-----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, KQUIp/9H2b3bZyOkDRtAd0BYagf07SCRpQPH6d8utsoSoZyRMIoG9MyDsbj15HvE GfdKVoRABBXSMiQeo69V2w== 0000088948-05-000033.txt : 20051109 0000088948-05-000033.hdr.sgml : 20051109 20051109155137 ACCESSION NUMBER: 0000088948-05-000033 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050901 FILED AS OF DATE: 20051109 DATE AS OF CHANGE: 20051109 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-01989 FILM NUMBER: 051189998 BUSINESS ADDRESS: STREET 1: 3736 SOUTH MAIN STREET CITY: MARION STATE: NY ZIP: 14505 BUSINESS PHONE: 315 926 8100 MAIL ADDRESS: STREET 1: 3736 SOUTH MAIN STREET CITY: MARION STATE: NY ZIP: 14505 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-Q 1 a10q0905.txt 10/1/05 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 October 1, 2005 Commission File Number 0-01989 --------------- ------- Seneca Foods Corporation ------------------------ (Exact name of Company as specified in its charter) New York 16-0733425 -------- ---------- (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 3736 South Main Street, Marion, New York 14505 ---------------------------------------- ----- (Address of principal executive offices) (Zip Code) Company's telephone number, including area code 315/926-8100 ------------ Not Applicable -------------- Former name, former address and former fiscal year, if changed since last report Check mark indicates whether Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------- Indicate by check mark whether the Company is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No ------ ------- Indicate by check mark whether the Company is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X ------ ------ The number of shares outstanding of each of the issuer's classes of common stock at the latest practical date are: Class Shares Outstanding at October 31, 2005 -------------------------------------------- Common Stock Class A, $.25 Par 4,065,959 Common Stock Class B, $.25 Par 2,762,905 PART I ITEM 1 FINANCIAL INFORMATION SENECA FOODS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands of Dollars)
Unaudited 10/1/05 3/31/05 ------- ------- ASSETS Current Assets: Cash and Cash Equivalents $ 4,636 $ 5,179 Accounts Receivable, Net 54,116 43,664 Inventories: Finished Goods 458,729 209,874 Work in Process 62,547 17,168 Raw Materials 33,718 67,428 ------- ------- 554,994 294,470 Off-Season Reserve (Note 2) (85,514) - Deferred Income Tax Asset, Net 5,014 5,669 Assets Held For Sale 634 1,451 Refundable Income Taxes - 1,199 Other Current Assets 3,796 7,192 -------- -------- Total Current Assets 537,676 358,824 Property, Plant and Equipment, Net 154,223 163,290 Other Assets 5,642 2,381 -------- -------- Total Assets $697,541 $524,495 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes Payable $ 67,349 $ 60,733 Accounts Payable 200,847 38,719 Accrued Expenses 42,823 38,271 Income Taxes 657 - Current Portion of Long-Term Debt and Capital Lease Obligations 10,203 15,671 -------- -------- Total Current Liabilities 321,879 153,394 Long-Term Debt 145,540 148,318 Capital Lease Obligations 5,630 5,807 Deferred Income Taxes 8,875 11,125 Other Long-Term Liabilities 13,713 10,042 -------- -------- Total Liabilities 495,637 328,686 -------- -------- Commitments 10% Preferred Stock, Series A, Voting, Cumulative, Convertible, $.025 Par Value Per Share 10 10 10% Preferred Stock, Series B, Voting, Cumulative, Convertible, $.025 Par Value Per Share 10 10 6% Preferred Stock, Voting, Cumulative, $.25 Par Value 50 50 Convertible, Participating Preferred Stock, $12.00 Stated Value 41,265 41,265 Convertible, Participating Preferred Stock, $15.50 Stated Value 13,229 15,000 Common Stock 2,888 2,859 Paid in Capital 17,734 15,992 Retained Earnings 126,718 120,623 -------- -------- Stockholders' Equity 201,904 195,809 -------- -------- Total Liabilities and Stockholders' Equity $697,541 $524,495 ======== ======== 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 ------------------ 10/1/05 9/25/04 ------- ------- Net Sales $ 244,169 $ 220,375 Costs and Expenses: Cost of Product Sold 222,620 203,787 Selling, General, and Administrative 8,343 7,852 Plant Restructuring 1,461 619 ------------------ ----------------- Total Costs and Expenses 232,424 212,258 ------------------ ----------------- Operating Income 11,745 8,117 Other Expense (Income) (net) 1,832 - Interest Expense (net) 3,909 4,110 ------------------ ----------------- Earnings Before Income Taxes 6,004 4,007 Income Taxes 2,317 1,562 ------------------ ----------------- Net Earnings $ 3,687 $ 2,445 ================= ================ Earnings Applicable to Common Stock $ 2,259 $ 1,472 ================= ================ Basic Earnings per Common Share $ .33 $ .22 ================= ================ Diluted Earnings per Common Share $ .33 $ .22 ================= ================ 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)
Six Months Ended ---------------- 10/1/05 9/25/04 ------- ------- Net Sales $ 400,764 $ 385,053 Costs and Expenses: Cost of Product Sold 364,553 353,360 Selling, General, and Administrative 15,470 14,978 Plant Restructuring 1,461 619 ------------------ ----------------- Total Costs and Expenses 381,484 368,957 ------------------ ----------------- Operating Income 19,280 16,096 Other Expense (Income) (net) 1,405 (3,376) Interest Expense (net) 7,929 8,084 ------------------ ----------------- Earnings Before Income Taxes 9,946 11,388 Income Taxes 3,839 4,441 ------------------ ----------------- Net Earnings $ 6,107 $ 6,947 ================= ================ Earnings Applicable to Common Stock $ 3,721 $ 4,186 ================= ================ Basic Earnings per Common Share $ .55 $ .62 ================= ================ Diluted Earnings per Common Share $ .54 $ .62 ================= ================ 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)
