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 July 2, 2005 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 July 31, 2005
Common Stock Class A, $.25 Par 4,065,959
Common Stock Class B, $.25 Par 2,762,905
PART I ITEM 1 FINANCIAL INFORMATION
SENECA FOODS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
Unaudited
7/2/05 3/31/05
--------- -------
ASSETS
Current Assets:
Cash and Cash Equivalents $ 2,995 $ 5,179
Accounts Receivable, Net 35,423 43,664
Inventories:
Finished Goods 186,681 209,874
Work in Process 25,938 17,168
Raw Materials 81,284 67,428
------- -------
293,903 294,470
Off-Season Reserve (Note 2) 39,472 -
Deferred Income Tax Asset, Net 5,414 5,669
Assets Held For Sale 634 1,451
Refundable Income Taxes 634 1,199
Other Current Assets 6,100 7,192
-------------- ---------------
Total Current Assets 384,575 358,824
Property, Plant and Equipment, Net 159,126 163,290
Other Assets 5,747 2,381
-------------- ---------------
Total Assets $549,448 $524,495
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes Payable $ 66,269 $ 60,733
Accounts Payable 61,632 38,719
Accrued Expenses 34,621 38,271
Current Portion of Long-Term Debt and Capital
Lease Obligations 12,761 15,671
--------------- ---------------
Total Current Liabilities 175,283 153,394
Long-Term Debt 146,724 148,318
Capital Lease Obligations 5,706 5,807
Deferred Income Taxes 10,271 11,125
Other Long-Term Liabilities 13,247 10,042
--------------- ---------------
Total Liabilities 351,231 328,686
--------------- ---------------
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 41,265
Convertible, Participating Preferred Stock, $15.50
Stated Value 13,229 15,000
Common Stock 2,888 2,859
Paid in Capital 17,734 15,992
Retained Earnings 123,031 120,623
--------------- ---------------
Stockholders' Equity 198,217 195,809
--------------- ---------------
Total Liabilities and Stockholders' Equity $549,448 $524,495
======== ========
<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
------------------
7/2/05 6/26/04
------ -------
Net Sales $ 156,595 $ 164,678
Costs and Expenses:
Cost of Product Sold 141,933 149,531
Selling, General, and Administrative 7,127 7,126
------------------ -----------------
Total Costs and Expenses 149,060 156,657
------------------ -----------------
Operating Income 7,535 8,021
Other Income (net) (427) (3,334)
Interest Expense (net) 4,020 3,974
------------------ -----------------
Earnings Before Income Taxes 3,942 7,381
Income Taxes 1,522 2,879
------------------ -----------------
Net Earnings $ 2,420 $ 4,502
================= ================
Earnings Applicable to Common Stock $ 1,465 $ 2,713
================= ================
Basic Earnings per Common Share $ .22 $ .40
================= ================
Diluted Earnings per Common Share $ .22 $ .40
================= ================
<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)
Three Months Ended
------------------
7/2/05 6/26/04
------ -------
Cash Flows From Operating Activities:
Net Earnings $ 2,420 $ 4,502
Adjustments to Reconcile Net Earnings to
Net Cash (Used in) Provided by
Operations:
Depreciation and Amortization 6,769 7,191
Gain on the Sale of Assets (427) (3,862)
Other - 528
Deferred Income Taxes (599) 419
Changes in Working Capital:
Accounts Receivable 8,241 9,095
Inventories 567 28,593
Off-Season Reserve (39,472) (58,259)
Other Current Assets 1,092 1,569
Refundable Income Taxes 565 520
Accounts Payable, Accrued
Expenses, and Other Liabilities 19,551 24,658
------------------ -----------------
Net Cash (Used in) Provided by
Operations (1,293) 14,954
------------------ -----------------
Cash Flows From Investing Activities:
Additions to Property, Plant,
and Equipment (2,483) (7,322)
Proceeds from the Sale of Assets 1,264 5,540
------------------ -----------------
Net Cash Used in Investing
Activities (1,219) (1,782)
------------------ -----------------
Cash Flows From Financing Activities:
Borrowings on Notes Payable 50,652 41,535
Payments on Notes Payable (45,116) (62,657)
Proceeds from Issuance of Long-Term Debt - 8,543
Payments of Long-Term Debt and Capital
Lease Obligations (4,605) (1,539)
Other (591) (247)
Dividends (12) (12)
------------------ -----------------
Net Cash Provided by (Used in)
Financing Activities 328 (14,377)
------------------ -----------------
Net Decrease in Cash and Cash
Equivalents (2,184) (1,205)
Cash and Cash Equivalents,
Beginning of Period 5,179 4,570
------------------ -----------------
Cash and Cash Equivalents,
End of Period $ 2,995 $ 3,365
================== ==================
<FN>
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)
July 2, 2005
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 July 2, 2005 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, 2005 balance sheet was derived from the audited consolidated financial
statements.
