10-Q 1 a10q1204.txt 12/25/04 Form 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended December 25, 2004 Commission File Number 0-01989 ----------------- ------- Seneca Foods Corporation ------------------------ (Exact name of Company as specified in its charter) New York 16-0733425 -------- ---------- (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 3736 South Main Street, Marion, New York 14505 ---------------------------------------- ----- (Address of principal executive offices) (Zip Code) Company's telephone number, including area code 315/926-8100 ------------ Not Applicable -------------- Former name, former address and former fiscal year, if changed since last report Check mark indicates whether Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------- Indicate by check mark whether the Company is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No ------ ------- The number of shares outstanding of each of the issuer's classes of common stock at the latest practical date are: Class Shares Outstanding at January 31, 2005 -------------------------------------------- Common Stock Class A, $.25 Par 3,950,617 Common Stock Class B, $.25 Par 2,764,005 PART I ITEM 1 FINANCIAL INFORMATION SENECA FOODS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands of Dollars)
Unaudited 12/25/04 3/31/04 -------- ------- ASSETS Current Assets: Cash and Cash Equivalents $ 24,994 $ 4,570 Marketable Securities - 4,465 Accounts Receivable, Net 47,526 46,180 Inventories: Finished Goods 309,517 202,573 Work in Process 33,403 15,365 Raw Materials 38,751 52,345 ------- ------- 381,671 270,283 Off-Season Reserve (Note 2) (63,443) - Deferred Income Tax Asset, Net 6,615 6,615 Assets Held For Sale 2,439 2,931 Refundable Income Taxes 3,063 451 Other Current Assets 4,643 12,098 -------------- --------------- Total Current Assets 407,508 347,593 Property, Plant and Equipment, Net 169,992 181,907 Other Assets 2,869 4,403 -------------- --------------- Total Assets $580,369 $533,903 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes Payable $ 71,049 $ 58,395 Accounts Payable 68,850 37,362 Accrued Expenses 42,924 42,553 Current Portion of Long-Term Debt and Capital Lease Obligations 27,577 21,519 --------------- --------------- Total Current Liabilities 210,400 159,829 Long-Term Debt 149,569 154,428 Capital Lease Obligations 5,848 6,559 Deferred Income Tax Liability 14,804 15,048 Other Long-Term Liabilities 6,412 7,790 Commitments - - 10% Preferred Stock, Series A, Voting, Cumulative, Convertible, $.025 Par Value Per Share 10 10 10% Preferred Stock, Series B, Voting, Cumulative, Convertible, $.025 Par Value Per Share 10 10 6% Preferred Stock, Voting, Cumulative, $.25 Par Value 50 50 Convertible, Participating Preferred Stock, $12.00 Stated Value 41,265 41,268 Convertible, Participating Preferred Stock, $15.50 Stated Value 15,000 15,000 Common Stock 2,860 2,859 Paid in Capital 15,992 15,989 Accumulated Other Comprehensive Income - 2,324 Retained Earnings 118,149 112,739 --------------- --------------- Stockholders' Equity 193,336 190,249 --------------- --------------- Total Liabilities and Stockholders' Equity $580,369 $533,903 ======== ======== The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
SENECA FOODS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF NET EARNINGS (Unaudited) (In Thousands, Except Per Share Data)
Three Months Ended ------------------ 12/25/04 12/27/03 -------- -------- Net Sales $ 306,794 $ 325,303 Costs and Expenses: Cost of Product Sold 290,079 307,735 Selling, General, and Administrative 9,172 10,194 Plant Restructuring 5,804 - ------------------ ----------------- Total Costs and Expenses 305,055 317,929 ------------------ ----------------- Operating Income 1,739 7,374 Interest Expense (net) 4,219 4,280 ------------------ ----------------- (Loss) Earnings Before Income Taxes (2,480) 3,094 Income Taxes (967) 1,207 ------------------ ----------------- Net (Loss) Earnings $ (1,513) $ 1,887 ================= ================ Basic: (Loss) Earnings Per Common Share $ (.14) $ .17 ================= ================ Weighted Average Shares Outstanding 11,126 11,126 ================= ================ Diluted: (Loss) Earnings Per Common Share $ (.14) $ .17 ================= ================ Weighted Average Shares Outstanding 11,126 11,193 ================= ================ The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
SENECA FOODS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF NET EARNINGS (Unaudited) (In Thousands, Except Per Share Data)
Nine Months Ended ------------------ 12/25/04 12/27/03 -------- -------- Net Sales $ 689,567 $ 724,793 Costs and Expenses: Cost of Product Sold 641,339 671,677 Selling, General, and Administrative 23,970 25,815 Plant Restructuring 6,423 - ------------------ ----------------- Total Costs and Expenses 671,732 697,492 ------------------ ----------------- Operating Income 17,835 27,301 Other Income (net) (3,376) - Interest Expense (net) 12,303 11,778 ------------------ ----------------- Earnings Before Income Taxes 8,908 15,523 Income Taxes 3,474 6,054 ------------------ ----------------- Net Earnings $ 5,434 $ 9,469 ================= ================ Basic: Earnings Per Common Share $ .49 $ .87 ================= ================ Weighted Average Shares Outstanding 11,126 10,911 ================= ================ Diluted: Earnings Per Common Share $ .49 $ .86 ================= =============== Weighted Average Shares Outstanding 11,193 10,978 ================== ================ The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
