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 June 28, 2003 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 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 in an accelerated filer (as define 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, 2003
Common Stock Class A, $.25 Par 3,911,480
Common Stock Class B, $.25 Par 2,764,005
PART I ITEM 1 FINANCIAL INFORMATION
SENECA FOODS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands of Dollars)
6/28/03 3/31/03
------- -------
ASSETS
Current Assets:
Cash and Cash Equivalents $ 2,576 $ 64,984
Accounts Receivable, Net 58,248 31,799
Inventories:
Finished Goods 134,072 88,769
Work in Process 8,514 13,911
Raw Materials 68,525 38,969
-------- --------
211,111 141,649
Off-Season Reserve (Note 2) 39,225 -
Deferred Income Tax Asset, Net 3,300 3,300
Assets Held For Sale 9,169 -
Refundable Income Taxes - 715
Other Current Assets 2,373 1,254
-------- --------
Total Current Assets 316,833 243,701
Property, Plant and Equipment, Net 202,856 132,969
Other Assets 5,885 2,870
-------- --------
$525,574 $379,540
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes Payable $ 60,386 $ -
Accounts Payable 60,884 22,730
Accrued Expenses 43,985 25,602
Income Taxes Payable 695 -
Current Portion of Long-Term Debt and Capital
Lease Obligations 23,807 22,987
-------- --------
Total Current Liabilities 189,757 71,319
Long-Term Debt 128,588 127,107
Capital Lease Obligations 7,178 6,230
Deferred Income Tax Liability 9,891 9,023
Other Long-Term Liabilities 10,905 6,497
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 41,551 41,586
Convertible, Participating Preferred Stock, $15.50
Stated Value 15,000 -
Common Stock 2,850 2,849
Paid in Capital 15,716 14,616
Accumulated Other Comprehensive Income 587 422
Retained Earnings 103,481 99,821
-------- --------
Stockholders' Equity 179,255 159,364
-------- --------
$525,574 $379,540
======== ========
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
------------------
6/28/03 6/29/02
------- -------
Net Sales $ 151,296 $ 123,255
Costs and Expenses:
Cost of Product Sold 135,735 111,489
Selling, General, and Administrative 6,130 4,830
Interest Expense 3,411 3,662
----------------- --------------
Total Costs and Expenses 145,276 119,981
Earnings Before Income Taxes 6,020 3,274
Income Taxes 2,348 1,342
----------------- --------------
Net Earnings $ 3,672 $ 1,932
================= ==============
Basic:
Earnings Per Common Share $ .55 $ .29
================= ==============
Diluted:
Earnings Per Common Share $ .35 $ .19
================= ==============
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)
Three Months Ended
------------------
6/28/03 6/29/02
------- -------
Cash Flows From Operations:
Net Earnings $ 3,672 $ 1,932
Adjustments to Reconcile Net Earnings
to Net Cash Provided by
Operating Activities:
Depreciation and Amortization 6,399 5,885
Deferred Income Taxes 798 405
Changes in Working Capital:
Accounts Receivable 6,603 3,150
Inventories 12,912 15,938
Off-Season Reserve (39,225) (26,857)
Other Current Assets (1,057) (392)
Refundable Income Taxes 1,410 934
Accounts Payable, Accrued
Expenses, and Other Liabilities 23,788 6,200
---------------- ---------------
Net Cash Provided by Operations 15,300 7,195
Cash Flows From Investing Activities:
Acquisition (110,449) -
Proceeds from the Sale of Assets 39,585 -
Asset Held For Sale (9,169) -
Cash Received with Acquistion 2,563 -
Additions to Property, Plant,
and Equipment (2,913) (715)
---------------- ---------------
Net Cash Used in Investing
Activities (80,383) (715)
Cash Flows From Financing Activities:
Net Borrowings on Notes Payable 35,011 -
Payments of Long-Term Debt and Capital
Lease Obligations (32,210) (417)
Other (114) 5
Dividends (12) (12)
----------------- ---------------
Net Cash Used in
Financing Activities 2,675 (424)
Net (Decrease) Increase in Cash and Short-
Term Investments (62,408) 6,056
Cash and Cash Equivalents,
Beginning of Period 64,984 24,973
----------------- -----------------
Cash and Cash Equivalents,
End of Period $ 2,576 $ 31,029
================ ================
Supplemental information on non-cash investing and financing activities:
$16.1 million of Preferred Stock was issued in parital consideration for the CPF
acquisition. The Company assumed $9.1 million of long-term debt related to the
CPF acquisition. (see footnotes for details).
