-----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, V8Aa6cmXTVEP3DILpPvlQk8rdCif5mKy3LPGyFpvCwEj6xz3ohEdwr5CnmWsDHsj QD5jXFYFl5WsRMrvMqGyFA== 0000088948-99-000007.txt : 19990625 0000088948-99-000007.hdr.sgml : 19990625 ACCESSION NUMBER: 0000088948-99-000007 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19990601 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SENECA FOODS CORP /NY/ CENTRAL INDEX KEY: 0000088948 STANDARD INDUSTRIAL CLASSIFICATION: CANNED, FRUITS, VEG & PRESERVES, JAMS & JELLIES [2033] IRS NUMBER: 160733425 STATE OF INCORPORATION: NY FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-01989 FILM NUMBER: 99638619 BUSINESS ADDRESS: STREET 1: 1162 PITTSFORD VICTOR RD CITY: PITTSFORD STATE: NY ZIP: 14534 BUSINESS PHONE: 7163859500 FORMER COMPANY: FORMER CONFORMED NAME: PIERCE S S COMPANY INC DATE OF NAME CHANGE: 19861210 FORMER COMPANY: FORMER CONFORMED NAME: SENECA FOODS CORP DATE OF NAME CHANGE: 19780425 FORMER COMPANY: FORMER CONFORMED NAME: SENECA GRAPE JUICE CORP DATE OF NAME CHANGE: 19710419 10-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the fiscal year-ended March 31, 1998 Commission File Number 0-1989 SENECA FOODS CORPORATION (Exact name of registrant as specified in its charter) New York 16-0733425 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1162 Pittsford-Victor Road, Pittsford, New York 14534 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (716) 385-9500 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered None None Securities registered pursuant to Section 12(g) of the Act: Common Stock Class A, $.25 Par Common Stock Class B, $.25 Par (Title of Class) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained herein, and will not be contained, to best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. X Check mark indicates whether registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. Yes _____ No X The aggregate market value of the Registrant's voting securities held by non-affiliates based on the closing sales price per market reports by the National Market System on June 1, 1998 was approximately $96,606,000. Common shares outstanding as of June 1, 1998 were Class A: 3,143,125, Class B: 2,796,555. Documents Incorporated by Reference: (1) Proxy Statement to be issued prior to June 30, 1998 in connection with the registrant's annual meeting of stockholders (the "Proxy Statement") applicable to Part III, Items 10-13 of Form 10-K. (2) Portions of the Annual Report to shareholders for fiscal year ended March 31, 1998 (the "1998 Annual Report") applicable to Part II, Items 5-8 and Part IV, Item 14 of Form 10-K. TABLE OF CONTENTS FORM 10-K ANNUAL REPORT - FISCAL 1998 SENECA FOODS CORPORATION
PART I. Pages Item 1. Business 1-3 Item 2. Properties 3 Item 3. Legal Proceedings 4 Item 4. Submission of Matters to a Vote of Equity Security Holders 4 PART II. Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters 4 Item 6. Selected Financial Data 4 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 4 Item 8. Financial Statements and Supplementary Data 4 Item 9. Changes in and Disagreements on Accounting and Financial Disclosure 4 PART III. Item 10. Directors and Executive Officers of the Registrant 6 Item 11. Executive Compensation 6 Item 12. Security Ownership of Certain Beneficial Owners and Management 6 Item 13. Certain Relationships and Related Transactions 6 PART IV. Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K 6-9 SIGNATURES 10-11
3 PART I Item 1 Business General Development of Business SENECA FOODS CORPORATION (herein referred to as the "Company") was organized in 1949 and incorporated under the laws of the State of New York. Seneca Foods Corporation purchased six Green Giant(R) vegetable plants from The Pillsbury Company effective February 1, 1995, resulting in vegetable products becoming nearly 80% of Seneca's overall business. Consequently during 1995, Seneca changed its fiscal year-end from July 31 to March 31 to avoid overlapping pack seasons between fiscal years. Therefore, Fiscal 1995 was an eight-month transition period. Financial Information About Industry Segments The Company's business activities are conducted in food and non-food segments. The food segment is food processing. The non-food segment is an air charter service. The air charter service represents 1% of the Company's business and therefore the financial information related to segments is not material. Narrative Description of Business Principal Products and Markets Food Processing The principal products of this segment include grape products, apple products, and vegetables. The products are canned, bottled, and frozen and are sold to retail and institutional markets. The Company has divided the United States into four major marketing sections: Eastern, Southern, Northwestern, and Southwestern. Plant locations in New York, Michigan, North Carolina, and Washington provide ready access to the domestic sources of grapes and apples necessary to support marketing efforts in their respective sections of the country. Vegetable operations are primarily supported by plant locations in New York, Wisconsin, Washington, Idaho, and Minnesota. In addition, the Company operated a mushroom canning facility in Pennsylvania. The following summarizes net sales by major category for the years ended March 31, 1998, 1997, and 1996: 1998 1997 1996 ------------------------------------------------- (In thousands) Vegetable $544,646 $562,265 $330,654 Apple 68,108 93,047 87,585 Grape 18,303 19,605 19,159 Other 69,123 52,017 66,453 ------------------------------------------------ Total $700,180 $726,934 $503,851 ================================================= Other Seneca Flight Operations provides air charter service primarily to industries in upstate New York. Source and Availability of Raw Material Food Processing The Company's food processing plants are located in major vegetable, grape, and apple producing states. Fruits and vegetables are primarily obtained through contracts with growers. Apple concentrate is purchased domestically and abroad to supplement raw fruit purchased under contract. The Company's sources of supply are considered equal or superior to its competition for all of its food products. Seasonal Business Food Processing While individual fruits and vegetables have seasonal cycles of peak production and sales, the different cycles are usually offsetting to some extent. The supply of commodities, current pricing, and expected new crop quantity and quality affect the timing of the Company's sales and earnings. An Off Season Allowance is established during the year to minimize the effect of seasonal production on earnings. Off Season Allowance is zero at fiscal year-end. Backlog Food Processing In the food processing business the end of year sales order backlog is not considered meaningful. Traditionally, larger customers provide tentative bookings for their expected purchases for the upcoming season. These bookings are further developed as data on the expected size of the related national harvests becomes available. In general these bookings serve as a yardstick, rather than as a firm commitment, since actual harvest results can vary notably from early estimates. In actual practice, the Company has substantially all of its expected seasonal production identified to potential sales outlets before the seasonal production is completed. Competition and Customers Food Processing Competition in the food business is substantial with imaginative brand registration, quality service, and pricing being the major determinants in the Company's relative market position. Except for the Seneca apple and grape products and Libby's vegetable products data mentioned below, no reliable statistics are available to establish the exact market position of the Company's own food products. During the past year approximately 19% of the Company's processed foods were packed for retail customers under the Company branded labels of Libby's(R), TreeSweet(R), Blue Boy(R), Aunt Nellie's Farm Kitchen(R), and Seneca(R). About 11% of the processed foods were packed for institutional food distributors and 30% of processed foods were retail packed under the private label of customers. The remaining 40% is sold under the Alliance Agreement with Pillsbury (see note 13 of Item 8, Financial Statements and Supplementary Data). Termination of the Alliance Agreement would have a material adverse effect on the Company taken as a whole. The customers represent a full cross section of the retail, institutional, distributor, and industrial markets and the Company does not consider itself dependent on any single sales source other than sales attributable to the Alliance Agreement. The principal branded products are Seneca Frozen Apple Juice Concentrate, rated the number one seller nationally, Seneca Frozen Natural Grape Juice Concentrate, Seneca applesauce, and Libby's canned vegetable products which rate among the top five national brands. The information under the heading Liquidity and Capital Resources in Management's Discussion and Analysis of Financial Condition and Results of Operations in the 1998 Annual Report is incorporated by reference. Environmental Protection Environmental protection is an area that has been worked on most diligently at each food processing facility. In all locations the Company has cooperated with federal, state, and local