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 December 25, 2004 Commission File Number 0-01989
----------------- -------
Seneca Foods Corporation
------------------------
(Exact name of Company as specified in its charter)
New York 16-0733425
-------- ----------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
3736 South Main Street, Marion, New York 14505
---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code 315/926-8100
------------
Not Applicable
--------------
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
------ -------
Indicate by check mark whether the Company is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act).
Yes X No
------ -------
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 January 31, 2005
--------------------------------------------
Common Stock Class A, $.25 Par 3,950,617
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
12/25/04 3/31/04
-------- -------
ASSETS
Current Assets:
Cash and Cash Equivalents $ 24,994 $ 4,570
Marketable Securities - 4,465
Accounts Receivable, Net 47,526 46,180
Inventories:
Finished Goods 309,517 202,573
Work in Process 33,403 15,365
Raw Materials 38,751 52,345
------- -------
381,671 270,283
Off-Season Reserve (Note 2) (63,443) -
Deferred Income Tax Asset, Net 6,615 6,615
Assets Held For Sale 2,439 2,931
Refundable Income Taxes 3,063 451
Other Current Assets 4,643 12,098
-------------- ---------------
Total Current Assets 407,508 347,593
Property, Plant and Equipment, Net 169,992 181,907
Other Assets 2,869 4,403
-------------- ---------------
Total Assets $580,369 $533,903
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes Payable $ 71,049 $ 58,395
Accounts Payable 68,850 37,362
Accrued Expenses 42,924 42,553
Current Portion of Long-Term Debt and Capital
Lease Obligations 27,577 21,519
--------------- ---------------
Total Current Liabilities 210,400 159,829
Long-Term Debt 149,569 154,428
Capital Lease Obligations 5,848 6,559
Deferred Income Tax Liability 14,804 15,048
Other Long-Term Liabilities 6,412 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 41,265 41,268
Convertible, Participating Preferred Stock, $15.50
Stated Value 15,000 15,000
Common Stock 2,860 2,859
Paid in Capital 15,992 15,989
Accumulated Other Comprehensive Income - 2,324
Retained Earnings 118,149 112,739
--------------- ---------------
Stockholders' Equity 193,336 190,249
--------------- ---------------
Total Liabilities and Stockholders' Equity $580,369 $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
------------------
12/25/04 12/27/03
-------- --------
Net Sales $ 306,794 $ 325,303
Costs and Expenses:
Cost of Product Sold 290,079 307,735
Selling, General, and Administrative 9,172 10,194
Plant Restructuring 5,804 -
------------------ -----------------
Total Costs and Expenses 305,055 317,929
------------------ -----------------
Operating Income 1,739 7,374
Interest Expense (net) 4,219 4,280
------------------ -----------------
(Loss) Earnings Before Income Taxes (2,480) 3,094
Income Taxes (967) 1,207
------------------ -----------------
Net (Loss) Earnings $ (1,513) $ 1,887
================= ================
Basic:
(Loss) Earnings Per Common Share $ (.14) $ .17
================= ================
Weighted Average Shares
Outstanding 11,126 11,126
================= ================
Diluted:
(Loss) Earnings Per Common Share $ (.14) $ .17
================= ================
Weighted Average Shares
Outstanding 11,126 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)
Nine Months Ended
------------------
12/25/04 12/27/03
-------- --------
Net Sales $ 689,567 $ 724,793
Costs and Expenses:
Cost of Product Sold 641,339 671,677
Selling, General, and Administrative 23,970 25,815
Plant Restructuring 6,423 -
------------------ -----------------
Total Costs and Expenses 671,732 697,492
------------------ -----------------
Operating Income 17,835 27,301
Other Income (net) (3,376) -
Interest Expense (net) 12,303 11,778
------------------ -----------------
Earnings Before Income Taxes 8,908 15,523
Income Taxes 3,474 6,054
------------------ -----------------
Net Earnings $ 5,434 $ 9,469
================= ================
Basic:
Earnings Per Common Share $ .49 $ .87
================= ================
Weighted Average Shares
Outstanding 11,126 10,911
================= ================
Diluted:
Earnings Per Common Share $ .49 $ .86
================= ===============
Weighted Average Shares
Outstanding 11,193 10,978
================== ================
<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)
Nine Months Ended
------------------
12/25/04 12/27/03
-------- --------
Cash Flows From Operating Activities:
Net Earnings $ 5,434 $ 9,469
Adjustments to Reconcile Net Earnings to
Net Cash Provided by (Used in)
Operations:
Depreciation and Amortization 21,551 21,914
Gain on the Sale of Assets (3,904) -
Plant Restructuring 3,798 -
Other 528 -
Deferred Income Taxes (244) 2,057
Changes in Working Capital:
Accounts Receivable (1,346) 2,181
Inventories (111,388) (118,320)
Off-Season Reserve 63,443 66,830
