Seneca Foods Corp - Quarter Report: 2009 December (Form 10-Q)

For the Quarter Ended December 26, 2009

Commission File Number  0-01989

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)

 
 

Class	Shares Outstanding at January 29, 2010
Common Stock Class A, $.25 Par	8,474,095
Common Stock Class B, $.25 Par	2,176,836

PART I FINANCIAL INFORMATION, ITEM 1 FINANCIAL STATEMENTS
SENECA FOODS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Data)
		Unaudited				Unaudited
		December 26,  2009				December 27,  2008				March 31, 2009
ASSETS
Current Assets:
Cash and Cash Equivalents		$	18,233			$	13,637			$	5,849
Accounts Receivable, Net			60,503				83,211				76,713
Inventories (Note 2):
Finished Goods			532,724				480,671				292,248
Work in Process			10,758				5,949				2,513
Raw Materials and Supplies			60,311				52,221				98,194
Off-Season Reserve (Note 3)			(59,099	)			(50,558	)			-
Total Inventories			544,694				488,283				392,955
Deferred Income Tax Asset, Net			6,840				5,275				6,449
Other Current Assets			15,186				6,910				5,966
Total Current Assets			645,456				597,316				487,932
Property, Plant and Equipment, Net			177,976				177,667				179,245
Deferred Income Tax Asset, Net			-				11,319				6,692
Other Assets			1,270				1,887				1,736
Total Assets		$	824,702			$	788,189			$	675,605
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes Payable		$	13,197			$	-			$	-
Accounts Payable			86,028				91,667				60,019
Other Accrued Expenses			38,575				40,312				35,689
Accrued Vacation			9,678				9,591				9,843
Accrued Payroll			6,620				4,328				9,771
Income Taxes Payable			6,853				3,685				1,579
Current Portion of Long-Term Debt			6,231				39,023				38,949
Total Current Liabilities			167,182				188,606				155,850
Long-Term Debt, Less Current Portion			293,856				273,841				191,853
Deferred Income Taxes, Net			4,844				-				-
Other Long-Term Liabilities			28,813				45,247				45,477
Total Liabilities			494,695				507,694				393,180
Commitments
10% Preferred Stock, Series A, Voting, Cumulative,
Convertible, $.025 Par Value Per Share			102				102				102
10% Preferred Stock, Series B, Voting, Cumulative,
Convertible, $.025 Par Value Per Share			100				100				100
6% Preferred Stock, Voting, Cumulative, $.25 Par Value			50				50				50
Convertible, Participating Preferred Stock, $12.00
Stated Value Per Share			1,500				35,595				35,580
Convertible, Participating Preferred Stock, $15.50
Stated Value Per Share			5,344				8,585				8,571
Convertible, Participating Preferred Stock, $24.39
Stated Value Per Share			25,000				25,000				25,000
Common Stock $.25 Par Value Per Share			3,847				3,079				3,080
Additional Paid-in Capital			65,134				28,505				28,546
Treasury Stock, at cost			(257	)			(257	)			(257	)
Accumulated Other Comprehensive Loss			(13,731	)			(18,436	)			(19,160	)
Retained Earnings			242,918				198,172				200,813
Stockholders' Equity			330,007				280,495				282,425
Total Liabilities and Stockholders’ Equity		$	824,702			$	788,189			$	675,605
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								Nine Months Ended
		December 26, 2009				December 27,  2008				December 26, 2009				December 27, 2008
Net Sales		$	447,027			$	463,322			$	1,000,760			$	995,453
Costs and Expenses:
Cost of Product Sold			398,631				414,312				877,929				901,777
Selling and Administrative			16,000				20,489				48,851				54,096
Plant Restructuring			-				901				-				901
Other Operating (Income) Expense			(26	)			49				(57	)			(234	)
Total Costs and Expenses			414,605				435,751				926,723				956,540
Operating Income			32,422				27,571				74,037				38,913
Interest Expense, Net			2,006				3,695				7,189				11,058
Earnings Before Income Taxes			30,416				23,876				66,848				27,855
Income Taxes			11,810				10,040				24,731				11,731
Net Earnings		$	18,606			$	13,836			$	42,117			$	16,124
Earnings Applicable to Common Stock		$	16,306			$	8,636			$	33,361			$	10,056
Basic Earnings per Common Share		$	1.53			$	1.14			$	3.47			$	1.33
Diluted Earnings per Common Share		$	1.52			$	1.13			$	3.44			$	1.32