Six Months Ended ---------------- 10/1/05 9/25/04 ------- ------- Cash Flows From Operating Activities: Net Earnings $ 6,107 $ 6,947 Adjustments to Reconcile Net Earnings to Net Cash Provided by Operations: Depreciation and Amortization 12,454 14,223 Gain on the Sale of Assets (427) (3,904) Other Expenses 1,832 528 Deferred Income Taxes (1,595) 646 Changes in Working Capital: Accounts Receivable (10,089) (13,363) Inventories (260,524) (194,923) Off-Season Reserve 85,514 41,380 Other Current Assets 3,396 1,248 Refundable Income Taxes 1,856 361 Accounts Payable, Accrued Expenses, and Other Liabilities 167,319 147,466 ------------------ ----------------- Net Cash Provided by Operations 5,843 609 ------------------ ----------------- Cash Flows From Investing Activities: Additions to Property, Plant, and Equipment (5,431) (11,278) Proceeds from the Sale of Assets 625 5,622 ------------------ ----------------- Net Cash Used in Investing Activities (4,806) (5,656) ------------------ ----------------- Cash Flows From Financing Activities: Borrowings on Notes Payable 148,491 122,071 Payments on Notes Payable (141,875) (123,121) Proceeds from Issuance of Long-Term Debt 83 8,767 Payments of Long-Term Debt and Capital Lease Obligations (8,506) (2,867) Other 239 25 Dividends (12) (12) ------------------ ----------------- Net Cash (Used in) Provided by Financing Activities (1,580) 4,863 ------------------ ----------------- Net Decrease in Cash and Cash Equivalents (543) (184) Cash and Cash Equivalents, Beginning of Period 5,179 4,570 ------------------ ----------------- Cash and Cash Equivalents, End of Period $ 4,636 $ 4,386 ================== ================== 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) October 1, 2005 1. Unaudited Condensed Consolidated Financial Statements In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, which are normal and recurring in nature, necessary to present fairly the financial position of the Company as of October 1, 2005 and results of its operations and its cash flows for the interim periods presented. All significant intercompany transactions and accounts have been eliminated in consolidation. The March 31, 2005 balance sheet was derived from the audited consolidated financial statements. The results of operations for the three and six month periods ended October 1, 2005 are not necessarily indicative of the results to be expected for the full year. In the six months ended October 1, 2005, the Company sold for cash, on a bill and hold basis, $79,088,000 ($66,875,000 for the six-months ended September 25, 2004) of Green Giant finished goods inventory to General Mills Operations, Inc. ("GMOI"). At the time of the sale of the Green Giant vegetables to GMOI, title to the specified inventory transferred to GMOI. In addition, the aforementioned finished goods inventory was complete, ready for shipment and segregated from the Company's other finished goods inventory. Further, the Company had performed all of its obligations with respect to the sale of the specified Green Giant finished goods inventory. In the three months ended October 1, 2005, the Company recorded a change in estimate related to the reduction in estimated exposure to health care expenses which increased Earnings Before Income Taxes and Net Earnings by $296,000 and $182,000, respectively. This change in estimate also increased Basic Earnings Per Share and Diluted Earnings Per Share by $.02. The change in estimate together with the previously reported health care estimate change for the first quarter resulted in an increase in Earnings Before Income Taxes and Net Earnings of $1,276,000 and $784,000, respectively. The change in estimate also increased the first half of 2006 Basic Earnings Per Share and Diluted Earnings Per Share by $.07. The accounting policies followed by the Company are set forth in Note 1 to the Company's Consolidated Financial Statements in the 2005 Seneca Foods Corporation Annual Report and Form 10-K. Other footnote disclosures normally included in annual financial statements prepared in accordance with U. S. generally accepted accounting principles have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes included in the Company's 2005 Annual Report and Form 10-K. 2. The seasonal nature of the Company's food processing business results in a timing difference between expenses (primarily overhead expenses) incurred and absorbed into product cost. All Off-Season Reserve balances, which essentially represent a contra-inventory account, are zero at fiscal year end. Depending on the time of year, Off-Season Reserve is either the excess of absorbed expenses over incurred expenses to date or the excess of incurred expenses over absorbed expenses to date. Other than the first quarter of each year, absorbed expenses exceed incurred expenses due to timing of production. 3. Comprehensive income equaled Net Earnings for the three months ended October 1, 2005 and September 25, 2004 and the six months ended October 1, 2005. Comprehensive income consisted of Net Earnings and Net Unrealized Gains on Securities classified as available-for-sale for the three months ended June 26, 2004. The following table provides the results for the periods presented:
