Form 10-Q
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 28, 2002 Commission File Number 0-1989
------------------ ------
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 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
------ -------
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, 2002
Common Stock Class A, $.25 Par 3,826,563
Common Stock Class B, $.25 Par 2,764,053
PART I ITEM 1 FINANCIAL INFORMATION
SENECA FOODS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands of Dollars)
9/28/02 3/31/02
------- -------
ASSETS
Current Assets:
Cash and Cash Equivalents $ 60,738 $ 24,973
Accounts Receivable, Net 36,617 32,035
Inventories:
Finished Goods 246,929 135,727
Work in Process 42,727 8,526
Raw Materials 23,217 37,582
------ ------
312,873 181,835
Off-Season Reserve (Note 2) (46,666) -
Deferred Income Tax Asset, Net 4,624 4,624
Refundable Income Taxes 1,075 1,657
Other Current Assets 433 362
-------------- ---------------
Total Current Assets 369,694 245,486
Property, Plant and Equipment, Net 145,200 155,189
Other Assets 3,047 2,901
-------------- ---------------
$517,941 $403,576
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 133,480 $ 33,979
Accrued Expenses 34,170 25,078
Current Portion of Long-Term Debt and Capital
Lease Obligations 22,873 22,823
--------------- ---------------
Total Current Liabilities 190,523 81,880
Long-Term Debt 148,538 149,430
Capital Lease Obligations 6,670 6,670
Deferred Income Taxes 9,220 7,308
Other Long-Term Liabilities 7,762 7,165
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
Stated Value 42,564 42,605
Common Stock 2,829 2,827
Paid in Capital 13,659 13,619
Accumulated Other Comprehensive Income 1,302 1,208
Retained Earnings 94,804 90,794
--------------- ---------------
Stockholders' Equity 155,228 151,123
--------------- ---------------
$517,941 $403,576
======== ========
The accompanying notes are an integral part of these financial statements.
SENECA FOODS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, except Share Data)
Three Months Ended
------------------
9/28/02 9/29/01
------- -------
Net Sales $ 183,806 $ 176,800
Costs and Expenses:
Cost of Product Sold 171,632 167,428
Selling, General, and Administrative 4,657 5,091
Other Expense 620 321
Interest Expense 3,578 4,610
------------------ -----------------
Total Costs and Expenses 180,487 177,450
------------------ -----------------
Earnings (Loss) Before Income Taxes 3,319 (650)
Income Taxes 1,229 (234)
------------------ -----------------
Net Earnings (Loss) $ 2,090 $ (416)
================= ================
Basic:
Earnings(Loss) Per Common Share $ .32 $ (.06)
=============== ===============
Diluted:
Earnings (Loss) Per Common Share $ .20 $ (.06)
=============== ===============
The accompanying notes are an integral part of these condensed financial
statements.
SENECA FOODS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited) (In
Thousands, except Share Data)
Six Months Ended
----------------
9/28/02 9/29/01
------- -------
Net Sales $ 307,061 $ 309,493
Costs and Expenses:
Cost of Product Sold 283,121 292,148
Selling, General, and Administrative 9,487 10,158
Other Expense 620 321
Interest Expense 7,240 9,525
------------------ -----------------
Total Costs and Expenses 300,468 312,152
------------------ -----------------
Earnings (Loss) Before Income Taxes 6,593 (2,659)
Income Taxes 2,571 (957)
------------------ -----------------
Net Earnings (Loss) $ 4,022 $ (1,702)
================= ================
Basic:
Earnings(Loss) Per Common Share $ .61 $ (.26)
================= ===============
Diluted:
Earnings (Loss) Per Common Share $ .39 $ (.26)
================= ===============
The accompanying notes are an integral part of these condensed financial
statements.