environmental protection authorities in developing and maintaining suitable antipollution facilities. In general, pollution control facilities are equal to or somewhat superior to those of our competitors and are within environmental protection standards. The Company does not expect any material capital expenditures to comply with environmental regulations in the near future. The Company is a potentially responsible party with respect to two sites but the Company does not believe the aggregate liability is material. Employment Food processing - Full time 2,534 - Seasonal 420 --------- 2,954 Other 108 --------- 3,062 ========= The Company has six collective bargaining agreements with six union locals covering approximately 536 of its full time employees. The terms of these agreements result in wages and benefits which are substantially the same for comparible positions for the Company's non-union employees. Two collective bargaining agreements expire in calendar 1999. The remaining agreements expire in calendar 2000, 2001, and 2002. Foreign Operations Export sales for the Company are a relatively small portion (about 5%) of the food processing sales. Item 2 Properties The Company has eleven food processing, packaging, and warehousing facilities located in New York State that provide approximately 2,054,000 square feet of food packaging, freezing and freezer storage, and warehouse storage space. These facilities process and package fruit and vegetable products. The Company is a lessee under a number of operating and capital leases for equipment and real property used for processing and warehousing. Five other processing, packaging, and warehousing facilities are located in the states of North Carolina (223,000 square feet), and in Washington (three locations totaling 292,000 square feet). Processing operations in North Carolina are primarily devoted to apple juice products; in Washington, grape juice, apple juice, apple chips, and sauce. Five facilities in Minnesota, one facility in Michigan, one facility in Washington, one facility in Idaho, one facility in Kentucky, and seven facilities in Wisconsin provide approximately 5,459,000 square feet of food packaging, freezing and freezer storage, and warehouse storage space. These facilities process and package various vegetable and fruit products. The facilities are owned by the Company. The Company owns one food distribution facility in Massachusetts totaling approximately 59,000 square feet which is leased out to another company through 2004. Sublease income of $271,000 was received on this facility during the period. In addition the air charter division has a 14,000 square foot facility. All of the properties are well maintained and equipped with modern machinery. All locations, although highly utilized, have the ability to expand as sales requirements justify. Because of the seasonal production cycles the exact extent of utilization is difficult to measure. In certain circumstances the theoretical full efficiency levels are being reached; however, expansion of the number of production days or hours could increase the output by up to 20% for a season. Certain of the Company's facilities are mortgaged to financial institutions to secure long-term debt and capital lease obligations. See Notes 4 and 5 of Item 8, Financial Statements and Supplementary Data, for additional information about the Company's long-term debt and lease commitments. Item 3 Legal Proceedings In the ordinary course of its business, the Company is made a party to certain legal proceedings seeking monetary damages. The Company does not believe that an adverse decision in any of these proceedings would have a material adverse impact on its financial position, results of operations or cash flows. Item 4 Submission of Matters to a Vote of Equity Security Holders No matters were submitted to vote of shareholders during the last quarter of the fiscal period covered by this report. PART II Item 5 Market for the Registrant's Common Stock and Related Security Holder Matters Each class of preferred stock receives preference as to dividend payment and declaration over any common stock. In addition, refer to the information in the 1998 Annual Report, "Shareholder Information and Quarterly Results", which is incorporated by reference. Item 6 Selected Financial Data Refer to the information in the 1998 Annual Report, "Five Year Selected Financial Data", which is incorporated by reference. Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations Refer to the information in the 1998 Annual Report, "Management's Discussion and Analysis of Financial Condition and Results of Operations", which is incorporated by reference. Item 8 Financial Statements and Supplementary Data Refer to the information in the 1998 Annual Report, "Consolidated Financial Statements and Notes thereto including Independent Auditors' Report", which is incorporated by reference. Item 9 Changes in and Disagreements on Accounting and Financial Disclosure None. INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Seneca Foods Corporation Pittsford, New York We have audited the consolidated financial statements of Seneca Foods Corporation and subsidiaries as of March 31, 1998 and 1997, and for each of the three years in the period ended March 31, 1998, and have issued our report thereon dated May 22, 1998 (June 12, 1998 as to Note 4); such consolidated financial statements and report are included in your 1998 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of Seneca Foods Corporation, listed in Item 14 (A)(2). This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/Deloitte & Touche LLP Rochester, New York May 22, 1998 (June 12, 1998 as to Note 4) PART III Item 10 Directors and Executive Officers of the Registrant Item 11 Executive Compensation Item 12 Security Ownership of Certain Beneficial Owners and Management Item 13 Certain Relationships and Related Transactions Information required by Items 10 through 13 will be filed separately with the Commission, pursuant to Regulation 14A, in a definitive proxy statement involving the election of directors which is incorporated herein by reference. PART IV Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K A. Exhibits and Financial Statement Schedules 1. Financial Statement Schedules - the following consolidated financial statements of the Registrant, included in the Annual Report for the year ended March 31, 1998, are incorporated by reference in Item 8: Consolidated Statements of Net Earnings - March 31, 1998, 1997 and 1996 Consolidated Balance Sheets - March 31, 1998 and 1997 Consolidated Statements of Cash Flows - March 31, 1998, 1997 and 1996 Consolidated Statements of Stockholders' Equity - March 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements - March 31, 1998, 1997 and 1996 Independent Auditors' Report Pages 2. Supplemental Schedule: Schedule II -- Valuation and Qualifying Accounts 8 Other schedules have not been filed because the conditions requiring the filing do not exist or the required information is included in the consolidated financial statements, including the notes thereto. 3. Exhibits: No. 3 - Articles of Incorporation and By-Laws - Incorporated by reference to the Company's 10-Q/A filed August, 1995 as amended by the Company's 10-K filed June 1996. No. 4 - Articles defining the rights of security holders - Incorporated by reference to the Company's 10-Q/A filed August, 1995 as amended by the Company's 10-K filed June 1996. Instrument defining the rights of any holder of Long-Term Debt - Incorporated by reference to Exhibit 99 to the Company's 10-Q filed January 1995 as amended by Exhibit No. 4 of the Company's 10-K filed June, 1997, amended by Exhibit 4 of the Company's 10-Q and 10-Q/A filed November, 1997. The Company will furnish, upon request to the SEC, a copy of any instrument defining the rights of any holder of Long-Term Debt. No.10 - Material Contracts - Incorporated by reference to the Company's 8-K dated February 24, 1995 for the First Amended and Restated Alliance Agreement and the First Amended and Restated Asset Purchase Agreement both with The Pillsbury Company. No. 13 - The material contained in the 1998 Annual Report to Shareholders under the following headings: "Five Year Selected Financial Data", "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Consolidated Financial Statements and Notes thereto including Independent Auditors' Report", and "Shareholder Information and Quarterly Results". No. 21 - List of Subsidiaries 9 No. 23 - Consents of Experts and Counsel 9 No. 27 - Financial Data Schedules B. Reports on Form 8-K None. Schedule II VALUATION AND QUALIFYING ACCOUNTS (In thousands)
Balance at Charged to Deductions Balance beginning Charged to other from at end of period income accounts reserve of period ------------------------------------------------------------------- Year-ended March 31, 1998: Allowance for doubtful accounts $ 200 $ 140 $ -- $ 133 (a) $ 207 =================================================================== Year-ended March 31, 1997: Allowance for doubtful accounts $ 165 $ 72 $ -- $ 37 (a) $ 200 =================================================================== Year-ended March 31, 1996: Allowance for doubtful accounts $ 227 $ 52 $ -- $ 114 (a) $ 165 =================================================================== (a) Accounts written off, not of recoveries.
SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SENECA FOODS CORPORATION By /s/ Jeffrey L. Van Riper June 12, 1998 Jeffrey L. Van Riper Controller and Secretary (Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: Signature Title Date /s/Arthur S. Wolcott Chairman and Director June 12, 1998 - -------------------- Arthur S. Wolcott /s/Kraig H. Kayser President, Chief Executive Officer, June 12, 1998 - ------------------ Kraig H. Kayser and Director /s/Philip G. Paras Vice President, Finance June 12, 1998 - ------------------ Philip G. Paras /s/Jeffrey L. Van Riper Controller and Secretary June 12, 1998 - ----------------------- Jeffrey L. Van Riper (Principal Accounting Officer) /s/Robert T. Brady Director June 12, 1998 - ------------------ Robert T. Brady /s/David L. Call Director June 12, 1998 - ---------------- David L. Call Continued Signature Title Date /s/Edward O. Gaylord Director June 12, 1998 - -------------------- Edward O. Gaylord /s/G. Brymer Humphreys Director June 12, 1998 - ---------------------- G. Brymer Humphreys /s/Susan W. Stuart Director June 12, 1998 - ------------------ Susan W. Stuart EX-13 2 1998 ANNUAL REPORT TO SHAREHOLDERS Exhibit 13 Five Year Selected Financial Data Summary of Operations and Financial Condition (In thousands of dollars, except per share data)
(Eight Months) Years ended March 31, and July 31, 1998 1997 1996 1995 1994 1993 --------------------------------------------------------------------------------------------------------------------------------- Net sales $ 703,220 $ 730,135 $ 507,988 $ 234,073 $ 290,185 $ 257,402 --------------------------------------------------------------------------------------------------------------------------------- Operating earnings (before Corporate interest and administrative expense) $ 22,372 $ 44,165 $ 16,418 $ 11,380 18,251 $ 10,029 Earnings(loss) from continuing operations before extraordinary item and cumulative effect of accounting change (5,144) 7,531 (10,147) 1,321 5,274 1,293 Earnings from discontinued operations -- -- -- -- 90 965 Gain on sale of discontinued operations -- -- -- -- 2,273 -- Earnings (loss) before extraordinary item and cumulative effect of accounting change (5,144) 7,531 (10,147) 1,321 7,637 2,258 Extraordinary loss -- -- -- -- (606) -- Cumulative effect of accounting change -- -- -- -- 2,006 -- Net earnings (loss) (5,144) 7,531 (10,147) 1,321 9,037 2,258 --------------------------------------------------------------------------------------------------------------------------------- Basic earnings (loss) from continuing operations per common share $ (.87) $ 1.27 $ (1.81) $ .23 $ .91 $ .21 Basic earnings (loss) per common share before extraordinary item and cumulative effect of accounting change (.87) 1.27 (1.81) .23 1.31 .36 Basic net earnings (loss) per common share (.87) 1.27 (1.81) .23 1.55 .36 --------------------------------------------------------------------------------------------------------------------------------- Working capital $ 112,299 $ 132,351 $ 111,301 $ 138,030 $ 67,591 $ 90,706 Inventories 194,044 158,197 229,759 138,113 98,202 88,181 Net property, plant, and equipment 218,408 207,439 222,720 179,718 78,216 74,089 Total assets 474,926 416,023 523,859 385,502 204,899 208,733 Long-term debt and capital lease obligations 227,858 224,128 226,574 221,480 51,476 72,556 Stockholders' equity 89,125 93,736 90,939 90,821 88,620 84,698 --------------------------------------------------------------------------------------------------------------------------------- Additions to property, plant and equipment $ 15,693 $ 11,650 $ 67,897 $ 26,966 $ 9,384 $ 1,723 Interest expense, net 26,780 28,827 28,157 6,296 6,046 5,834 --------------------------------------------------------------------------------------------------------------------------------- Net earnings/average equity (5.6)% 8.2% (11.2)% 1.5% 10.4% 2.7% Continuing earnings before taxes/sales (1.2)% 1.6% (3.0)% 0.9% 2.8% 0.2% Net earnings/ sales (0.7)% 1.0% (2.0)% 0.6% 3.1% 0.9% Long-term debt/equity 256 % 239% 249 % 244% 58% 86% Current ratio 1.8:1 2.8:1 1.6:1 3.3:1 2.3:1 3.4:1 --------------------------------------------------------------------------------------------------------------------------------- Common stockholder's equity per share $ 14.99 $ 15.77 $ 15.30 $ 16.23 $ 15.83 $ 13.79 Class A National Market System closing price range 18 3/4-15 3/4 18 3/4-14 3/4 20-15 -- -- -- Class B National Market System closing price range 18 1/2-15 1/2 19-14 1/2 22-16 17 3/4-10 1/2 11 3/8-7 3/4 8 3/16-7 3/8 Common cash dividends declared per share -- -- -- -- -- -- Price earnings ratio NM 13.7x NM 74.5x 6.9x 21.5x --------------------------------------------------------------------------------------------------------------------------------- 1995 represents eight months ended March 31 due to a change in the Company's fiscal year end. 1994 and 1993 ended July 31. NM - not meaningful.
Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Because of the food processing segment, the Company's yearly business cycle shows large inventory growth during the summer and fall harvest period. The inventory peaks in the early winter and drops to its minimum level immediately prior to the next pack season (pack refers to canning and freezing of vegetables and certain fruits with each commodity at a certain time during the year which can vary based on weather conditions among other factors) . These peaks are financed through seasonal borrowings whose high and low points essentially correspond with the changes in inventory, or by a reduction in short-term investments. Accordingly, inventory management is key to liquidity. During May 1996 the Company sold its investment in Moog Inc. Class A Common Stock back to Moog. This sale generated cash proceeds of $12.9 million and a pre-tax gain of $7.5 million. During August 1996 the Company sold its Clifton Park, New York facility for cash resulting in net cash proceeds of $4.6 million and a gain of $1.6 million before income tax expense. The Company had leased this facility to a third party. During September 1995 the Company entered into a sale and leaseback transaction whereby three of its wastewater facilities in New York State were sold to the Wayne County Water and Sewer Authority for net proceeds of $9.3 million. During 1995 the Company acquired certain assets of the Green Giant Division of The Pillsbury Company. Under an Alliance Agreement concurrently executed in 1995 by the Company, Pillsbury and Grand Metropolitan Incorporated, Pillsbury continues to be responsible for all of the sales, marketing and customer service functions for the Green Giant brand, while the Company will handle vegetable processing and canning operations. Pillsbury continues to own all the trademark rights to the Green Giant brand and its proprietary seed varieties. The assets acquired included certain raw material and supplies inventory and six manufacturing facilities located in the Midwestern and Northwestern United States. The purchase price of $86.1 million was funded by a subordinated note issued by the Company for $73.0 million and the balance was funded out of working capital. This subordinated note decreased $6.0 million in 1996 as a result of an agreement reached with Pillsbury to convert that amount to the Company's Class A Common Stock. Such conversion was completed in March 1996. The subordinated note increased by $7.6 million in 1997 due to the addition of capital projects that Pillsbury has completed and green bean processing equipment acquired from Pillsbury, which was transferred to the Company. In conjunction with this acquisition, the Company entered into a revolving credit facility for up to $150.0 million (now $130.0 million) from a syndicate of eleven (now eight) banks. In addition, the Company issued two new senior debt notes. The first was a $75.0 million unsecured note issued to The Prudential Insurance Company of America, with repayment due beginning in March 1998, a final maturity date of February 2005, and an interest rate of 10.78% (see Long-Term Debt, note 4). The second was a $50.0 million unsecured note issued to John Hancock Mutual Life Insurance Company, with repayment due beginning in March 2001, a final maturity of January 2009, and an interest rate of 10.81%. The proceeds of these two notes were used to finance the following: 1) capital expenditures of $50.0 million related to the Alliance Agreement with Pillsbury; and 2) repayment of note due an insurance company for $26.6 million. The proceed of these two notes was also used to replenish working capital for the following 1) three acquisitions made over the previous fifteen months totaling $15.6 million; 2) repayment of a note due an insurance company which was repaid in July 1994 for $13.8 million; and 3) the balance, $19.0 million, for capital expenditures made over the previous three years. The three acquisitions were 1) M. C. Snack, Inc. of Yakima, Washington, a snack food maker of apple chips for $3.8 million in August 1994; 2) certain assets of ERLY Juice, Inc. and WorldMark, Inc. and the TreeSweet Brand for $8.4 million in December 1993; and 3) certain assets of Sanofi Bio-Industries for $3.4 million in November 1993. All three acquisitions were funded out of working capital. As mentioned above, during 1995 the Company entered into an unsecured revolving credit agreement for up to $150.0 million (now $130.0 million). Previously, the Company maintained uncommitted lines of credit. Credit lines provide for interest rate options based on Prime, Eurodollar, or Money Market. There were $62.3 million of borrowings outstanding under these lines at the end of 1998, $18.0 million at the end of 1997, and $113.0 million at the end of 1996. The decrease in cash and short-term investments of $22.5 million over the three year period ended in 1998 was primarily due to Aunt Nellie's Farm Kitchens and Curtice Burns acquisitions of $53.7 million, the debt repayments totaling $14.9 million; capital additions of $15.7 million, $11.7 million, and $67.9 million, in 1998, 1997, and 1996, respectively. This was partially offset by the proceeds of the new long-term debt issues totaling $25.7 million; proceeds from the sale of Moog Inc. stock of $12.9 million; proceeds from the disposal of assets totaling $13.5 million; and net earnings (before depreciation effect which is non-cash). In 1998 accounts receivable increased by $12.2 million to $48.6 million. This was due in part to Non-Alliance sales being $87.7 million higher fueled by the two acquisitions (see below). In 1998 inventories