SENECA FOODS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
		Nine Months Ended
		December 26,  2009				December 27, 2008
Cash Flows from Operating Activities:
Net Earnings		$	42,117			$	16,124
Adjustments to Reconcile Net Earnings to
Net Cash Used in Operations:
Depreciation & Amortization			16,413				16,467
Gain on the Sale of Assets			(62	)			(234	)
Deferred Tax Expense			7,644				832
Changes in operating assets and liabilities:
Accounts Receivable			16,210				(21,199	)
Inventories			(210,838	)			(143,155	)
Off-Season Reserve			59,099				50,558
Other Current Assets			(9,220	)			(60	)
Income Taxes			5,305				11,919
Accounts Payable, Accrued Expenses
and Other Liabilities			17,417				34,011
Net Cash Used in Operations			(55,915	)			(34,737	)
Cash Flows from Investing Activities:
Additions to Property, Plant and Equipment			(14,641	)			(15,124	)
Proceeds from the Sale of Assets			84				393
Net Cash Used in Investing Activities			(14,557	)			(14,731	)
Cash Flow from Financing Activities:
Long-Term Borrowing			408,814				402,428
Payments on Long-Term Debt			(339,529	)			(349,763	)
Borrowing on Notes Payable			13,197				-
Other			386				387
Repurchase of Company Stock			-				(257	)
Dividends			(12	)			(12	)
Net Cash Provided by Financing Activities			82,856				52,783
Net Increase in Cash and Cash Equivalents			12,384				3,315
Cash and Cash Equivalents, Beginning of the Period			5,849				10,322
Cash and Cash Equivalents, End of the Period		$	18,233			$	13,637

 

 

 

2.

The Company implemented the Last-In, First-Out (“LIFO”) inventory valuation method during fiscal 2008.  First-In, First-Out (“FIFO”) based inventory costs exceeded LIFO based inventory costs by $99,895,000 as of December 26, 2009.  The increase in the LIFO Reserve for the first nine months of fiscal 2010 ended December 26, 2009 was $13,396,000 as compared to $41,892,000 for the first nine months ended December 27, 2008.  This reflects the projected impact of reduced inflationary cost increases expected in fiscal 2010 versus fiscal 2009.

3.

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.  These “off-season” variances are reserved for in a contra-inventory account and are included in the inventory section of the Condensed Consolidated Balance Sheets. Depending on the time of year, the off-season reserve is either the excess of absorbed expenses over incurred expenses to date resulting in a credit reserve balance, or the excess of incurred expenses over absorbed expenses to date resulting in a debit reserve balance.  Other than at the end of the first and fourth fiscal quarters of each year, absorbed expenses exceed incurred expenses due to timing of production.  All off-season reserve balances are zero at fiscal year end.

4.	During the nine-month period ended December 26, 2009, there were 3,064,869 shares, or $37,307,000, of Convertible Participating Preferred Stock converted to Class A Common Stock and 579,681 shares, or $145,000, of Class B Common Stock (at par), converted to Class A Common Stock.

As previously disclosed, on July 21, 2009 certain shareholders of the Company closed on the sale of 3,756,332 shares of Class A Common Stock (including the shares sold pursuant to the underwriters' over allotment option) pursuant to an Underwriting Agreement among the Company, the selling shareholders, Merrill Lynch Pierce Fenner & Smith Inc. and Piper Jaffray & Co.  The Company received none of the proceeds of the offering.  During the second quarter of fiscal 2010, 2,607,156 shares, or $31,104,000, of Convertible Participating Preferred Stock and 556,088 shares, or $139,000, of Class B Common Stock (at par), were converted to Class A Common Stock in connection with this secondary stock offering.