The results of operations for the three month period ended July 2, 2005 are
not necessarily indicative of the results to be expected for the full year.
In the three months ended July 2, 2005, the Company sold for cash, on a
bill and hold basis, $11,796,000 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.
In the three months ended July 2, 2005, the Company recorded a change in
estimate related to the reduction in estimated exposure to health care
expenses which increased Earnings Before Income Taxes and Net Earnings by
$980,000 and $602,000, respectively. This change in estimate also increased
Basic Earnings Per Share and Diluted Earnings Per Share by $.05.
The accounting policies followed by the Company are set forth in Note 1 to
the Company's Consolidated Financial Statements in the 2005 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 2005 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 equaled Net Earnings for the three months ended July
2, 2005. Comprehensive income consisted of Net Earnings and Net Unrealized
Gains on Securities classified as available-for-sale for the three months
ended June 26, 2004. The following table provides the results for the
periods presented:
Three Months Ended
7/2/05 6/26/04
------ -------
Net Earnings $2,420 $4,502
Other Comprehensive
Earnings, Net of Tax:
Net Reclassification of
Accumulated Other
Comprehensive Income - (2,356)
Net Unrealized Gains
on Investment - 32
------------------
Comprehensive
Income $2,420 $2,178
==================
The securities were sold during the quarter ended June 26, 2004.
4. In November 2004, the FASB issued Statement of Financial Accounting
Standards No. 151, Inventory Costs - An Amendment of ARB No. 43, Chapter 4.
This statement amends ARB No. 43, Chapter 4, Inventory Pricing, to clarify
that abnormal amounts of idle facility expense, freight, handling costs,
and wasted material (spoilage) should be recognized as current-period
charges. Additionally, SFAS 151 requires that allocation of fixed
production overheads to the costs of conversion be based on the normal
capacity of the production facilities. The Company is required to adopt
SFAS 151 effective April 1, 2006. The Company is currently evaluating the
effect that the adoption of SFAS 151 will have on its consolidated
financial statements and the impact has not yet been determined.
5. During the quarter ended December 25, 2004, the Company announced the
closure of a processing facility in Walla Walla, Washington. This facility
was sold during the quarter ended July 2, 2005 for $514,000 in cash and a
$3,550,000 note which carries an interest rate of 8% and is due in full May
14, 2007. This Note is secured by a mortgage on the property. The Company
accounted for the sale under the installment method. During the quarter
ended July 2, 2005, $427,000 of the gain was included in Other Income and
an additional $2,819,000 of the gain on this sale was deferred.
6. The following table summarizes the restructuring and related asset
impairment charges recorded and the accruals established during the year
ended March 31, 2005:
Long-Lived
Severance Asset Charges Other Costs Total
--------- ------------- ----------- -----
Total expected
restructuring charge $ 726 $4,960 $1,992 $7,678
=============================================================================
Balance March 31, 2005 $ 256 $1,599 $1,992 $3,847
Disposal of assets - (1,289) - (1,289)
Cash payments - - (78) (78)
----------------------------------------------------------------------------
Balance July 2, 2005 $ 256 $ 310 $1,914 $2,480
============================================================================
Total costs incurred
to date $ 470 $4,650 $ 78 $5,198
============================================================================
The restructuring costs above relate to the closure of corn plants in
Wisconsin and Washington and a green bean plant in upstate New York plus
the removal of canned meat production from a plant in Idaho. The corn plant
in Washington has been sold. The restructuring is complete in the Idaho
plant and the New York plant. The Wisconsin plant is closed and is expected
to be sold within a year.