Other Current Assets 7,455 (5,255)
Refundable Income Taxes (1,187) (1,112)
Accounts Payable, Accrued
Expenses, and Other Liabilities 30,031 (255)
------------------ -----------------
Net Cash Provided by (Used in)
Operations 14,171 (22,491)
------------------ -----------------
Cash Flows From Investing Activities:
Additions to Property, Plant,
and Equipment (13,625) (13,963)
Proceeds from the Sale of Assets 5,824 46,077
Acquisition - (113,691)
Cash Received with Acquisition - 2,560
------------------ -----------------
Net Cash Used in Investing
Activities (7,801) (79,017)
------------------ -----------------
Cash Flows From Financing Activities:
Borrowings on Notes Payable 247,374 348,315
Payments on Notes Payable (234,720) (312,370)
Proceeds from Issuance of Long-Term Debt 8,959 42,500
Payments of Long-Term Debt and Capital
Lease Obligations (8,471) (38,440)
Other 912 252
------------------ -----------------
Net Cash Provided by
Financing Activities 14,054 40,257
------------------ -----------------
Net Increase (Decrease) in Cash and Cash
Equivalents 20,424 (61,251)
Cash and Cash Equivalents,
Beginning of Period 4,570 64,984
------------------ -----------------
Cash and Cash Equivalents,
End of Period $ 24,994 $ 3,733
================== ==================
<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 11).
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)
December 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 December 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 nine month periods ended
December 25, 2004 are not necessarily indicative of the results to be
expected for the full year.
In the nine months ended December 25, 2004, the Company sold for cash, on a
bill and hold basis, $175,366,000 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 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:
Three Months Ended Nine Months Ended
------------------ -----------------
12/25/04 12/27/03 12/25/04 12/27/03
-------- -------- -------- --------
Net (Loss) Earnings $(1,513) $1,887 $5,434 $9,469
Other Comprehensive
Earnings, Net of Tax:
Net Reclassification of
Accumulated Other
Comprehensive Income - - (2,356) -
Net Unrealized Gains
on Investment - 533 32 929
--------------------------------------------------
Comprehensive
(Loss) Income $(1,513) $2,420 $3,110 $10,398
==================================================
<FN>
The securities were sold during the quarter ended June 26, 2004.
</FN>
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. As previously reported, during the quarter ended September 25, 2004,
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 December 25, 2004, the Company announced the
closure of processing facilities in Walla Walla, Washington and Marion, New
York (not including the can manufacturing plant). This resulted in a
non-cash impairment charge of $5,710,000 and a severance charge of $94,000
which are included in Plant Restructuring in the Unaudited Condensed
Consolidated Statements of Net Earnings. The Walla Walla facility is
expected to be sold by December 31, 2005. The Marion facility is going to
be used as a warehouse. The closure of the Walla Walla, Washington
processing facility coincided with an amendment to the Alliance Agreement
with General Mills Operations, Inc. ("GMOI"). Under the above amendment,
the Blue Earth, Minnesota facility will be removed from the Alliance
Agreement due to a reduction in GMOI volume requirements and will be
operated by the Company as a non-Alliance facility. Additionally, GMOI has
agreed to reimburse the Company for remaining lease and depreciation costs
at the Blue Earth facility which, on a net present value basis, approximate
the closure costs associated with the Walla Walla facility.
7. 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.
8. The following table summarizes the restructuring and related asset
impairment charges recorded and the accruals established during 2005:
Long-Lived
Severance Asset Charges Other Costs Total
--------- ------------- ----------- -----
Total expected
restructuring charge $ 713 $3,798 $1,912 $6,423
=============================================================================
Balance March 31, 2004 $ - $ - $ - $ -
Second quarter charge
to expense 619 - 619
Third quarter charge
to expense 94 3,798 1,912 5,804
Cash payments (619) - - (619)
----------------------------------------------------------------------------
Balance December 25,
2004 $ 94 $3,798 $1,912 $5,804
============================================================================
<FN>
In addition, $682,000 was charged to Cost of Product Sold in the quarter ended September 25, 2004.
</FN>
9. 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.
10. On June 24, 2004, the Company issued a mortgage payable 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.
11. 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 June 26, 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, which is expected to
satisfy the Company's working capital needs, has $71,049,000 outstanding as
of December 25, 2005.