5.	The following schedule presents comprehensive income (loss) for the three month and nine month periods ended December 26, 2009 and December 27, 2008 (in thousands):

		Three Months Ended			Nine Months Ended
		December 26, 2009		December 27, 2008	December 26, 2009		December 27, 2008
	Comprehensive income (loss):
	Net earnings	$18,606		$13,836	$42,117		$16,124
	Change in 401(k) stock adjustment (net of tax)	(103)		115	(47)		130
	Change in pension and post retirement benefits   adjustment (net of tax)	-		(14,930)	5,476		(14,930)
	Total	$18,503		$(979)	$47,546		$1,324

6.	The changes in the stockholders’ equity accounts for the nine months period ended December 26, 2009 consist of the following (in thousands):

										Additional								Accumulated Other
		Preferred				Common				Paid-In				Treasury				Comprehensive				Retained
		Stock				Stock				Capital				Stock				Loss				Earnings
Balance March 31, 2009		$	69,403			$	3,080			$	28,546			$	(257	)		$	(19,160	)		$	200,813
Net earnings			-				-				-				-				-				42,117
Cash dividends paid
on preferred stock			-				-				-				-				-				(12	)
Equity incentive program			-				-				48				-				-				-
Stock conversions			(37,307	)			767				36,540				-				-				-
Change in pension and post retirement
benefits adjustment (net of tax $3,471)			-				-				-				-				5,429				-
Balance December 26, 2009		$	32,096			$	3,847			$	65,134			$	(257	)		$	(13,731	)		$	242,918

7.	The net periodic benefit cost for the Company’s pension plan consisted of:

		Three Months Ended								Nine Months Ended
		December 26, 2009				December 27, 2008				December 26, 2009				December 27, 2008
		(In thousands)
Service cost		$	1,346			$	999			$	4,069			$	2,512
Interest cost			1,157				1,435				3,469				4,304
Expected return on plan assets			(997	)			(1,474	)			(2,992	)			(4,423	)
Amortization of actuarial loss			603				-				1,809				-
Amortization of transition asset			(69	)			(69	)			(207	)			(207	)
Net periodic benefit cost		$	2,040			$	891			$	6,148			$	2,186

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
			(In thousands)
	Total expected
	restructuring charge		$2,152		$5,749		$3,926		$11,827
	Balance March 31, 2009		$        -		$250		$1,035		$1,285
	Second quarter charge		-		-		19		19
	Third quarter credit		-		-		(2)		(2)
	Cash payments/write offs		-		-		(192)		(192)
	Balance December 26, 2009		$        -		$250		$860		$1,110
	Total costs incurred
	to date		$2,152		$5,499		$3,066		$10,717

9.	During the nine months ended December 26, 2009 and December 27, 2008, the Company sold some unused fixed assets which resulted in a gain of $62,000 and $234,000, respectively.  Both gains are included in other operating income in the Unaudited Condensed Consolidated Statements of Net Earnings.

10.

In June 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2009-01, Topic 105 – Generally Accepted Accounting Principles – FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, (formerly Statement No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162).  ASU No. 2009-01 establishes the FASB Accounting Standards Codification (“Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”).  All guidance contained in the Codification carries an equal level of authority.  The Codification does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place.  All existing accounting standard documents are superseded and all other accounting literature not included in the Codification is considered nonauthoritative.  The Codification became effective for interim or annual reporting periods ending after September 15, 2009.  We have made the appropriate changes to U.S. GAAP references in our financial statements.

In September 2006, the FASB issued a new standard now codified in ASC 820, “Fair Value Measurements and Disclosures,” (formerly Statement No. 157, Fair Value Measurements), which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.  This standard applies to other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute.  The standard does not require any new fair value measurements and was originally effective beginning January 1, 2008, but was subsequently deferred until January 1, 2009 for nonfinancial assets and nonfinancial liabilities except those items recognized or disclosed at fair value on an annual or more frequently recurring basis.  We applied the fair value measurement and disclosure provisions of the new standard to nonfinancial assets and nonfinancial liabilities effective January 1, 2009.  The application of such was not material to our consolidated financial position and results of operations.