Three Months Ended Six Months Ended ------------------ ---------------- 10/1/05 9/25/04 10/1/05 9/25/04 ------- ------- ------- ------- Net Earnings $3,686 $2,445 $6,107 $6,947 Other Comprehensive Earnings, Net of Tax: Net Reclassification of Accumulated Other Comprehensive Income - - - (2,356) Net Unrealized Gains on Investment - - - 32 ---------------------------------------------------------------------- Comprehensive Income $3,686 $2,445 $6,107 $4,623 ======================================================================== The securities were sold during the quarter ended June 26, 2004.
4. In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151, Inventory Costs - An Amendment of ARB No. 43, Chapter 4. This statement amends ARB No. 43, Chapter 4, Inventory Pricing, to clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) should be recognized as current-period charges. Additionally, SFAS 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The Company is required to adopt SFAS 151 effective April 1, 2006. The Company is currently evaluating the effect that the adoption of SFAS 151 will have on its consolidated financial statements and the impact has not yet been determined. 5. During the quarter ended October 1, 2005, as of result of a detailed review of property, plant and equipment at each plant, the Company recorded a non-cash loss on disposal of property and equipment of $1,832,000 which was included Other Expense (Income) (net) in the Unaudited Condensed Consolidated Statements of Net Earnings. 6. During the quarter ended October 1, 2005, the Company announced the phase out of the labeling operation within the leased distribution facility in Salem, Oregon which resulted in a restructuring charge of $1,461,000. The restructuring charge consisted of a provision for future lease payments of $1,016,000, a cash severance charge of $368,000, and a non-cash impairment charge of $77,000. With the closure of the Walla Walla facility in the fall of 2004, the Company's labeling and warehousing requirements at the Salem location were dramatically reduced. The Company intends to use a portion of the facility for warehousing and will attempt to sublease the remaining unutilized portion of the facility until the February 2008 expiration of the lease. 7. During the quarter ended December 25, 2004, the Company announced the closure of a processing facility in Walla Walla, Washington. This facility was sold during the quarter ended October 1, 2005 for $514,000 in cash and a $3,550,000 note which carries an interest rate of 8% and is due in full May 14, 2007. This Note is secured by a mortgage on the property. The Company accounted for the sale under the installment method. During the quarter ended July 2, 2005, $427,000 of the gain was included in Other Income and an additional $2,819,000 of the gain on this sale was deferred. 8. The following table summarizes the restructuring and related asset impairment charges recorded and the accruals established:
Long-Lived Severance Asset Charges Other Costs Total --------- ------------- ----------- ----- Total expected restructuring charge $ 1,094 $5,037 $3,008 $9,139 ============================================================================= Balance March 31, 2005 $ 256 $1,599 $1,992 $3,847 Second quarter charge 368 77 1,016 1,461 Disposal of assets - (1,676) - (1,676) Cash payments (216) - (149) (365) ---------------------------------------------------------------------------- Balance October 1, 2005 $ 408 $ - $2,859 $3,267 ============================================================================ Total costs incurred to date $ 686 $5,037 $ 149 $5,872 ============================================================================
The restructuring costs above relate to the phase out of the labeling operation of the leased distribution facility in Salem, Oregon, the closure of corn plants in Wisconsin and Washington and a green bean plant in upstate New York plus the removal of canned meat production from a plant in Idaho. The corn plant in Washington has been sold. The restructuring is complete in the Idaho plant and the New York plant. The Wisconsin plant is closed and is expected to be sold within a year. The remaining severance costs are expected to be incurred prior to March 31, 2006. The other costs relate to outstanding lease payments which will be paid over the remaining lives of the corresponding lease terms, which are up to six years. 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 Expense (Income) (net) in the Unaudited Condensed Consolidated Statements of Net Earnings. 10. Earnings per share (In thousands, except per share data):
