-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LUON2yqDg78DKeCDcUgaUa+Z3JUZS/+khIm2RlGaqGnUh4SRGfxvZEc6f7OmSVe9 BvUFv05GKtAE6ZxtmZ/OFw== 0000088948-96-000003.txt : 19960702 0000088948-96-000003.hdr.sgml : 19960702 ACCESSION NUMBER: 0000088948-96-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960701 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SENECA FOODS CORP /NY/ CENTRAL INDEX KEY: 0000088948 STANDARD INDUSTRIAL CLASSIFICATION: CANNED, FRUITS, VEG & PRESERVES, JAMS & JELLIES [2033] IRS NUMBER: 160733425 STATE OF INCORPORATION: NY FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-01989 FILM NUMBER: 96588994 BUSINESS ADDRESS: STREET 1: 1162 PITTSFORD VICTOR RD CITY: PITTSFORD STATE: NY ZIP: 14534 BUSINESS PHONE: 7163859500 FORMER COMPANY: FORMER CONFORMED NAME: PIERCE S S COMPANY INC DATE OF NAME CHANGE: 19861210 FORMER COMPANY: FORMER CONFORMED NAME: SENECA FOODS CORP DATE OF NAME CHANGE: 19780425 FORMER COMPANY: FORMER CONFORMED NAME: SENECA GRAPE JUICE CORP DATE OF NAME CHANGE: 19710419 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the fiscal year-ended March 31, 1996 Commission File Number 0-1989 SENECA FOODS CORPORATION (Exact name of registrant as specified in its charter) New York 16-0733425 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1162 Pittsford-Victor Road, Pittsford, New York 14534 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (716) 385-9500 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered None None Securities registered pursuant to Section 12(g) of the Act: Common Stock Class A, $.25 Par Common Stock Class B, $.25 Par (Title of Class) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained herein, and will not be contained, to best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. X Check mark indicates whether registrant has (1) 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 registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. Yes X No The aggregate market value of the Registrant's voting securities held by non-affiliates based on the closing sales price per market reports by the National Market System on June 1, 1996 was approximately $98,704,000. Common shares outstanding as of June 1, 1996 were Class A: 3,143,125, Class B: 2,796,555. Documents Incorporated by Reference: (1) Proxy Statement to be issued prior to June 30, 1996 in connection with the registrant's annual meeting of stockholders (the "Proxy Statement") applicable to Part III, Items 10-13 of Form 10-K. (2) Portions of the Annual Report to shareholders for fiscal year-ended March 31, 1996 (the "Annual Report") applicable to Part II, Items 5-8 and Part IV, Item 14 of Form 10-K. TABLE OF CONTENTS FORM 10-K ANNUAL REPORT - FISCAL 1996 SENECA FOODS CORPORATION
Pages PART I. Item 1. Business 1-3 Item 2. Properties 3 Item 3. Legal Proceedings 4 Item 4. Submission of Matters to a Vote of Equity Security Holders 4 PART II. Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters 4 Item 6. Selected Financial Data 4 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 4 Item 8. Financial Statements and Supplementary Data 4 Item 9. Changes in and Disagreements on Accounting and Financial Disclosure 4 PART III. Item 10. Directors and Executive Officers of the Registrant 6 Item 11. Executive Compensation 6 Item 12. Security Ownership of Certain Beneficial Owners and Management 6 Item 13. Certain Relationships and Related Transactions 6 PART IV. Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K 6-10 SIGNATURES 11-12
PART I Item 1 Business General Development of Business SENECA FOODS CORPORATION (herein referred to as the "Company") was organized in 1949 and incorporated under the laws of the State of New York. Seneca Foods Corporation purchased six Green Giant(R) vegetable plants from The Pillsbury Company effective February 1, 1995, resulting in vegetable products becoming nearly 80% of Seneca's overall business. Consequently, Seneca has changed its fiscal year-end from July 31 to March 31 to avoid overlapping pack seasons between fiscal years. Therefore, Fiscal 1995 was an eight-month transition period. Financial Information About Industry Segments The Company's business activities are conducted in food and non-food segments. The food segment is food processing. The non-food segment is an air charter service. The air charter service represents 1% of the Company's business and therefore the financial information related to segments is not material. Narrative Description of Business Principal Products and Markets Food Processing The principal products of this segment include grape products, apple products, and vegetables. The products are canned, bottled, and frozen and are sold to retail and institutional markets. The Company has divided the United States into four major marketing sections: Eastern, Southern, Northwestern, and Southwestern. Plant locations in New York, Michigan, North Carolina, and Washington provide ready access to the domestic sources of grapes and apples necessary to support marketing efforts in their respective sections of the country. Vegetable operations are primarily supported by plant locations in New York, Wisconsin, Washington, Idaho, and Minnesota. In addition, the Company operates a mushroom canning facility in Pennsylvania. The following summarizes net sales by major category for the four years ended March 31, 1996 and 1995 and July 31, 1994 and 1993:
(Eight Months) 1996 1995 1994 1993 ---- ---- ---- ---- (In thousands) Vegetable $ 330,654 $117,504 $145,010 $132,459 Apple 87,585 62,688 78,453 71,748 Grape 19,159 10,325 17,457 19,058 Other 66,453 40,809 45,334 30,205 ------- ------- ------- ------- Total $503,851 $231,326 $286,254 $253,470 ======= ======= ======= =======
Other Seneca Flight Operations provides air charter service primarily to industries in upstate New York. Source and Availability of Raw Material Food Processing The Company's food processing plants are located in major vegetable, grape, and apple producing states. Fruits and vegetables are primarily obtained through contracts with growers. Apple concentrate is purchased domestically and abroad to supplement raw fruit purchased under contract. The Company's sources of supply are considered equal or superior to its competition for all of its food products. Seasonal Business Food Processing While individual fruits and vegetables have seasonal cycles of peak production and sales, the different cycles are usually offsetting to some extent. The supply of commodities, current pricing, and expected new crop quantity and quality affect the timing of the Company's sales and earnings. An Off Season Allowance is established during the year to minimize the effect of seasonal production on earnings. This is zero at fiscal year-end. Backlog Food Processing In the food processing business the end of year sales order backlog is not considered meaningful. Traditionally, larger customers provide tentative bookings for their expected purchases for the upcoming season. These bookings are further developed as data on the expected size of the related national harvests becomes available. In general these bookings serve as a yardstick, rather than as a firm commitment, since actual harvest results can vary notably from early estimates. In actual practice, the Company has substantially all of its expected seasonal production identified to potential sales outlets before the seasonal production is completed. Competition and Customers Food Processing Competition in the food business is substantial with imaginative brand registration, quality service, and pricing being the major determinants in the Company's relative market position. Except for the Seneca apple and grape products and Libby's vegetable products data mentioned below, no reliable statistics are available to establish the exact market position of the Company's own food products. During the past year approximately 26% of the Company's processed foods were packed for retail customers under the Company branded labels of Libby's(R), Nature's Favorite(R), TreeSweet(R), and Seneca(R). About 10% of the processed foods were packed for institutional food distributors and 31% of processed foods were retail packed under the private label of customers. The remaining 33% is sold to Pillsbury under the Alliance Agreement (see Note 12 of Item 8, Financial Statements and Supplementary Data). The customers represent a full cross section of the retail, institutional, distributor, and industrial markets and the Company does not consider itself dependent on any single sales source. In 1996 and in the future, The Pillsbury Company represents our largest customer as a result of the 20-year Alliance Agreement entered into during 1995. The principal branded products are Seneca Frozen Apple Juice Concentrate, rated the number one seller nationally, Seneca Frozen Natural Grape Juice Concentrate, Seneca applesauce, and Libby's canned vegetable products which rate among the top five national brands. The information under the heading Liquidity and Capital Resources in Management's Discussion and Analysis of Financial Condition and Results of Operations in the 1996 Annual Report is incorporated by reference. Environmental Protection Environmental protection is an area that has been worked on most diligently at each food processing facility. In all locations the Company has cooperated with federal, state, and local environmental protection authorities in developing and maintaining suitable antipollution facilities. In general, pollution control facilities are equal to or somewhat superior to those of our competitors and are within environmental protection standards. The Company does not expect any material capital expenditures to comply with environmental regulations in the near future. The Company is a potentially responsible party with respect to two sites but the Company does not believe the aggregate liability is material. Employment Food processing - Full time 2,049 - Seasonal 534 ----- 2,583 Other 125 ----- 2,708 Foreign Operations Export sales for the Company are a relatively small portion (about 5%) of the food processing sales, excluding the Pillsbury Alliance sales. Approximately 20% of the Pillsbury Alliance sales are for eventual export. Item 2 Properties The Company has nine food processing, packaging, and warehousing facilities located in New York State that provide approximately 1,819,000 square feet of food packaging, freezing and freezer storage, and warehouse storage space. These facilities process and package fruit and vegetable products. The Company is a lessee under a number of operating and capital leases for equipment and real property used for processing and warehousing. Five other processing, packaging, and warehousing facilities are located in the states of North Carolina (223,000 square feet), Pennsylvania (39,000 square feet), and in Washington (three locations totaling 292,000 square feet). Processing operations in North Carolina are primarily devoted to apple juice products; in Washington, grape juice, apple juice, apple chips, and sauce; and in Pennsylvania, mushroom canning and warehousing. Four facilities in Minnesota, one facility in Michigan, one facility in Washington, one facility in Idaho, and seven facilities in Wisconsin provide approximately 4,456,000 square feet of food packaging, freezing and freezer storage, and warehouse storage space. These facilities process and package various vegetable and fruit products. The facilities are owned by the Company. The Company owns two food distribution facilities in Massachusetts and New York totaling approximately 206,000 square feet which are leased out to other companies through 1996 and 2004. The Company has entered into an agreement to sell the New York property in August 1996. Sublease income of $1,849,000 was received on these facilities during the period. In addition the air charter division has a 14,000 square foot facility. All of the properties are well maintained and equipped with modern machinery. All locations, although highly utilized, have the ability to expand as sales requirements justify. Because of the seasonal production cycles the exact extent of utilization is difficult to measure. In certain circumstances the theoretical full efficiency levels are being reached; however, expansion of the number of production days or hours could increase the output by up to 20% for a season. Certain of the Company's facilities are mortgaged to financial institutions to secure long-term debt and capital lease obligations. See Notes 4 and 5 of Item 8, Financial Statements and Supplementary Data, for additional information about the Company's lease commitments. Item 3 Legal Proceedings The Company is not involved in any material legal proceedings. Item 4 Submission of Matters to a Vote of Equity Security Holders No matters were submitted to vote of shareholders during the last quarter of the fiscal period covered by this report. PART II Item 5 Market for the Registrant's Common Stock and Related Security Holder Matters Each class of preferred stock receives preference as to dividend payment and declaration over any common stock. In addition, refer to the information in the 1996 Annual Report, "Shareholder Information", which is incorporated by reference. Item 6 Selected Financial Data Refer to the information in the 1996 Annual Report, "Five Year Selected Financial Data", which is incorporated by reference. Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations Refer to the information in the 1996 Annual Report, "Management's Discussion and Analysis of Financial Condition and Results of Operations", which is incorporated by reference. Item 8 Financial Statements and Supplementary Data Refer to the information in the 1996 Annual Report, "Consolidated Financial Statements and Notes thereto including Independent Auditors' Report", which is incorporated by reference. Item 9 Changes in and Disagreements on Accounting and Financial Disclosure None. INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Seneca Foods Corporation Pittsford, New York We have audited the consolidated financial statements of Seneca Foods Corporation and subsidiaries as of March 31, 1996, March 31, 1995 and July 31, 1994, and for the year ended March 31, 1996, the eight months ended March 31, 1995 and for each of the two years in the period ended July 31, 1994, and have issued our report thereon dated May 31, 1996, which report includes an explanatory paragraph as to changes in accounting for inventories in 1996 and income taxes in 1994; such consolidated financial statements and report are included in your 1996 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of Seneca Foods Corporation, listed in Item 14 (A)(2). This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/Deloitte & Touche LLP Rochester, New York May 31, 1996 PART III Item 10 Directors and Executive Officers of the Registrant Item 11 Executive Compensation Item 12 Security Ownership of Certain Beneficial Owners and Management Item 13 Certain Relationships and Related Transactions Information required by Items 10 through 13 will be filed separately with the Commission, pursuant to Regulation 14A, in a definitive proxy statement involving the election of directors which is incorporated herein by reference. PART IV Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K A. Exhibits and Financial Statement Schedules 1. (i) Financial Statement Schedules - the following consolidated financial statements of the Registrant, included in the Annual Report for the year ended March 31, 1996, are incorporated by reference in Item 8: Consolidated Statements of Net Earnings - March 31, 1996 and 1995 and July 31, 1994 and 1993 Consolidated Balance Sheets - March 31, 1996 and 1995 and July 31, 1994 Consolidated Statements of Cash Flows - March 31, 1996 and 1995 and July 31, 1994 and 1993 Consolidated Statements of Stockholders' Equity - March 31, 1996 and 1995 and July 31, 1994 and 1993 Notes to Consolidated Financial Statements - March 31, 1996 and 1995 and July 31, 1994 and 1993 Independent Auditors' Report (ii) As a result of the Company's change in 1995 in the fiscal year-end date from July 31 to March 31 (see Note 1 of Item 8, Financial Statements and Supplementary Data), the following is an unaudited comparison of eight months ended March 31, 1995 and March 26, 1994:
March 31 March 26 Eight Months Ended (1994 Unaudited) 1995 1994 (In thousands, except share amounts) Net sales $234,073 $195,048 ------- ------- Costs and expenses: Cost of product sold 202,068 162,356 Selling, general, and administrative expense 23,620 20,231 Interest expense, net of interest income 6,296 4,178 ------- ------- 231,984 186,765 Earnings from continuing operations before income taxes, extraordinary item and cumulative effect of accounting change 2,089 8,283 Income taxes 768 3,231 ----- ----- Earnings from continuing operations $ 1,321 $ 5,052 ===== ===== Earnings from continuing operations per share $ .23 $ 1.71 ===== ===== Weighted average shares outstanding 5,593,110 5,899,284 ========= =========
Pages 2. Supplemental Schedule: Schedule II -- Valuation and Qualifying Accounts 8 Other schedules have not been filed because the conditions requiring the filing do not exist or the required information is included in the consolidated financial statements, including the notes thereto. 3. Exhibits: No. 3 - Articles of Incorporation and By-Laws - Incorporated by reference to the Company's 10-Q/A filed August, 1995 as amended by Exhibit No. 3 filed herewith. No. 4 - Articles defining the rights of security holders - Incorporated by reference to the Company's 10-Q/A filed August, 1995 as amended by Exhibit No. 3 filed herewith. Instrument defining the rights of any holder of Long-Term Debt - Incorporated by reference to Exhibit 99 to the Company's 10-Q filed January 1995 as amended by Exhibit No. 4 filed herewith. The Company will furnish, upon request to the SEC, a copy of any instrument defining the rights of any holder of Long-Term Debt. No. 10 - Material Contracts - Incorporated by reference to the Company's 8-K dated February 24, 1995 for the First Amended and Restated Alliance Agreement and the First Amended and Restated Asset Purchase Agreement both with The Pillsbury Company. No. 11 - Computation of Earnings per Share 9 No. 13 - The material contained in the 1996 Annual Report to Shareholders under the following headings: "Five Year Selected Financial Data", "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Consolidated Financial Statements and Notes thereto including Independent Auditors' Report", and "Shareholder Information". No. 18 - Preferability Letter 10 No. 21 - List of Subsidiaries 10 No. 27 - Financial Data Schedules B. Reports on Form 8-K None. Schedule II VALUATION AND QUALIFYING ACCOUNTS (In thousands)
Balance at Charged to Deductions Balance beginning Charged to other from at end of period income accounts reserve of period ---------- ---------- ---------- ---------- --------- Year-ended March 31, 1996: Allowance for doubtful accounts $ 227 $ 52 $ -- $ 114 (a) $ 165 ====== ======= ===== ===== ======= Year-ended March 31, 1995: Allowance for doubtful accounts $ 183 $ 166 $ -- $ 122 (a) $ 227 ====== ======= ===== ===== ====== Year-ended July 31, 1994: Allowance for doubtful accounts $ 435 $ (213) $ -- $ 39 (a) $ 183 ====== ======= ===== ===== ======= Year-ended July 31, 1993: Allowance for doubtful accounts $ 281 $ 182 $ -- $ 28 (a) $ 435 ====== ======= ===== ===== ======= (a) Accounts written off, net of recoveries.