12. Earnings per share (In thousands, except per share data):
Three Months Ended
12/25/04 12/27/03
-------- --------
Basic Net Earnings (Loss) Applicable to Common Stock:
Net (Loss) Earnings $(1,513) $1,887
Deduct Preferred Cash Dividends 6 6
-------------------
Net (Loss) Earnings Applicable to Common Stock $(1,519) $1,881
===================
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 (Loss) Earnings Per Common Share $ (.14) $ .17
===================
Diluted Net (Loss) Earnings Applicable to Common Stock:
Net (Loss) Earnings Applicable to Common Stock $(1,519) $1,881
Add Back Preferred Cash Dividends - 5
-------------------
Net (Loss) Earnings Applicable to Common Stock
Diluted $(1,519) $1,886
===================
Weighted Average Shares Outstanding
for Basic Earnings Per Common Share 11,126 11,126
Effect of Convertible Preferred Stock - 67
-------------------
Weighted Average Shares Outstanding
for Diluted Earnings Per Common Share 11,126 11,193
===================
Diluted (Loss) Earnings Per Common Share $ (.14) $ .17
===================
The effect of convertible preferred stock has not been considered for the
quarter ended December 25, 2004 since its inclusion would have been
anti-dilutive.
Nine Months Ended
12/25/04 12/27/03
-------- --------
Basic Net Earnings Applicable to Common Stock:
Net Earnings $5,434 $9,469
Deduct Preferred Cash Dividends 18 18
-------------------
Net Earnings Applicable to Common Stock $5,416 $9,451
===================
Weighted Average Common Shares Outstanding 6,715 6,684
Weighted Average Participating Preferred Shares
Outstanding 4,411 4,227
-------------------
Weighted Average Shares Outstanding
for Basic Earnings Per Common Share 11,126 10,911
===================
Basic Earnings Per Common Share $ .49 $ .87
===================
Diluted Net Earnings Applicable to Common Stock:
Net Earnings Applicable to Common Stock $5,416 $9,451
Add Back Preferred Cash Dividends 15 15
-------------------
Net Earnings Applicable to Common Stock Diluted $5,431 $9,466
===================
Weighted Average Shares Outstanding
for Basic Earnings Per Common Share 11,126 10,911
Effect of Convertible Preferred Stock 67 67
-------------------
Weighted Average Shares Outstanding
for Diluted Earnings Per Common Share 11,193 10,978
===================
Diluted Earnings Per Common Share $ .49 $ .86
===================
13. The net periodic benefit cost for pension plans consist of:
Nine Months Ended
12/25/04 12/27/03
-------- --------
Service Cost $ 2,531 $ 2,055
Interest Cost 2,957 2,841
Expected Return on Plan Assets (3,896) (3,111)
Amortization of Transition Asset (207) (222)
Amortization of Net Loss - 525
------------------
Net Periodic Benefit Cost $1,385 $2,088
==================
During the Nine months Ended December 25, 2004, the Company made
contributions of $2,821,000 to its defined benefit pension plans. No other
pension contributions are required during 2005.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION RESULTS AND OF OPERATIONS
December 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.
During the quarter ended December 25, 2004, the Company announced the closure of
processing facilities in Walla Walla, Washington and Marion, New York (not
including the can manufacturing plant). This resulted in a non-cash impairment
charge of $5,710,000 and a severance charge of $94,000 which are included in
Plant Restructuring in the Unaudited Condensed Consolidated Statements of Net
Earnings. The Walla Walla facility is expected to be sold by December 31, 2005.
The Marion facility is going to be used as a warehouse.
Results of Operations:
Sales:
Total sales reflect decreases of 5.7% and 4.9% for the quarter and nine months
ended December 25, 2004, respectively, versus the quarter and nine months ended
December 27, 2003. The sales decrease for the three month period ended December
25, 2004 primarily reflects sales volume reductions in the Canned Vegetables ($6
million), and Green Giant Alliance ($15 million) areas of the business as
reflected in the following comparison (In millions):
Three Months Ended Nine Months Ended
------------------ -----------------
12/25/04 12/27/03 12/25/04 12/27/03
-------- -------- -------- --------
Canned Vegetables $165.8 $172.2 $427.4 $435.1
Green Giant Alliance 119.9 135.4 219.2 245.0
Frozen Vegetables 7.2 7.5 19.7 22.3
Fruit and Chip Products 5.0 4.6 13.5 12.7
Other 8.9 5.6 9.8 9.7
--------------------------------------
$306.8 $325.3 $689.6 $724.8
======================================
The decrease in Canned Vegetables reflects the discontinuation of a line of
contract packing business during the second quarter which accounts for $9
million of the decrease. A planned reduction in the Green Giant Alliance was
magnified by the poor sweet corn growing conditions in the Summer of 2004.