SENECA FOODS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands)
Nine Months Ended ------------------ 12/25/04 12/27/03 -------- -------- Cash Flows From Operating Activities: Net Earnings $ 5,434 $ 9,469 Adjustments to Reconcile Net Earnings to Net Cash Provided by (Used in) Operations: Depreciation and Amortization 21,551 21,914 Gain on the Sale of Assets (3,904) - Plant Restructuring 3,798 - Other 528 - Deferred Income Taxes (244) 2,057 Changes in Working Capital: Accounts Receivable (1,346) 2,181 Inventories (111,388) (118,320) Off-Season Reserve 63,443 66,830 Other Current Assets 7,455 (5,255) Refundable Income Taxes (1,187) (1,112) Accounts Payable, Accrued Expenses, and Other Liabilities 30,031 (255) ------------------ ----------------- Net Cash Provided by (Used in) Operations 14,171 (22,491) ------------------ ----------------- Cash Flows From Investing Activities: Additions to Property, Plant, and Equipment (13,625) (13,963) Proceeds from the Sale of Assets 5,824 46,077 Acquisition - (113,691) Cash Received with Acquisition - 2,560 ------------------ ----------------- Net Cash Used in Investing Activities (7,801) (79,017) ------------------ ----------------- Cash Flows From Financing Activities: Borrowings on Notes Payable 247,374 348,315 Payments on Notes Payable (234,720) (312,370) Proceeds from Issuance of Long-Term Debt 8,959 42,500 Payments of Long-Term Debt and Capital Lease Obligations (8,471) (38,440) Other 912 252 ------------------ ----------------- Net Cash Provided by Financing Activities 14,054 40,257 ------------------ ----------------- Net Increase (Decrease) in Cash and Cash Equivalents 20,424 (61,251) Cash and Cash Equivalents, Beginning of Period 4,570 64,984 ------------------ ----------------- Cash and Cash Equivalents, End of Period $ 24,994 $ 3,733 ================== ================== Supplemental information on non-cash investing and financing activities: $16.1 million of Preferred Stock was issued in partial consideration for the CPF acquisition. The Company assumed $9.1 million of long-term debt related to the CPF acquisition (see Note 11). The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
SENECA FOODS CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In Thousands) December 25, 2004 1. Unaudited Condensed Consolidated Financial Statements In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, which are normal and recurring in nature, necessary to present fairly the financial position of the Company as of December 25, 2004 and results of its operations and its cash flows for the interim periods presented. All significant intercompany transactions and accounts have been eliminated in consolidation. The March 31, 2004 balance sheet was derived from the audited consolidated financial statements. The results of operations for the three and nine month periods ended December 25, 2004 are not necessarily indicative of the results to be expected for the full year. In the nine months ended December 25, 2004, the Company sold for cash, on a bill and hold basis, $175,366,000 of Green Giant finished goods inventory to General Mills Operations, Inc. ("GMOI"). At the time of the sale of the Green Giant vegetables to GMOI, title to the specified inventory transferred to GMOI. In addition, the aforementioned finished goods inventory was complete, ready for shipment and segregated from the Company's other finished goods inventory. Further, the Company had performed all of its obligations with respect to the sale of the specified Green Giant finished goods inventory. The accounting policies followed by the Company are set forth in Note 1 to the Company's Consolidated Financial Statements in the 2004 Seneca Foods Corporation Annual Report and Form 10-K. Other footnote disclosures normally included in annual financial statements prepared in accordance with U. S. generally accepted accounting principles have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes included in the Company's 2004 Annual Report and Form 10-K. 2. The seasonal nature of the Company's food processing business results in a timing difference between expenses (primarily overhead expenses) incurred and absorbed into product cost. All Off-Season Reserve balances, which essentially represent a contra-inventory account, are zero at fiscal year end. Depending on the time of year, Off-Season Reserve is either the excess of absorbed expenses over incurred expenses to date or the excess of incurred expenses over absorbed expenses to date. Other than the first quarter of each year, absorbed expenses exceed incurred expenses due to timing of production. 3. Comprehensive income consisted of net earnings and net unrealized gains on securities classified as available-for-sale. The following table provides the results for the periods presented:
Three Months Ended Nine Months Ended ------------------ ----------------- 12/25/04 12/27/03 12/25/04 12/27/03 -------- -------- -------- -------- Net (Loss) Earnings $(1,513) $1,887 $5,434 $9,469 Other Comprehensive Earnings, Net of Tax: Net Reclassification of Accumulated Other Comprehensive Income - - (2,356) - Net Unrealized Gains on Investment - 533 32 929 -------------------------------------------------- Comprehensive (Loss) Income $(1,513) $2,420 $3,110 $10,398 ================================================== The securities were sold during the quarter ended June 26, 2004.