EX-11 2 Exhibit 11 COMPUTATION OF EARNINGS PER SHARE (In thousands, except per share amounts)
(Eight Months) Years ended March 31 and July 31, 1996 1995 1994 1993 ---- ---- ---- ---- Primary Net earnings applicable to common stock: Net earnings $ (10,147) $ 1,321 $ 9,037 $ 2,258 Deduct preferred stock dividends paid 12 12 23 23 ------- ----- ----- ------ Net earnings applicable to common stock $ (10,159) $ 1,309 $ 9,014 $ 2,235 ======= ===== ===== ====== Weighted average number of common shares and common equivalents outstanding 5,622 5,593 5,798 6,171 ======= ===== ===== ====== Primary earnings per share $ (1.81) $ .23 $ 1.55 $ .36 ======= ===== ===== ====== Fully Diluted Net earnings applicable to common stock per above $ (10,159) $ 1,309 $ 9,014 $ 2,235 Add dividends on convertible preferred stock 10 10 20 20 ------- ----- ----- ------ Net earnings applicable to common stock on a fully diluted basis $ (10,149) $ 1,319 $ 9,034 $ 2,255 ======= ===== ===== ====== Shares used in calculating primary earnings per share above 5,622 5,593 5,798 6,171 Additional shares to be issued under full conversion of preferred stock 68 68 68 68 ------ ------ ------ ------ Total shares for fully diluted 5,690 5,661 5,866 6,239 ====== ====== ====== ====== Fully diluted earnings per share $ (1.78) $ .23 $ 1.54 $ .36 ====== ====== ====== ====== 1995-1993 has been restated to reflect the Company's change from the LIFO inventory valution method to the FIFO inventory valuation method and to reflect the stock split in the form of a dividend.
Exhibit 18 Seneca Foods Corporation Pittsford, New York 14534 Dear Sirs/ Madames: We have audited the consolidated financial statements of Seneca Foods Corporation and subsidiaries as of March 31, 1996, March 31, 1995 and July 31, 1994, and for the year ended March 31, 1996, the eight months ended March 31, 1995 and for each of the two years in the period ended July 31, 1994, included in your Annual Report on Form 10-K to the Securities and Exchange Commission and have issued our report thereon dated May 31, 1996. Note 1 to such consolidated financial statements contains a description of your adoption during the year ended March 31, 1996 of the first-in, first-out (FIFO) method of accounting for inventories, whereas you previously used the last-in, first-out (LIFO) method. In our judgment, such change is to an alternative accounting principle that is preferable under the circumstances. /s/Deloitte & Touche LLP Rochester, New York May 31, 1996 Exhibit 21 LIST OF SUBSIDIARIES The following is a listing of subsidiaries 100% owned by Seneca Foods Corporation, directly or indirectly: Name State Marion Foods, Inc. New York Seneca Foods International, Ltd. New York SSP Company, Inc. Massachusetts SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SENECA FOODS CORPORATION By/s/ Jeffrey L. Van Riper June 21, 1996 Jeffrey L. Van Riper Controller and Secretary (Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- /s/Arthur S. Wolcott Chairman and Director June 21, 1996 Arthur S. Wolcott /s/Kraig H. Kayser President, Chief Executive Officer, June 21, 1996 Kraig H. Kayser and Director /s/Philip G. Paras Vice President, Finance June 21, 1996 Philip G. Paras /s/Devra A. Bevona Treasurer June 21, 1996 Devra A. Bevona /s/Jeffrey L. Van Riper Controller and Secretary June 21, 1996 Jeffrey L. Van Riper (Principal Accounting Officer) /s/Robert T. Brady Director June 21, 1996 Robert T. Brady /s/David L. Call Director June 21, 1996 David L. Call /s/Edward O. Gaylord Director June 21, 1996 Edward O. Gaylord /s/G. Brymer Humphreys Director June 21, 1996 G. Brymer Humphreys /s/Susan W. Stuart Director June 21, 1996 Susan W. Stuart
EX-3 3 CERTIFICATE OF AMENDMENT Exhibit No. 3 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF SENECA FOODS CORPORATION ====================================================== Under Section 805 of the Business Corporation Law ====================================================== ================================================================================ 3 ================================================================================ We, the undersigned, being the President and Secretary of SENECA FOODS CORPORATION, do hereby certify as follows: FIRST: The name of the Corporation is SENECA FOODS CORPORATION. The name under which the Corporation was formed is SENECA GRAPE JUICE CORPORATION. SECOND: The certificate of incorporation of the Corporation was filed by the Department of State on August 17, 1949. THIRD: The certificate of incorporation of the Corporation is hereby amended to: (a) Authorize a new class of ten million (10,000,000) shares of Common Stock of the par value of $0.25 to be designated Class A Common Stock; (b) Reclassify the existing class of Common Stock as Class B Common Stock; (c) Establish the express terms of the Class A Common Stock and the Class B Common Stock. To accomplish this, Articles 3 and 4 of the Certificate of Incorporation, are hereby amended to read in their entirety as follows: 3. The Capital Stock of the Corporation shall consist of ten million (10,000,000) shares of Class A Common Stock of the par value of $0.25 each; ten million (10,000,000) shares of Class B Common Stock of the par value of $0.25 each; two hundred thousand (200,000) shares of Six Percent (6%) Voting Cumulative Preferred Stock of the par value of $0.25 each; thirty thousand (30,000) shares of Preferred Stock Without Par Value, to be issued in series by the Board of Directors, pursuant to the provisions of Article 4, Section (c) hereof, subject to the limitations prescribed by law; and four million (4,000,000) shares of Preferred Stock with $.025 par value, Class A, to be issued by the Board of Directors pursuant to the provisions of Article 4, Section (d) hereof, subject to the limitations prescribed by law. The stated capital of the Corporation as determined pursuant to Section 506 of the Business Corporation Law shall be increased by six hundred ninety nine thousand one hundred thirty nine dollars ($699,139) and such increase shall be allocated equally to the stated capital in respect of the Corporation's $0.25 par value Class A Common Stock and Class B Common Stock. 4. The designations, preferences, privileges and voting powers of the shares of each class of stock which the Corporation is authorized to issue, and the restrictions or qualifications thereof, shall be as follows: (a) Class A Common Stock and Class B Common Stock. (A) Provisions Applicable to Class A Common Stock and Class B Common Stock. (i) The holders of record of Class A Common Stock and the holders of record of Class B Common Stock shall have equal rights and rank per share with respect to any and all dividends and distributions declared on the common stock of the Corporation, and no dividend or distribution shall be declared or made with respect to either Class A Common Stock or Class B Common Stock unless that dividend or distribution is declared and made with respect to both such classes; except that (subject to conversion rights of any preferred stocks) a dividend or distribution upon Class A Common Stock which will be paid in shares of common stock of the Corporation shall be declared and made only in shares of Class A Common Stock and a dividend or distribution upon Class B Common Stock which will be paid in shares of common stock of the Corporation shall be declared and made only in shares of Class B Common Stock, and if a dividend or distribution is so declared and paid in shares of one class of common stock to the holder of each share of that class, a per-share dividend or distribution in an equal number of shares of the other class of common stock shall be concurrently declared and paid to the holder of each share of such other class, so that the number of shares of Class A Common Stock paid as a dividend or distribution on a share of Class A Common Stock shall be equal to the number of shares of Class B Common Stock paid as a dividend or distribution on a share of Class B Common Stock. (ii) In the event of any voluntary or involuntary liquidation, dissolution or any winding up of the Corporation, each share of Class A Common Stock and Class B Common Stock shall rank equally with respect to any distribution to be received by holders of common stock upon or with respect to liquidation, dissolution or winding up. (B) Provisions Applicable to Class A Common Stock. (i) The holders of Class A Common Stock are entitled to one-twentieth (1/20th) of one vote per share on all questions presented to the stockholders. In all elections of directors of the Corporation, each holder of Class A Common Stock shall have the right to vote in person or by proxy one-twentieth (1/20th) of one vote for each share of Class A Common Stock held by such holder for as many Persons as there are directors to be elected. No cumulative voting for directors shall be permitted. Any provision of the Certificate of Incorporation or By-laws of the Corporation requiring the affirmative vote of a specified percentage of shares of the Corporation shall be read to give effect to the lesser voting rights of the holders of Class A Common Stock as described above; specifically, a provision that the affirmative vote of a specified percentage of the shares of the Corporation is required shall require the affirmative vote of the holders of that percentage of the aggregate voting power of the Corporation. The holders of Class A Common Stock are entitled to vote as a separate class (i) on any proposal to amend the Corporation's Certificate of Incorporation to increase the authorized number of shares of Class B Common Stock, unless the increased authorization does not exceed the number of shares of Class B Common Stock which must be issued in a proposed stock dividend with respect to shares of Class B Common Stock and which conforms to the requirements set forth in this Article with respect to payment of dividends in stock of this Corporation upon shares of Class B Common Stock and Class A Common Stock and (ii) as required by applicable law. (ii) The Class A Common Stock is not convertible into shares of Class B Common Stock, unless the number of outstanding shares of Class B Common Stock falls below 5% of the aggregate number of outstanding shares of Class B Common Stock and Class A Common Stock. At such time, all of the outstanding Class A Common Stock will be converted automatically into shares of Class B Common Stock on a share-for-share basis. For purposes of this Article 4(a)(B)(ii), "outstanding" shares of Common Stock would not include shares of Class B Common Stock or shares of Class A Common Stock repurchased by the Corporation and not reissued. (C) Provisions Applicable to Class B Common Stock. (i) Except as provided in paragraph (C)(ii) of this Article 4(a), the holders of Class B Common Stock are entitled to one vote per share on all questions presented to the stockholders. In all elections of directors of the Corporation, each holder of Class B Common Stock shall have the right to vote in person or by proxy the number of shares of Class B Common Stock held by such holder for as many Persons as there are directors to be elected. No cumulative voting for directors shall be permitted. The holders of Class B Common Stock are entitled to vote as a separate class where required by applicable law. If any share of Class B Common Stock is ineligible to vote by reason of the limitations contained in paragraph (c)(ii) of this Article 4(a), that share will be excluded from the determination of the total shares eligible to vote for any purpose for which a vote of shareholders is taken. (ii) The voting rights of holders of shares of Class B Common Stock are subject to the following restrictions: If a Person acquires more than 15% (the "15% Threshold Amount") of the outstanding Class B Common Stock after August 5, 1995 (the "Threshold Date") and does not acquire after the Threshold Date a percentage of the Class A Common Stock outstanding at least equal to the percentage of Class B Common Stock acquired by that Person after the Threshold Date in excess of the 15% Threshold Amount, such Person will not be allowed to vote shares of Class B Common Stock acquired after the Threshold Date in excess of the 15% Threshold Amount. The inability of the Person to vote the shares of Class B Common Stock in excess of the 15% Threshold Amount will continue until such time as a sufficient number of shares of Class A Common Stock have been acquired by the Person. For purposes of calculating the 15% Threshold Amount, the following acquisitions and increases shall be excluded: (i) shares of Class B Common Stock held by any Person on the Threshold Date, (ii) an increase in a holder's percentage ownership of Class B Common Stock resulting solely from a change in the total number of shares of Class B Common Stock outstanding as a result of a repurchase of Class B Common Stock by the Corporation since the last date on which that holder acquired Class B Common Stock, (iii) acquisitions of Class B Common Stock (1) made pursuant to contracts existing prior to the Threshold Date, including the acquisition of Class B Common Stock pursuant to the conversion provisions of Class A Preferred Stock outstanding prior to the Threshold Date, (2) by bequest or inheritance, or by operation of law upon the death or incompetency of any individual and (3) by any other transfer made without valuable consideration, in good faith and not for the purpose of circumventing the restrictions imposed by the 15% Threshold Amount. A gift made to any Person who is related to the donor by blood or marriage, a gift made to a charitable organization qualified under Section 501(c)(3) of the Internal Revenue Code of 1986 or a successor provision and a gift to a Person who is a fiduciary solely for the benefit of, or which is owned entirely by, one or more of the following persons or entities: (1) a person who is related to the donor by blood or marriage, or (2) a charitable organization which is qualified under Section 501(c)(3) as described above shall be presumed to be made in good faith and not for purposes of circumventing the restrictions imposed by the 15% Threshold Amount. Acquisitions of Class A Common Stock so as to preclude the effect of the voting restrictions contained in the preceding paragraph must be made for an "equitable price." For purposes of this paragraph an "equitable price" is deemed to have been paid only when the shares of Class A Common Stock have been acquired at a price at least equal to the greater of (i) the highest per share price paid by the acquiring Person, in cash or non-cash consideration, for any Class B Common Stock acquired within the 60-day periods preceding and following the acquisition of the Class A Common Stock or (ii) the highest closing market sale price of Class B Common Stock during the 30-day periods preceding and following the acquisition of the Class A Common Stock. The value of any non-cash consideration will be determined by the Board of Directors acting in good faith. The highest closing market sale price of a share of Class B Common Stock will be the highest closing sale price reported by the principal trading market for either class of Common Stock. As used in this Article 4(a)(C)(ii): "Person" shall include one or more persons and entities who act or agree to act in concert with respect to the acquisition or disposition of Class B Common Stock or with respect to proposing or effecting a plan or proposal to (a) a merger, reorganization or liquidation of the Corporation or a sale of a material amount of its assets, (b) a change in the Corporation's Board of Directors or management, including any plans or proposal to fill vacancies on the Board of Directors or change the number or term of Directors, (c) a material change in the business or corporate structure of the Corporation, or (d) any material change in the capitalization or dividend policy of the Corporation. As used in the preceding sentence, "act or agree to act in concert" shall not include acts or agreements to act by persons pursuant to their official capacities as Directors