Operating Income:
The following table presents components of operating income as a percentage of
net sales:
Three Months Ended Nine Months Ended
------------------ -----------------
12/25/04 12/27/03 12/25/04 12/27/03
-------- -------- -------- --------
Gross Margin 5.5% 5.4% 7.0% 7.4%
Selling 2.6 2.8 3.0 3.1
Administrative 0.4 0.3 0.5 0.5
Plant Restructuring 1.9 0.0 0.9 0.0
------------------------------------
Operating Income 0.6% 2.3% 2.6% 3.8%
====================================
The reduction in operating income for the three month period reflects the plant
restructuring charge for the closure of the Marion, New York and Walla Walla,
Washington processing facilities totaling $5.8 million.
The lower gross margin percentage in the nine months ended December 25, 2004
principally 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 nine month periods ended
December 25, 2004 and December 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 December Ended March
-------------- -----------
2004 2003 2004 2003
---- ---- ---- ----
Working Capital:
Balance $197,108 $188,654 $187,764 $172,382
Change in Quarter (804) (2,659) - -
Notes Payable 71,049 61,320 - -
Long-Term Debt 155,417 175,075 160,987 133,337
Current Ratio 1.94:1 2.18:1 2.18:1 3.42:1
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
December 25, 2004
Inventory increased $36.9 million from December 27, 2003. The Inventory increase
primarily reflects an $18.8 million increase in finished goods, a $9.5 million
increase in raw materials and $8.6 million increase in work in process. The
finished goods increase reflects unit cost increases for key commodity inputs
including steel and energy. The raw materials increase was primarily due to
higher steel prices and quantities compared to the prior year. The work in
process increase primarily reflects frozen corn product quantities designated
for specific customer contracts.
See Unaudited Condensed Consolidated Statements of Cash Flows for further
details.
As previously reported, during the quarter ended September 25, 2004, 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.
During the quarter ended December 25, 2004, the Company announced the closure of
processing facilities in Walla Walla, Washington and Marion, New York (not
including the can manufacturing plant). This resulted in a non-cash impairment
charge of $5,710,000 and a severance charge of $94,000 which are included in
Plant Restructuring in the Unaudited Condensed Consolidated Statements of Net
Earnings. The Walla Walla facility is expected to be sold by December 31, 2005.
The Marion facility is going to be used as a warehouse. The closure of the Walla
Walla, Washington processing facility coincided with an amendment to the
Alliance Agreement with General Mills Operations, Inc. ("GMOI"). Under the above
amendment, the Blue Earth, Minnesota facility will be removed from the Alliance
Agreement due to a reduction in GMOI volume requirements and will be operated by
the Company as a non-Alliance facility. Additionally, GMOI has agreed to
reimburse the Company for remaining lease and depreciation costs at the Blue
Earth facility which, on a net present value basis, approximate the closure
costs associated with the Walla Walla facility.
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 Sheet at March 31, 2004.
On June 24, 2004, the Company issued a mortgage payable 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 June 26, 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, which has $71,049,000
outstanding as of December 25, 2005.
Earnings per share (In thousands, except per share data):
Three Months Ended
12/25/04 12/27/03
-------- --------
Basic Net Earnings (Loss) Applicable to Common Stock:
Net (Loss) Earnings $(1,513) $1,887
Deduct Preferred Cash Dividends 6 6
-------------------
Net (Loss) Earnings Applicable to Common Stock $(1,519) $1,881
===================
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 (Loss) Earnings Per Common Share $ (.14) $ .17
===================
Diluted Net (Loss) Earnings Applicable to Common Stock:
Net (Loss) Earnings Applicable to Common Stock $(1,519) $1,881
Add Back Preferred Cash Dividends - 5
-------------------
Net (Loss) Earnings Applicable to Common Stock
Diluted $(1,519) $1,886
===================
Weighted Average Shares Outstanding
for Basic Earnings Per Common Share 11,126 11,126
Effect of Convertible Preferred Stock - 67
-------------------
Weighted Average Shares Outstanding
for Diluted Earnings Per Common Share 11,126 11,193
===================
Diluted (Loss) Earnings Per Common Share $ (.14) $ .17
===================
The effect of convertible preferred stock has not been considered for the
quarter ended December 25, 2004 since its inclusion would have been
anti-dilutive.