increased $35.8 million over 1997. This was largely due to the acquisitions made during the year (see below). In 1997 inventories declined by $71.6 million due to the sales increase on Alliance sales. In 1998 capital expenditures were $15.7 million as compared to $11.7 million in 1997. In 1998 certain juice production lines were converted to PET (plastic bottles) totaling $3.2 million at plants in the south and midwest. The 1997 capital expenditures are down substantially from 1996. The largest project was the green bean expansion in Cumberland related to the Alliance where $4.4 million was spent in 1997. The 1996 capital expenditures of $67.9 million are substantially due to a major capital expansion relating to the Alliance, integrated six of Pillsbury's Green Giant vegetable processing plants and significantly increased the Company's own production capabilities to accommodate the production of four Pillsbury plants that were concurrently closed. This capital expansion was originally expected to be $50.0 million, but to meet our ambitious goals, an additional $25.0 million was spent on this project, primarily in our New York State operations in order to meet operational needs of the Alliance. In 1998 the Company completed two acquisitions. The first acquisition was Aunt Nellie's Farm Kitchens, which produces, markets, and sells fruit and vegetable products from their plants in the midwest, for approximately $24.3 million. The second acquisition was the Curtice Burns canned branded and private label vegetable business for approximately $29.4 million (see Acquisitions, note 10). Results of Operations Net sales for 1998 were $703.2 million, which includes $277.1 million sold under the Alliance with Pillsbury. Net sales for 1997 were $730.1 million, which includes $391.7 million sold under the Alliance with Pillsbury. Net sales for 1996 were $508.0 million, which includes $168.0 million of sales to Pillsbury under the Alliance. In 1998 Non-Alliance sales increase by $87.7 million. In 1997 Non-Alliance sales decreased by $1.6 million. If 1996 net sales are compared with the last full year sales (1994), the increase for the two year period is 22.7% excluding the effect of the Alliance. In 1998 vegetable unit sales increased due to the two acquisitions and the high pack levels of the last two years. Also in 1998 juice dollar sales declined $12.8 million or 7.8%. In 1997 vegetable unit sales increased due to getting higher packs than the prior year. In 1997 vegetable unit prices increased for part of the year but declined later in the year due to excess inventories. In 1996 vegetable unit sales were lower due to a less than budget pack. Unit vegetable selling prices dropped in 1996, while apple pricing rose due to the worldwide shortage of processing apples. The 1997 results include a $7.5 million gain on the sale of Moog Inc. Class A Common Stock back to Moog and a gain on the sale of a Clifton Park, New York warehouse of $1.6 million. The 1996 results include a non-recurring charge of $15.1 million, before income tax benefit, due to a combination of start-up costs related to the Pillsbury Alliance and severe drought conditions in New York State throughout the entire summer. The Company undertook an ambitious capital expenditure program related to the Pillsbury Alliance. In the relatively short time between the February 1995 closing of the Pillsbury Alliance and the beginning of the 1995 vegetable pack, 37 separate major capital projects needed to be completed. There were some unforeseen problems related to a few of these projects, mostly in the New York plants. Some of the used equipment transferred from the closed plants had operating difficulties and were not always easily repaired, thus causing downtime. Therefore, plant throughput and yields were poor at some plants resulting in unfavorable manufacturing variances. The problems were magnified when the drought and the hot weather conditions forced the uneven timing of maturities of vegetables. Although our systems are not equipped to quantify the allocation of the $15.1 million non-recurring charge between start-up costs and drought conditions, we believe the majority of the charge (approximately 75% or $11.3 million) relates to start-up costs. In 1998 earnings decreased for the following reasons: 1) lower selling prices on vegetables due to an ongoing industry oversupply due in part to the second consecutive above budget pack, 2) apple product price declines were greater than apple product cost declines, and 3) a decline in the consumption of frozen concentrates put further pressure on pricing. In 1997 earnings increased for the following reasons: 1) the Moog gain of $7.5 million detailed above, 2) higher vegetable selling prices for part of the year, and 3) greater sales under the Alliance agreement produced additional earnings. In 1996 earnings decreased for the following reasons: 1) the $15.1 million non-recurring charge detailed above, 2) higher apple cost of product sold due to a world-wide shortage of processing apples, and 3) lower selling prices on vegetables due to an ongoing industry oversupply. A deferred tax valuation allowance as of March 31, 1998, was not deemed necessary due to the fact that there was positive evidence that outweighed the negative evidence that it was more likely than not that these tax assets will be realized. While the Company has suffered losses in two of the last three fiscal years, the fiscal 1996 loss was due, in part, to the unusual charge of $15.1 million referred to in the preceding paragraph. The Company does not believe that the recent losses should be considered a trend, and that other evidence, including the fact that the Company has never had a net operating loss expire, should be considered in evaluating whether a valuation allowance is necessary. The Company has properly considered potential sources of future taxable income against which future deductions (deferred assets) may be utilized. One of these sources is existing taxable temporary differences that will reverse in the future. The Company has a large basis and depreciation difference between financial statement balances and tax accounting balances which will result in significant future taxable income when this difference reverses in future years. The reversal of the basis and depreciation difference will enable the Company to utilize their deferred tax assets against this future taxable income. In addition, the Company has properly considered tax planning strategies in determining the need for a valuation allowance. As of March 31, 1998, the Company has identified certain assets that could be sold for a significant gain which will utilize the net operating loss carryforwards and a significant portion of the tax credits, resulting in a realization of the deferred tax assets. In 1996, the Company changed its inventory valuation method from the lower of cost; last-in, first-out; or market to the lower of cost; first-in, first-out; or market. The major reason for the change is the Alliance inventories are on the first-in, first-out method which represent the majority of the Company's inventory dollars. The change has been applied retroactively by restating the financial statements of prior years. In general, inflation played a relatively small role in the operating results and cash flows of 1998, 1997, and 1996 since the Company depreciates its fixed assets under accelerated depreciation methods for tax purposes. New Accounting Pronouncements Three new accounting standards were issued during the past year that the Company must comply with beginning in 1999. They are 1) SFAS No. 130, "Reporting Comprehensive Income", 2) SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", and 3) SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." These standards expand or modify current disclosures and, accordingly, will have no impact on the Company's reported financial position, results of operations and cash flows (see Summary of Significant Accounting Policies, note 1). Year 2000 The Company recognizes the need to ensure its operations will not be adversely impacted by Year 2000 software failures. Software failures due to processing errors potentially arising from calculations using the Year 2000 date are a known risk. The Company is in the process of replacing some systems, which are known not to be Year 2000 compliant, and updating others to be Year 2000 compliant. The Company is addressing the computing environment along with any other systems in the operating facilities, which may also not be Year 2000 compliant. The Company is using internal resources to make systems Year 2000 compliant as much as possible only using external resources for specialized equipment, which is mostly at our plants. The total cost of compliance, above and beyond normal software upgrades, is not expected to exceed $750,000. Consolidated Statements of Net Earnings Seneca Foods Corporation and Subsidiaries (In thousands of dollars, except share amounts)
Years ended March 31, 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------------- Revenue: Net sales $ 703,220 $ 730,135 $ 507,988 Other income -- 8,308 4,271 -------------------------------------------------- 703,220 738,443 512,259 - ------------------------------------------------------------------------------------------------------------------------- Costs and expenses: Cost of product sold 649,841 669,261 452,584 Selling, general, and administrative expense 35,056 28,609 31,640 Interest expense, net of interest income of $109, $185, and $180, respectively 26,780 28,827 28,157 Non-recurring charge -- -- 15,078 -------------------------------------------------- 711,677 726,697 527,459 - ---------------------------------------------------------------------------------------------------------------------------- Earnings (loss) before income taxes (8,457) 11,746 (15,200) Income taxes (3,313) 4,215 (5,053) ------------------------------------------------- Net earnings (loss) $ (5,144) $ 7,531 $ (10,147) ========================================================================================================================== Basic earnings (loss) per common share $ (.87) $ 1.27 $ (1.81) ========================================================================================================================== Diluted earnings (loss) per common share $ (.87) $ 1.25 $ (1.81) ========================================================================================================================== See notes to consolidated financial statements.