In December 2007, the FASB issued a new standard now codified as ASC 805 (formerly Statement No. 141(R), "Business Combinations"). The standard was designed to further enhance the accounting and financial reporting related to business combinations. The standard establishes principles and requirements for how the acquirer in a business combination (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The standard applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Therefore, the effects of the Company's adoption of the standard will depend upon the extent and magnitude of acquisitions after March 2009.

The FASB issued a new standard now codified as ASC 715 (formerly Statement No. 132(R)-1 issued on December 30, 2008, which amends Statement No. 132(R) "Employers' Disclosures about Pensions and Other Postretirement Benefits"), to expand disclosures in an employer's financial statements about plan assets.  Among other things, the standard requires employers to disclose information regarding the fair value measurements of plan assets that are similar to the disclosures required by ASC 820 (e.g., information regarding the fair value disclosure hierarchy and rollforward of assets measured using Level 3 inputs).  The disclosures about plan assets required by the standard are required for fiscal years ending on or after December 15, 2009.  The Company is currently assessing the impact of the amended standard has on its consolidated financial position and results of operations.

In June 2008, the FASB issued a new standard now codified as ASC 815 (formerly known as Emerging Issues Tax Force (EITF) 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock”). This standard provides guidance in assessing whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock for purposes of determining whether the appropriate accounting treatment falls under the scope of the standard (formerly known as Statement No. 133, “Accounting For Derivative Instruments and Hedging Activities,” and/or EITF 00-19, “Accounting For Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.”) This standard became effective as of the beginning of our 2010 fiscal year. This standard did not have an impact on the Company’s consolidated financial position and results of operations.

 

 

 

 

 

 

11.	Earnings per share for the Quarters and Year-To-Date Periods Ended December 26, 2009 and December 27, 2008 are as follows:

Quarter Ended			Q U A R T E R
December 26, 2009 and December 27, 2008			2009		2008
			(In thousands, except per share amounts)
	Basic
	Net  earnings	$           18,606		$            13,836
	Deduct preferred stock dividends paid	6		6
	Undistributed earnings	18,600		13,830
	Earnings allocated to participating preferred	2,294		5,194
	Earnings allocated to common shareholders	$           16,306		$              8,636
	Weighted average common shares outstanding	10,648		7,587
	Basis earnings per common share	$               1.53		$                1.14
	Diluted
	Earnings allocated to common shareholders	$           16,306		$             8,636
	Add dividends on convertible preferred stock	5		5
	Earnings applicable to common stock on a diluted basis	$           16,311		$             8,641
	Weighted average common shares outstanding-basic	10,648		7,587
	Additional shares issued related to the equity compensation plan	2		-
	Additional shares to be issued under full conversion of preferred stock	67		67
	Total shares for diluted	10,717		7,654
	Diluted earnings per common share	$               1.52		$               1.13

Nine Months Ended		F I S C A L  Y E A R  T O  D A T E
December 26, 2009 and December 27, 2008		2009				2008
		(In thousands, except share amounts)
Basic
Net  earnings		$	42,117			$	16,124
Deduct preferred stock dividends paid			17				17
Undistributed earnings			42,100				16,107
Earnings allocated to participating preferred			8,739				6,048
Earnings allocated to common shareholders		$	33,361			$	10,059
Weighted average common shares outstanding			9,624				7,590
Basis earnings per common share		$	3.47			$	1.33
Diluted
Earnings allocated to common shareholders		$	33,361			$	10,059
Add dividends on convertible preferred stock			15				15
Earnings applicable to common stock on a diluted basis		$	33,376			$	10,074
Weighted average common shares outstanding-basic			9,624				7,590
Additional shares issued related to the equity compensation plan			2				-
Additional shares to be issued under full conversion of preferred stock			67				67
Total shares for diluted			9,693				7,657
Diluted earnings per common share		$	3.44			$	1.32

12.