4. Recently issued accounting standards have been considered by the Company and are not expected to have a material effect on the Company's financial position or results of operations. 5. As previously reported, during the quarter ended September 25, 2004, pre-tax results include a charge of $1,280,000 related to the previously announced product recall which is included in Cost of Product Sold in the Unaudited Condensed Consolidated Statements of Net Earnings. 6. During the quarter ended December 25, 2004, the Company announced the closure of processing facilities in Walla Walla, Washington and Marion, New York (not including the can manufacturing plant). This resulted in a non-cash impairment charge of $5,710,000 and a severance charge of $94,000 which are included in Plant Restructuring in the Unaudited Condensed Consolidated Statements of Net Earnings. The Walla Walla facility is expected to be sold by December 31, 2005. The Marion facility is going to be used as a warehouse. The closure of the Walla Walla, Washington processing facility coincided with an amendment to the Alliance Agreement with General Mills Operations, Inc. ("GMOI"). Under the above amendment, the Blue Earth, Minnesota facility will be removed from the Alliance Agreement due to a reduction in GMOI volume requirements and will be operated by the Company as a non-Alliance facility. Additionally, GMOI has agreed to reimburse the Company for remaining lease and depreciation costs at the Blue Earth facility which, on a net present value basis, approximate the closure costs associated with the Walla Walla facility. 7. During the quarter ended September 25, 2004, the Company incurred a $619,000 charge for severance expense related to exiting a line of contract packing business which is included in Plant Restructuring in the Unaudited Condensed Consolidated Statements of Net Earnings. In addition, the Company incurred a $682,000 charge for inventory impairment which is also related to exiting the same line of contract packing business and is included in Cost of Product Sold in the Unaudited Condensed Consolidated Statements of Net Earnings. 8. The following table summarizes the restructuring and related asset impairment charges recorded and the accruals established during 2005:
Long-Lived Severance Asset Charges Other Costs Total --------- ------------- ----------- ----- Total expected restructuring charge $ 713 $3,798 $1,912 $6,423 ============================================================================= Balance March 31, 2004 $ - $ - $ - $ - Second quarter charge to expense 619 - 619 Third quarter charge to expense 94 3,798 1,912 5,804 Cash payments (619) - - (619) ---------------------------------------------------------------------------- Balance December 25, 2004 $ 94 $3,798 $1,912 $5,804 ============================================================================ In addition, $682,000 was charged to Cost of Product Sold in the quarter ended September 25, 2004.
9. As previously reported, during the quarter ended June 26, 2004, the Company sold its investment in the Class B Common Stock of Moog Inc. for $4,578,000 and recorded a gain of $3,862,000 before income taxes, which is included in Other Income (net) in the Unaudited Condensed Consolidated Statements of Net Earnings. This investment had been classified as Marketable Securities on the Unaudited Condensed Consolidated Balance Sheet at March 31, 2004. 10. On June 24, 2004, the Company issued a mortgage payable to GE Capital for $8 million with an interest rate of 6.35% and a term of 15 years. The proceeds were used to finance new warehouse construction in Janesville and Cambria, Wisconsin. 11. On May 27, 2003, the Company completed its acquisition of Chiquita Processed Foods, L.L.C. ("CPF") from Chiquita Brands International, Inc. The primary reason for the acquisition was to acquire additional production capacity in the Canned Vegetable business. The purchase price totaled $126.1 million plus the assumption of certain liabilities. This acquisition was financed with cash, proceeds from a new $200 million revolving credit facility, and $16.1 million of the Company's Participating Convertible Preferred Stock. The revolving credit facility has a five-year term. During the quarter ended September 27, 2003, the Company refinanced $42.5 million of debt outstanding under the revolving credit facility with new term debt from an insurance company. During the quarter ended June 26, 2004, the Company provided notice to its bank lenders of its intention to reduce the revolving credit facility from $200 million to $150 million and took a non-cash charge of $528,000 reflecting the write-down of the corresponding pro-rata amount of deferred financing costs, which is included in Other Income (net) in the Unaudited Condensed Consolidated Statements of Net Earnings. The $150 million revolving credit facility, which is expected to satisfy the Company's working capital needs, has $71,049,000 outstanding as of December 25, 2005. 