SENECA FOODS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Six Months Ended
----------------
9/28/02 9/29/01
------- -------
Cash Flows From Operations:
Net Earnings (Loss) $ 4,022 $ (1,702)
Adjustments to Reconcile Net Earnings (Loss)
to Net Cash Provided by
Operating Activities:
Depreciation and Amortization 11,489 12,056
Deferred Income Taxes 1,851 (959)
Impairment provision and Other
Expenses 620 321
Changes in Working Capital:
Accounts Receivable (4,582) (18,542)
Inventories (131,038) (133,706)
Off-Season Reserve 46,046 45,249
Other Current Assets (71) (284)
Income Taxes 582 (939)
Accounts Payable, Accrued
Expenses, and Other Liabilities 109,190 99,248
------------------ -----------------
Net Cash Provided by Operations 38,109 742
------------------ -----------------
Cash Flows From Investing Activities:
Additions to Property, Plant,
and Equipment (1,499) (9,139)
Disposals of Property, Plant,
And Equipment - 94
Escrow Funds - 308
------------------ -----------------
Net Cash Used in Investing
Activities (1,499) (8,737)
------------------ -----------------
Cash Flows From Financing Activities:
Payments of Long-Term Debt and Capital
Lease Obligations (842) (432)
Other 9 9
Proceeds from the Issuance of Long-Term
Debt - 6,912
Net Borrowings on Notes Payable - 1,500
Dividends (12) (12)
------------------ -----------------
Net Cash (Used in) Provided by
Financing Activities (845) 7,977
------------------ -----------------
Net Increase (Decrease) in Cash and Short-
Term Investments 35,765 (18)
Cash and Short-Term Investments,
Beginning of Period 24,973 5,391
------------------ -----------------
Cash and Short-Term Investments,
End of Period $ 60,738 $ 5,373
================== ==================
The accompanying notes are an integral part of these condensed financial
statements.
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 28, 2002
1. Consolidated Condensed Financial Statements
In the opinion of management, the accompanying unaudited consolidated
condensed 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 28, 2002 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, 2002 balance sheet was derived from
audited financial statements.
The results of operations for the three and six month periods ended
September 28, 2002 and September 29, 2001 are not necessarily indicative
of the results to be expected for the full year.
The accounting policies followed by the Company are set forth in Note 1
to the Company's financial statements in the 2002 Seneca Foods
Corporation Annual Report and Form 10-K.
Other footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
consolidated condensed financial statements be read in conjunction with
the financial statements and notes included in the Company's 2002 Annual
Report and Form 10-K.
2. Off-Season Reserve is the excess of absorbed expenses over incurred
expenses to date. During the first quarter of each year, incurred
expenses exceed absorbed expenses due to timing of production. 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 are zero
at fiscal year end.
3. Comprehensive income consisted solely of Net Earnings and Net Unrealized
Gain Change on Moog, Inc. Stock. The following table provides the results
for the periods presented:
Six Months Ended
----------------
9/28/02 9/29/01
------- -------
Net Earnings (Loss) $4,022 $(1,702)
Other Comprehensive Earnings, Net of Tax:
Net Unrealized Gain Change on
Moog, Inc. Stock (94) 38
--------------------
Comprehensive Earnings (Loss) $4,116 $(1,664)
====================
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 28, 2002
Results of Operations:
Sales: Total sales reflect an increase of 4.0% for the second quarter versus
2001. The Company's Alliance business sales dollars increased by 10.7%.
Non-Alliance sales dollars decreased by 1.7%. For the six month period, total
sales decreased 0.7%, of which Non-Alliance sales decreased 1.5% and Alliance
sales increased 0.3% versus the same period last year.
Costs and Expenses:
The following table shows costs and expenses as a percentage of sales:
Three Months Ended Six Months Ended
------------------ ----------------
9/28/02 9/29/01 9/28/02 9/29/01
------- ------- ------- -------
Cost of Product Sold 93.4% 94.7% 92.2% 94.4%
Selling 2.1 2.4 2.5 2.7
Other Expense 0.3 0.2 0.2 0.1
Administrative 0.5 0.5 0.6 0.6
Interest Expense 1.9 2.6 2.4 3.1
---------------------------------------------------
98.2% 100.4% 97.9% 100.9%
====================================================
Higher selling prices as compared to the prior year, especially in the Private
Label Retail Canned, Frozen and Branded businesses, were a major contributing
factor in improved operating results. In addition, interest expense decreased
$1,032,000 for the second quarter as a result of lower interest rates and lower
average debt balances. Other expense in the current period is an impairment
charge while in the prior period, other expense is a severance accrual.
Income Taxes:
The effective tax rate was 39% in 2002 and 36% in 2001.
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
--------------- -----------
2002 2001 2002 2001
---- ---- ---- ----
Working Capital Balance $179,171 $169,463 $163,606 $163,367
Quarter Change 8,210 4,519 - -
Notes Payable - 26,000 - 24,500
Long-Term Debt 155,208 176,864 156,100 171,346
Current Ratio 1.94:1 1.80:1 3.00:1 2.49:1
The change in Working Capital for the September 2002 quarter from the September
2001 quarter is largely due to higher earnings in the current year quarter than
the prior year quarter ($2,090,000 earnings as compared to $416,000 loss last
year) and lower capital expenditures, which were $0.8 million in 2002 as
compared to $4.8 million in 2001. This was partially offset by new debt issued
in 2001 of $3.0 million.