or officers of the Corporation or because they are related by blood or marriage. Each reference to acquiring or acquisition of Class B Common Stock and Class A Common Stock shall include direct and indirect acquisitions of such stock. (iii) The holders of Class B Common Stock shall have the right, at their option, to convert such shares into shares of Class A Common Stock at any time after the issuance thereof, on a share-per-share basis. The conversion rights in the preceding sentence shall expire upon the occurrence of the automatic conversion of all outstanding shares of Class A Common Stock into Class B Common Stock pursuant to the provisions of paragraph (B)(ii) of this Article 4(a). In order to convert shares of Class B Common Stock into shares of Class A Common Stock, the holder thereof shall surrender at the office of the Corporation the certificate or certificates therefor, duly endorsed to the Corporation or in blank, and give written notice at such office that he elects to convert such shares of Class B Common Stock which shall be deemed to have been converted as of the date (hereinafter called the "Class A Conversion Date") of the surrender of such shares for conversion as provided above, and the person or persons entitled to receive the shares of Class A Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Class A Common Stock on such date. As soon as practicable on or after the Class A Conversion Date, the Corporation will deliver at such office a certificate or certificates for the number of shares of Class A Common Stock issuable on such conversion. (b) Six Percent (6%) Voting Cumulative Preferred Stock. (A) The holders of record of Six Percent (6%) Voting Cumulative Preferred Stock shall be entitled to cash dividends when and as declared by the Board of Directors at the rate of six percent (6%) of the par value per share per annum and no more, payable on the first days of January and July in each year in preference to and in priority over dividends upon the common stock and all other shares junior to the Six Percent (6%) Voting Cumulative Preferred Stock. Such cash dividends on the Six Percent (6%) Voting Cumulative Preferred Stock are to be cumulative so that, if for any year or years cash dividends at the rate of six percent (6%) per share per annum are not declared and paid or set apart for payment on such Six Percent (6%) Voting Cumulative Preferred Stock outstanding, the deficiency shall be declared and paid or set apart for payment prior to the making of any dividend or other distribution on the common stock, such cash dividends on the Six Percent (6%) Voting Cumulative Preferred Stock to accrue from the date of issue if that be a dividend date, otherwise from the dividend date next preceding the date of issue of such Six Percent (6%) Voting Cumulative Preferred Stock. Upon the payment or setting apart for payment of all dividends current and accumulated at the rate of six percent (6%) per annum upon the Six Percent (6%) Voting Cumulative Preferred Stock, the directors may declare and pay dividends in order of priority upon shares junior to the said Six Percent (6%) Voting Cumulative Preferred Stock. (B) In the event of any voluntary or involuntary liquidation, dissolution or any winding up of the Corporation, the holders of record of the Six Percent (6%) Voting Cumulative Preferred Stock shall be entitled to be paid the full par value of such issue of Preferred Stock plus accumulated dividends thereon to the date of such liquidation, dissolution or winding up of the Corporation, whether or not the Corporation shall have a surplus or earnings available for dividends, and no more before any distribution of any assets shall be made to the holders of any class of common stock or other shares junior to the Six Percent (6%) Voting Cumulative Preferred Stock. (C) The Corporation at its option may redeem the whole or any part, pro rata or by lot, of the Six Percent (6%) Voting Cumulative Preferred Stock outstanding at any time by paying therefor in cash one hundred percent (100%) of the par value thereof plus accumulated dividends thereon to the date fixed for such redemption by mailing notice of such redemption to the holders of such Six Percent (6%) Voting Cumulative Preferred Stock to be redeemed at their respective addresses as such addresses may appear on the stock books of the Corporation, specifying the time and place of redemption at the office of the Corporation, such notice to be mailed at least thirty (30) days and not more than sixty (60) days prior to the date specified therein for redemption. (D) In all elections of directors of the Corporation, each holder of Six Percent (6%) Voting Cumulative Preferred Stock shall have the right to vote in person or by proxy the number of shares of Six Percent (6%) Voting Cumulative Preferred Stock held by him for as many Persons as there are directors to be elected. No cumulative voting for directors shall be permitted. (E) A class of stock shall be deemed to be "junior to the Six Percent (6%) Voting Cumulative Preferred Stock" if the Six Percent (6%) Voting Cumulative Preferred Stock has priority over such class with respect to dividend rights or liquidation rights. (c) Preferred Stock Without Par Value. (A) The Board of Directors is authorized, subject to limitations prescribed by law and the provisions of this paragraph, to provide for the issuance in series of the shares of Preferred Stock Without Par Value, and by filing a certificate pursuant to the Business Corporation Law, to establish the number of shares to be included in each such series, and to fix the designation, relative rights, preferences and limitations of the shares of each such series whether or not such relative rights, preferences and limitations of such series shall be fixed as senior to, junior to, or on a parity with the relative rights, preferences and limitations of any other class of stock or series thereof, and to reclassify or alter the designation, relative rights, preferences and limitations of any authorized and unissued Preferred Stock Without Par Value whether or not such shares shall have been designated as shares of any particular series and whether or not such relative rights, preferences and limitations of such series shall be fixed as senior to, junior to, or on a parity with the relative rights, preferences and limitations of any other class of stock or series thereof. The authority of the Board with respect to each series shall include, but not be limited to, determination of the following: (i) The number of shares constituting that series and the distinctive designation of that series; (ii) The rate and times at which, and the terms and conditions on which, dividends, if any, on shares of such series shall be paid, the extent of the preference or relation, if any, of such dividends to the dividends payable on any other class or classes or series of the same or other classes of stock and whether such dividends shall be cumulative or non-cumulative; (iii) Whether that series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights; (iv) Whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (v) Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (vi) The rights of the shares of that series in the event of voluntary or involuntary liquidation, merger, consolidation, distribution or sale of assets, dissolution or winding up of the Corporation; and (vii) Any other relative rights, preferences and limitations of that series. The authority of the Board of Directors with respect to each such series shall be limited by the condition that no series of the shares of any series so authorized by the Board of Directors to be issued shall rank as to the payment of dividends or rights on liquidation, dissolution or winding up of the Corporation senior to the shares of any previously authorized series or of any other class of Preferred Stock without an affirmative vote of a majority of the holders of each such series or class of stock. (B) Dividends on outstanding shares of Preferred Stock Without Par Value shall be declared and paid, or set apart for payment, before any dividends shall be declared and paid, or set apart for payment, on any class of common stock with respect to the same dividend period. If the stated dividends on the shares of all series of Preferred Stock Without Par Value are not paid in full, the shares of all series of such class shall share ratably in the payment of dividends including accumulation, if any, in accordance with the sums which would be payable on such shares if all dividends were declared and paid in full. (C) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of each series of Preferred Stock Without Par Value then outstanding shall be entitled to receive out of the assets of the Corporation, before any distribution or payment shall be made to the holders of any class of common stock, an amount equal to the stated value of the stock plus, in respect of each share with respect to which dividends are cumulative, a sum computed at the dividend rate provided for in the Certificate of Incorporation from and after the date on which dividends on such shares became cumulative to and including the date fixed for such payment, less the aggregate of the dividends theretofore paid thereon, but computed without interest. If the amounts payable on liquidation in respect to the shares of all series of Preferred Stock Without Par Value are not paid in full, the shares of all series of such class shall share ratably in any distribution of assets other than by way of dividends in accordance with the sums which would be payable in such distribution if all sums payable were discharged in full. If such payment shall have been made in full to the holders of all shares of Preferred Stock Without Par Value on voluntary or involuntary liquidation, dissolution or winding up, the remaining assets of the Corporation shall be distributed in accordance with Section (d)(C) of this Article 4. For the purpose of this paragraph, a consolidation or merger of the Corporation with one or more other corporations shall not be deemed to be a liquidation or winding up of the Corporation. (d) Preferred Stock With $.025 Par Value, Class A. (A) The Board of Directors is authorized, subject to the limitations prescribed by law and the provisions of this paragraph, to provide for the issuance in series of the shares of Preferred Stock With $.025 Par Value, Class A (hereinafter called "Class A Preferred Stock"), and by filing a certificate pursuant to the Business Corporation Law, to establish the number of shares to be included in each such series, and to fix the designation, relative rights, preferences and limitations of the shares of each such series. The authority of the Board with respect to each series shall include, but not be limited to, determination of the following: (i) The number of shares constituting that series and the distinctive designation of that series; (ii) The rate and times at which, and the terms and conditions on which, dividends, if any, on shares of such series shall be paid, the extent of the preference or relation, if any, of such dividends to the dividends payable on any other class or classes or series of the same or other classes of stock and whether such dividends shall be cumulative or non-cumulative; (iii) Whether that series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights; (iv) Whether that series shall have conversion privileges, and, it so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (v) Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (vi) The rights of the shares of that series in the event of voluntary or involuntary liquidation, merger, consolidation, distribution or sale of assets, dissolution or winding up of the Corporation; and (vii) Any other relative rights, preferences and limitations of that series. The authority of the Board of Directors shall be limited by the condition that the shares of each series of Class A Preferred Stock authorized by the Board of Directors to be issued shall rank, as to the payment of dividends or rights on liquidation, dissolution or winding up of the Corporation, junior to the shares of any authorized class of Preferred Stock. (B) Dividends on outstanding shares of Class A Preferred Stock shall be declared and paid, or set apart for payment, before any dividends shall be declared and paid, or set apart for payment, on any class of common stock with respect to the same dividend period. It the stated dividends on the shares of all series of Class A Preferred Stock are not paid in full, the shares of all series of such class shall share ratably in the payment of dividends including accumulation, if any, in accordance with the sums which would be payable on such shares if all dividends were declared and paid in full. (C) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of each series of Class A Preferred Stock then outstanding shall be entitled to receive out of the assets of the Corporation, before any distribution or payment shall be made to the holders of any class of common stock, an amount equal to the stated value of the stock plus, in respect of each share with respect to which dividends are cumulative, a sum computed at the dividend rate provided for in the Certificate of Incorporation from and after the date on which dividends on such shares became cumulative to and including the date fixed for such payment, less the aggregate of the dividends theretofore paid thereon, but computed without interest. If the amounts payable on liquidation in respect to the shares of all series of Class A Preferred Stock are not paid in full, the shares of all series of such class shall share ratably in any distribution of assets other than by way of dividends in accordance with the sums which would be payable in such distribution if all sums payable were discharged in full. If such payment shall have been made in full to the holders of all shares of Class A Preferred Stock on voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the remaining assets of the Corporation shall be distributed among the holders of each class of common stock pro rata in accordance with their respective holdings. For the purpose of this paragraph, a consolidation or merger of the Corporation with one or more other corporations shall not be deemed to be a liquidation or winding up of the Corporation. (D) First Series of Class A Preferred Stock. The first series of 1,000,000 shares of Class A Preferred Stock shall be designated Ten Percent (10%) Cumulative Convertible Voting Preferred Stock--Series A, $0.25 stated value (hereinafter called "10% Voting Preferred Stock"), and shall have the following rights, preferences and limitations: (i) Dividends. The holders of the 10% Voting Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors, but only out of surplus legally available for the payment of dividends, cumulative cash dividends at the rate of $.025 per share per annum, and no more, payable on the first days of January and July, commencing January l, 1984. Such dividends shall be payable after all past and current dividends on the Six Percent (6%) Voting Cumulative Preferred Stock and the Preferred Stock Without Par Value have been declared and paid, or a sum sufficient therefor has been set aside for that purpose, and before any dividends (other than a stock dividend in shares of the same class of stock) on any class of common stock shall be paid or set apart for payment or any shares of such stock shall be acquired for consideration. Dividends shall be cumulative from and after the date of issue of such shares, but any arrearages in payment shall not bear interest. (ii) Redemption. Provided that dividends on the Six Percent (6%) Voting Cumulative Preferred Stock and the Preferred Stock Without Par Value have been paid or a sum set aside for payment, the Corporation, at the option of the Board of Directors, may redeem all or any part of the 10% Voting Preferred Stock at any time outstanding, at any time or from time to time, upon notice duly given as hereinafter provided for an amount in respect of