12. Earnings per share (In thousands, except per share data): Three Months Ended 12/25/04 12/27/03 -------- -------- Basic Net Earnings (Loss) Applicable to Common Stock: Net (Loss) Earnings $(1,513) $1,887 Deduct Preferred Cash Dividends 6 6 ------------------- Net (Loss) Earnings Applicable to Common Stock $(1,519) $1,881 =================== Weighted Average Common Shares Outstanding 6,715 6,715 Weighted Average Participating Preferred Shares Outstanding 4,411 4,411 ------------------- Weighted Average Shares Outstanding for Basic Earnings Per Common Share 11,126 11,126 =================== Basic (Loss) Earnings Per Common Share $ (.14) $ .17 =================== Diluted Net (Loss) Earnings Applicable to Common Stock: Net (Loss) Earnings Applicable to Common Stock $(1,519) $1,881 Add Back Preferred Cash Dividends - 5 ------------------- Net (Loss) Earnings Applicable to Common Stock Diluted $(1,519) $1,886 =================== Weighted Average Shares Outstanding for Basic Earnings Per Common Share 11,126 11,126 Effect of Convertible Preferred Stock - 67 ------------------- Weighted Average Shares Outstanding for Diluted Earnings Per Common Share 11,126 11,193 =================== Diluted (Loss) Earnings Per Common Share $ (.14) $ .17 =================== The effect of convertible preferred stock has not been considered for the quarter ended December 25, 2004 since its inclusion would have been anti-dilutive. Nine Months Ended 12/25/04 12/27/03 -------- -------- Basic Net Earnings Applicable to Common Stock: Net Earnings $5,434 $9,469 Deduct Preferred Cash Dividends 18 18 ------------------- Net Earnings Applicable to Common Stock $5,416 $9,451 =================== Weighted Average Common Shares Outstanding 6,715 6,684 Weighted Average Participating Preferred Shares Outstanding 4,411 4,227 ------------------- Weighted Average Shares Outstanding for Basic Earnings Per Common Share 11,126 10,911 =================== Basic Earnings Per Common Share $ .49 $ .87 =================== Diluted Net Earnings Applicable to Common Stock: Net Earnings Applicable to Common Stock $5,416 $9,451 Add Back Preferred Cash Dividends 15 15 ------------------- Net Earnings Applicable to Common Stock Diluted $5,431 $9,466 =================== Weighted Average Shares Outstanding for Basic Earnings Per Common Share 11,126 10,911 Effect of Convertible Preferred Stock 67 67 ------------------- Weighted Average Shares Outstanding for Diluted Earnings Per Common Share 11,193 10,978 =================== Diluted Earnings Per Common Share $ .49 $ .86 =================== 13. The net periodic benefit cost for pension plans consist of: Nine Months Ended 12/25/04 12/27/03 -------- -------- Service Cost $ 2,531 $ 2,055 Interest Cost 2,957 2,841 Expected Return on Plan Assets (3,896) (3,111) Amortization of Transition Asset (207) (222) Amortization of Net Loss - 525 ------------------ Net Periodic Benefit Cost $1,385 $2,088 ================== During the Nine months Ended December 25, 2004, the Company made contributions of $2,821,000 to its defined benefit pension plans. No other pension contributions are required during 2005. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION RESULTS AND OF OPERATIONS December 25, 2004 Seneca Foods Corporation is primarily a vegetable processing company with manufacturing facilities located throughout the United States. Its products are sold under the Libby's(R), Aunt Nellie's Farm Kitchen(R), Stokely's(R), READ(R), and Seneca(R) labels as well as through the private label and industrial markets. In addition, under an alliance with General Mills Operations, Inc., a successor to the Pillsbury Company and a subsidiary of General Mills, Inc., Seneca produces canned and frozen vegetables, which are sold by General Mills Operations, Inc. under the Green Giant(R) label. The Company's raw product is harvested mainly between May through October. The 2004 planting, harvest and pack was delayed due to weather conditions. This resulted in lower yield and the costs per unit are higher as a result. During the quarter ended September 25, 2004, the Company announced a product recall which resulted in the establishment of a $1,280,000 charge to operations. During the quarter ended December 25, 2004, the Company announced the closure of processing facilities in Walla Walla, Washington and Marion, New York (not including the can manufacturing plant). This resulted in a non-cash impairment charge of $5,710,000 and a severance charge of $94,000 which are included in Plant Restructuring in the Unaudited Condensed Consolidated Statements of Net Earnings. The Walla Walla facility is expected to be sold by December 31, 2005. The Marion facility is going to be used as a warehouse. Results of Operations: Sales: Total sales reflect decreases of 5.7% and 4.9% for the quarter and nine months ended December 25, 2004, respectively, versus the quarter and nine months ended December 27, 2003. The sales decrease for the three month period ended December 25, 2004 primarily reflects sales volume reductions in the Canned Vegetables ($6 million), and Green Giant Alliance ($15 million) areas of the business as reflected in the following comparison (In millions): Three Months Ended Nine Months Ended ------------------ ----------------- 12/25/04 12/27/03 12/25/04 12/27/03 -------- -------- -------- -------- Canned Vegetables $165.8 $172.2 $427.4 $435.1 Green Giant Alliance 119.9 135.4 219.2 245.0 Frozen Vegetables 7.2 7.5 19.7 22.3 Fruit and Chip Products 5.0 4.6 13.5 12.7 Other 8.9 5.6 9.8 9.7 -------------------------------------- $306.8 $325.3 $689.6 $724.8 ====================================== The decrease in Canned Vegetables reflects the discontinuation of a line of contract packing business during the second quarter which accounts for $9 million of the decrease. A planned reduction in the Green Giant Alliance was magnified by the poor sweet corn growing conditions in the Summer of 2004. Operating Income: The following table presents components of operating income as a percentage of net sales: Three Months Ended Nine Months Ended ------------------ ----------------- 12/25/04 12/27/03 12/25/04 12/27/03 -------- -------- -------- -------- Gross Margin 5.5% 5.4% 7.0% 7.4% Selling 2.6 2.8 3.0 3.1 Administrative 0.4 0.3 0.5 0.5 Plant Restructuring 1.9 0.0 0.9 0.0 ------------------------------------ Operating Income 0.6% 2.3% 2.6% 3.8% ==================================== The reduction in operating income for the three month period reflects the plant restructuring charge for the closure of the Marion, New York and Walla Walla, Washington processing facilities totaling $5.8 million. The lower gross margin percentage in the nine months ended December 25, 2004 principally reflects the establishment of a $1,280,000 provision for the product recall announced on September 28, 2004. Income Taxes: The effective tax rate was 39% for the three and nine month periods ended December 25, 2004 and December 27, 2003. Financial Condition: The financial condition of the Company is summarized in the following table and explanatory review (In Thousands):
For the Quarter For the Year Ended December Ended March -------------- ----------- 2004 2003 2004 2003 ---- ---- ---- ---- Working Capital: Balance $197,108 $188,654 $187,764 $172,382 Change in Quarter (804) (2,659) - - Notes Payable 71,049 61,320 - - Long-Term Debt 155,417 175,075 160,987 133,337 Current Ratio 1.94:1 2.18:1 2.18:1 3.42:1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS December 25, 2004 Inventory increased $36.9 million from December 27, 2003. The Inventory increase primarily reflects an $18.8 million increase in finished goods, a $9.5 million increase in raw materials and $8.6 million increase in work in process. The finished goods increase reflects unit cost increases for key commodity inputs including steel and energy. The raw materials increase was primarily due to higher steel prices and quantities compared to the prior year. The work in process increase primarily reflects frozen corn product quantities designated for specific customer contracts. See Unaudited Condensed Consolidated Statements of Cash Flows for further details. As previously reported, during the quarter ended September 25, 2004, pre-tax results include a charge of $1,280,000 related to the previously announced product recall which is included in Cost of Product Sold in the Unaudited Condensed Consolidated Statements of Net Earnings. During the quarter ended December 25, 2004, the Company announced the closure of processing facilities in Walla Walla, Washington and Marion, New York (not including the can manufacturing plant). This resulted in a non-cash impairment charge of $5,710,000 and a severance charge of $94,000 which are included in Plant Restructuring in the Unaudited Condensed Consolidated Statements of Net Earnings. The Walla Walla facility is expected to be sold by December 31, 2005. The Marion facility is going to be used as a warehouse. The closure of the Walla Walla, Washington processing facility coincided with an amendment to the Alliance Agreement with General Mills Operations, Inc. ("GMOI"). Under the above amendment, the Blue Earth, Minnesota facility will be removed from the Alliance Agreement due to a reduction in GMOI volume requirements and will be operated by the Company as a non-Alliance facility. Additionally, GMOI has agreed to reimburse the Company for remaining lease and depreciation costs at the Blue Earth facility which, on a net present value basis, approximate the closure costs associated with the Walla Walla facility. During the quarter ended September 25, 2004, the Company incurred a $619,000 charge for severance expense related to exiting a line of contract packing business which is included in Plant Restructuring in the Unaudited Condensed Consolidated Statements of Net Earnings. In addition, the Company incurred a $682,000 charge for inventory impairment which is also related to exiting the same line of contract packing business and is included in Cost of Product Sold in the Unaudited Condensed Consolidated Statements of Net Earnings. As previously reported, during the quarter ended June 26, 2004, the Company sold its investment in the Class B Common Stock of Moog Inc. for $4,578,000 and recorded a gain of $3,862,000 before income taxes, which is included in Other Income (net) in the Unaudited Condensed Consolidated Statements of Net Earnings. This investment had been classified as Marketable Securities on the Unaudited Condensed Consolidated Balance Sheet at March 31, 2004. On June 24, 2004, the Company issued a mortgage payable to GE Capital for $8 million with an interest rate of 6.35% and a term of 15 years. The proceeds were used to finance new warehouse construction in Janesville and Cambria, Wisconsin. On May 27, 2003, the Company completed its acquisition of Chiquita Processed