See Consolidated Condensed Statements of Cash Flows for further details.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 28, 2002
Forward-Looking Statements
Except for the historical information contained herein, the matters discussed in
this report 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, including but not limited to
economic, competitive, governmental and technological factors affecting the
Company's operations, markets, products, services and prices, and other factors
discussed in the Company's filings with the Securities and Exchange Commission,
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.
Critical Accounting Policies
In the first six months ended September 28, 2002, the Company sold for cash, on
a bill and hold basis, $94,280,000 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, 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.
Off-Season Reserve is the excess of absorbed expenses over incurred expenses to
date. During the first quarter of each year, incurred expenses exceed absorbed
expenses due to timing of production. 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 are zero at fiscal year end.
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 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 customers for shelf space in retail stores. Accruals for trade
promotions are recorded primarily at the time of sale of product to the customer
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 customer 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
customers for amounts they consider due to them. Final determination of the
permissible deductions may take extended periods of time.
Alliance Agreement Amendment
On May 23, 2002, the Company, The Pillsbury Company, General Mills Operations,
Inc. and General Mills, Inc. entered into an amendment to the Alliance Agreement
pursuant to which certain provisions were modified to (i) assign Pillsbury's
rights and obligations under the Alliance Agreement to General Mills Operations,
Inc. ("GMOI"), which is an indirect, wholly-owned subsidiary of General Mills,
Inc.; (ii) accelerate the timing of the obligation of GMOI to purchase Green
Giant inventory from the Company by requiring that such inventory be purchased
at the end of each commodity production cycle (e.g. corn, peas, green beans, and
asparagus); and (iii) substitute General Mills, Inc. for Diageo PLC as the
guarantor of GMOI's obligations under the Alliance Agreement.
Recently Issued Accounting Standards
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit and Disposal Activities. This statement revises the accounting for exit and
disposal activities under EITF Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and other Costs to Exit an Activity, by spreading
out the reporting of expenses related to restructuring activities. Commitment to
a plan to exit an activity or dispose of long-lived assets will no longer be
sufficient to record a one-time charge for most anticipated costs. Instead,
companies will record exit or disposal costs when they are "incurred" and can be
measured at fair value, and they will subsequently adjust the recorded liability
for changes in estimated cash flows. The provisions of SFAS No. 146 are
effective prospectively for exit or disposal activities initiated after December
31, 2002. Companies may not restate previously issued financial statements for
the effect of the provisions of SFAS No. 146 and liabilities that a company
previously recorded under EITF Issue 94-3 are grandfathered. The Company does
not expect the adoption of SFAS No. 146 to have a material impact on its
consolidated financial statements.
ITEM 3 Quantitative and Qualitative Disclosures about Market Risk
The Company has not experienced any material changes in Market Risk since our
March 31, 2002 report.
ITEM 4 Controls and Procedures
(a) Disclosure controls and procedures. Within 90 days before filing this
report, 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 concluded that, as of the date of their evaluation, our
disclosure controls were effective.
(b) Internal controls. Since the date of the evaluation described above, there
have not been any significant changes in our internal accounting controls or in
other factors that could significantly affect those controls.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
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 and Reports on Form 8-K
A. Exhibits
11 (11) Computation of earnings per share (filed herewith)
(b) Reports on Form 8-K
(1) Form 8-K Filed August 12, 2002
Regulation FD Disclosure. Certifications by the Chief Executive
Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
to accompany the Quarterly Report on Form 10-Q for the quarterly
period ended June 29, 2002.
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 8, 2002 Kraig H. Kayser
President and
Chief Executive Officer
/s/Jeffrey L. Van Riper
------------------------
November 8, 2002 Jeffrey L. Van Riper
Controller and
Chief Accounting Officer
CERTIFICATIONS
I, Kraig H. Kayser, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Seneca Foods
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: November 8, 2002 By: /s/Kraig H. Kayser
---------------------------------
Kraig H. Kayser
President and Chief Executive
Officer
I, Philip G. Paras, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Seneca Foods
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: November 8, 2002 By: /s/Philip G. Paras
--------------------------------
Philip G. Paras
Chief Financial Officer