The remaining severance costs and long lived asset charges are expected to
be incurred prior to March 31, 2006. The other costs relate to outstanding
lease payments which will be paid over the remaining six years of the lease
term.
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.
8. 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.
9. Earnings per share (In thousands, except per share data):
Three Months Ended
------------------
7/2/05 6/26/04
------ -------
Basic Net Earnings Applicable to Common Stock:
Net Earnings $2,420 $4,502
Deduct Preferred Cash Dividends 6 6
-------------------
Undistributed Earnings $2,414 $4,496
Earnings allocated to participating preferred 949 1,783
-------------------
Earnings allocated to common shareholders $1,465 $2,713
===================
Weighted Average Shares Outstanding
for Basic Earnings Per Common Share 6,753 6,714
===================
Basic Earnings Per Common Share $ .22 $ .40
===================
Diluted Net Earnings Applicable to Common Stock:
Net Earnings Applicable to Common Stock $1,465 $2,713
Add Back Preferred Cash Dividends 5 5
-------------------
Net Earnings Applicable to Common Stock
Diluted $1,470 $2,718
===================
Weighted Average Shares Outstanding
for Basic Earnings Per Common Share 6,753 6,714
Effect of Convertible Preferred Stock 67 67
-------------------
Weighted Average Shares Outstanding
for Diluted Earnings Per Common Share 6,820 6,781
===================
Diluted Earnings Per Common Share $ .22 $ .40
===================
10. The net periodic benefit cost for pension plans consist of:
Three Months Ended
7/2/05 6/26/04
------ -------
Service Cost $ 893 $ 696
Interest Cost 1,074 962
Expected Return on Plan Assets (1,378) (1,052)
Amortization of Transition Asset (69) (76)
Amortization of Net Gain - 177
-------------------
Net Periodic Benefit Cost $ 520 $ 707
===================
During the Three Months Ended July 2, 2005, the Company made no
contributions to its defined benefit pension plans. No pension
contributions are required during 2006.
11. During the quarter ended July 2, 2005, there were 114,242 shares of
Participating Convertible Preferred Stock converted to Class A Common
Stock.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION RESULTS AND OF OPERATIONS
July 2, 2005
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.
(GMOI), 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
Company experienced a difficult growing season last summer and fall due to lower
average temperatures in August, which impacted crop yields and plant recovery
rates, and further resulted in unfavorable manufacturing variances.
During 2005, the Company implemented a restructuring program which principally
involved the closure of three processing facilities, including a green bean
plant in upstate New York and corn plants in Wisconsin and Washington. The
rationalization of the Company's productive capacity will: (1) improve the
Company's overall cost structure and competitive position; (2) address the
excess capacity situation arising from the recent acquisition of CPF and decline
in GMOI volume requirements; and (3) mitigate the effect of inflationary
pressures on the Company's raw material inputs such as steel and fuel.
During the quarter ended July 2, 2005, the recently closed Walla Walla,
Washington processing facility was sold for $514,000 in cash and a $3,550,000
note which carries an interest rate of 8% and is due in full on May 14, 2007.
This Note is secured by a mortgage on the property. The Company accounted for
the sale under the installment method. During the quarter ended July 2, 2005,
$427,000 of the gain was included in Other Income and an additional $2,819,000
of the gain on this sale was deferred.
The fiscal 2006 asparagus harvest, completed in the first quarter, represented a
partial pack as GMOI is in process of moving the production of asparagus
offshore from the Dayton, Washington manufacturing facility. As fiscal 2006
represents the final year of operation for the Dayton, Washington facility, the
Company and GMOI are in process of negotiating a definitive agreement related to
the pending closure of this facility.
Results of Operations:
Sales:
First quarter results include Net Sales of $156.7 million, which represent a
4.9% decrease from the first quarter of fiscal 2005. The sales decrease
primarily reflects a planned sales reduction of $8.6 million in the Green Giant
Alliance related to the asparagus commodity produced at the Dayton, Washington
manufacturing facility which is further described above.