The accompanying notes are an integral part of these condensed financial
statements.
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 28, 2003
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 June 28, 2003 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, 2003 balance sheet was derived from
audited financial statements.
The results of operations for the three month period ended June 28, 2003
and June 29, 2002 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 2003 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 2003 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 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. During the first quarter of each year,
incurred expenses exceed absorbed expenses due to timing of
production.
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:
Three Months Ended
------------------
6/28/03 6/29/02
------- -------
Net Earnings $3,672 $1,932
Other Comprehensive Earnings, Net of Tax:
Net Unrealized Gain Change on
Investment 165 349
--------------------
Comprehensive Earnings $3,837 $2,281
====================
4. Recently Issued Accounting Standards: none of the recently issued
accounting standards whether effective for the Company or not currently,
are expected to have a material effect on the Company's financial
position or results of operations.
5. On May 27, 2003, the Registrant completed its acquisition of the
membership interest in Chiquita Processed Foods, L.L.C. ("CPF") from
Chiquita Brands International, Inc. 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 Registrant's Participating Convertible
Preferred Stock. In early fiscal July, the Registrant refinanced $20.0
million of outstanding debt under the revolving credit facility with new
term debt from an insurance company.
The new $200 million revolving credit facility has a five-year term. The
Preferred Stock is convertible into the Company's Class A Common Stock
on a one-for-one basis (see Part II Item 2 for details). The new term
debt from an insurance company of $20 million, when combined with the
refinance of existing insurance company debt of $32.5 million, has an
interest rate of 8.37%, a fifteen year amortization and a ten year term.
As part of this acquisition, the Company assumed seasonal notes payable
from the CPF revolving credit facility of $25.4 million which was paid
off at the time of acquisition with proceeds from the new $200 million
revolving credit facility. The Company also assumed $35.9 million of CPF
long-term debt and capital lease obligations, of which $26.8 million was
paid off at the time of acquisition with proceeds from the new $200
million revolving credit facility. The remaining long-term debt
principally involves two Industrial Revenue Development Bonds totaling
$5.5 million and consisting of a $3 million Pickett, Wisconsin issue due
on June 1, 2005 with an interest rate of 7.75% and a $2.5 million Walla
Walla, Washington issue due on September 1, 2005 with an interest rate of
7.75%. The balance of the debt acquired, totaling $3.6 million, has
interest rates ranging from 1.9% to 9% and is due through 2011.
The Company's statements of income for the quarter ended June 28, 2003
include one month of the CPF acquired operations. A pro forma income
statement as if the operations were acquired at the beginning of the
periods presented follows:
Three Months Ended June
-----------------------
2003 2002
---- ----
Net Sales $205,778 $210,195
Cost of Product Sold 186,665 192,063
Selling, General, and
Administrative 10,435 12,390
Interest Expense 4,261 4,860
Other Expense (Income) 1,882 (23)
----------------------
Total Costs and Expenses 203,243 209,290
Earnings From Continuing Operations
Before Income Taxes 2,535 905
Income Taxes 989 371
----------------------
Net Earnings From Continuing Operations 1,546 534
======================
Basic Net Earnings From Continuing
Operations $ 0.23 $ 0.08
======================
The Registrant sold three former Chiquita Processed Foods plants and
related assets to Lakeside Foods, Inc. on June 17, 2003. The Registrant
sold one additional plant of Chiquita Processed Foods and related assets
to Lakeside Foods, Inc. on August 6, 2003. The sales to Lakeside Foods
generated $47 million in cash proceeds, which was used to pay down debt.