Foods, L.L.C. ("CPF") from Chiquita Brands International, Inc. The primary reason for the acquisition was to acquire additional production capacity in the Canned Vegetable business. The purchase price totaled $126.1 million plus the assumption of certain liabilities. This acquisition was financed with cash, proceeds from a new $200 million revolving credit facility, and $16.1 million of the Company's Participating Convertible Preferred Stock. The revolving credit facility has a five-year term. During the quarter ended September 27, 2003, the Company refinanced $42.5 million of debt outstanding under the revolving credit facility with new term debt from an insurance company. During the quarter ended June 26, 2004, the Company provided notice to its bank lenders of its intention to reduce the revolving credit facility from $200 million to $150 million and took a non-cash charge of $528,000 reflecting the write-down of the corresponding pro-rata amount of deferred financing costs, which is included in Other Income (net) in the Unaudited Condensed Consolidated Statements of Net Earnings. The $150 million revolving credit facility is expected to satisfy the Company's working capital needs, which has $71,049,000 outstanding as of December 25, 2005. Earnings per share (In thousands, except per share data): Three Months Ended 12/25/04 12/27/03 -------- -------- Basic Net Earnings (Loss) Applicable to Common Stock: Net (Loss) Earnings $(1,513) $1,887 Deduct Preferred Cash Dividends 6 6 ------------------- Net (Loss) Earnings Applicable to Common Stock $(1,519) $1,881 =================== Weighted Average Common Shares Outstanding 6,715 6,715 Weighted Average Participating Preferred Shares Outstanding 4,411 4,411 ------------------- Weighted Average Shares Outstanding for Basic Earnings Per Common Share 11,126 11,126 =================== Basic (Loss) Earnings Per Common Share $ (.14) $ .17 =================== Diluted Net (Loss) Earnings Applicable to Common Stock: Net (Loss) Earnings Applicable to Common Stock $(1,519) $1,881 Add Back Preferred Cash Dividends - 5 ------------------- Net (Loss) Earnings Applicable to Common Stock Diluted $(1,519) $1,886 =================== Weighted Average Shares Outstanding for Basic Earnings Per Common Share 11,126 11,126 Effect of Convertible Preferred Stock - 67 ------------------- Weighted Average Shares Outstanding for Diluted Earnings Per Common Share 11,126 11,193 =================== Diluted (Loss) Earnings Per Common Share $ (.14) $ .17 =================== The effect of convertible preferred stock has not been considered for the quarter ended December 25, 2004 since its inclusion would have been anti-dilutive. Nine Months Ended 12/25/04 12/27/03 -------- -------- Basic Net Earnings Applicable to Common Stock: Net Earnings $5,434 $9,469 Deduct Preferred Cash Dividends 18 18 ------------------- Net Earnings Applicable to Common Stock $5,416 $9,451 =================== Weighted Average Common Shares Outstanding 6,715 6,684 Weighted Average Participating Preferred Shares Outstanding 4,411 4,227 ------------------- Weighted Average Shares Outstanding for Basic Earnings Per Common Share 11,126 10,911 =================== Basic Earnings Per Common Share $ .49 $ .87 =================== Diluted Net Earnings Applicable to Common Stock: Net Earnings Applicable to Common Stock $5,416 $9,451 Add Back Preferred Cash Dividends 15 15 ------------------- Net Earnings Applicable to Common Stock Diluted $5,431 $9,466 =================== Weighted Average Shares Outstanding for Basic Earnings Per Common Share 11,126 10,911 Effect of Convertible Preferred Stock 67 67 ------------------- Weighted Average Shares Outstanding for Diluted Earnings Per Common Share 11,193 10,978 =================== Diluted Earnings Per Common Share $ .49 $ .86 =================== The net periodic benefit cost for pension plans consist of: Nine Months Ended 12/25/04 12/27/03 -------- -------- Service Cost $ 2,531 $ 2,055 Interest Cost 2,957 2,841 Expected Return on Plan Assets (3,896) (3,111) Amortization of Transition Asset (207) (222) Amortization of Net Loss - 525 ------------------ Net Periodic Benefit Cost $1,385 $2,088 ================== During the Nine Months Ended December 25, 2004, the Company made contributions of $2,821,000 to its defined benefit pension plans. No other pension contributions are required during 2005. Seasonality The Company's revenues typically have been higher in the second and third quarters, primarily because the Company sells, on a bill and hold basis, Green Giant canned and frozen vegetables to General Mills Operations, Inc. at the end of each pack cycle. The two largest commodities are peas and corn, which are sold in the second and third quarters, respectively. See the Critical Accounting Policies section below for further details. In addition, our non Green Giant sales have exhibited seasonality with the third quarter generating the highest sales. This quarter reflects increased sales of the Company's products during the holiday period. Forward-Looking Statements Statements that are not historical facts, including statements about management's beliefs or expectations, are forward-looking statements as defined in the Private Securities Litigation Reform Act (PSLRA) of 1995. The Company wishes to take