Nine Months Ended
12/25/04 12/27/03
-------- --------
Basic Net Earnings Applicable to Common Stock:
Net Earnings $5,434 $9,469
Deduct Preferred Cash Dividends 18 18
-------------------
Net Earnings Applicable to Common Stock $5,416 $9,451
===================
Weighted Average Common Shares Outstanding 6,715 6,684
Weighted Average Participating Preferred Shares
Outstanding 4,411 4,227
-------------------
Weighted Average Shares Outstanding
for Basic Earnings Per Common Share 11,126 10,911
===================
Basic Earnings Per Common Share $ .49 $ .87
===================
Diluted Net Earnings Applicable to Common Stock:
Net Earnings Applicable to Common Stock $5,416 $9,451
Add Back Preferred Cash Dividends 15 15
-------------------
Net Earnings Applicable to Common Stock Diluted $5,431 $9,466
===================
Weighted Average Shares Outstanding
for Basic Earnings Per Common Share 11,126 10,911
Effect of Convertible Preferred Stock 67 67
-------------------
Weighted Average Shares Outstanding
for Diluted Earnings Per Common Share 11,193 10,978
===================
Diluted Earnings Per Common Share $ .49 $ .86
===================
The net periodic benefit cost for pension plans consist of:
Nine Months Ended
12/25/04 12/27/03
-------- --------
Service Cost $ 2,531 $ 2,055
Interest Cost 2,957 2,841
Expected Return on Plan Assets (3,896) (3,111)
Amortization of Transition Asset (207) (222)
Amortization of Net Loss - 525
------------------
Net Periodic Benefit Cost $1,385 $2,088
==================
During the Nine Months Ended December 25, 2004, the Company made contributions
of $2,821,000 to its defined benefit pension plans. No other pension
contributions are required during 2005.
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 nine months ended December 25, 2004, the Company sold for cash, on a bill
and hold basis, $175,366,000 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.
Commodity Risk
The materials that the Company uses, such as vegetables, steel and packaging
materials are commodities that may experience price volatility caused by
external factors including market fluctuations, availability, currency
fluctuations and changes in governmental regulations and agricultural programs.
These events can result in reduced supplies of these materials, higher supply
costs or interruptions in our production schedules. If prices of these raw
materials increase and the Company is not able to effectively pass such price
increases along to its customers, operating income will decrease. The Company
has experienced steel commodity price increases recently. Steel represents
approximately 17% of our finished goods cost.
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 been
no changes in our internal controls over financial reporting that have
materially affected, or are reasonable likely to materially affect, the
Company's internal controls over financial reporting.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that management document
and test the internal controls over financial reporting and to assert in our
Annual Report on Form 10-K for the year ended March 31, 2005, whether the
internal controls over financial reporting at March 31, 2005 are effective. Any
material weaknesses in internal controls over financial reporting existing at
that date will preclude management making a positive assertion that our internal
controls are effective. We are currently undergoing a comprehensive effort to
document and confirm that our system of internal controls is designed
appropriately and operating effectively. Additional documentation and testing
requirements identified during our effort have required revisions to be made to
extend our scheduled timelines. Should we identify any internal controls
deficiencies that we would consider to be material, we would endeavor to
implement the required changes and test the revised internal control procedures
in order to make a positive assertion as to the effectiveness of the internal
controls over financial reporting. There can be no assurance that any material
weakness or other deficiency so identified would be resolved in time to permit
our management to make a positive assertion that our internal controls are
effective as of March 31, 2005 and for our independent auditors to complete the
procedures necessary for them to issue an attestation report to this effect
prior to the required filing date for our Form 10-K which is June 14, 2005.
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
- ------------------- ------------ ----------- ----------- ----------- ---------------------- ----------------------
10/01/04 - 4,500 1,000 $18.50 $18.71 N/A N/A
10/31/04
- ------------------- ------------ ----------- ----------- ----------- ---------------------- ----------------------
11/01/04 - 2,500 1,000 $18.50 $18.51
11/30/04 N/A N/A
- ------------------- ------------ ----------- ----------- ----------- ---------------------- ----------------------
12/01/04 - 2,000 - $18.50 -
12/31/04 N/A N/A
- ------------------- ------------ ----------- ----------- ----------- ---------------------- ----------------------
Total 9,000 2,000 $18.50 $18.61 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
None.
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
-----------------------
February 3, 2005 Kraig H. Kayser
President and
Chief Executive Officer
/s/Jeffrey L. Van Riper
------------------------
February 3, 2005 Jeffrey L. Van Riper
Controller and
Chief Accounting Officer