In late August, the Registrant expects to refinance up to an additional
$22.5 million of outstanding debt under the revolving credit facility
with new term debt from an insurance company. The refinancing of the
additional outstanding debt is subject to the negotiation of definitive
documentation. Therefore, there can be no assurance that this transaction
will be completed.
The allocation of purchase price is preliminary and is subject to change
as additional information regarding the fair value of assets and
liabilities acquired is obtained.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION RESULTS AND OF OPERATIONS
June 28, 2003
Results of Operations:
Sales:
Total sales reflect an increase of 22.8% for the first quarter versus 2002. The
sales increase, primarily reflects one month of operating activity related to
the Chiquita Processed Foods, L.L.C. acquired May 27, 2003.
Costs and Expenses:
The following table shows costs and expenses as a percentage of sales:
Three Months Ended
------------------
6/28/03 6/29/02
------- -------
Cost of Product Sold 89.6% 90.4%
Selling 3.2 3.2
Other Expense 0.0 0.0
Administrative 0.9 0.7
Interest Expense 2.3 3.0
------- ------
96.0% 97.3%
====== ======
Favorable cost of manufacturing variances were a major contributing factor in
improved operating results.
Income Taxes:
The effective tax rate was 39% in 2003 and 41% in 2002.
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 June Ended March
--------------- ------------
2003 2002 2003 2002
---- ---- ---- ----
Working Capital Balance $124,027 $173,963 $172,382 $163,606
Quarter Change (45,306) 4,500 - -
Notes Payable 60,386 - - -
Long-Term Debt 135,766 173,792 133,337 156,100
Current Ratio 1.65:1 3.38:1 3.42:1 3.00:1
The change in Working Capital for the June 2003 quarter from the June 2002
quarter is largely due to the acquisition of the membership interest in Chiquita
Processed Foods, L.L.C. for $110 million in cash and $16.1 million in preferred
stock. This was partially offset by higher earnings in the current year quarter
than the prior year quarter ($3,672,000 earnings as compared to $1,932,000
earnings last year).
See Consolidated Condensed Statements of Cash Flows for further details.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 28, 2003
Inventory increased $45.2 million from the same period last year primarily
reflecting an increase of $82.8 million representing the net effect of the CPF
acquisition less the inventory sold to Lakeside Foods, Inc., discussed above.
The $84.4 million increase was partially offset by the Company's continued
emphasis on inventory management and the reduced pack from last year. Cash and
short term investments decreased $28.5 million again due to the acquisition.
On May 27, 2003, the Registrant completed its acquisition of the membership
interest in Chiquita Processed Foods, L.L.C. ("CPF") from Chiquita Brands
International, Inc. 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 Registrant's Participating Convertible Preferred Stock. In early fiscal
July, the Registrant refinanced $20.0 million of outstanding debt under the
revolving credit facility with new term debt from an insurance company.
The new $200 million revolving credit facility has a five-year term. The
Preferred Stock is convertible into the Company's Class A Common Stock on a
one-for-one basis (see Part II Item 2 for details). The new term debt from an
insurance company of $20 million, when combined with the refinance of existing
insurance company debt of $32.5 million, has an interest rate of 8.37%, a
fifteen year amortization and a ten year term.
As part of this acquisition, the Company assumed seasonal notes payable from the
CPF revolving credit facility of $25.4 million which was paid off at the time of
acquisition with proceeds from the new $200 million revolving credit facility.