advantage of the "safe harbor" provisions of the PSLRA by cautioning that numerous important factors which involve risks and uncertainties in the future could affect the Company's actual results and could cause its actual consolidated results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company. These factors include, among others: general economic and business conditions; cost and availability of commodities and other raw materials such as vegetables, steel and packaging materials; transportation costs; climate and weather affecting growing conditions and crop yields; leverage and ability to service and reduce the Company's debt; foreign currency exchange and interest rate fluctuations; effectiveness of marketing and trade promotion programs; changing consumer preferences; competition; product liability claims; the loss of significant customers or a substantial reduction in orders from these customers; changes in, or the failure or inability to comply with, U.S., foreign and local governmental regulations, including environmental regulations; and other factors discussed in the Company's filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management's analysis only as the date hereof. The Company assumes no obligation to update forward-looking statements. Critical Accounting Policies In the nine months ended December 25, 2004, the Company sold for cash, on a bill and hold basis, $175,366,000 of Green Giant finished goods inventory to General Mills Operations, Inc. ("GMOI"). At the time of the sale of the Green Giant vegetables to GMOI, title of the specified inventory transferred to GMOI. In addition, the aforementioned finished goods inventory was complete, ready for shipment and segregated from the Company's other finished goods inventory. Further, the Company had performed all of its obligations with respect to the sale of the specified Green Giant finished goods inventory. The seasonal nature of the Company's Food Processing business results in a timing difference between expenses (primarily overhead expenses) incurred and absorbed into product cost. All Off-Season Reserve balances, which essentially represent a contra-inventory account, are zero at fiscal year end. Depending on the time of year, Off-Season Reserve is either the excess of absorbed expenses over incurred expenses to date or the excess of incurred expenses over absorbed expenses to date. Other than the first quarter of each year, absorbed expenses exceed incurred expenses due to timing of production. Trade promotions are an important component of the sales and marketing of the Company's branded products, and are critical to the support of the business. Trade promotion costs, which are recorded as a reduction of net sales, include amounts paid to encourage retailers to offer temporary price reductions for the sale of our products to consumers, amounts paid to obtain favorable display positions in retailers' stores, and amounts paid to retailers for shelf space in retail stores. Accruals for trade promotions are recorded primarily at the time of sale of product to the retailer based on expected levels of performance. Settlement of these liabilities typically occurs in subsequent periods primarily through an authorized process for deductions taken by a retailer from amounts otherwise due to us. As a result, the ultimate cost of a trade promotion program is dependent on the relative success of the events and the actions and level of deductions taken by retailers for amounts they consider due to them. Final determination of the permissible deductions may take extended periods of time. Recently issued accounting standards have been considered by the Company and are not expected to have a material effect on the Company's financial position or results of operations. ITEM 3 Quantitative and Qualitative Disclosures about Market Risk Interest Rate Risk As a result of its regular borrowing activities, the Company's operating results are exposed to fluctuations in interest rates, which it manages primarily through its regular financing activities, which involves borrowing with a combination of floating rate and fixed rate instruments. In connection with the acquisition of CPF, the Company entered into a new $200 million revolving credit facility (subsequently reduced to $150 million) with a five-year term to finance its seasonal working capital requirements. Interest is based on LIBOR plus a spread. Repayment is required at the expiration date of the facility, which is May 27, 2008. Long-term debt represents secured and unsecured debentures, certain notes payable to insurance companies used to finance long-term investments such as business acquisitions, and capital lease obligations. Long-term debt bears interest at fixed and variable rates. Except for the effects of reduction in the revolving credit facility discussed above and the new debt referred to in Management's Discussion of Financial Condition and Results of Operations, Long-Term Debt, Short Term Debt and Short Term Investments are consistent with March 31, 2004. Therefore, refer to the March 31, 2004 report for the table of Interest Rate Sensitivity. Commodity Risk The materials that the Company uses, such as vegetables, steel and packaging materials are commodities that may experience