Consolidated Balance Sheets Seneca Foods Corporation and Subsidiaries (In thousands)
March 31, 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Assets: Current Assets: Cash and short-term investments $ 4,077 $ 1,584 Accounts receivable, less allowance for doubtful accounts of $207 and $200, respectively 48,647 36,477 Inventories: Finished products 118,067 90,414 In process 25,440 25,357 Raw materials and supplies 50,537 42,426 Refundable income taxes 1,576 -- Deferred tax asset 3,870 6,156 Prepaid expenses 1,680 4,432 -------------------------------------- Total Current Assets 253,894 206,846 - ------------------------------------------------------------------------------------------------------------------------------------ Other Assets 2,624 1,738 - ------------------------------------------------------------------------------------------------------------------------------------ Property, Plant, and Equipment: Land 6,117 5,449 Building 99,708 88,959 Equipment 287,899 261,444 -------------------------------------- 393,724 355,852 Less accumulated depreciation and amortization 175,316 148,413 -------------------------------------- Net Property, Plant, and Equipment 218,408 207,439 ==================================================================================================================================== Total Assets $ 474,926 $ 416,023 ==================================================================================================================================== Liabilities and Stockholders' Equity Current Liabilities: Notes payable $ 62,270 $ 18,000 Accounts payable 46,540 24,435 Accrued expenses 21,210 21,996 Current portion of long-term debt and capital lease obligations 11,575 9,465 Income taxes -- 599 --------------------------------------- Total Current Liabilities 141,595 74,495 Long-Term Debt 219,023 214,848 Capital Lease Obligations 8,835 9,280 Deferred Gain and Other Liabilities 8,750 7,867 Deferred Income Taxes 7,598 15,797 Commitments (Note 5) -- -- -------------------------------------- Total Liabilities 385,801 322,287 - ------------------------------------------------------------------------------------------------------------------------------------ Stockholders' Equity: Preferred stock 70 70 Common stock 2,666 2,666 -------------------------------------- Total Capital Stock 2,736 2,736 Additional paid-in capital 5,913 5,913 Net unrealized gain on available-for-sale securities 1,026 435 Retained earnings 79,450 84,652 -------------------------------------- Total Stockholders' Equity 89,125 93,736 ==================================================================================================================================== Total Liabilities and Stockholders' Equity $ 474,926 $ 416,023 ==================================================================================================================================== See notes to consolidated financial statements.
Consolidated Statements of Cash Flows Seneca Foods Corporation and Subsidiaries (In thousands)
Years ended March 31, 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net earnings (loss) $ (5,144) $ 7,531 $ (10,147) Adjustments to reconcile net earnings (loss) to net cash provided (used) by operations: Depreciation and amortization 28,849 26,338 23,563 Deferred income taxes (6,231) (1,868) (2,215) Gain on the sale of assets -- (8,308) (4,271) Changes in operating assets and liabilities: Accounts receivable (8,083) 14,641 (18,517) Inventories (7,154) 71,562 (91,646) Prepaid expenses 2,907 (3,391) (240) Accounts payable, accrued expenses and other liabilities 18,679 (23,327) 21,376 Income taxes (2,175) 6,653 (3,985) ------------------------------------------------- Net cash provided by (used in) operations 21,648 89,831 (86,082) ------------------------------------------------- Cash flows from investing activities: Acquisitions (53,672) -- -- Additions to property, plant, and equipment (15,693) (11,650) (67,897) Disposals of property, plant, and equipment 135 699 876 Proceeds from sale of common stock of Moog Inc. -- 12,863 -- Proceeds from the sale of assets -- 4,643 8,904 ------------------------------------------------- Net cash provided by (used in) investing activities (69,230) 6,555 (58,117) Cash flows from financing activities: Net (payments) borrowings on notes payable 44,270 (95,000) 113,000 Proceeds from issuance of long-term debt and sale and leaseback 15,106 1,343 9,258 Payments of long-term debt and capital lease obligations (9,266) (2,572) (3,068) Dividends paid (58) -- (12) Other assets 23 130 (220) ------------------------------------------------- Net cash provided by (used in) financing activities 50,075 (96,099) 118,958 Net increase (decrease) in cash and short-term investments 2,493 287 (25,241) Cash and short-term investments, beginning of year 1,584 1,297 26,538 ------------------------------------------------- Cash and short-term investments, end of year $ 4,077 $ 1,584 $ 1,297 =============================================================================================================================== Supplemental disclosures of cash flow information: Cash paid (received) during the year for: Interest $ 28,042 $ 28,751 $ 26,480 Income taxes 5,092 (570) 1,147 Supplemental information of noncash investing and financing activities: In 1997 an additional $7,558 was added to the secured nonrecourse subordinated note in conjunction with the acquisition of additional assets. In 1996 the Company reached an agreement with Pillsbury to convert $6,000 of its subordinated note into the Company's Class A Common Stock. See notes to consolidated financial Statements.
Consolidated Statements of Stockholders' Equity Seneca Foods Corporation and Subsidiaries (In thousands, except share amounts)
Preferred Stock ------------------------------- 6% Class A 10% Cumulative Par Cumulative Par Net Unrealized Value $.25 Value $.025 Class A Class B Additional Gain (Loss) on Callable at Par Convertible Common Stock Common Stock Paid-In Available-For- Retained Voting Voting Par Value $.25 Par Value $.25 Capital Sale Securities Earnings - --------------------------------------------------------------------------------------------------------------------------------- Shares authorized 200,000 1,400,000 10,000,000 10,000,000 - ---------------------------------------------------------------------------------------- Shares issued and outstanding: - ---------------------------------------------------------------------------------------- March 31, 1996 200,000 807,240 3,143,125 2,796,555 ======================================================================================== March 31, 1997 200,000 807,240 3,143,125 2,796,555 ======================================================================================== March 31, 1998 200,000 807,240 3,143,125 2,796,555 ======================================================================================== Balance March 31, 1995 $50 $20 $ -- $1,880 $ -- $ 892 $ 87,979 Net loss -- -- -- -- -- -- (10,147) Cash dividends paid on preferred stock -- -- -- -- -- -- (12) Debt to equity conversion -- -- 87 -- 5,913 -- -- Stock split in the form of a dividend -- -- 699 -- -- -- (699) Net unrealized gain change -- -- -- -- -- 4,277 -- - ---------------------------------------------------------------------------------------------------------------------------------- Balance March 31, 1996 50 20 786 1,880 5,913 5,169 77,121 Net earnings -- -- -- -- -- -- 7,531 Net unrealized gain change -- -- -- -- -- (4,734) -- - ---------------------------------------------------------------------------------------------------------------------------------- Balance March 31, 1997 50 20 786 1,880 5,913 435 84,652 Net loss -- -- -- -- -- -- (5,144) Cash dividends paid on preferred stock -- -- -- -- -- -- (58) Net unrealized gain change -- -- -- -- -- 591 -- - ---------------------------------------------------------------------------------------------------------------------------------- Balance March 31, 1998 $50 $20 $786 $ 1,880 $5,913 $1,026 $ 79,450 ================================================================================================================================== See notes to consolidated financial statements.