Three Months Ended ------------------ 10/1/05 9/25/04 ------- ------- Basic Net Earnings Applicable to Common Stock: Net Earnings $3,687 $2,445 Deduct Preferred Cash Dividends 6 6 ----------------------------- Undistributed Earnings $3,681 $2,439 Earnings allocated to participating preferred 1,422 967 ---------------------------- Earnings allocated to common shareholders $2,259 $1,472 ============================= Weighted Average Shares Outstanding for Basic Earnings Per Common Share 6,829 6,714 ============================ Basic Earnings Per Common Share $ .33 $ .22 ============================ Diluted Net Earnings Applicable to Common Stock: Net Earnings Applicable to Common Stock $2,259 $1,472 Add Back Preferred Cash Dividends related 5 5 to convertible preferred stock ----------------------------- Net Earnings Applicable to Common Stock Diluted $2,264 $1,477 ============================= Weighted Average Shares Outstanding for Basic Earnings Per Common Share 6,829 6,714 Effect of Convertible Preferred Stock 67 67 ---------------------------- Weighted Average Shares Outstanding for Diluted Earnings Per Common Share 6,896 6,781 ============================ Diluted Earnings Per Common Share $ .33 $ .22 ============================= Six Months Ended ---------------- 10/1/05 9/25/04 ------- ------- Basic Net Earnings Applicable to Common Stock: Net Earnings $6,107 $6,947 Deduct Preferred Cash Dividends 12 12 ------------------------------ Undistributed Earnings $6,096 $6,936 Earnings allocated to participating preferred 2,375 2,750 ----------------------------- Earnings allocated to common shareholders $3,721 $4,186 ============================= Weighted Average Shares Outstanding for Basic Earnings Per Common Share 6,791 6,714 ============================= Basic Earnings Per Common Share $ .55 $ .62 ============================ Diluted Net Earnings Applicable to Common Stock: Net Earnings Applicable to Common Stock $3,721 $4,186 Add Back Preferred Cash Dividends related to 10 10 convertible preferred stock ----------------------------- Net Earnings Applicable to Common Stock Diluted $3,731 $4,196 ============================= Weighted Average Shares Outstanding for Basic Earnings Per Common Share 6,791 6,714 Effect of Convertible Preferred Stock 67 67 ---------------------------- Weighted Average Shares Outstanding for Diluted Earnings Per Common Share 6,858 6,781 ============================ Diluted Earnings Per Common Share $ .54 $ .62 =============================
10. The net periodic benefit cost for pension plans consist of: Six Months Ended ---------------- 10/1/05 9/25/04 ------- ------- Service Cost $ 1,786 $ 1,121 Interest Cost 2,147 2,010 Expected Return on Plan Assets (2,755) (2,611) Amortization of Transition Asset (138) (138) Amortization of Net Gain - 325 ----------------- Net Periodic Benefit Cost $1,040 $707 ================= During the Six Months Ended October 1, 2005, the Company made no contributions to its defined benefit pension plans. No pension contributions are required during 2006. 11. During June 2005, there were 114,242 shares of Participating Convertible Preferred Stock converted to Class A Common Stock. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION RESULTS AND OF OPERATIONS October 1, 2005 Seneca Foods Corporation is primarily a vegetable processing company with manufacturing facilities located throughout the United States. Its products are sold under the Libby's(R), Aunt Nellie's Farm Kitchen(R), Stokely's(R), READ(R), and Seneca(R) labels as well as through the private label and industrial markets. In addition, under an alliance with General Mills Operations, Inc. (GMOI), a successor to the Pillsbury Company and a subsidiary of General Mills, Inc., Seneca produces canned and frozen vegetables, which are sold by General Mills Operations, Inc. under the Green Giant(R) label. The Company's raw product is harvested mainly between May through October. The Company has experienced favorable growing conditions this summer and early fall reflecting a combination of adequate heat units and moisture. These beneficial growing conditions will likely result in improved crop yields and plant recovery rates, and further result in favorable manufacturing variances. During fiscal 2005, the Company implemented a restructuring program which principally involved the closure of three processing facilities, including a green bean plant in upstate New York and corn plants in Wisconsin and Washington. The Company believes that the rationalization of the Company's productive capacity will: (1) improve the Company's overall cost structure and competitive position; (2) address the excess capacity situation arising from the recent acquisition of Chiquita Processed Foods and decline in GMOI volume requirements; and (3) mitigate the effect of inflationary pressures on the Company's raw material inputs such as steel and fuel. During the quarter ended October 1, 2005, the Company announced the phase out of the labeling operation within the leased distribution facility in Salem, Oregon which resulted in a restructuring charge of $1,461,000. The restructuring charge consisted of a provision for future lease payments of $1,016,000, a cash severance charge of $368,000, and a non-cash impairment charge of $77,000. With the closure of the Walla Walla, Washington facility in the fall of 2004, the Company's labeling and warehousing requirements at the Salem location were dramatically reduced. The Company intends to use a portion of the facility for warehousing and will attempt to sublease the remaining unutilized portion of the facility until the February 2008 expiration of the lease. During the quarter ended July 2, 2005, the recently closed Walla Walla, Washington processing facility was sold for $514,000 in cash and a $3,550,000 note which carries an interest rate of 8% and is due in full on May 14, 2007. This Note is secured by a mortgage on the property. The Company accounted for the sale under the installment method. During the quarter ended July 2, 2005, $427,000 of the gain was included in Other Income and an additional $2,819,000 of the gain on this sale was deferred. The fiscal 2006 asparagus harvest, completed in the first quarter, represented a partial pack as GMOI is in process of moving the production