-------------------------
November 4, 2004 Kraig H. Kayser
President and
Chief Executive Officer
/s/Jeffrey L. Van Riper
-------------------------
November 4, 2004 Jeffrey L. Van Riper
Controller and
Chief Accounting Officer