Notes to Consolidated Financial Statements Seneca Foods Corporation and Subsidiaries 1. Summary of Significant Accounting Policies Nature of Operations - The Company conducts its business almost entirely in food processing, operating 32 plants and warehouses in eight states. The Company markets branded and private label processed foods to retail customers and institutional food distributors. Principles of Consolidation - The consolidated financial statements include the accounts for the parent Company and all of its wholly-owned subsidiaries after elimination of intercompany transactions, profits, and balances. Revenue Recognition - Sales and related cost of product sold are recognized primarily upon shipment of products. When customers, under the terms of specific orders, request that the Company invoice goods and hold the goods for future shipment, the Company recognizes revenue when legal title to the finished goods inventory passes to the purchaser. Generally the Company receives cash from the purchaser when legal title passes. Concentration of Credit Risk - Financial instruments that potentially subject the Company to credit risk consist of trade receivables and interest-bearing investments. With the exception of the relationship with Pillsbury, wholesale and retail food distributors comprise a significant portion of the trade receivables; collateral is not required. The risk associated with the concentration is limited due to the large number of wholesalers and retailers and their geographic dispersion. The Company places substantially all its interest-bearing investments with financial institutions and monitors credit exposure. Cash and Short-Term Investments - The Company considers all highly liquid instruments purchased with a maturity of three months or less as short-term investments. Inventories - Inventories are stated at lower of cost; first-in, first-out (FIFO); or market. Income Taxes - The provision for income taxes includes federal, foreign, and state income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities. Notes to Consolidated Financial Statements (continued) Earnings per Common Share - Basic earnings per share are calculated on the basis of Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," which the Company adopted in the fourth quarter of 1998. Earnings per common share amounts of all prior years have been restated. The additional shares and dividends were not considered in the diluted calculation below since diluting a loss is not allowed under SFAS No. 128. A reconciliation of basic earnings per share with diluted earnings per share follows:
Years ended March 31 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------- (In thousands, except per share amounts) Basic Net earnings (loss) $ (5,144) $ 7,531 $ (10,147) Deduct preferred stock dividends paid 58 -- 12 --------------------------------------- Basic net earnings (loss) $ (5,202) $ 7,531 $ (10,159) =========================================================================================================== Weighted average common shares outstanding 5,940 5,940 5,622 =========================================================================================================== Basic earnings (loss) per share $ (.87) $ 1.27 $ (1.81) =========================================================================================================== Diluted Basic net earnings (loss) $ (5,202) $ 7,531 $ (10,159) Add dividends on convertible preferred stock -- -- -- --------------------------------------- Net earnings applicable to common stock on a diluted basis $ (5,202) $ 7,531 $ (10,159) =========================================================================================================== Shares used in calculating basic earnings per share above 5,940 5,940 5,622 Additional shares to be issued under full conversion of preferred stock -- 68 -- --------------------------------------- Total shares for diluted 5,940 6,008 5,622 =========================================================================================================== Diluted earnings (loss) per share $ (.87) $ 1.25 $ (1.81) ===========================================================================================================
Depreciation - Property, plant, and equipment is stated at cost or, in the case of capital leases, the present value of future lease payments. For financial reporting, the Company provides for depreciation and capital lease amortization on the straight-line method at rates based upon the estimated useful lives of the various assets. Impairment losses are recognized when the carrying value of an asset exceeds its fair value. The Company regularly assesses all of its long-lived assets for impairment and determined that no impairment loss need be recognized in 1998 and 1997. Use of Estimates in the Preparation of Financial Statements - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the related revenues and expenses during the reporting period. Actual amounts could differ from those estimated. New Accounting Pronouncements: In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." In February 1998, SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" was issued. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components. SFAS No. 131 establishes standards for reporting information about operating segments and related disclosures about products and services, geographic areas and major customers. SFAS No. 132 revises current disclosure requirements for employers' pensions and other retiree benefits. These standards are effective for the Company during 1999. These standards expand or modify current disclosures and, accordingly, will have no impact on the Company's reported financial position, results of operations and cash flows. The Company is assessing the impact of these standards. Reclassifications - Certain previously reported amounts have been reclassified to conform to the current period classification. Notes to Consolidated Financial Statements (continued) 2. Common Stock of Moog Inc. Other assets includes the Company's investment in the Class B Common Stock of Moog Inc., which is carried at fair value. There was a realized gain on the sale of Class A Common Stocks of Moog Inc. of $7,501,000 before income taxes in 1997. There were no realized gains or losses in 1998 and 1996, and gross unrealized holding gains were $1,604,000, $695,000 and $7,832,000, at March 31, 1998, 1997 and 1996, respectively. Notes to Consolidated Financial Statements (continued) 3. Lines of Credit The Company obtains required short-term funds through bank borrowings. At March 31, 1998, the Company had $3,835,963 outstanding for letters of credit and an unsecured revolving line of credit totaling $130,000,000. The line is renewable in 1999 and provides for loans of varying maturities at rate options based on Prime, Eurodollar, or Money Market. This unsecured revolving line of credit provides for various financial covenants. The Company was not in compliance with certain of these financial covenants at March 31, 1998 and is in the process of obtaining waivers from the lending institutions. As of March 31, 1998 and 1997, the amounts borrowed under the revolving line of credit were $62,270,000 and $18,000,000, respectively. The weighted average interest rate on the amounts borrowed during these periods were 7.88% and 7.94%, respectively. Notes to Consolidated Financial Statements (continued) 4. Long-Term Debt
1998 1997 - --------------------------------------------------------------------------------------------------------------------------------- (In thousands) Note payable to insurance company, 10.78%, due through 2005 $ 69,000 $ 75,000 Secured nonrecourse subordinated promissory note, 8.00%, due through 2009 71,583 74,583 Note payable to insurance company, 10.81%, due through 2009 50,000 50,000 Note payable to insurance company, 9.17%, due through 2004 10,000 -- Note payable to bank, 9.17%, due through 2004 5,000 -- Industrial Revenue Development Bonds, 5.60% and 5.47% , due through 2028 22,630 22,630 Other 1,944 1,738 -------------- ----------- 230,157 223,951 Less current portion 11,134 9,103 -------------- ----------- $ 219,023 $214,848 ============== ===========
Certain debt agreements provide various financial covenants including a provision that the Company may pay dividends on any class of stock only from consolidated net earnings available for distribution. There were no earnings available for distribution as of March 31, 1998. The Company was not in compliance with certain of these financial covenants relating to a portion of its Long-Term Debt at March 31, 1998. On June 16, 1998, the Company obtained unconditional waivers from the lending institutions. In addition, the lending institutions have amended, or in one instance, agreed to amend certain financial covenants for 1999 based on the Company's projections, which, if achieved, will permit the Company to be in compliance. The Company has four Industrial Revenue Bonds ("IRB's") totaling $22,630,000 which are backed by direct pay letters of credit. The interest rates in the table above reflect the direct pay letter of credit costs and amortization of other related costs for these IRB's. Debt repayment requirements for the next five fiscal years are: (In thousands) 1999 $11,134 2000 15,773 2001 18,781 2002 20,750 2003 23,746 Notes to Consolidated Financial Statements (continued) 5. Leases The Company leases a portion of its equipment and buildings. Capitalized leases consist primarily of industrial development agency financing instruments and limited obligation special revenue bonds which bear interest rates from 3.55% to 6.75%. Other leases include non-cancelable operating leases expiring at various dates through 2007. During 1996, the Company entered into a sale and leaseback transaction whereby three of its wastewater facilities in New York State were sold for $9,258,000 and leased back under a 20-year lease agreement. This transaction produced a gain of $4,178,000, which was deferred