On September 28, 2009, the Company, GMOL and General Mills, Inc. entered into a Second Amended and Restated Alliance Agreement (the “Alliance Agreement”) pursuant to which certain provisions were modified to (i) amend numerous definitions to reflect current practices and various changes in the administrative and working capital costs included in the calculation of fees payable to the Company under the Alliance Agreement (resulting in a net increase of such components of the calculation); (ii) provide that the tolling fee per standard case paid to the Company shall be modified each year using an index to account for inflation factors, but in no event less than a base tolling fee; (iii) clarify risk allocation for losses related to damage claims not covered by insurance; (iv) require release of GMOL’s lien on certain core plants used by the Company to perform the Services upon the Company’s final note payment to GMOL on September 30, 2009; (v) provide that the remaining depreciation and lease costs related to certain closed plants that reduced the final note payment on September 30, 2009; and (vi) reduce the termination fee and extend the length of the advance notice time period required to terminate the Alliance Agreement without cause.  This Alliance Agreement was filed with the second quarter of Fiscal 2010 Form 10-Q as Exhibit 10.

The secured subordinated promissory note to GMOL, with a balance of $32.1 million, matured on September 30, 2009 and was paid off, as scheduled, on September 30, 2009.

13.

As required by FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” codified in ASC 825, “Financial Instruments,” the Company estimates the fair values of financial instruments on a quarterly basis.  Long-term debt, including current portion had a carrying amount of $300,087,000 and an estimated fair value of $297,873,000 as of December 26, 2009.  As of March 31, 2009, the carrying amount was $230,802,000 and the estimated fair value was $228,492,000.

14.

During the third quarter of fiscal 2010, the Company entered into some interim lease notes which financed down payments for various equipment leases at market rates.  As of December 26, 2009, some of these interim notes had not been converted into operating lease schedules since the equipment was either not delivered or fully installed.  These notes, which total $13,197,000 as of December 26, 2009, are included under notes payable in the accompanying Condensed Consolidated Balance Sheets.  These notes are expected to be converted into lease schedules by the Company’s fiscal year end.

 

 

 

 

		Three Months Ended								Nine Months Ended
		December 26, 2009				December 27, 2008				December 26, 2009				December 27, 2008
Canned Vegetables		$	219.8			$	231.9			$	558.8			$	550.2
Green Giant Alliance			155.9				143.6				231.9				223.8
Frozen Vegetables			11.7				10.1				34.9				30.7
Fruit Products			51.7				66.8				145.4				162.6
Snack			3.7				3.5				17.8				10.6
Other			4.2				7.4				12.0				17.6
		$	447.0			$	463.3			$	1,000.8			$	995.5

		Three Months Ended								Nine Months Ended
		December 26, 2009				December 27, 2008				December 26, 2009				December 27, 2008
Gross margin			10.8	%			10.6	%			12.3	%			9.4	%
Selling			2.1	%			2.7	%			2.8	%			3.3	%
Administrative			1.4	%			1.7	%			2.1	%			2.1	%
Plant restructuring			0.0	%			0.2	%			0.0	%			0.1	%
Other operating income			0.0	%			0.0	%			0.0	%			0.0	%
Operating income			7.3	%			6.0	%			7.4	%			3.9	%
Interest expense			0.4	%			0.8	%			0.7	%			1.1	%

 
 

		December								March
		2009				2008				2009				2008
Working capital:
Balance		$	478,274			$	408,710			$	332,082			$	370,102
Change in quarter			71,879				10,525				-				-
Long-term debt, less current portion			293,856				273,841				191,853				250,039
Total stockholders' equity per equivalent
common share (see Note)			27.02				22.98				23.13				22.86
Stockholders' equity per common share			27.97				27.85				28.10				27.66
Current ratio			3.86				3.17				3.13				4.21

·	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 the Company’s ability to service and reduce its debt;

·	foreign currency exchange and interest rate fluctuations;

·	effectiveness of the Company’s 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 and health and safety regulations; and

·	other risks detailed from time to time in the reports filed by the Company with the SEC.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) or Shares that May Yet Be Purchased Under the Plans or Programs
	Class A Common	Class B Common	Class A Common	Class B Common
10/01/09 – 10/31/09	-	-	-	-	N/A
11/01/09 – 11/30/09	11,900	-	$22.26	-	N/A
12/01/09 – 12/31/09	8,200	-	$23.59	-	N/A
Total	20,100	-	$22.81	-	N/A	486,500