of asparagus offshore from the Dayton, Washington manufacturing facility. As fiscal 2006 represents the final year of operation for the Dayton, Washington facility, the Company and GMOI are in process of negotiating a definitive agreement related to the pending closure of this facility. Results of Operations: Sales: Second quarter results include Net Sales of $244.2 million, which represent a 10.8% increase from the second quarter of fiscal 2005. The sales increase primarily reflects the acceleration of sales under the Green Giant Alliance resulting from favorable growing conditions in the current year. Six months ended October 1, 2005 include Net Sales of $400.8 million, which represent a 4.1% increase of $15.7 million compared to the prior year. The sales increase reflects the aforementioned increase in second quarter Green Giant Alliance sales together with a $3.2 million increase in Fruit and Chip Product sales reflecting increased co-pack potato chip volume associated with improved market conditions. These increases were partially offset by a $7.2 million decrease in Canned Vegetable sales reflecting a planned reduction in contract packing volume and limited availability of certain vegetable commodities following the difficult 2004 growing season. The following table presents the changes by business:
Three Months Ended Six Months Ended ------------------ ---------------- 10/1/05 9/25/04 10/1/05 9/25/04 ------- ------- ------- ------- Canned Vegetables $134.4 $140.1 $253.1 $260.3 Green Giant Alliance 94.1 67.2 117.6 99.4 Frozen Vegetables 6.6 6.7 13.0 12.6 Fruit and Chip Products 5.9 4.7 11.4 8.2 Other 3.2 1.6 5.7 4.6 ------------------------------------------------------ $244.2 $220.3 $400.8 $385.1 ======================================================
Operating Income: The following table presents components of Operating Income as a percentage of Net Sales:
Three Months Ended Six Months Ended ------------------ ---------------- 10/1/05 9/25/04 10/1/05 9/25/04 ------- ------- ------- ------- Gross Margin 9.0% 7.5% 9.0% 8.3% Selling 2.9 2.9 3.1 3.3 Plant Restructuring 0.6 0.3 0.4 0.2 Administrative 0.7 0.6 0.7 0.6 --------------------------------------------------- Operating Income 4.8% 3.7% 4.8% 4.2% ===================================================
For the three month period ended October 1, 2005, the operating income margin increased from 3.7% to 4.8% reflecting a combination of improved margins in the retail businesses as compared to the prior year, and the continuing improved profitability in Fruit and Chip Products resulting from strong volume increases in our co-pack potato chip business. These factors were partially offset by the restructuring charge of $1,461,000 related to the leased distribution center in Salem, Oregon and lower margins on Frozen Vegetables due to competitive market conditions. For the six month period ended October 1, 2005, the operating income margin increased from 4.2% to 4.8% reflecting improved margins in the retail businesses as compared to the prior year, a $1,276,000 reduction in estimated exposure to health care expenses, elimination of the unprofitable contract packing business in Payette, Idaho and improved profitability in Fruit and Chip Products resulting from strong volume increases in our co-pack potato chip business. These factors were partially offset by a combination of compressed margins in our canned food service business due to competitive market conditions, the restructuring charge of $1,461,000 related to the leased distribution center in Salem, Oregon, and an increase in administrative expense driven by our Sarbanes-Oxley compliance efforts. The health expense adjustment relates to a change in estimate of the accrual for the incurred but not recorded liability. Income Taxes: The effective tax rate was 38.6% and 39.0% for the three and six month periods ended October 1, 2005 and September 25, 2004, respectively. Earnings Per Share (In thousands, except per share data):
Three Months Ended ------------------ 10/1/05 9/25/04 ------- ------- Basic Net Earnings Applicable to Common Stock: Net Earnings $3,687 $2,445 Deduct Preferred Cash Dividends 6 6 ----------------------------- Undistributed Earnings $3,681 $2,439 Earnings allocated to participating preferred 1,422 967 ---------------------------- Earnings allocated to common shareholders $2,259 $1,472 ============================= Weighted Average Shares Outstanding for Basic Earnings Per Common Share 6,829 6,714 ============================ Basic Earnings Per Common Share $ .33 $ .22 ============================ Diluted Net Earnings Applicable to Common Stock: Net Earnings Applicable to Common Stock $2,259 $1,472 Add Back Preferred Cash Dividends related 5 5 to convertible preferred stock ----------------------------- Net Earnings Applicable to Common Stock Diluted $2,264 $1,477 ============================= Weighted Average Shares Outstanding for Basic Earnings Per Common Share 6,829 6,714 Effect of Convertible Preferred Stock 67 67 ---------------------------- Weighted Average Shares Outstanding for Diluted Earnings Per Common Share 6,896 6,781 ============================ Diluted Earnings Per Common Share $ .33 $ .22 ============================= Six Months Ended ---------------- 10/1/05 9/25/04 ------- ------- Basic Net Earnings Applicable to Common Stock: Net Earnings $6,107 $6,947 Deduct Preferred Cash Dividends 12 12 ------------------------------ Undistributed Earnings $6,096 $6,936 Earnings allocated to participating preferred 