The Company also assumed $35.9 million of CPF long-term debt and capital lease
obligations, of which $26.8 million was paid off at the time of acquisition with
proceeds from the new $200 million revolving credit facility. The remaining
long-term debt principally involves two Industrial Revenue Development Bonds
totaling $5.5 million and consisting of a $3 million Pickett, Wisconsin issue
due on June 1, 2005 with an interest rate of 7.75% and a $2.5 million Walla
Walla, Washington issue due on September 1, 2005 with an interest rate of 7.75%.
The balance of the debt acquired, totaling $3.6 million, has interest rates
ranging from 1.9% to 9% and is due through 2011.
The Company's statements of income for the quarter ended June 28, 2003 include
one month of the CPF acquired operations. A pro forma income statement as if the
operations were acquired at the beginning of the periods presented follows:
Three Months Ended June
-----------------------
2003 2002
---- ----
Net Sales $205,778 $210,195
Cost of Product Sold 186,665 192,063
Selling, General, and
Administrative 10,435 12,390
Interest Expense 4,261 4,860
Other Expense (Income) 1,882 (23)
----------------------
Total Costs and Expenses 203,243 209,290
Earnings From Continuing Operations
Before Income Taxes 2,535 905
Income Taxes 989 371
----------------------
Net Earnings From Continuing Operations 1,546 534
======================
Basic Net Earnings From Continuing
Operations $ 0.23 $ 0.08
======================
The Registrant sold three former Chiquita Processed Foods plants and related
assets to Lakeside Foods, Inc. on June 17, 2003. The Registrant sold one
additional plant of Chiquita Processed Foods and related assets to Lakeside
Foods, Inc. on August 6, 2003. The sales to Lakeside Foods generated $47 million
in cash proceeds, which was used to pay down debt.
In late August, the Registrant expects to refinance up to an additional $22.5
million of outstanding debt under the revolving credit facility with new term
debt from an insurance company. The refinancing of the additional outstanding
debt is subject to the negotiation of definitive documentation. Therefore, there
can be no assurance that this transaction will be completed.
The allocation of purchase price is preliminary and is subject to change as
additional information regarding the fair value of assets and liabilities
acquired is obtained.
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 three months ended June 28, 2003, the Company sold for cash, on a
bill and hold basis, $23,706,000 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.
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 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 none of the recently issued accounting
standards whether effective for the Company or not currently, are 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
The Company has not experienced any material changes in Market Risk since our
March 31, 2003 report.
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 concluded that as of the end of our
most recent fiscal quarter, our disclosure controls were effective.
(b) Internal controls. Since the date of the last evaluation, 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
On May 27, 2003, the Company issued 967,742 shares of
Convertible Participating Preferred Stock, May 2003
Series, to Friday Holdings L.L.C. as partial consideration
for the acquisition of the membership interest in Chiquita
Processed Foods, L.L.C. These shares are exempt from
registration pursuant to Section 4(2) of the Securities
Act of 1933. Upon issuance, these preferred shares were
initially convertible into Seneca Foods Class A Common
Stock on a one-for-one basis. Additional conversion
provisions, including among other things, adjustments to
the one-for-one conversion ratio resulting from stock
splits, stock dividends, reorganizations and sales by the
Company of Class A Common Stock (or securities convertible
into that stock) at a price below current market price of
Class A Common Stock are set forth in the Amendment to the
Company's Articles of Incorporation filed as an exhibit to
the Company's Form 8-K filed on June 10, 2003. The
proceeds were valued at $16.60 per share based on the
market value of the Class A Common Stock at the time of
the acquisition.
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 Computation of earnings per share (filed herewith)
31 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
(1) Form 8-K Filed June 10, 2003
A Current Report on Form 8-K was filed related to the acquisition of
Chiquita Processed Foods, L.L.C.
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 12, 2003 Kraig H. Kayser
President and
Chief Executive Officer
/s/Jeffrey L. Van Riper
-------------------------
August 12, 2003 Jeffrey L. Van Riper
Controller and
Chief Accounting Officer