each share to be redeemed equal to the sum of $0.25 and an amount computed at the annual rate of $.025 per annum per share from and after the date on which dividends on such share became cumulative to and including the date fixed for such redemption, less the aggregate of the dividends theretofore and on such redemption date paid, but computed without interest. Notice of every such redemption of 10% Voting Preferred Stock shall be mailed at least thirty (30) days prior to the date fixed for such redemption to the holders of record of shares so to be redeemed at their respective addresses as the same shall appear on the books of the Corporation. In case of redemption of a part only of the 10% Voting Preferred Stock at the time outstanding, the shares to be redeemed shall be selected in such manner as the Board of Directors may determine, whether by lot or by pro rata redemption or by selection of particular shares, and the proceedings and actions of the Board of Directors in this connection shall not be subject to attack except for fraud. (iii) Voting. The holders of 10% Voting Preferred Stock shall be entitled to one vote for each share of such stock on all questions presented to the stockholders of the Corporation. (iv) Conversion. The holders of 10% Voting Preferred Stock shall have the right, at their option, to convert such shares into shares of common stock, $0.25 par value, at any time after the issuance thereof, on and subject to the following terms and conditions: (a) The 10% Voting Preferred Stock shall be convertible, at the office of the Corporation or at such other office or offices, if any, as the Board of Directors may designate, into fully paid and non-assessable shares of Class A Common Stock and Class B Common Stock (calculated as to each conversion to the nearest 1/10 of a share) at the conversion rate, determined as hereinafter provided, in effect at the time of conversion. The conversion rate shall be one (l) share of Class A Common Stock and one (1) share of Class B Common Stock for every twenty (20) shares of 10% Voting Preferred Stock. In case the Corporation shall at any time subdivide its outstanding shares of common stock into a greater number of shares or shall pay in shares of common stock a dividend on then outstanding shares of common stock, the number of shares of common stock into which the 10% Voting Preferred Stock is convertible shall be proportionately increased and, conversely, in case the Corporation shall at any time combine its outstanding shares of common stock into a smaller number of shares, the number of shares of common stock into which the 10% Voting Preferred Stock is convertible shall be proportionately reduced. If any capital reorganization or reclassification of the capital stock of the Corporation, or any consolidation or merger of the Corporation with another corporation, shall be effected, the holder of 10% Voting Preferred Stock shall thereafter be entitled upon the exercise of conversion rights to receive the number and kind of shares of stock, securities or assets which the holder would have been entitled to receive in connection with such reorganization, recapitalization, merger or consolidation if he had been a holder of the number of shares of common stock of the Corporation issuable upon the conversion of his 10% Voting Preferred Stock immediately prior to the time such reorganization, recapitalization, merger, or consolidation became effective. No adjustment shall be made upon any conversion on account of any dividends accrued on the shares of 10% Voting Preferred Stock surrendered for conversion or on account of any dividend on the shares of common stock issued on such conversion. (b) In order to convert shares of 10% Voting Preferred Stock into shares of common stock, the holder thereof shall surrender at the office of the Corporation the certificate or certificates therefor, duly endorsed to the Corporation or in blank, and give written notice at such office that he elects to convert such shares of 10% Voting Preferred Stock which shall be deemed to have been converted as of the date (hereinafter called the "Conversion Date") of the surrender of such shares for conversion as provided above, and the person or persons entitled to receive the shares of common stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such common stock on such date. As soon as practicable on or after the Conversion Date, the Corporation will deliver at such office a certificate or certificates for the number of full shares of common stock issuable on such conversion, together with cash in lieu of any fraction of a share, as hereinafter provided, to the persons entitled to receive the same. In case shares of 10% Voting Preferred Stock are called for redemption, the right to convert such shares shall cease and terminate at the close of business on the date fixed for redemption, unless default shall have been made in the payment of the redemption price. (c) No fractional shares of common stock shall be issued upon conversion, but the Corporation shall pay a cash adjustment in respect of any fraction of a share which would otherwise be issuable, in an amount equal to the same fraction of the market price per share of common stock at the close of business on the Conversion Date. The market price per share shall be, (i) if traded on the over-the-counter market, the mean between the closing bid and asked quotations, or (ii) if traded on a national securities exchange, the closing sale price, or (iii) if traded on both the over-the-counter market and an exchange, the mean between the prices determined in accordance with clauses (i) and (ii) of this sentence. (E) Second Series of Class A Preferred Stock. The second series of 400,000 shares of Class A Preferred Stock shall be designated Ten Percent (10%) Cumulative Convertible Voting Preferred Stock--Series B, $0.25 stated value (hereinafter called "Series B Preferred Stock"), and shall have the following rights, preferences and limitations: (i) Dividends. The holders of the Series B Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors, but only out of surplus legally available for the payment of dividends, cumulative cash dividends at the rate of $.025 per share per annum, and no more, payable on the first days of January and July, commencing July 1, 1985. Such dividends shall be payable after all past and current dividends on the Six Percent (6%) Voting Cumulative Preferred Stock and the Preferred Stock Without Par Value have been declared and paid, or a sum sufficient therefor has been set aside for that purpose, and before any dividends (other than a stock dividend in shares of the same class of stock) on any class of common stock shall be paid or set apart for payment or any shares of such stock shall be acquired for consideration. Dividends shall be cumulative from and after the date of issue of such shares, but any arrearages in payment shall not bear interest. (ii) Redemption. Provided that dividends on the Six Percent (6%) Voting Cumulative Preferred Stock and the Preferred Stock without Par Value have been paid or a sum set aside for payment, the Corporation, at the option of the Board of Directors, may redeem all or any part of the Series B Preferred Stock at any time outstanding, at any time or from time to time, upon notice duly given as hereinafter provided for an amount in respect of each share to be redeemed equal to the sum of $0.25; and an amount computed at the annual rate of $.025 per annum per share from and after the date on which dividends on such share became cumulative to and including the date fixed for such redemption, less the aggregate of the dividends theretofore and on such redemption date paid, but computed without interest. Notice of every such redemption of Series B Preferred Stock shall be mailed at least thirty (30) days prior to the date fixed for such redemption to the holders of record of shares so to be redeemed at their respective addresses as the same shall appear on the books of the Corporation. In case of redemption of a part only of the Series B Preferred Stock at the time outstanding, the shares to be redeemed shall be selected in such manner as the Board of Directors may determine, whether by lot or by pro rata redemption or by selection of particular shares, and the proceedings and actions of the Board of Directors in this connection shall not be subject to attack except for fraud. (iii) Voting. The holders of Series B Preferred Stock shall be entitled to one vote for each share of such stock in all questions presented to the stockholders of the Corporation. (iv) Conversion. The holders of Series B Preferred Stock shall have the right, at their option, to convert such shares into shares of common stock, $0.25 par value, at any time after the issuance thereof, on and subject to the following terms and conditions: (a) The Series B Preferred Stock shall be convertible, at the office of the Corporation or at such other office or offices, if any, as the Board of Directors may designate, into fully paid and non-assessable shares of Class A Common Stock and Class B Common Stock (calculated as to each conversion to the nearest 1/10 of a share) at the conversion rate, determined as hereinafter provided, in effect at the time of conversion. The conversion rate shall be one (1) share of Class A Common Stock and one (1) share of Class B Common Stock for every thirty (30) shares of Series B Preferred Stock. In case the Corporation shall at any time subdivide its outstanding shares of common stock into a greater number of shares or shall pay in shares of common stock a dividend on then outstanding shares of common stock, the number of shares of common stock into which the Series B Preferred Stock is convertible shall be proportionately increased and, conversely, in case the Corporation shall at any time combine its outstanding shares of common stock into a smaller number of shares, the number of shares of common stock into which the Series B Preferred Stock is convertible shall be proportionately reduced. If any capital reorganization or reclassification of the capital stock of the Corporation, or any consolidation or merger of the Corporation with another corporation, shall be effected, the holder of Series B Preferred Stock shall thereafter be entitled upon the exercise of conversion rights to receive the number and kind of shares of stock, securities or assets which the holder would have been entitled to receive in connection with such reorganization, recapitalization, merger or consolidation if he had been a holder of the number of shares of common stock of the Corporation issuable upon the conversion of his Series B Preferred Stock immediately prior to the time such reorganization, recapitalization, merger, or consolidation became effective. No adjustment shall be made upon any conversion on account of any dividends accrued on the shares of Series B Preferred Stock surrendered for conversion or on account of any dividend on the shares of common stock issued on such conversion. (b) In order to convert shares of Series B Preferred Stock into shares of common stock, the holder thereof shall surrender at the office of the Corporation the certificate or certificates therefor, duly endorsed to the Corporation or in blank, and give written notice at such office that he elects to convert such shares of Series B Preferred Stock which shall be deemed to have been converted as of the date (hereinafter called the "Conversion Date") of the surrender of such shares for conversion as provided above, and the person or persons entitled to receive the shares of common stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such common stock on such date. As soon as practicable on or after the Conversion Date, the Corporation will deliver at such office a certificate or certificates for the number of full shares of common stock issuable on such conversion, together with cash in lieu of any fraction of a share, as hereinafter provided, to the persons entitled to receive the same. In case shares of Series B Preferred Stock are called for redemption, the right to convert such shares shall cease and terminate at the close of business on the date fixed for redemption, unless default shall have been made in the payment of the redemption price. (c) No fractional shares of common stock shall be issued upon conversion, but the Corporation shall pay a cash adjustment in respect of any fraction of a share which would otherwise be issuable, in an amount equal to the same fraction of the market price per share of common stock at the close of business on the Conversion Date. The market price per share shall be, (i) if traded on the over-the-counter market, the mean between the closing bid and asked quotations, or (ii) if traded on a national securities exchange, the closing sale price, or (iii) if traded on both the over-the-counter market and an exchange, the mean between the prices determined in accordance with clauses (i) and (ii) of this sentence. (e) Provisions Generally Applicable to Capital Stock. (A) No holder of shares of the Capital Stock of any class of the Corporation shall have any preemptive or preferential right of subscription to any shares of any class of stock of the Corporation, whether now or hereafter authorized, or to any obligations convertible into stock of the Corporation, issued or sold, nor any right of subscription to any thereof other than such, if any, as the Board of Directors, in its discretion, may from time to time determine and at such price as the Board of Directors may, from time to time, fix; and any shares of stock or convertible obligations which the Corporation may determine to offer for subscription to the holders of stock may, as the Board of Directors shall determine, be offered to holders of any class or classes of stock exclusively or to holders of all classes of stock, and if offered to more than one class of stock, in such proportions as between the said classes of stock as the Board of Directors in its discretion may determine. As used in this Section (e) the expression "convertible obligations" shall include any notes, bonds or other evidences of indebtedness to which are attached or with which are issued warrants or other rights to purchase stock of the Corporation of any class or classes; and the Board of Directors is hereby expressly authorized, in its discretion, in connection with the issue of any obligations or stock of the Corporation (but without intending hereby to limit its general power as to do in any other cases) to grant rights or options to purchase stock of the Corporation of any class upon such terms and during such periods as the Board of Directors shall determine, and to cause such rights or options to be evidenced by such warrants or other instruments as it may deem advisable. (B) The Board of Directors may authorize the purchase of shares of Class A Common Stock or Class B Common Stock or any other class of stock or any combination of classes without regard to differences among the classes in price or other terms upon which such shares may be purchased. FOURTH: Upon the filing of this certificate by the Department of State, the 2,796,555 issued shares and the 7,203,445 unissued shares of the Corporation shall be changed into (1) 2,796,555 issued shares and 7,203,445 unissued shares of Class A Common Stock and (2) 2,796,555 issued shares and 7,203,445 unissued shares of Class B Common Stock at the rate of one share of Class A Common Stock and one share of Class B Common Stock for each current outstanding share of Common Stock. FIFTH: Article 7 of the certificate of incorporation of the Corporation is amended to change the office of the Corporation. To accomplish this, Article 7 of the certificate of incorporation is hereby amended to read in its entirety as follows: 7. The office of the Corporation shall be located in the Village of Pittsford, County of Monroe, New York, and the address to which the Secretary of State shall mail a copy of process in any action or proceeding against the Corporation that may be served upon the Secretary of State is 1162 Pittsford-Victor Road, Pittsford, New York 14534. SIXTH: The foregoing amendments of the certificate of incorporation were authorized at a meeting of the Board of Directors, followed by the votes cast in person or by proxy of the holders of record of a majority of the outstanding shares entitled to vote at the annual shareholders meeting of the Corporation, except that the amendment contained in Article FIFTH hereof was not voted upon by shareholders. IN WITNESS WHEREOF, the undersigned have executed this Certificate of Amendment this 5th day of August 1995 and affirm that the statements made herein are true under penalty of perjury. /s/ Kraig H. Kayser --------------------- Kraig H. Kayser, President /s/ Jeffrey L. Van Riper ------------------------- Jeffrey L. Van Riper, Secretary 165714 EX-4 4 AMENDMENT NO. 1 TO NOTE AGREEMENT Exhibit No. 4 EXECUTION COUNTERPART AMENDMENT NO. 1 TO NOTE AGREEMENT This Amendment, entered into as of February 29, 1996, by and among SENECA FOODS CORPORATION (the "Company"), THE PRUDENTIAL INSURANCE COMPANY OF AMERICA ("Prudential") and JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY ("Hancock"). WHEREAS, the parties hereto have executed and delivered that certain Note Agreement dated as of February 23, 1995 (the "Note Agreement"); WHEREAS, Prudential and Hancock are the holders of 100% of the Notes issued under the Note Agreement; and WHEREAS, the parties hereto wish to amend certain terms of the Note Agreement. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Amendments. Amendments of Paragraph 5 of the Note Agreement. Paragraph 5A(1) shall be amended by deleting the "and" at the end of clause (viii), adding a new clause (ix) as follows and renumbering clause (ix) as clause (x): "(ix) Within 10 days after the date as of which financial information is required to be delivered pursuant to clause (i) of this paragraph 5A(1), a report as of the end of the Fiscal Quarter covered by such financial information setting forth the Company's sales, for such Fiscal Quarter and for the current year to date, and inventory, as of the end of such Fiscal Quarter, separately for all of its Green Giant brand products and for all other products; and" Amendment of Paragraph 6A of the Note Agreement. Clauses (i), (ii) and (iii) of paragraph 6A of the Note Agreement are amended in their entirety to read as follows: 6A. Current Ratio and Interest Coverage. The Company covenants that it will not permit at any time: (i) the ratio of Current Assets to Current Liabilities to be less than 1.25 to 1.0 for each Fiscal Quarter ending September and December and 1.50 to 1.0 for all other Fiscal Quarters; (ii) the Interest Coverage Ratio for its four consecutive Fiscal Quarters most recently ended during any period specified below to be less than the ratio set forth opposite such period: December 31, 1995 though March 31, 1996 1.50 to 1 April 1, 1996 through June 29, 1996 1.60 to 1 June 30, 1996 through September 28, 1996 1.75 to 1 September 29, 1996 through December 28, 1996 1.85 to 1 December 29, 1996 through March 31, 1999 2.00 to 1 April 1, 1999 through March 31, 2001 2.20 to 1 April 1, 2001 and thereafter 2.40 to 1 (iii) at any time, the excess of Current Assets over Current Liabilities during any period specified below to be less than the amount set forth opposite such period: December 31, 1995 through March 30, 1997 $80,000,000 March 31, 1997 through March 31, 1998 $90,000,000 April 1, 1998 through March 31, 1999 $100,000,000 April 1, 1999 and thereafter $110,000,000 Amendment of Paragraph 6C(2) of the Note Agreement. Clauses (i) and (ii) of paragraph 6C(2) of the Note Agreement are amended in their entirety to read as follows: during any period specified below, the aggregate outstanding amount of Consolidated Senior Funded Debt, whether Secured or Unsecured, exceeds an aggregate amount equal to the applicable percentage of Consolidated Tangible Gross Worth set forth below for any date of determination during such period: December 31, 1995 though June 29, 1996 65% June 30, 1996 through September 28, 1996 67% September 29, 1996 through March 31, 1997 65% April 1, 1997 through March 31, 1998 62% April 1, 1998 through March 31, 1999 60% April 1, 1999 through March 31, 2000 55% April 1, 2000 and thereafter 50% the aggregate outstanding amount of Consolidated Total Funded Debt exceeds an aggregate amount equal to the applicable percentage of Consolidated Tangible Gross Worth set forth below for any date of determination during such period: December 31, 1995 through March 31, 1996 80% April 1, 1996 through September 30, 1996 82% October 1, 1996 through March 31, 1997 80% April 1, 1997 through March 31, 1998 78% April 1, 1998 through March 31, 1999 76% April 1, 1999 through March 31, 2000 73% April 1, 2000 through March 31, 2001 70% April 1, 2001 and thereafter 65% ; provided, however, that if after the date hereof the Company shall reduce (by conversion to equity, optional prepayment or otherwise) its Subordinated Debt by an aggregate amount equal to $20,000,000 or more (the "Sub Debt Reduction"), the Company agrees to adjust the foregoing ratios to take into account the Sub Debt Reduction to levels acceptable to the Required Holders, such adjustment to occur as soon as possible and in no event later than 60 days after the Sub Debt Reduction. Amendments to Paragraph 10B of the Note Agreement. The following definitions set forth in Paragraph 10B shall be amended in their entirety to read as follows: "`Change of Control Event' shall mean (i) the beneficial ownership or acquisition by any Person or group of affiliated Persons (other than directly or indirectly through the Wolcott or Kayser families) in any transaction or series of related transactions of shares of the Company representing more than 50% of the total number of votes which the Company's shareholders (assuming full participation of all of the shareholders) shall be entitled to cast in the election of the Board of Directors of the Company; and (ii) the Wolcott and Kayser families shall cease to own shares, directly or indirectly, or have the power to vote shares held by trusts of which all of the trustees of such trusts are family members and such trustees have independent discretion regarding the exercise of the associated voting rights, having in the aggregate at least 25% of the total number of votes which the Company's shareholders (assuming full participation of all of the shareholders) shall be entitled to cast in the election of the Board of Directors of the Company. `Consolidated EBITDA' shall mean, for any fiscal period of the Company, an amount equal to (A) the sum for such fiscal period of Consolidated Net Income (Loss) and, to the extent subtracted in determining such Consolidated Net Income (Loss), provisions for (i) taxes based on income, (ii) Consolidated Interest Expense, and (iii) depreciation and amortization expense minus (B) any items of gain (or plus any items of loss) which were included in determining such Consolidated Net Income (Loss) and were (x) not realized in the ordinary course of business (whether or not classified as "ordinary" by generally accepted accounting principles), or (y) the result of any sale of assets, or (z) resulting from minority investments plus (C) $15,078,000 for the non-recurring write-off that occurred in the second Fiscal Quarter of 1996 plus (D) $4,279,000 capital gain on the sale of the Peabody property located in Peabody, Massachusetts that occurred in second fiscal quarter of 1996. "Fiscal Quarter" shall mean the approximately 13-week period ending on a Saturday near the close of each calendar quarter of each year as established on an annual basis by the Company. Conditions of Effectiveness. This Amendment shall become effective when, and only when, Prudential and Hancock shall have received counterparts of this Amendment executed by each of the parties hereto and all of the following documents, each (unless otherwise indicated) being dated the date hereof, in form and substance satisfactory to Prudential and Hancock: Copies of (A) all documents evidencing all requisite corporate action of the Company (including any and all resolutions of the Board of Directors of the Company) authorizing the execution, delivery and performance of this Amendment and the matters contemplated hereby and thereby, and (B) all documents evidencing all governmental approvals, if any, with respect to this Amendment and the matters contemplated hereby and thereby. A certificate of the Secretary or an Assistant Secretary of the Company certifying the names and true signatures of the officers authorized to sign this Amendment on behalf of the Company and any other documents to be delivered by the Company hereunder. Payment in full of the modification fee of _ of 1% of the outstanding principal amount of the Notes owed to Prudential and Hancock. Such other documents, instruments, approvals or opinions as Prudential or Hancock may reasonably request; and The representations and warranties contained herein shall be true on and as of the date hereof, there shall exist on the date hereof, no Event of Default or Default; there shall exist no material adverse change in the financial condition, business operation or prospects of the Company or its Subsidiaries since March 31, 1995 other than as reported by the Company in its quarterly reports on Form 10-Q filed with the Securities and Exchange Commission for quarterly periods subsequent to March 31, 1995; and the Company shall have delivered to Prudential and Hancock an Officer's Certificate to such effect. Representations and Warranties. The Company hereby repeats and confirms each of the representations and warranties made by it in the Note Agreement, as amended hereby, as though made on and as of the date hereof, with each reference therein to "this Agreement", "hereof", "hereunder", "thereof", "thereunder" and words of like import being deemed to be a reference to the Note Agreement as amended hereby. The Company further represents and warrants as follows: The execution, delivery and performance by the Company of this Amendment is within its corporate powers, have been duly authorized by all necessary corporate action and do not contravene (A) its charter or by-laws, (B) law or (C) any legal or contractual restriction binding on or affecting the Company; and such execution, delivery and performance do not or will not result in or require the creation of any Lien upon or with respect to any of its properties. No governmental approval is required for the due execution, delivery and performance by the Company of this Amendment, except for such governmental approvals as have been duly obtained or made and which are in full force and effect on the date hereof and not subject to appeal. This Amendment constitutes the legal, valid and binding obligations of the Company enforceable against the Company in accordance with its terms. There are no pending or threatened actions, suits or proceedings affecting the Company or any of its Subsidiaries or the properties of the Company or any of its Subsidiaries before any court, governmental agency or arbitrator, that may, if adversely determined, materially adversely affect the financial condition, properties, business, operations or prospects of the Company and it Subsidiaries, considered as a whole, or affect the legality, validity or enforceability of the Note Agreement as amended by this Amendment. Miscellaneous. Reference to and Effect on the Note Agreement. Upon the effectiveness of this Amendment, on and after the date hereof each reference in the Note Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Note Agreement, and each reference in any other document to "the Note Agreement", "thereunder", "thereof" or words of like import referring to the Note Agreement, shall mean and be a reference to the Note Agreement, as amended hereby. Except as specifically amended above, the Note Agreement and the Notes, and all other related documents, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any holder of a Note under the Note Agreement or the Notes, nor constitute a waiver of any provision of any of the foregoing. Costs and Expenses. The Company agrees to pay on demand all costs and expenses incurred by any holder of a Note in connection with the preparation, execution and delivery of this Amendment, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel. The Company further agrees to pay on demand all costs and expenses, if any (including, without limitation, reasonable counsel fees and expenses of counsel), incurred by any holder of a Note in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Amendment, including, without limitation, counsel fees and expenses in connection with the enforcement of rights under this paragraph 4B. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. [Signatures on Next Page.] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. SENECA FOODS CORPORATION By_/s/Kraig H. Kayser___________ Title: President and Chief Executive Officer THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By_/s/Kevin J. Kraska__________ Title: Vice President JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY By_/s/Scott O. McFetridge_______ Title: Investment Officer EX-13 5 1996 ANNUAL REPORT TO SHAREHOLDERS Exhibit 13 Five Year Selected Financial Data Summary of Operations and Financial Condition
(Eight Months) Years ended March 31 and July 31, 1996 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- ---- (In thousands of dollars, except per share data) Net sales $ 507,988 $ 234,073 $ 290,185 $ 257,402 $ 279,708 $279,973 Operating earnings (before Corporate interest and administrative expense) $ 16,418 $ 11,380 $ 18,251 $ 10,029 $ 13,122 $ 24,126 Earnings (loss) from continuing operations before extraordinary item and cumulative effect of accounting change (10,147) 1,321 5,274 1,293 (157) 6,854 Earnings from discontinued operations -- -- 90 965 1,663 651 Gain on the sale of discontinued operations -- -- 2,273 -- -- -- Earnings (loss) before extraordinary item and cumulative effect of accounting change (10,147) 1,321 7,637 2,258 1,506 7,505 Extraordinary loss -- -- (606) -- (467) -- Cumulative effect of accounting change -- -- 2,006 -- -- -- Net earnings (loss) (10,147) 1,321 9,037 2,258 1,039 7,505 Earnings (loss) from continuing operations per common share $ (1.81) $ .23 $ .91 $ .21 $ (.03) $ 1.10 Earnings (loss) per common share before extraordinary item and cumulative effect of accounting change (1.81) .23 1.31 .36 .24 1.21 Net earnings (loss) per common share (1.81) .23 1.55 .36 .16 1.21 Working capital $ 108,761 $ 136,342 $ 66,129 $ 90,005 $ 85,059 $ 85,860 Inventories 229,759 138,113 98,202 88,181 94,718 100,405 Net property, plant, and equipment 222,720 179,718 78,216 74,089 81,718 82,754 Total assets 523,859 385,502 204,899 208,733 214,223 219,227 Long-term debt and capital lease obligations 226,574 221,480 51,476 72,556 77,614 79,938 Stockholders' equity 90,939 90,821 88,620 84,698 81,090 81,912 Additions to property, plant, and equipment $ 67,897 $ 26,966 $ 9,384 $ 1,723 $ 8,702 $ 17,167 Interest expense, net 28,157 6,296 6,046 5,834 10,186 9,289 Net earnings/average equity (11.2) % 1.5% 10.4 % 2.7% 1.3 % 9.6% Continuing earnings before taxes/sales (3.0) % 0.9% 2.8 % 0.2% (0.1)% 4.0% Net earnings/sales (2.0) % 0.6% 3.1 % 0.9% 0.4 % 2.7% Long-term debt/equity 249 % 244% 58 % 86% 96 % 98% Current ratio 1.6:1 3.2:1 2.2:1 3.4:1 3.0:1 3.0:1 Common stockholder's equity per share $ 15.30 $ 16.23 $ 15.83 $ 13.79 $ 13.09 $ 13.21 Class A National Market System closing price range 20-15 -- -- -- -- -- Class B National Market System closing price range 22-16 17 3/4-10 1/2 11 3/8-7 3/4 8 3/16-7 3/8 10 5/8-7 5/8 12 5/8-10 Common cash dividends declared per share -- -- -- -- -- -- Price earnings ratio NM 74.5x 6.9x 21.5x 48.4x 8.3x 1995 represents eight months ended March 31. 1995-1991 have been restated to reflect the Company's change from the LIFO inventory valuation method to the FIFO inventory valuation method and to reflect the stock spilt in the form of a dividend. NM - not meaningful.
Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Because of the food processing segment, the Company's yearly business cycle shows large inventory growth during the summer and fall harvest period. The inventory peaks in the early winter and drops to its minimum level immediately prior to the next pack season. These peaks are financed through seasonal borrowings whose high and low points essentially correspond with the changes in inventory, or by a reduction in short-term investments. Accordingly, inventory management is key to liquidity. During December 1995 the Company sold its Peabody, Massachusetts facility for cash resulting in net cash proceeds of $6.3 million and a gain of $4.3 million before income tax expense. The Company had leased this facility to a third party. In addition, during September 1995 the Company entered into a sale and leaseback transaction whereby three of its wastewater facilities in New York State were sold to the Wayne County Water and Sewer Authority for net proceeds of $9.3 million. During February 1995 the Company acquired certain assets (see Acquisitions, note 12) of the Green Giant Division of The Pillsbury Company (referred to as "Pillsbury"), a subsidiary of Grand Metropolitan Incorporated. Under an Alliance Agreement concurrently executed by the Company, Pillsbury and Grand Metropolitan Incorporated, Pillsbury will continue to be responsible for all of the sales, marketing and customer service functions for the Green Giant brand, while the Company will handle vegetable processing and canning operations. Pillsbury continues to own all the trademark rights to the Green Giant brand and its proprietary seed varieties. The assets acquired included certain raw material and supplies inventory and six manufacturing facilities located in the Midwestern and Northwestern United States. The purchase price of $86.1 million was funded by a subordinated note issued by the Company for $73.0 million and the balance was funded out of working capital. This subordinated note decreased $6.0 million in 1996 as a result of an agreement reached with Pillsbury to convert that amount to the Company's Class A Common Stock. Such conversion was completed in March 1996. The subordinated note is expected to increase approximately $8.0 million in 1997 due to the addition of capital projects that Pillsbury has completed and green bean processing equipment acquired from Pillsbury which is being transferred to the Company. In conjunction with this acquisition, the Company entered into a revolving credit facility for up to $150.0 million from a syndicate of eleven banks. In addition, the Company issued two new senior debt notes. The first was a $75.0 million unsecured note issued to The Prudential Insurance Company of America, with repayment due beginning in March 1998, a final maturity date of February 2005, and an interest rate of 10.78% (see Long-Term Debt, note 4). The second was a $50.0 million unsecured note issued to John Hancock Mutual Life Insurance Company, with repayment due beginning in March 2001, a final maturity of January 2009, and an interest rate of 10.81%. The proceeds of these two notes were used to finance or replenish working capital for the following: 1) capital expenditures of $50.0 million related to the Alliance Agreement with Pillsbury; 2) repayment of two notes due an insurance company, one repaid in July 1994 for $13.8 million, the other repaid when the new debt was issued for $26.6 million; 3) three small acquisitions made over the previous fifteen months totaling $15.6 million; and 4) the balance, $19.0 million, for capital expenditures made over the previous three years. During 1994 the Company prepaid an issue of high interest long-term debt totaling $13.8 million. This resulted in an extraordinary loss of $0.6 million after taxes. Also during 1994 the Company made two small acquisitions totaling $11.7 million. The debt prepayment and acquisitions were funded from working capital (see below) and current operations. During 1994 and 1993 the Company had no new long-term financing. As mentioned above, during 1995 the Company entered into an unsecured revolving credit agreement for up to $150.0 million. Previously, the Company maintained uncommitted lines of credit. The peak borrowings reached $144.2 million during 1996. Credit lines provide for interest rate options based on Prime, Eurodollar, or Money Market. There were $113.0 million of borrowings outstanding under these lines at the end of 1996, $1.6 million at the end of 1994, and none at the end of 1995 and 1993. The decrease in cash and short-term investments of $6.6 million over the three and two-thirds year period ended in 1996 was primarily due to Green Giant acquisition of $86.1 million, the debt prepayments totaling $40.4 million; three small acquisitions totaling $15.6 million; the common stock retirement of $5.1 million; capital additions of $67.9 million, $27.0 million, $9.4 million, and $1.7 million, in 1996, 1995, 1994, and 1993, respectively; and smaller items not identified. This was partially offset by the proceeds of the four new long-term debt issues totaling $207.3 million; proceeds from the disposal of the textile segment of $8.4 million; an income tax refund in 1993 of $4.2 million; and net earnings. The 1996 capital expenditures of $67.9 million are substantially due to a major capital expansion, which began in 1995, integrated six of Pillsbury's Green Giant vegetable processing plants and significantly increased the Company's own production capabilities to accommodate the production of four Pillsbury plants that were concurrently closed. This capital expansion was originally expected to be $50.0 million, but to meet our ambitious goals, an additional $25.0 million was spent on this project, primarily in our New York State operations in order to meet operational needs of the Alliance. The 1995 capital expenditures of $27.0 million largely reflect spending related to the Alliance with Pillsbury as mentioned above. During 1994 capital expenditures were higher than both 1993 and 1992. During 1995 the Company began installation of a green bean processing line in the Eastern Division, cold storage facilities in the Central Division in the midwest and northwest, and a frozen vegetable processing expansion in the Central Division. During 1994 the Company upgraded its vegetable processing and juice bottling equipment in the Eastern Division. During August 1993 the Company sold its textile division for approximately $8.4 million. It represented about 6% of the Company's assets and 13% of the Company's sales in 1993. Subsequent to the 1996 year-end, the Company sold its investment in Moog Inc. Class A Common Stock back to Moog which generated $12.9 million in net cash proceeds. In addition, besides the proceeds from the sale of the Peabody, Massachusetts facility in 1996 mentioned above for $6.3 million, the Company has entered into an agreement to sell its Clifton Park, New York warehouse later in 1997, which will generate an additional $2.5 million in net cash proceeds. Results of Operations During 1995, the Company changed its fiscal year-end to March 31 from July 31. With the acquisition of the Green Giant plants, vegetables now represent a substantial portion of the Company's business. The July year-end fell in the middle of the pack season for certain vegetable commodities while March 31 is before the pack season begins. Net sales for 1996 were $508.0 million which includes $152.0 million of sales to Pillsbury under the Alliance. If 1996 net sales are compared with the last full year sales (1994), the increase for the two year period is 22.7% excluding the effect of the Alliance. The Company's sales were $234.1 million in the eight month transition period ended 1995. It is not appropriate to annualize this amount since vegetables tend to be sold on a more seasonal basis. A full year's sales in 1995 would have shown an increase over 1994. Sales increased by 12.7% in 1994 and decreased 8.0% in 1993. In 1996 vegetable unit sales were lower due to a less than budget pack. Unit vegetable selling prices dropped in 1996, while apple pricing rose due to the world-wide shortage of processing apples. In 1995 vegetable unit sales were sharply higher due to the industry-wide large packs. Unit selling prices were down which partially offset the vegetable dollar sales increases due to volume. The three small acquisitions (one in 1995 and two in 1994) also contributed to the increase (see Acquisitions, note 12). In 1994 vegetable sales increased 9.5% due to sharply higher unit selling prices that resulted from 1993's flooding in the midwest. In 1994 fruit and juice sales were up 16.7% led by apple juice which was up 9.3%. The two small acquisitions also contributed to the increase (see Acquisitions, note 12). In 1993 vegetable sales declined 12.4% due to lower unit sales and selling prices while apple and grape sales declined by 8.4% and 2.1%, respectively. This was partially offset by an increase in co-pack sales. Vegetable sales decreased due, in part, to a continued oversupply of processed vegetables in the industry. The 1996 results include a non-recurring charge of $15.1 million, before income tax benefit, due to a combination of start-up costs related to the Pillsbury Alliance and severe drought conditions in New York State throughout the entire summer. The Company undertook an ambitious capital expenditure program related to the Pillsbury Alliance. In the relatively short time between the February 1995 closing of the Pillsbury Alliance and the beginning of the 1995 vegetable pack, 37 separate major capital projects needed to be completed. There were some unforeseen problems related to a few of these projects, mostly in the New York plants. Some of the used equipment transferred from the closed plants had operating difficulties and were not always easily repaired, thus causing downtime. Therefore, plant throughput and yields were poor at some plants resulting in unfavorable manufacturing variances. The problems were magnified when the drought and the hot weather conditions forced the uneven timing of maturities of vegetables. In 1996 earnings decreased for the following reasons: 1) the $15.1 million non-recurring charge detailed above, 2) higher apple cost of product sold due to a world-wide shortage of processing apples, and 3) lower selling prices on vegetables due to an ongoing industry oversupply. In 1995 earnings decreased due, in part, to lower selling prices caused by an industry-wide oversupply of processed vegetables. In 1994 earnings increased for the following reasons: 1) lower apple cost of product sold due to a greater availability of apples, 2) higher selling prices on vegetables which more than offset higher cost of product sold, 3) the sale of the textile segment and, 4) the $2.0 million gain due to implementing Statement of Financial Accounting Standards (SFAS) 109, "Accounting for Income Taxes" (see Income Taxes, note 6). In 1993 earnings increased for the following reasons: 1) lower apple cost of product sold due to a greater availability of apples, 2) lower interest cost since there were lower short-term rates, 3) the refinancing of some Industrial Revenue Bonds and, 4) the $1.7 million of interest income from the Internal Revenue Service (see Income Taxes, note 6). In 1996, the Company changed its inventory valuation method from the lower of cost; last-in, first-out; or market to the lower of cost; first-in, first-out; or market. The major reason for changing to the FIFO method is because, the majority of the Company's production and inventories are designated for sale to Pillsbury (under the Alliance Agreement) at prices based upon FIFO cost of production by pack year. In addition, the increase in the Company's production volume resulting from the Alliance Agreement, and other factors, has caused a reduction in the overhead cost per unit of the Company's other production, thus changing the basic cost structure of the Company's non-Pillsbury production. The change has been applied retroactively by restating the financial statements of prior years (see Summary of Significant Accounting Policies, note 1). In general, inflation played a relatively small role in the operating results and cash flows of 1996, 1995, 1994 and 1993 since the Company depreciates its fixed assets under accelerated depreciation methods for tax purposes. Accounting for Impairment of Long-Lived Assets - SFAS 121 Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," must be adopted by the Company in 1997. The standard requires that impairment losses be recognized when the carrying value of an asset exceeds its fair value. The Company regularly assesses all of its long-lived assets for impairment and, therefore, does not believe the adoption of the standard will have a material effect on its financial position or results of operations. Consolidated Statements of Net Earnings - -------------------------------------------------------------------------------------------------------- Seneca Foods Corporation and Subsidiaries
(Eight Months) Years ended March 31 and July 31, 1996 1995 1994 1993 ---- ---- ---- ---- (In thousands of dollars, except share amounts) Revenue: Net sales $ 507,988 $ 234,073 $ 290,185 $ 257,402 Other income (Note 13) 4,271 -- -- -- ------- ------- ------- ------- 512,259 234,073 290,185 257,402 Costs and expenses: Cost of product sold 452,584 202,068 247,261 224,957 Selling, general, and administrative expense 31,640 23,620 28,824 26,166 Interest expense, net of interest income of $180, $116, $528, and $1,865, respectively (Note 6) 28,157 6,296 6,046 5,834 Non-recurring charge (Note 14) 15,078 -- -- -- ------- ------- ------- ------- 527,459 231,984 282,131 256,957 Earnings (loss) from continuing operations before income taxes, extraordinary item and cumulative effect of accounting change (15,200) 2,089 8,054 445 Income taxes (Note 6) (5,053) 768 2,780 (848) ------- ----- ----- ----- Earnings (loss) from continuing operations before extraordinary item and cumulative effect of accounting change (10,147) 1,321 5,274 1,293 Earnings from discontinued operations, less applicable income taxes of $46 and $591 (Note 10) -- -- 90 965 Gain on the sale of discontinued operations, less applicable income taxes of $1,171 (Note 10) -- -- 2,273 -- Extraordinary loss on early extinguishment of debt, less applicable income tax benefit of $312 -- -- (606) -- Cumulative effect of accounting change (Note 6) -- -- 2,006 -- ------- ------ ------ ----- Net earnings (loss) $ (10,147) $ 1,321 $ 9,037 $ 2,258 ======= ====== ====== ===== Earnings (loss) from continuing operations per common share $ (1.81) $ .23 $ .91 $ .21 Earnings from discontinued operations per common share -- -- .01 .15 Gain on the sale of discontinued operations per common share -- -- .39 -- Extraordinary loss on early extinguishment of debt per common share -- -- (.11) -- Cumulative effect of accounting change per common share -- -- .35 -- ----- ------ ----- ---- Net earnings (loss) per common share $ (1.81) $ .23 $ 1.55 $ .36 ======== ======= ======== ======= Weighted average shares outstanding 5,621,991 5,593,110 5,797,726 6,170,666 ========= ========= ========= ========= See notes to consolidated financial statements.
Consolidated Balance Sheets Seneca Foods Corporation and Subsidiaries
March 31 and July 31, 1996 1995 1994 ---- ---- ---- (In thousands) Assets Current Assets: Cash and short-term investments $ 1,297 $ 26,538 $ 2,325 Common Stock of Moog Inc. (Note 2) 12,863 -- -- Accounts receivable, less allowance for doubtful accounts of $165, $227, and $183, respectively 51,118 32,601 18,651 Inventories: Finished products 138,953 70,322 52,022 In process 63,730 19,531 17,980 Raw materials and supplies 27,076 48,260 28,200 Refundable income taxes (Note 6) 3,503 -- 890 Deferred tax asset (Note 6) 53 -- -- Prepaid expenses 1,041 801 343 ------- ------- ------- Total Current Assets 299,634 198,053 120,411 Common Stock of Moog Inc. (Note 2) 1,048 7,494 6,079 Other Assets 457 237 193 Property, Plant, and Equipment (Note 5): Land 4,832 7,810 4,714 Buildings 92,283 89,298 51,462 Equipment 251,859 189,545 122,865 ------- ------- ------- 348,974 286,653 179,041 Less accumulated depreciation and amortization 126,254 106,935 100,825 ------- ------- ------- Net Property, Plant, and Equipment 222,720 179,718 78,216 ------- ------- ------- Total Assets $ 523,859 $ 385,502 $ 204,899 ======= ======= ======= Liabilities and Stockholders' Equity Current Liabilities: Notes payable (Note 3) $ 113,000 $ -- $ 1,600 Accounts payable 48,930 36,089 31,829 Accrued expenses 28,253 19,599 13,541 Current portion of long-term debt and capital lease obligations 690 5,594 6,349 Deferred tax liability (Note 6) -- 304 963 Income taxes (Note 6) -- 125 -- ------- ------- ------- Total Current Liabilities 190,873 61,711 54,282 Long-Term Debt (Note 4) 216,928 220,677 50,619 Capital Lease Obligations (Note 5) 9,646 803 857 Deferred Gain (Note 5) 4,059 -- -- Deferred Income Taxes (Note 6) 11,414 11,490 10,521 Commitments (Note 5) -- -- -- ------- ------- ------- Total Liabilities 432,920 294,681 116,279 Stockholders' Equity (Notes 4 and 7): Preferred stock 70 70 70 Common stock 2,666 1,880 1,880 Total Capital Stock 2,736 1,950 1,950 Additional paid-in capital 5,913 -- -- Net unrealized gain on available-for-sale securities (Note 2) 5,169 892 -- Retained earnings 77,121 87,979 86,670 ------- ------- ------- Total Stockholders' Equity 90,939 90,821 88,620 ------- ------- ------- Total Liabilities and Stockholders' Equity $ 523,859 $ 385,502 $ 204,899 ======= ======= ======= See notes to consolidated financial statements.
Consolidated Statements of Cash Flows - --------------------------------------------------------------------------------------------------------- Seneca Foods Corporation and Subsidiaries
(Eight Months) Years ended March 31 and July 31, 1996 1995 1994 1993 ---- ---- ---- ---- (In thousands) Cash flows from operating activities: Net earnings (loss) $ (10,147) $ 1,321 $ 9,037 $ 2,258 Adjustments to reconcile net earnings (loss) to net cash provided (used) by operations: Depreciation and amortization 23,563 6,773 9,253 9,270 Deferred income taxes (2,215) 446 (606) 661 Gain on the sale of assets (4,271) -- (3,444) -- Cumulative effect of accounting change -- -- (2,006) -- Extraordinary losses on early extinguishment of debt -- -- 606 -- Changes in operating assets and liabilities: Accounts receivable (18,517) (13,536) 4,142 822 Inventories (91,646) (25,256) (9,935) 6,537 Prepaid expenses (240) (458) (147) 22 Accounts payable, accrued expenses, and other liabilities 21,376 3,275 16,117 (7,981) Income taxes (3,985) 356 (494) 573 ------- ------- ------- ------- Net cash provided (used) by operations (86,082) (27,079) 22,523 12,162 Cash flows from investing activities: Additions to property, plant, and equipment (67,897) (26,966) (9,384) (1,723) Proceeds from the sale of assets 8,904 -- 8,356 -- Disposals of property, plant, and equipment 876 527 866 82 Acquisitions -- (16,837) (11,670) -- ------- ------- ------- ------ Net cash used in investing activities (58,117) (43,276) (11,832) (1,641) Cash flows from financing activities: Notes payable 113,000 (1,600) 1,600 -- Proceeds from issuance of long-term debt and sale and leaseback 9,258 125,000 -- -- Payments of long-term debt and capital lease obligations (3,068) (28,776) (19,788) (2,345) Other assets (220) (44) 21 (137) Dividends paid (12) (12) (23) (23) Common stock retirements -- -- (5,092) (384) Extraordinary losses on early extinguishment of debt -- -- (606) -- ------- ------- ------- ------- Net cash provided (used) in financing activities 118,958 94,568 (23,888) (2,889) Net increase (decrease) in cash and short-term investments (25,241) 24,213 (13,197) 7,632 Cash and short-term investments, beginning of year 26,538 2,325 15,522 7,890 ------- ------- ------- ------ Cash and short-term investments, end of year $ 1,297 $ 26,538 $ 2,325 $ 15,522 ======= ====== ======= ====== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 26,480 $ 5,543 $ 7,170 $ 9,400 Income taxes 1,147 (33) 4,785 1,076 Supplemental information on noncash investing and financing activities: The Company reached an agreement with Pillsbury to convert $6,000,000 of its subordinated note into the Company's Class A Common Stock in 1996. The Company issued a secured nonrecourse subordinated promissory note for $73,025,000 in 1995 in conjunction with the acquisition of certain Green Giant assets. See notes to consolidated financial statements.