and is being amortized over the 20-year lease period. Leased assets under capital leases consist of the following: 1998 1997 ------------------------------------------------------------------------------ (In thousands) Land $ 160 $ 160 Buildings 1,792 1,792 Equipment 10,359 10,385 ---------------------------------- 12,311 12,337 Less accumulated amortization 4,510 3,519 ================================== $ 7,801 $ 8,818 =============================================================================== The following is a schedule by year of minimum payments due under leases as of March 31, 1998: Operating Capital --------------------------------------------------------------------------- (In thousands) Years ending March 31: 1999 $ 4,490 $ 841 2000 3,466 843 2001 2,901 843 2002 1,863 842 2003 1,406 844 2004-2014 3,017 8,803 ----------------------------- Total minimum payment required $17,143 $ 13,016 ========================================================== Less interest 3,740 -------------- Present value of minimum lease payments 9,276 Amount due within one year 441 -------------- Long-term capital lease obligations $ 8,835 =========================================================================== Aggregate rental expense in 1998, 1997, and 1996 was $10,057,000, $7,881,000, and $7,076,000, respectively. Notes to Consolidated Financial Statements (continued) 6. Income Taxes The Company files a consolidated income tax return. The provision for income taxes includes the following: 1998 1997 1996 ---------------------------------------- (In thousands) Current: Federal $ (485) $3,438 $(3,282) State 170 116 762 ---------------------------------------- (315) 3,554 (2,520) ---------------------------------------- Deferred: Federal (2,509) 465 (1,961) State (489) 196 (572) --------------------------------------- (2,998) 661 (2,533) --------------------------------------- Total income taxes $(3,313) $4,215 $(5,053) ================================================================== At March 31, 1998, the Company has Alternative Minimum Tax Credits in the amount of $5,658,000 to offset future years' regular tax expense, and Research and Development Credits carryforwards in the amount of $298,000, expiring as follows: Year Credit ---- ------ 2007 $125,000 2008 36,000 2009 50,000 2010 31,000 2011 51,000 2012 5,000 ---------- $298,000 ========== The Company has a Federal regular tax net operating loss carryforward of $6,939,000, expiring March 31, 2013, which is available to offset future taxable income. State net operating loss carryforwards of approximately $21,000,000, expiring March 31, 1999, through March 31, 2013, are available to offset future state tax expense. During 1998, the Internal Revenue Service completed an audit of 1994, 1995, and 1996. Audit adjustments related primarily to changes in the timing of deductions for income tax purposes. There was no material impact on the Company's statement of net earnings for 1998. A reconciliation of the expected U.S. statutory rate to the effective rate follows: 1998 1997 1996 - ---------------------------------------------------------------------------- Computed (expected tax rate) (34.0)% 34.0% (34.0)% State income taxes (net of federal tax benefit) (5.0) 1.5 0.8 Other (0.2) 0.4 -- -------------------------------------------- Effective tax rate (39.2)% 35.9% (33.2)% ============================================================================ Notes to Consolidated Financial Statements (continued) The following is a summary of the significant components of the Company's deferred tax assets and liabilities as of March 31, 1998 and 1997: 1998 1997 - ----------------------------------------------------------------------------- (In thousands) Deferred tax liabilities: Basis and depreciation difference $ 20,035 $ 15,916 Inventory valuation 2,172 2,590 Moog investment 577 260 State taxes -- 1,059 ----------------------------------- 22,784 19,825 ----------------------------------- Deferred tax assets: Inventory valuation 2,818 2,974 Future tax credits 6,035 2,357 Net operating loss carry-forwards 3,711 -- Employee benefits 1,775 1,229 Pension 1,805 1,231 Insurance 1,370 703 Deferred gain on sale/leaseback 1,382 1,437 Other 160 253 ----------------------------------- 19,056 10,184 ----------------------------------- Net deferred tax liability $ 3,728 $ 9,641 =============================================================================== Net current deferred tax assets of $3,870,000 as of March 31, 1998 and $6,156,000 as of March 31, 1997 are recognized in the Consolidated Balance Sheets. Also recognized are net non-current deferred tax liabilities of $7,598,000 and $15,797,000 at March 31, 1998 and 1997, respectively. Notes to Consolidated Financial Statements (continued) 7. Stockholders' Equity Preferred Stock - The outstanding 10% cumulative, convertible, voting preferred stock consists of 407,240 Series A shares, convertible at the rate of one common share of Class A and Class B for every twenty preferred shares, and 400,000 Series B shares, which carry a one for thirty conversion rate. The Series A and B shares have a $.25 stated value and a $.025 par value. There are 2,600,000 shares authorized of Class A $.025 par value stock which are unissued and undesignated. In addition there are 30,000 shares of no par stock which are also unissued and undesignated. Common Stock - During 1996 an amendment to the Company's Certificate of Incorporation, which effected a recapitalization of the Company by creating a second class of common stock (which was distributed to all common shareholders as a stock split in the form of a dividend), was adopted. This recapitalization amendment (i) reclassified the existing Common Stock as Class B Common Stock, (ii) authorized a new class of 10,000,000 shares designated as Class A Common Stock and (iii) established the express terms of the Class A Common Stock and the Class B Common Stock. The Class A Common Stock and the Class B Common Stock have substantially identical rights with respect to any dividends or distributions of cash or property declared on shares of common stock and rank equally as to the right to receive proceeds on liquidation or dissolution of the Company after payment of the Company's indebtedness and liquidation right to the holders of preferred shares. However, holders of Class B Common Stock retain a full vote per share whereas the holders of Class A Common Stock have voting rights of 1/20th of one vote per share on all matters as to which shareholders of the Company are entitled to vote. In 1996, the Company reached an agreement with Pillsbury to convert $6,000,000 of its subordinated note into 346,570 shares of the Company's Class A Common Stock. Unissued shares of common stock reserved for conversion privileges were 33,695 of Class A and Class B at March 31, 1998 and 1997. Notes to Consolidated Financial Statements (continued) 8. Retirement Plan The Company has a noncontributory defined benefit pension plan covering all employees who meet certain age entry requirements and work a stated minimum number of hours per year. Annual contributions are made to the Plan sufficient to satisfy legal funding requirements. Pension expense includes the following:
1998 1997 1996 - ------------------------------------------------------------------------------------------------------------- (In thousands) Service cost for benefits earned during the period $ 1,741 $ 1,565 $ 1,336 Interest cost on projected benefit obligation 1,573 1,329 1,210 Actual return on plan assets (6,268) (2,660) (2,372) Net deferral of actuarial gains 4,272 1,027 860 Amortization of net unrecognized gain at August 1, 1987 (276) (276) (276) Amortization of prior service cost 94 94 94 - ------------------------------------------------------------------------------------------------------------- Pension expense $ 1,136 $ 1,079 $ 852 =============================================================================================================
The following table summarizes the funded status and related amounts that are recognized in the consolidated balance sheets: 1998 1997 - ----------------------------------------------------------------------------- (In thousands) Actuarial present value of accumulated benefit obligation: Vested $ 17,948 $ 13,524 Nonvested 688 823 ---------------------------- Total $ 18,636 $14,347 ============================================================================= Plan assets at fair market value, primarily listed stocks and fixed income securities $ 26,881 $ 21,545 Projected benefit obligation 24,031 19,004 ---------------------------- Plan assets in excess of projected benefit obligation 2,850 2,541 Unrecognized gain at transition (3,819) (4,095) Unrecognized prior service cost 406 500 Unrecognized net gain (4,192) (2,565) ---------------------------- Accrued pension liability $ (4,755) $ (3,619) ============================================================================= The projected benefit obligation was determined using an assumed discount rate of 7.4% (8% in 1997 and 1996) and an assumed long-term salary increase rate of 5%. The assumed long-term rate of return on plan assets was 9.5% (8.5% in 1997 and 1996). The Plan holds the Company's common stock with a fair market value of $2,658,000. The Company has an Employees' Savings Plan (401(k)) covering all employees who meet certain age entry requirements and work a stated minimum number of hours per year. Participants may make contributions up to the legal limit. The Company's matching contributions are discretionary. Costs charged to operations for the Company's matching contributions during 1998 amounted to $811,000 for the year and in 1997 amounted to $211,000, which represents four months of the year. Notes to Consolidated Financial Statements (continued) 9. Fair Value of Financial Instruments The carrying amounts and the estimated fair values of the Company's financial instruments, as determined under SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," are summarized as follows:
1998 1997 ----------------------------------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value - ------------------------------------------------------------------------------------------------------------------------------------ (In thousands) Long-term debt, including current portion $230,157 $241,405 $223,951 $225,112 Notes payable 62,270 62,270 18,000 18,000 Class B Common Stock of Moog Inc. 2,320 2,320 1,411 1,411
The estimated fair values were determined as follows: Long-term debt - The quoted market prices for similar debt or current rates offered to the Company for debt with the same maturities. Notes payable - The carrying amount approximates fair value due to the short-term maturity of these instruments. Class B Common Stock of Moog Inc. - Based on quoted market prices. Notes to Consolidated Financial Statements (continued) 10. Acquisitions In 1998 the Company completed two acquisitions. The first was the acquisition of Aunt Nellie's Farm Kitchen from The Pillsbury Company, a subsidiary of Grand Metropolitan Incorporated, for approximately $24 million. Aunt Nellie's Farm Kitchen produces, markets, and sells fruit and vegetable products from plants in the Midwest and its sales were approximately $50 million. The Company purchased the plants, inventories, accounts receivable, and trademarks of the business. This acquisition included $16 million of inventory and $8 million of property, plant, and equipment and was funded primarily out of working capital. The second acquisition was the Comstock canned private label vegetable business from Curtice Burns Foods, a wholly-owned subsidiary of Pro-Fac Cooperative, along with the Blue Boy branded canned vegetable business. The Company purchased two New York plants, related inventories, and certain trademarks. The companies also formed a long-term strategic alliance, combining their New York agricultural departments into one organization. The sales were approximately $40 million. The purchase price was approximately $29 million which included $13 million of inventory and $17 million of property, plant, and equipment, and was funded primarily out of working capital. Both acquisitions were accounted for under the purchase method and, accordingly, the operating results of the acquired businesses have been included in the consolidated operating results since the dates of acquisition. The following is a summary of proforma results as if the acquisitions were made at the beginning of the periods presented: 1998 1997 - ------------------------------------------------------------------------ (Unaudited) (In thousands except per share amounts) Net sales $710,137 $829,870 Net earnings (loss) (5,150) 4,533 Basic earnings (loss) per common share (.88) .76 Notes to Consolidated Financial Statements (continued) 11. Other Income Other income in 1997 consisted of the following: 1) a gain on the sale of the Moog, Inc. common stock of $7,501,000, 2) a gain on the sale of the Clifton Park, New York warehouse of $1,640,000, and 3) a loss on the sale of Eau Claire, Michigan plant of $833,000. Other income in 1996 consisted of the gain on the sale of the Peabody, Massachusetts warehouse totaling $4,271,000. 12. Non-Recurring Charge The 1996 operating results include a non-recurring charge of $15,078,000, before income tax benefit, due to a combination of start-up costs related to the Pillsbury Alliance and severe drought conditions in New York State throughout the entire summer. The Company undertook an ambitious capital expenditure program related to the Pillsbury Alliance. In the relatively short time between the February 1995 closing of the Pillsbury Alliance and the beginning of the 1995 vegetable pack, 37 separate major capital projects needed to be completed. There were some unforeseen problems related to a few of these projects, mostly in the New York plants. Some of the used equipment transferred from the closed plants had operating difficulties and were not always easily repaired, thus causing downtime. Throughput and yields were poor at some plants resulting in unfavorable manufacturing variances. The problems were magnified when the drought and the hot weather conditions forced the uneven timing of maturities of vegetables. 13. Sales Information The Company has an Alliance Agreement with Pillsbury whereby the Company processes canned and frozen vegetables for Pillsbury under the Green Giant brand name. Pillsbury continues to be responsible for all of the sales, marketing and customer service functions for the Green Giant products. During 1998, 1997 and 1996, the Company sold $48,872,000, $205,633,000 and $167,994,000, respectively, of canned and frozen vegetables to Pillsbury, which represented 7%, 28% and 33%, respectively, of net sales. Sales of Green Giant vegetables to purchasers unrelated to Pillsbury in 1998 and 1997 were $228,208,000 and $186,091,000, or 32% and 26% of net sales, respectively. Total net sales in 1998 and 1997 of Green Giant vegetables were $277,080,000 and $391,724,000, or 40% and 54% of net sales, respectively. Independent Auditors' Report To the Board of Directors and Stockholders of Seneca Foods Corporation Pittsford, New York We have audited the accompanying consolidated balance sheets of Seneca Foods Corporation and subsidiaries as of March 31, 1998 and 1997, and the related consolidated statements of net earnings, stockholders' equity, and cash flows for each of the three years in the period ended March 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Seneca Foods Corporation and subsidiaries as of March 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1998 in conformity with generally accepted accounting principles. /s/Deloitte & Touche LLP Deloitte & Touche LLP Rochester, New York May 22, 1998 (June 16, 1998 as to Note 4) Forward-Looking Statements Except for the historical information contained herein, the matters discussed in this annual report are forward-looking statements as defined in the Private Securities Litigation Reform Act (PSLRA) of 1995. The Company wishes to take advantage of the "safe harbor" provisions of the PSLRA by cautioning that numerous important factors which involve risks and uncertainties, including but not limited to economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices, and other factors discussed in the Company's filings with the Securities and Exchange Commission, in the future, could affect the Company's actual results and could cause its actual consolidated results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company. Shareholder Information and Quarterly Results The Company's common stock is traded on The NASDAQ National Stock Market. The 3.1 million of Class A outstanding shares and 2.8 million Class B outstanding shares are owned by 414 and 411 shareholders of record, respectively. The high and low prices of the Company's common stock during each quarter of the past two years are shown below. Class A: 1998 1997 -------------------------------------------- Quarter High Low High Low - ---------------------------------------------------------------------- First $18.75 $16.75 $18.00 $14.75 Second 18.50 16.75 17.75 15.75 Third 18.25 16.50 17.00 15.00 Fourth 17.62 15.75 18.75 15.00 Class B: 1998 1997 -------------------------------------------- Quarter High Low High Low --------------------------------------------------------------------- First $18.50 $16.75 $18.00 $14.50 Second 18.50 16.75 17.75 16.00 Third 18.25 16.50 17.50 15.25 Fourth 17.25 15.50 19.00 15.25 The Company may pay dividends on common stock only from consolidated net earnings available for distribution, which were none as of March 31, 1998. Payment of dividends to common stockholders is made at the discretion of the Company's Board of Directors and depends, among other factors, on earnings, capital requirements, operating and financial condition of the Company. The Company has not declared or paid a common dividend in many years. The following is a summary of the unaudited interim results of operations by quarter:
First Second Third Fourth - ------------------------------------------------------------------------------------------------------------------------ (In thousands, except per share data) Year ended March 31, 1998: Net sales $ 105,078 $ 208,990 $ 275,863 $ 113,289 Gross margin 14,697 15,119 14,220 9,343 Net earnings (loss) 192 187 (1,240) (4,283) Basic earnings (loss) per common share .03 .03 (.21) (.72) Diluted earnings (loss) per common share .03 .03 (.21) (.72) Year ended March 31, 1997: Net sales $ 123,694 $ 159,521 $ 291,188 $ 155,732 Gross margin 14,288 16,327 15,351 14,908 Net earnings (loss) 4,827 2,710 359 (365) Basic earnings (loss) per common share .81 .46 .06 (.06) Diluted earnings (loss) per common share .80 .45 .06 (.06)
Earnings for the fourth quarter have historically reflected adjustments of previously estimated raw material costs and production levels. Due to the dependence on fruit and vegetable yields of the Company's food processing segment, interim costing must be estimated. EX-21 3 Exhibit 21 LIST OF SUBSIDIARIES The following is a listing of subsidiaries 100% owned by Seneca Foods Corporation, directly or indirectly: Name State Marion Foods, Inc. New York Seneca Foods International, Ltd. New York SSP Company, Inc. Massachusetts EX-23 4 Exhibit 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Post-Effective Amendment No. 1 to Registration Statement No. 333-12365 of Seneca Foods Corporation on Form S-8 of our report dated May 22, 1998 (June 16, 1998 as to Note 4), appearing in this Annual Report on Form 10-K of Seneca Foods Corporation for the year ended March 31, 1998. /s/Deloitte & Touche LLP Rochester, New York June 16, 1998 EX-27 5
5 Commercial and Industrial Companies Article 5 of Regulation S-X 1000 12-MOS MAR-31-1998 MAR-31-1998 4077 0 48854 207 194044 253894 393724 175316 474926 141595 227858 0 70 2666 96389 474926 703220 703220 649841 649841 35056 0 26780 (8457) (3313) (5144) 0 0 0 (5144) (.87) (.87)
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