price volatility caused by external factors including market fluctuations, availability, currency fluctuations and changes in governmental regulations and agricultural programs. These events can result in reduced supplies of these materials, higher supply costs or interruptions in our production schedules. If prices of these raw materials increase and the Company is not able to effectively pass such price increases along to its customers, operating income will decrease. The Company has experienced steel commodity price increases recently. Steel represents approximately 17% of our finished goods cost. ITEM 4 Controls and Procedures (a) Disclosure controls and procedures. We evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Our disclosure controls and procedures are the controls and other procedures that we designed to ensure that we record, process, summarize and report in a timely manner the information we must disclose in reports that we file with or submit to the SEC. Kraig H. Kayser, our President and Chief Executive Officer, and Philip G. Paras, our Chief Financial Officer, reviewed and participated in this evaluation. Based on this evaluation, Messrs. Kayser and Paras have concluded that as of the end of our most recent fiscal quarter, our disclosure controls were effective. (b) Internal controls. During the period covered by this report, there have been no changes in our internal controls over financial reporting that have materially affected, or are reasonable likely to materially affect, the Company's internal controls over financial reporting. Section 404 of the Sarbanes-Oxley Act of 2002 requires that management document and test the internal controls over financial reporting and to assert in our Annual Report on Form 10-K for the year ended March 31, 2005, whether the internal controls over financial reporting at March 31, 2005 are effective. Any material weaknesses in internal controls over financial reporting existing at that date will preclude management making a positive assertion that our internal controls are effective. We are currently undergoing a comprehensive effort to document and confirm that our system of internal controls is designed appropriately and operating effectively. Additional documentation and testing requirements identified during our effort have required revisions to be made to extend our scheduled timelines. Should we identify any internal controls deficiencies that we would consider to be material, we would endeavor to implement the required changes and test the revised internal control procedures in order to make a positive assertion as to the effectiveness of the internal controls over financial reporting. There can be no assurance that any material weakness or other deficiency so identified would be resolved in time to permit our management to make a positive assertion that our internal controls are effective as of March 31, 2005 and for our independent auditors to complete the procedures necessary for them to issue an attestation report to this effect prior to the required filing date for our Form 10-K which is June 14, 2005. PART II - OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Unregistered Sales of Equity Securites and Use of Proceeds
Maximum Number (or Total Number of Approximate Dollar Shares Purchased as Value) or Shares Part of Publicly that May Yet Be Total Number of Shares Average Price Paid Announced Plans or Purchased Under the Period Purchased (1) per Share Programs Plans or Programs ------------------- ------------ ----------- ----------- ----------- ---------------------- ---------------------- Class A Class B Class A Class B Common Common Common Common ------------------- ------------ ----------- ----------- ----------- ---------------------- ---------------------- 10/01/04 - 4,500 1,000 $18.50 $18.71 N/A N/A 10/31/04 ------------------- ------------ ----------- ----------- ----------- ---------------------- ---------------------- 11/01/04 - 2,500 1,000 $18.50 $18.51 11/30/04 N/A N/A ------------------- ------------ ----------- ----------- ----------- ---------------------- ---------------------- 12/01/04 - 2,000 - $18.50 - 12/31/04 N/A N/A ------------------- ------------ ----------- ----------- ----------- ---------------------- ---------------------- Total 9,000 2,000 $18.50 $18.61 N/A N/A ------------------- ------------ ----------- ----------- ----------- ---------------------- ---------------------- -------- (1) These purchases were made in open market transactions by the trustees under the Seneca Foods Corporation Employees' Savings Plan and the Seneca Foods, L.L.C. 401(k) Retirement Savings Plan to provide employee matching contributions under the plans.
Item 3. Defaults on Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits 31.1 Certification of Kraig H. Kayser pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) 31.2 Certification of Philip G. Paras pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) 32 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Seneca Foods Corporation (Company) /s/Kraig H. Kayser ----------------------- February 3, 2005 Kraig H. Kayser President and Chief Executive Officer /s/Jeffrey L. Van Riper ------------------------ February 3, 2005 Jeffrey L. Van Riper Controller and Chief Accounting Officer