Consolidated Statements of Stockholders' Equity Seneca Foods Corporation and Subsidiaries
Preferred Stock --------------- 6% Class A 10% Cumulative Par Cumulative Par Net Unrealized Value $.25 Value $.025 Class A Class B Additional Gain (Loss) on Callable at Par Convertible Common Stock Common Stock Paid-In Available-For- Retained Voting Voting Par Value $.25 Par Value $.25 Capital Sale Securities Earnings --------------- -------------- -------------- -------------- ---------- --------------- -------- (In thousands, except share amounts) Shares authorized 200,000 1,400,000 10,000,000 10,000,000 ======= ========= ========== ========== Shares issued and outstanding: July 31, 1993 200,000 807,240 -- 6,137,332 ======= ======= ========= ========= July 31, 1994 200,000 807,240 -- 5,593,110 ======= ======= ========= ========= March 31, 1995 200,000 807,240 -- 5,593,110 ======= ======= ========= ========= March 31, 1996 200,000 807,240 3,143,125 2,796,555 ======= ======= ========= ========= Balance July 31, 1992 $50 $20 $-- $1,954 $3,535 $ (1,757) $ 77,288 Net earnings -- -- -- -- -- -- 2,258 Cash dividends paid on preferred stock -- -- -- -- -- -- (23) Retirement of common stock -- -- -- (6) (378) -- -- Net unrealized gain -- -- -- -- -- 1,757 -- --- --- --- ------ ------ -------- ------- Balance July 31, 1993 50 20 -- 1,948 3,157 -- 79,523 Net earnings -- -- -- -- -- -- 9,037 Cash dividends paid on preferred stock -- -- -- -- -- -- (23) Retirement of common stock -- -- -- (68) (3,157) -- (1,867) --- --- --- ------ ------ -------- ------- Balance July 31, 1994 50 20 -- 1,880 -- -- 86,670 Net earnings -- -- -- -- -- -- 1,321 Cash dividends paid on preferred stock -- -- -- -- -- -- (12) Net unrealized gain -- -- -- -- -- 892 -- --- --- --- ------ ------ -------- ------- Balance March 31, 1995 50 20 -- 1,880 -- 892 87,979 Net loss -- -- -- -- -- -- (10,147) Cash dividends paid on preferred stock -- -- -- -- -- -- (12) Debt to equity conversion -- -- 87 -- 5,913 -- -- Stock split in the form of a dividend -- -- 699 -- -- -- (699) Net unrealized gain -- -- -- -- -- 4,277 -- --- --- --- ------ ------ -------- ------- Balance March 31, 1996 $50 $20 $786 $1,880 $5,913 $ 5,169 $ 77,121 === === ==== ====== ====== ======== ======= See notes to consolidated financial statements.
Notes to Consolidated Financial Statements - -------------------------------------------------- Seneca Foods Corporation and Subsidiaries 1. Summary of Significant Accounting Policies Nature of Operations - The Company conducts its business almost entirely in food processing operating 28 plants and warehouses in nine states. The Company markets branded and private label processed foods to retail customers and institutional food distributors. Accounting Period - In 1995, the Company changed its fiscal year-end to March 31. Fiscal 1995 is an eight-month transition period ended March 31, 1995. Principles of Consolidation - The consolidated financial statements include the accounts for the parent Company and all of its wholly-owned subsidiaries after elimination of intercompany transactions, profits, and balances. Revenue Recognition - Sales and related cost of product sold are recognized primarily upon shipment of products. Concentration of Credit Risk - Financial instruments that potentially subject the Company to credit risk consist of trade receivables and interest-bearing investments. Wholesale and retail food distributors comprise a significant portion of the trade receivables; collateral is not required. The risk associated with the concentration is limited due to the large number of wholesalers and retailers and their geographic dispersion. During 1996, the Company sold to Pillsbury $152,013,000 of canned and frozen vegetables under its Alliance Agreement (see Acquisitions, note 12), which represented 30% of net sales. The Company places substantially all its interest-bearing investments with financial institutions and monitors credit exposure. Cash and Short-Term Investments - For purposes of the statement of cash flows, the Company considers all highly liquid instruments purchased for a maturity of three months or less as short-term investments. Inventories - Inventories are stated at lower of cost; first-in, first-out (FIFO); or market. During 1996, the Company changed its inventory valuation method from the lower of cost last-in, first-out (LIFO); or market, to the lower of cost; FIFO; or market. The change has been applied retroactively by restating the financial statements for prior years. The major reason for changing to the FIFO method is because, the majority of the Company's production and inventories are designated for sale to Pillsbury (under the Alliance Agreement) at prices based upon FIFO cost of production by pack year. In addition, the increase in the Company's production volume resulting from the Alliance Agreement, and other factors, has caused a reduction in the overhead cost per unit of the Company's other production, thus changing the basic cost structure of the Company's non-Pillsbury production. The cumulative effect of the change (reported as an increase in retained earnings as of July 31, 1992) of $5,262,000 represents the effect on net earnings of the reversal of the LIFO reserve at that date. The effect of this accounting change on net earnings as previously reported follows:
(Eight Months) 1995 1994 1993 ---- ---- ---- (In thousands) Earnings from continuing operations before extraordinary item and cumulative effect of accounting change as previously reported $1,184 $ 5,341 $ 3,153 Effect of accounting change, net of income taxes 137 (67) (1,860) ------ ------- -------- As restated $1,321 $ 5,274 $ 1,293 ====== ======= ======== Per share amounts as previously reported $ .21 $ .92 $ .51 Effect of accounting change, net of income taxes .02 (.01) (.30) ------ ------- -------- As restated $ .23 $ .91 .21 ====== ======= ======== Net earnings as previously reported $1,184 $ 9,104 $ 4,118 Effect of accounting change, net of income taxes 137 (67) (1,860) ------ ------- -------- As restated $1,321 $ 9,037 $ 2,258 ====== ======= ======== Per share amounts as previously reported $ .21 $ 1.56 $ .66 Effect of accounting change, net of income taxes .02 (.01) (.30) ------ ------- -------- As restated $ .23 $ 1.55 $ .36 ====== ======= ========
Income Taxes - The provision for income taxes includes federal, foreign, and state income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities. Depreciation - Property, plant, and equipment is stated at cost or, in the case of capital leases, the present value of future lease payments. For financial reporting, the Company provides for depreciation and capital lease amortization on the straight-line method at rates based upon the estimated useful lives of the various assets. Earnings per Common Share - Primary earnings per share are calculated on the basis of weighted average common shares outstanding since the effect of common stock equivalents is immaterial. The difference between primary and fully diluted earnings per share is also immaterial. Prior year earnings per share have been restated to reflect the stock split in the form of a dividend. Use of Estimates in the Preparation of Financial Statements - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the related revenues and expenses during the reporting period. Actual amounts could differ from those estimated. The consolidated financial statements include the Company's estimate of its liability to Pillsbury under the Alliance Agreement for inventory costing adjustments. Notes to Consolidated Financial Statements (continued) 2. Common Stock of Moog Inc. The Company's investment in the common stock of Moog Inc. is carried at fair value in 1996 and 1995 in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities". There were no realized gains or losses in 1996, 1995, 1994, or 1993, and gross unrealized holding gains of $7,832,000 at March 31, 1996, $1,416,000 at March 31, 1995, and $708,000 at July 31, 1994. The Company owns about 7% of the voting stock of Moog Inc. as of March 31, 1996. Subsequent to March 31, 1996, the Company sold its class A common stock back to Moog which resulted in a realized gain of $7,503,000, before income taxes, which will be recognized as income in the first quarter of 1997. Accordingly, this portion of the Company's investment has been classified as a current asset as of March 31, 1996. Notes to Consolidated Financial Statements (continued) 3. Lines of Credit The Company obtains required short-term funds through bank borrowings. During 1995 the Company entered into an unsecured revolving credit agreement with various banks. At March 31, 1996, the Company had $4,195,000 outstanding for letters of credit and an unsecured revolving line of credit totaling $150,000,000. The line is renewable in 1998 and provides for loans of varying maturities at rate options based on Prime, Eurodollar, or Money Market. Selected details are as follows:
1996 1995 1994 1993 ---- ---- ---- ---- (In thousands of dollars) Borrowings at year end: Amount $113,000 $ -- $1,600 $-- Interest rate 7.69% -- 5.34% -- Maximum borrowings during the year $144,161 $54,140 $7,000 $38,300 Average borrowings during the year: Amount $ 83,498 $20,467 $ 158 $14,703 Interest rate 7.66% 6.06% 4.53% 4.17%
The average borrowings were computed by dividing the total daily outstanding balances by 365 days. The average interest rate was computed by dividing the actual interest expense by the average borrowings. Notes to Consolidated Financial Statements (continued) 4. Long-Term Debt
1996 1995 1994 ---- ---- ---- (In thousands) Note payable to insurance company, 10.78%, due through 2005 $ 75,000 $ 75,000 $ -- Secured nonrecourse subordinated promissory note, 8.00%, due through 2009 67,025 73,025 -- Note payable to insurance company, 10.81%, due through 2009 50,000 50,000 -- Note payable to insurance company, 9.78%, paid in full in 1995 -- -- 28,300 Industrial Revenue Development Bonds, variable rate or 8.21%, due through 2028 24,625 26,480 26,780 Other 547 1,657 1,723 ------- ------- ------ 217,197 226,162 56,803 Less current portion 269 5,485 6,184 ------- ------- ------ $216,928 $220,677 $50,619 ======= ======= ======
Debt agreements provide various financial covenants including a provision that the Company may pay dividends on stock only from consolidated net earnings available for distribution. There were no earnings available for distribution as of March 31, 1996. All provisions have been met at March 31, 1996. During 1996, the Company reduced the amount owed on its secured nonrecourse subordinated promissory note to The Pillsbury Company by converting the first two payments totaling $6,000,000 into shares of Class A Common Stock. The Company has four Industrial Revenue Bonds ("IRB's") totaling $22,630,000 which are backed by direct pay letters of credit. Debt repayment requirements for the next five fiscal years are: (In thousands) 1997 $ 269 1998 9,246 1999 11,221 2000 15,860 2001 15,860 Notes to Consolidated Financial Statements (continued) 5. Leases The Company leases a portion of its equipment and buildings. Capitalized leases consist primarily of industrial development agency financing instruments and limited obligation special revenue bonds which bear interest rates from 3.55% to 6.75%. Other leases include non-cancelable operating leases expiring at various dates through 2016. During 1996, the Company entered into a sale and leaseback transaction whereby three of its wastewater facilities in New York State were sold for $9,258,000 and leased back under a 20-year lease agreement. This transaction produced a gain of $4,178,000 which was deferred and is being amortized over the 20-year lease period. Leased assets under capital leases consist of the following:
1996 1995 1994 ---- ---- ---- (In thousands) Land $ 160 $ 93 $ 93 Buildings 1,792 1,792 1,792 Equipment 10,385 1,194 1,167 ------ ----- ----- 12,337 3,079 3,052 Less accumulated amortization 2,555 1,821 1,791 ------ ----- ----- $ 9,782 $1,258 $1,261 ====== ===== =====
The following is a schedule by year of minimum payments due under leases as of March 31, 1996:
Operating Capital --------- ------- (In thousands) Year ending March 31: 1997 $ 3,624 $ 849 1998 2,730 842 1999 2,133 843 2000 1,654 843 2001 1,297 843 2002-2016 2,237 10,487 ------- ------ Total minimum payments required $13,675 14,707 ======= Less interest 4,640 ------ Present value of minimum lease payments 10,067 Amount due within one year 421 ------ Long-term capital lease obligations $ 9,646 ======
Aggregate rental expense in 1996, 1995, 1994, and 1993 was $7,043,000, $2,031,000, $2,190,000, and $2,266,000, respectively. Notes to Consolidated Financial Statements (continued) 6. Income Taxes The Company files a consolidated income tax return. The provision for income taxes includes the effect of continuing and discontinued operations and the extraordinary items as follows:
(Eight Months) 1996 1995 1994 1993 ---- ---- ---- ---- (In thousands) Current: Federal $(3,282) $ 716 $2,970 $ 1,365 State 762 107 430 178 ----- --- ----- ----- (2,520) 823 3,400 1,543 Deferred: Federal (1,961) (123) 239 (1,752) State (572) 68 46 (48) ----- --- ----- ----- (2,533) (55) 285 (1,800) ----- --- ----- ----- Total income taxes $(5,053) $ 768 $3,685 $ (257) ===== === ===== =====
In August, 1992 the Internal Revenue Service completed its audit of fiscal years 1983 and 1984. This conclusion allowed the Company to file a refund claim for the years 1985 and 1986. This refund was received during the 1993 fiscal year resulting in a $1,000,000 reduction in the provision for income taxes. Also in 1993, interest income of $1,680,000 has been netted against the interest expense category in the Consolidated Statements of Net Earnings. At March 31, 1996, the Company has Research and Development Credits to carryforward in the amount of $83,000 of which $31,000 will expire in the year 2010 and $52,000 will expire in 2011, and Alternative Minimum Tax Credits in the amount of $1,176,000 to offset future years regular tax expense. State Net Operating Loss carryforwards of approximately $4,661,000 are available to offset future state tax expense, approximately one-half will expire in 2001 and the balance will expire in 2012. The cumulative effect of the adoption of SFAS No. 109 on August 1, 1993 was $2,006,000. This change is reported in the 1994 Consolidated Statements of Net Earnings. As permitted under this rule, prior years financial statements have not been restated to apply the provisions of SFAS No. 109. A reconciliation of the expected U.S. statutory rate to the effective rate follows:
1996 1995 1994 1993 ---- ---- ---- Computed (expected tax rate) (34.0)% 34.0 % 34.0 % 34.0 % State income taxes (net of federal tax benefit) 0.8 6.2 2.4 4.3 Depreciation adjustment -- -- -- 0.2 IRS settlement -- -- -- (50.0) Other -- (3.5) (1.9) (1.3) ---- ---- ---- ---- Effective tax rate (33.2)% 36.7 % 34.5 % (12.8)% ==== ==== ==== ====
Notes to Consolidated Financial Statements (continued) The following is a summary of the significant components of the Company's deferred tax assets and liabilities as of March 31, 1996, March 31, 1995 and July 31, 1994:
1996 1995 1994 ---- ---- ---- (In thousands) Deferred tax liabilities: Basis and depreciation difference $10,728 $10,208 $ 9,946 LIFO 3,237 3,298 2,779 Moog investment 2,663 524 -- State taxes 618 758 789 Other -- -- 538 ------ ------ ------ 17,246 14,788 14,052 Deferred tax assets: Inventory valuation 2,046 27 584 Future tax credits 1,254 720 -- Employee benefits 1,149 756 586 Pension 863 574 497 Insurance 395 381 466 Other 178 424 321 Sales tax -- 112 114 ------ ------ ------- 5,885 2,994 2,568 ------ ------ ------ Deferred tax liability $11,361 $11,794 $11,484 ====== ====== ======
Net current deferred tax assets of $53,000 as of March 31, 1996 and net current deferred tax liabilities of $304,000 and $963,000 as of March 31, 1995 and July 31, 1994, respectively, are recognized in the Consolidated Balance Sheets. Also recognized is net non-current deferred tax liabilities of $11,414,000, $11,490,000 and $10,521,000 for the respective years as of March 31, 1996, March 31, 1995 and July 31, 1994. Certain items in the prior year have been reclassified to conform to current year classifications. Prior to the change in accounting methods, the source of deferred tax items and the corresponding tax effects during 1993 was as follows:
1993 ---- (In thousands) Accelerated depreciation: Federal $ 275 State 19 Vacation accrual 5 Bad debts (92) Inventory valuation (1,045) Involuntary conversion (30) Insurance accrual (157) Promotion accrual 6 Prepayments: Debt extinguishment 262 Lease 48 IRS settlement (1,000) Other (91) ----- Total deferred taxes $ (1,800) =====
Notes to Consolidated Financial Statements (continued) 7. Stockholders' Equity Preferred Stock - The outstanding 10% cumulative, convertible, voting preferred stock consists of 407,240 Series A shares, convertible at the rate of one common share for every twenty preferred shares, and 400,000 Series B shares, which carry a one for thirty conversion rate. The Series A and B shares have a $.25 stated value and a $.025 par value. There are 2,600,000 shares authorized of Class A $.025 par value stock which are unissued and undesignated. In addition there are 30,000 shares of no par stock which are also unissued and undesignated. Common Stock - A proposed amendment to the Company's Certificate of Incorporation which effected a recapitalization of the Company by creating a second class of common stock (which was distributed to all common shareholders as a stock split in the form of a dividend) was adopted at the Annual Meeting held on August 5, 1995. This recapitalization amendment (i) reclassified the existing Common Stock as Class B Common Stock, (ii) authorized a new class of 10,000,000 shares designated as Class A Common Stock and (iii) established the express terms of the Class A Common Stock and the Class B Common Stock. The Class A Common Stock and the Class B Common Stock have substantially identical rights with respect to any dividends or distributions of cash or property declared on shares of common stock and rank equally as to the right to receive proceeds on liquidation or dissolution of the Company after payment of the Company's indebtedness and liquidation right to the holders of preferred shares. However, holders of Class B Common Stock retain a full vote per share whereas the holders of Class A Common Stock have voting rights of 1/20th of one vote per share on all matters as to which shareholders of the Company are entitled to vote. In 1996, the Company reached an agreement with Pillsbury to convert $6,000,000 of its subordinated note into 346,570 shares of the Company's Class A Common Stock. Unissued shares of common stock reserved for conversion privileges were 33,695 at March 31, 1996 and 1995 and July 31, 1994 and 1993. Notes to Consolidated Financial Statements (continued) 8. Quarterly Results (Unaudited) The following is a summary of the unaudited interim results of operations by quarter:
First Second Third Fourth ----- ------ ----- ------ (In thousands, except per share data) Year ended March 31, 1996: Net sales $81,945 $131,979 $201,032 $ 93,032 Gross margin 13,416 13,655 12,253 16,080 Net earnings (loss) 55 (10,349) 218 (71) Net earnings (loss) per common share .01 (1.85) .04 (.01) Year ended March 31, 1995: Net sales $88,827 $ 87,935 $ 57,311 *$ NA Gross margin 10,845 10,353 10,807* NA Net earnings 733 159 429* NA Net earnings per common share .13 .02 .08* NA Year ended July 31, 1994: Net sales $62,003 $ 83,780 $ 82,586 $61,816 Gross margin 8,618 12,426 11,893 9,987 Earnings from continuing operations 259 1,203 1,784 2,028 Earnings from continuing operations per share .04 .21 .31 .35 Earnings before extraordinary item and accounting change 2,406 1,203 1,857 2,171 Earnings before extraordinary item and accounting change per share .40 .21 .33 .37 Net earnings 4,412 1,203 1,857 1,565 Net earnings per common share .73 .21 .33 .28 *Represents two months of activity.