2,375 2,750 ----------------------------- Earnings allocated to common shareholders $3,721 $4,186 ============================= Weighted Average Shares Outstanding for Basic Earnings Per Common Share 6,791 6,714 ============================= Basic Earnings Per Common Share $ .55 $ .62 ============================ Diluted Net Earnings Applicable to Common Stock: Net Earnings Applicable to Common Stock $3,721 $4,186 Add Back Preferred Cash Dividends related to 10 10 convertible preferred stock ----------------------------- Net Earnings Applicable to Common Stock Diluted $3,731 $4,196 ============================= Weighted Average Shares Outstanding for Basic Earnings Per Common Share 6,791 6,714 Effect of Convertible Preferred Stock 67 67 ---------------------------- Weighted Average Shares Outstanding for Diluted Earnings Per Common Share 6,858 6,781 ============================ Diluted Earnings Per Common Share $ .54 $ .62 =============================
Liquidity and Capital Resources: The financial condition of the Company is summarized in the following table and explanatory review (In Thousands): September March --------- ----- 2005 2004 2005 2004 ---- ---- ---- ---- Working Capital: Balance $215,797 $197,912 $205,430 $187,764 Change in Quarter 6,504 3,282 - - Notes Payable 67,349 57,345 60,733 58,395 Long-Term Debt 151,170 160,883 154,125 160,987 Current Ratio 1.67:1 1.64:1 2.34:1 2.18:1
As shown in the Condensed Consolidated Statements of Cash Flows, Cash Provided by Operating Activities was $5,843,000 in the first half of 2006, compared to $609,000 in the first half of 2005. This represents an increase in cash generation of $5,234,000. The increase in cash generation is primarily as a result of improved operating earnings in the first half of 2006 of $19.3 million as compared to $16.1 million in the first half of 2005. In addition, as compared to September 25, 2004 Inventory increased $45.7 million (net of the Off Season Reserve increase, which is contra inventory, of of $44.1 million). The Inventory increase primarily reflects a $30.7 million increase (net of the Off Season Reserve increase) in Finished Goods, a $20.2 million increase in Work in Process and $5.2 million decrease in Raw Materials. The Finished Goods increase reflects a larger and earlier harvest this year, together with unit cost increases for key commodity inputs including steel and energy. The Work in Process and Raw Materials increases were primarily due to higher steel prices and quantities compared to the prior year. This Inventory increase was largely offset by a corresponding increase in accounts payable. Cash Used in Investing Activities was $4,806,000 in the first half of 2006 compared to $5,656,000 in the first half of 2005. Additions to Property, Plant and Equipment were $5,431,000 in the first half of fiscal 2006 as compared to $11,278,000 in the first half of fiscal 2005. The additions in fiscal 2005 included warehouse expansion projects totaling $6,159,000. In 2006, there were no significant capital projects. As previously reported, during the quarter ended June 26, 2004, the Company sold its investment in the Class B Common Stock of Moog Inc. for $4,578,000 and recorded a gain of $3,862,000 before income taxes, which is included in Other Income (net) in the Unaudited Condensed Consolidated Statements of Net Earnings. Cash Used in Financing Activities was $1,580,000 in the first half of 2006, principally consisting of the repayment of $8,506,000 in Long-Term Debt partially offset by the issuance of $6,616,000 in Notes Payable. Cash Provided by Financing Activities of $4,863,000 in the first half of 2005 principally included $8,767,000 in proceeds from Long-Term Debt. On June 24, 2004, the Company issued a mortgage payable to GE Capital for $8 million with an interest rate of 6.35% and a term of 15 years. The proceeds were used to finance new warehouse construction in Janesville and Cambria, Wisconsin. In connection with the acquisition of Chiquita Processed Foods, the Company entered into a $200 million revolving credit facility (subsequently reduced to $125 million at the request of the Company) with a five-year term to finance its seasonal working capital requirements. During the first quarter, the Company and its lenders extended the term of the Revolver for an additional year with a final maturity date of May 27, 2009. We believe that cash flows from operations and availability under our Revolver will provide adequate funds for our working capital needs, planned capital expenditures, and debt service obligations for at least the next 12 months. The Company's credit facilities contain various financial covenants. At October 1, 2005, the Company was in compliance with all such financial covenants. Seasonality The Company's revenues typically have been higher in the second and third quarters, primarily because the Company sells, on a bill and hold basis, Green Giant canned and frozen vegetables to General Mills Operations, Inc. at the end of each pack cycle. The two largest commodities are peas and corn, which are sold in the second and third quarters, respectively. See the Critical Accounting Policies section below for further details. In addition, our non Green Giant sales have exhibited seasonality with the third quarter generating the highest sales. This quarter reflects increased sales of the Company's products during the holiday period. Forward-Looking Statements Statements that are not historical facts, including statements about management's