The following table presents the changes by business:
Three Months Ended
------------------
7/2/05 6/26/04
------ -------
Canned Vegetables $118.3 $119.9
Green Giant Alliance 23.4 31.8
Frozen Vegetables 6.9 5.9
Fruit and Chip Products 5.5 3.5
Other 2.6 2.5
--------------------
$156.7 $163.6
====================
Operating Income:
The following table presents components of Operating Income as a percentage of
Net Sales:
Three Months Ended
------------------
7/2/05 6/26/04
------ -------
Gross Margin 9.4% 9.3%
Selling 3.8 3.8
Administrative 0.8 0.6
-----------------
Operating Income 4.8% 4.9%
=================
The operating income margin decreased slightly from 4.9% to 4.8% reflecting a
combination of compressed margins in our canned food service business due to
competitive market conditions and an increase in administrative expense driven
by our Sarbanes-Oxley compliance efforts. These factors were partially offset by
a $980,000 reduction in estimated exposure to health care expenses and improved
profitability in Fruit and Chip Products resulting from strong volume increases
in our co-pack potato chip business. The health expense adjustment relates to a
change in estimate of the accrual for the incurred but not recorded liability.
Income Taxes:
The effective tax rate was 38.6% and 39.0% for the three periods ended July 2,
2005 and June 26, 2004, respectively.
Earnings Per Share (In thousands, except per share data):
Three Months Ended
------------------
7/2/05 6/26/04
------ -------
Basic Net Earnings Applicable to Common Stock:
Net Earnings $2,420 $4,502
Deduct Preferred Cash Dividends 6 6
-------------------
Undistributed Earnings $2,414 $4,496
Earnings allocated to participating preferred 949 1,783
-------------------
Earnings allocated to common shareholders $1,465 $2,713
===================
Weighted Average Shares Outstanding
for Basic Earnings Per Common Share 6,753 6,714
===================
Basic Earnings Per Common Share $ .22 $ .40
===================
Diluted Net Earnings Applicable to Common Stock:
Net Earnings Applicable to Common Stock $1,465 $2,713
Add Back Preferred Cash Dividends 5 5
-------------------
Net Earnings Applicable to Common Stock
Diluted $1,470 $2,718
===================
Weighted Average Shares Outstanding
for Basic Earnings Per Common Share 6,753 6,714
Effect of Convertible Preferred Stock 67 67
-------------------
Weighted Average Shares Outstanding
for Diluted Earnings Per Common Share 6,820 6,781
===================
Diluted Earnings Per Common Share $ .22 $ .40
===================
Liquidity and Capital Resources:
The financial condition of the Company is summarized in the following table and
explanatory review (In Thousands):
June March
---- -----
2005 2004 2005 2004
---- ---- ---- ----
Working Capital:
Balance $209,292 $194,630 $205,430 $187,764
Change in Quarter 3,862 6,866 - -
Notes Payable 66,269 37,273 60,733 58,395
Long-Term Debt 152,430 164,693 154,125 160,987
Current Ratio 2.19:1 2.17:1 2.34:1 2.18:1
As shown in the consolidated statement of cash flows, Cash Used in Operating
Activities was $1,293,000 in the first quarter of 2006, compared to $14,954,000
of cash generated from operating activities in the first quarter of 2005. This
represents a decrease in cash generation of $16,247,000.
The decrease in cash generation is primarily as a result of the Inventory
increase of $33.4 million (net of the Off Season Reserve decrease of $18.8
million) from June 26, 2004. The Inventory increase primarily reflects a $10.4
million increase (net of the Off Season Reserve decrease) in Finished Goods, a
$14.8 million increase in Work in Process and $8.1 million increase in Raw
Materials. The Finished Goods increase reflects unit cost increases for key
commodity inputs including steel and energy. The Work in Process and Raw
Materials increases were primarily due to higher steel prices and quantities
compared to the prior year.