The second quarter of 1996 results include a nonrecurring charge of $15,078,000 before income tax benefit, due to start-up costs related to the Pillsbury Alliance (see Acquisitions, Note 12). The 1995 and 1994 results have been restated to reflect the change in 1996 from the LIFO inventory valuation method to the FIFO inventory valuation method and to reflect the stock split in the form of a dividend. Earnings for the fourth quarter (third quarter in 1995) have historically reflected adjustments of previously estimated raw material costs and production levels. Due to the dependence on fruit and vegetable yields of the Company's food processing segment, interim costing must be estimated. Notes to Consolidated Financial Statements (continued) 9. Retirement Plan The Company has a noncontributory defined benefit pension plan covering all employees who meet certain age entry requirements and work a stated minimum number of hours per year. Annual contributions are made to the Plan sufficient to satisfy legal funding requirements. Pension expense includes the following:
(Eight Months) 1996 1995 1994 1993 ---- ---- ---- ---- (In thousands) Service cost for benefits earned during the period $ 1,336 $ 484 $ 818 $ 838 Interest cost on projected benefit obligation 1,210 745 998 983 Actual return on plan assets (2,372) (2,474) (1,691) (655) Net deferral of actuarial gains (losses) 860 1,593 673 (568) Amortization of net unrecognized gain at August 1, 1987 (276) (184) (276) (276) Amortization of losses -- -- 144 -- Amortization of prior service cost 94 62 94 94 ----- ----- ----- ----- Pension expense $ 852 $ 226 $ 760 $ 416 ===== ===== ===== =====
The following table summarizes the funded status and related amounts that are recognized in the consolidated balance sheets:
1996 1995 1994 ---- ---- ---- (In thousands) Actuarial present value of accumulated benefit obligation: Vested $ 12,227 $ 10,717 $ 11,214 Nonvested 683 562 689 ------ ------ ------ Total $ 12,910 $ 11,279 $ 11,903 ====== ====== ====== Plan assets at fair market value, primarily listed stocks and fixed income securities $ 19,718 $ 18,165 $ 16,009 Projected benefit obligation 17,242 15,113 15,684 ------ ------ ------ Plan assets in excess of projected benefit obligation 2,476 3,052 325 Unrecognized gain at transition (4,371) (4,647) (4,832) Unrecognized prior service cost 594 688 750 Unrecognized net (gain) loss (1,239) (781) 2,295 ----- ----- ----- Accrued pension liability $ (2,540) $ (1,688) $ (1,462) ===== ===== =====
The projected benefit obligation was determined using an assumed discount rate of 8% and an assumed long-term salary increase rate of 5%. The assumed long-term rate of return on plan assets was 8.5%. The Plan holds the Company's stock with a fair market value of $2,463,000. Notes to Consolidated Financial Statements (continued) 10. Discontinued Operations In August 1993 the Company completed its sale of the textile division for $8,400,000 in cash and reported a net gain of $2,273,000 in the first quarter of 1994. As a result of the sale, textile operations have been accounted for as discontinued operations in prior periods in the Consolidated Statements of Net Earnings. Net sales for the textile division were $2,246,000 in 1994 and $43,087,000 in 1993. Total assets were $8,400,000 and total liabilities were $3,500,000 resulting in $4,900,000 of net assets as of the August 1993 closing. Notes to Consolidated Financial Statements (continued) 11. Fair Value of Financial Instruments The carrying amounts and the estimated fair values of the Company's financial instruments, as determined under SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," are summarized as follows:
1996 1995 1994 ---- ---- ---- Carrying Estimated Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value Amount Fair Value -------- ---------- -------- ---------- -------- ---------- (In thousands) Long-term debt, including current portion $217,197 $226,015 $226,162 $226,371 $56,803 $60,074 Notes payable 113,000 113,000 - - 1,600 1,600 Common stock of Moog Inc. 13,911 13,911 7,494 7,494 6,079 6,787
The estimated fair values were determined as follows: Long-term debt - The quoted market prices for similar debt or current rates offered to the Company for debt with the same maturities. Notes payable - The carrying amount approximates fair value due to the short-term maturity of these instruments. Common stock of Moog Inc. - Based on quoted market prices. Notes to Consolidated Financial Statements (continued) 12. Acquisitions On February 10, 1995 the Company acquired certain assets of the Green Giant Division of The Pillsbury Company (referred to as "Pillsbury"), a subsidiary of Grand Metropolitan Incorporated. Under an Alliance Agreement concurrently executed by the Company, Pillsbury and Grand Metropolitan Incorporated, Pillsbury will continue to be responsible for all of the sales, marketing and customer service functions for the Green Giant brand, while the Company will handle vegetable processing and canning operations. Pillsbury continues to own all the trademark rights to the Green Giant brand and its proprietary seed varieties. The assets acquired include certain raw material and supplies inventory and six manufacturing facilities located in the Midwestern and Northwestern United States. The purchase price was based on the book value of the assets acquired. The purchase price of $86,093,000 was funded by a secured nonrecourse subordinated promissory note issued by the Company for $73,025,000 and the balance was funded out of working capital. On August 17, 1994 the Company acquired the assets of M.C. Snack, Inc. of Yakima, Washington, a snack food maker of apple chips. The purchase price was $3,769,000 which was funded out of working capital. On December 20, 1993 the Company acquired certain assets of ERLY Juice, Inc. and WorldMark, Inc. The assets acquired include certain trademarks, inventory, accounts receivable, and manufacturing facilities located in Eau Claire, Michigan. Most of the products are sold under the TreeSweet brand. The purchase price was $8,372,000 which was funded out of working capital. The Company acquired the Wapato, Washington juice processing business of Sanofi Bio-Industries, Inc. on November 30, 1993. The purchase price was $3,298,000 which was funded out of working capital. All acquisitions were accounted for under the purchase method and, accordingly, the operating results of the acquired have been included in the consolidated operating results since the dates of acquisition. Notes to Consolidated Financial Statements (continued) 13. Other Income. Other income in 1996 consisted of the gain on the sale of the Peabody, Massachusetts warehouse totaling $4,271,000 before income taxes. 14. Non-Recurring Charge. The 1996 operating results include a non-recurring charge of $15,078,000, before income tax benefit, due to a combination of start-up costs related to the Pillsbury Alliance and severe drought conditions in New York State throughout the entire summer. The Company undertook an ambitious capital expenditure program related to the Pillsbury Alliance. In the relatively short time between the February 1995 closing of the Pillsbury Alliance and the beginning of the 1995 vegetable pack, 37 separate major capital projects needed to be completed. There were some unforeseen problems related to a few of these projects, mostly in the New York plants. Some of the used equipment transferred from the closed plants had operating difficulties and were not always easily repaired, thus causing downtime. Throughput and yields were poor at some plants resulting in unfavorable manufacturing variances. The problems were magnified when the drought and the hot weather conditions forced the uneven timing of maturities of vegetables. Independent Auditors' Report To the Board of Directors and Stockholders of Seneca Foods Corporation Pittsford, New York We have audited the accompanying consolidated balance sheets of Seneca Foods Corporation and subsidiaries as of March 31, 1996, March 31, 1995 and July 31, 1994, and the related consolidated statements of net earnings, stockholders' equity, and cash flows for the year ended March 31, 1996, the eight months ended March 31, 1995 and for each of the two years in the period ended July 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Seneca Foods Corporation and subsidiaries as of March 31, 1996, March 31, 1995 and July 31, 1994, and the results of their operations and their cash flows for the year ended March 31, 1996, the eight months ended March 31, 1995 and for each of the two years in the period ended July 31, 1994 in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, in fiscal 1996 the Company changed its method of accounting for inventories and, retroactively, restated the 1995, 1994, and 1993 consolidated financial statements for the change. Further, as discussed in Note 6 to the consolidated financial statements, in fiscal 1994 the Company changed its method of accounting for income taxes to conform with Statement of Financial Accounting Standards No. 109. DELOITTE & TOUCHE LLP /s/Deloitte & Touche LLP Rochester, New York May 31, 1996 =============================================================================== =============================================================================== Shareholder Information The Company's common stock is traded on NASDAQ National Market System. The 3.1 million of Class A outstanding shares and 2.8 million Class B outstanding shares are owned by 475 and 470 shareholders of record, respectively. The high and low prices of the Company's common stock during each quarter of the past three years are shown below.
Class A: 1996 1995 1994 ---- ---- ---- Quarter High Low High Low High Low ---- --- ---- --- ---- --- First $ -- $ -- $ -- $ -- $ -- $ -- Second 20.00 19.50 -- -- -- -- Third 19.75 15.00 -- -- -- -- Fourth 19.00 15.25 -- -- -- -- Class B: 1996 1995 1994 ---- ---- ---- Quarter High Low High Low High Low ---- --- ---- --- ---- --- First $ 17.88 $ 16.75 $ 12.25 $ 10.50 $ 9.75 $ 7.75 Second 22.00 17.25 17.50 11.75 10.00 9.25 Third 21.25 16.50 17.75 16.25 10.50 9.50 Fourth 20.00 16.00 NA NA 11.38 9.75
The Company may pay dividends on stock only from consolidated net earnings available for distribution which were none as of March 31, 1996. Payment of dividends to common stockholders is made at the discretion of the Company's Board of Directors and depends, among other factors, on earnings, capital requirements, operating and financial condition of the Company. The Company has not declared or paid a common dividend in many years. EX-27 6
5 Commercial and Industrial Companies Article 5 of Regulation S-X 1000 12-MOS MAR-31-1996 MAR-31-1996 1297 12863 51283 165 229759 299634 348974 126254 523859 190873 226574 0 70 2666 88203 523859 507988 512259 452584 452584 46718 0 28157 (15200) (5053) (10147) 0 0 0 (10147) (1.81) (1.78)
EX-27 7
5 Commercial and Industrial Companies Article 5 of Regulation S-X 1000 8-MOS MAR-31-1995 MAR-31-1995 26538 0 32828 227 138113 198053 286653 106935 385502 61711 221480 0 70 1950 88871 385502 234073 230073 202068 202068 23620 0 6296 2089 768 1321 0 0 0 1321 .23 .23
EX-27 8
5 Commercial and Industrial Companies Article 5 of Regulation S-X 1000 12-MOS JUL-31-1994 JUL-31-1994 2325 0 18834 183 98202 120411 179041 100825 204899 54282 51476 0 70 1950 86670 204899 290185 290185 247261 247261 28824 0 6046 8054 2780 5274 2363 (606) 2006 9037 1.55 1.54
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