beliefs or expectations, are forward-looking statements as defined in the Private Securities Litigation Reform Act (PSLRA) of 1995. The Company wishes to take advantage of the "safe harbor" provisions of the PSLRA by cautioning that numerous important factors which involve risks and uncertainties in the future could affect the Company's actual results and could cause its actual consolidated results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company. These factors include, among others: general economic and business conditions; cost and availability of commodities and other raw materials such as vegetables, steel and packaging materials; transportation costs; climate and weather affecting growing conditions and crop yields; leverage and ability to service and reduce the Company's debt; foreign currency exchange and interest rate fluctuations; effectiveness of marketing and trade promotion programs; changing consumer preferences; competition; product liability claims; the loss of significant customers or a substantial reduction in orders from these customers; changes in, or the failure or inability to comply with, U.S., foreign and local governmental regulations, including environmental regulations; and other factors discussed in the Company's filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management's analysis only as the date hereof. The Company assumes no obligation to update forward-looking statements. Critical Accounting Policies In the six months ended October 1, 2005, the Company sold for cash, on a bill and hold basis, $79,088,000 of Green Giant finished goods inventory to General Mills Operations, Inc. ("GMOI"). At the time of the sale of the Green Giant vegetables to GMOI, title of the specified inventory transferred to GMOI. In addition, the aforementioned finished goods inventory was complete, ready for shipment and segregated from the Company's other finished goods inventory. Further, the Company had performed all of its obligations with respect to the sale of the specified Green Giant finished goods inventory. The seasonal nature of the Company's Food Processing business results in a timing difference between expenses (primarily overhead expenses) incurred and absorbed into product cost. All Off-Season Reserve balances, which essentially represent a contra-inventory account, are zero at fiscal year end. Depending on the time of year, Off-Season Reserve is either the excess of absorbed expenses over incurred expenses to date or the excess of incurred expenses over absorbed expenses to date. Other than the first quarter of each year, absorbed expenses exceed incurred expenses due to timing of production. Trade promotions are an important component of the sales and marketing of the Company's branded products, and are critical to the support of the business. Trade promotion costs, which are recorded as a reduction of net sales, include amounts paid to encourage retailers to offer temporary price reductions for the sale of our products to consumers, amounts paid to obtain favorable display positions in retailers' stores, and amounts paid to retailers for shelf space in retail stores. Accruals for trade promotions are recorded primarily at the time of sale of product to the retailer based on expected levels of performance. Settlement of these liabilities typically occurs in subsequent periods primarily through an authorized process for deductions taken by a retailer from amounts otherwise due to us. As a result, the ultimate cost of a trade promotion program is dependent on the relative success of the events and the actions and level of deductions taken by retailers for amounts they consider due to them. Final determination of the permissible deductions may take extended periods of time. Recently issued accounting standards have been considered by the Company and are not expected to have a material effect on the Company's financial position or results of operations. ITEM 3 Quantitative and Qualitative Disclosures about Market Risk In the ordinary course of business, the Company is exposed to various market risk factors, including changes in general economic conditions, competition and raw material pricing and availability. In addition the Company is exposed to fluctuations in interest rates, primarily related to its revolving credit facility. To manage interest rate risk, the Company uses both fixed and variable interest rate debt. There have been no material changes to the Company's exposure to market risk since March 31, 2005. ITEM 4 Controls and Procedures As previously reported in our Annual Report on Form 10-K for the year ended March 31, 2005, we concluded that, as of March 31, 2005, our disclosure controls and procedures were not effective in alerting management prior to the end of a reporting period to all material information required to be included in our periodic filings with the SEC because we identified that we had a material weakness in the design of internal controls over financial reporting because we had insufficient controls to review the application of accounting principles over the determination and calculation of asset impairments in accordance with FAS 144, insufficient controls over the calculation and review of accrued promotion expense, and insufficient controls over the selection and monitoring of key assumptions supporting accounting estimates. An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended) as of the end of the period covered by this report. Our disclosure controls and procedures