Cash Used in Investing Activities was $1,219,000 in the first quarter of 2006
compared to $1,782,000 in the first quarter of 2005. Additions to Property,
Plant and Equipment were $2,483,000 in the first quarter of 2006 as compared to
$7,322,000 in the first quarter of 2005. The additions in 2005 included
warehouse expansion projects of $3,224,000. In 2006, there were no significant
capital projects.
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.
Cash Provided by Financing Activities was $328,000 in the first quarter of 2006
compared to cash used in financing activities of $14,377,000 in the first
quarter of 2005. Notes Payable increased $5,536,000 in the first quarter of 2006
compared to a reduction of $21,122,000 in the first quarter of 2005. The
additional debt is due primarily to the increase in working capital requirements
reflecting the increased inventory levels.
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.
In connection with the acquisition of CPF, the Company entered into a $200
million revolving credit facility (subsequently reduced to $125 million at the
request of the Company) with a five-year term to finance its seasonal working
capital requirements. During the first quarter, the Company and its lenders
extended the term of the Revolver for an additional year with a final maturity
date of May 27, 2009. We believe that cash flows from operations and
availability under our Revolver will provide adequate funds for our working
capital needs, planned capital expenditures, and debt service obligations for at
least the next 12 months.
The Company's credit facilities contain various financial covenants. At July 2,
2005, the Company was in compliance with all such financial covenants.
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 three months ended July 2, 2005, the Company sold for cash, on a bill and
hold basis, $11,796,000 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
In the ordinary course of business, the Company is exposed to various market
risk factors, including changes in general economic conditions, competition and
raw material pricing and availability. In addition the Company is exposed to
fluctuations in interest rates, primarily related to its revolving credit
facility. To manage interest rate risk, the Company uses both fixed and variable
interest rate debt. There have been no material changes to the Company's
exposure to market risk since March 31, 2005.
ITEM 4 Controls and Procedures
As previously reported in our Annual Report on Form 10-K for the year ended
March 31, 2005, we concluded that, as of March 31, 2005, our disclosure controls
and procedures were not effective in alerting management prior to the end of a
reporting period to all material information required to be included in our
periodic filings with the SEC because we identified that we had a material
weakness in the design of internal controls over financial reporting because we
had insufficient controls to review the application of accounting principles
over the determination and calculation of asset impairments in accordance with
FAS 144, insufficient controls over the calculation and review of accrued
promotion expense, and insufficient controls over the selection and monitoring
of key assumptions supporting accounting estimates.
An evaluation was performed under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities and
Exchange Act of 1934, as amended) as of the end of the period covered by this
report. Our disclosure controls and procedures have been designed to ensure that
information we are required to disclose in our reports that we file with the SEC
under the Exchange Act is recorded, processed and reported on a timely basis.
During the quarter ended July 2, 2005, the Company began the process of
implementing controls and procedures to address the material weaknesses
identified as of March 31, 2005 and believes that, once fully implemented, these
controls and procedures will correct the material weaknesses discussed above.
However, based upon our current evaluation, we concluded that our disclosure
controls and procedures are still not effective in alerting management prior to
the end of a reporting period to all material information required to be
included in our periodic filings with the SEC.
Except as discussed above, there were no changes in the Company's internal
control over financial reporting during its most recently completed fiscal
quarter that have materially affected or are reasonably likely to materially
affect its internal control over financial reporting, as defined in Rule
13a-15(f) under the Exchange Act.
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
- ------------------- ------------ ----------- ----------- ----------- ---------------------- ----------------------
4/01/05 - 4/30/05 14,507 - $16.98 - N/A N/A
- ------------------- ------------ ----------- ----------- ----------- ---------------------- ----------------------
5/01/05 - 5/31/05 9,000 - $16.52 - N/A N/A
- ------------------- ------------ ----------- ----------- ----------- ---------------------- ----------------------
6/01/05 - 6/30/05 7,000 - $16.18 - N/A N/A
- ------------------- ------------ ----------- ----------- ----------- ---------------------- ----------------------
Total 30,507 - $16.66 - 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
------------------------
August 10, 2005 Kraig H. Kayser
President and
Chief Executive Officer
/s/Jeffrey L. Van Riper
-----------------------
August 10, 2005 Jeffrey L. Van Riper
Controller and
Chief Accounting Officer