have been designed to ensure that information we are required to disclose in our reports that we file with the SEC under the Exchange Act is recorded, processed and reported on a timely basis. During the six months ended October 1, 2005, the Company implemented controls and procedures to address the material weaknesses identified as of March 31, 2005 and believes that these controls and procedures will correct the material weaknesses discussed above. We plan to test these control procedures during the third quarter to determine their effectiveness. However, pending completion of our testing of these controls, we have not concluded that our disclosure controls and procedures are effective in alerting management prior to the end of a reporting period to all material information required to be included in our periodic filings with the SEC. Except as discussed above, there were no changes in the Company's internal control over financial reporting during its most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect its internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. PART II - OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Unregistered Sales of Equity Securites and Use of Proceeds
- ------------------- ------------------------ ----------------------- ---------------------- ---------------------- Maximum Number (or Total Number of Approximate Dollar Shares Purchased as Value) or Shares Part of Publicly that May Yet Be Total Number of Shares Average Price Paid Announced Plans or Purchased Under the Period Purchased (1) per Share Programs Plans or Programs - ------------------- ------------------------ ----------------------- ---------------------- ---------------------- Class A Class B Class A Class B Common Common Common Common - ------------------- ------------ ----------- ----------- ----------- ---------------------- ---------------------- 7/01/05 - 7/31/05 9,500 - $16.17 - N/A N/A - ------------------- ------------ ----------- ----------- ----------- ---------------------- ---------------------- 8/01/05 - 8/31/05 9,000 - $16.15 - N/A N/A - ------------------- ------------ ----------- ----------- ----------- ---------------------- ---------------------- 9/01/05 - 9/30/05 - - - - N/A N/A - ------------------- ------------ ----------- ----------- ----------- ---------------------- ---------------------- Total 18,500 - $16.16 - 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 At the Company's Annual Meeting of Shareholders, held on August 5, 2005, the following matters were submitted for voting to shareholders: 1. Election of Directors -- The shareholders re-elected Robert T. Brady, G. Brymer Humphreys, and Arthur S. Wolcott to serve until the 2008 Annual Meeting of Shareholders or until their successors are duly elected and qualified (the terms of Arthur H. Baer, Andrew M. Boas, Thomas Paulson, Douglas F. Brush, Kraig H. Kayser, and Susan W. Stuart continued after the meeting). Director Votes For Votes Withheld -------- --------- -------------- Robert T. Brady 3,235,952 61,223 G. Brymer Humphreys 3,300,577 41,078 Arthur S. Wolcott 3,300,107 41,548 2. Ratification of Auditors -- The shareholders failed to ratify the appointment of Ernst & Young LLP as the Company's independent registered public accounting firm for the for the fiscal year ending March 31, 2006. For 1,380,554 Against 1,960,490 Abstain 611 Pursuant to the Rules and Regulations of the Securities and Exchange Commission, the Audit Committee has the direct responsibility to appoint, retain, terminate, fix the compensation and oversee the work of the Company's independent registered public accounting firm. Consequently, the Audit Committee will consider the results of the shareholder vote on ratification, but will exercise its judgment, consistent with its primary responsibility, on the appointment and retention of the Company's independent auditors. 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 ------------------------ November 9, 2005 Kraig H. Kayser President and Chief Executive Officer /s/Jeffrey L. Van Riper ------------------------ November 9, 2005 Jeffrey L. Van Riper Controller and Chief Accounting Officer EX-31 3 ex31110q0905.txt KHK EXHIBIT 31.1 CERTIFICATION I, Kraig H. Kayser, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Seneca Foods Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Dated: November 9, 2005 By: /s/Kraig H. Kayser --------------------------------- Kraig H. Kayser President and Chief Executive Officer EX-31 4 ex31210q0905.txt PGP EXHIBIT 31.2 CERTIFICATION I, Philip G. Paras, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Seneca Foods Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Dated: November 9, 2005 By: /s/Philip G. Paras -------------------------------- Philip G. Paras Chief Financial Officer EX-32 5 ex3210q0905.txt EXHIBIT 32 CERTIFICATION PURSUANT TO 18. U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Seneca Foods Corporation (the"Registrant") on Form 10-Q for the period ended October 1, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Kraig H. Kayser, Chief Executive Officer and Philip G. Paras, Chief Financial Officer of the Registrant, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that, to our knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. /s/Kraig H. Kayser ------------------- Kraig H. Kayser Chief Executive Officer November 9, 2005 /s/ Philip G. Paras --------------------- Philip G. Paras Chief Financial Officer November 9, 2005 -----END PRIVACY-ENHANCED MESSAGE-----