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

For the Quarter Ended September 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 October 31, 2009
Common Stock Class A, $.25 Par	8,456,193
Common Stock Class B, $.25 Par	2,187,088

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
		September 26, 2009				September 27, 2008				March 31, 2009
ASSETS
Current Assets:
Cash and Cash Equivalents		$	9,694			$	11,661			$	5,849
Accounts Receivable, Net			82,854				80,647				76,713
Inventories (Note 2):
Finished Goods			730,677				634,461				270,481
Work in Process			7,516				5,742				24,280
Raw Materials and Supplies			78,727				60,482				98,194
Off-Season Reserve (Note 3)			(88,800	)			(52,211	)
Total Inventories			728,120				648,474				392,955
Deferred Income Tax Asset, Net			5,744				6,838				6,449
Refundable Income Taxes			-				4,849				-
Other Current Assets			10,669				1,774				5,966
Total Current Assets			837,081				754,243				487,932
Property, Plant and Equipment, Net			179,267				177,958				179,245
Deferred Income Tax Asset, Net			4,976				1,004				6,692
Other Assets			1,426				2,040				1,736
Total Assets		$	1,022,750			$	935,245			$	675,605
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable		$	331,561			$	293,932			$	60,019
Other Accrued Expenses			36,209				35,513				35,689
Accrued Vacation			9,769				9,702				9,843
Accrued Payroll			10,898				6,610				9,771
Income Taxes Payable			3,952				-				1,579
Current Portion of Long-Term Debt			38,297				10,301				38,949
Total Current Liabilities			430,686				356,058				155,850
Long-Term Debt, Less Current Portion			240,525				268,890				191,853
Other Long-Term Liabilities			40,054				28,567				45,477
Total Liabilities			711,265				653,515				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			1,589				35,599				35,580
Convertible, Participating Preferred Stock, $15.50
Stated Value Per Share			5,344				8,595				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			3,844				3,079				3,080
Additional Paid-in Capital			65,028				28,479				28,546
Treasury Stock, at cost			(257	)			-				(257	)
Accumulated Other Comprehensive Loss			(13,627	)			(3,621	)			(19,160	)
Retained Earnings			224,312				184,347				200,813
Stockholders' Equity			311,485				281,730				282,425
Total Liabilities and Stockholders’ Equity		$	1,022,750			$	935,245			$	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								Six Months Ended
		September 26, 2009				September 27, 2008				September 26, 2009				September 27, 2008
Net Sales		$	323,205			$	315,418			$	553,733			$	532,131
Costs and Expenses:
Cost of Product Sold			284,707				286,614				479,298				487,465
Selling and Administrative			16,071				17,743				32,851				33,607
Other Operating Income			(31	)			(12	)			(31	)			(283	)
Total Costs and Expenses			300,747				304,345				512,118				520,789
Operating Income			22,458				11,073				41,615				11,342
Interest Expense			2,546				3,611				5,183				7,363
Earnings Before Income Taxes			19,912				7,462				36,432				3,979
Income Taxes			7,487				3,097				12,921				1,691
Net Earnings		$	12,425			$	4,365			$	23,511			$	2,288
Earnings Applicable to Common Stock		$	10,879			$	2,722			$	17,632			$	1,422
Basic Earnings per Common Share		$	1.02			$	0.36			$	1.94			$	0.19
Diluted Earnings per Common Share		$	1.02			$	0.36			$	1.92			$	0.19

SENECA FOODS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
		Six Months Ended
		September 26, 2009				September 27, 2008
Cash Flows from Operating Activities:
Net Earnings		$	23,511			$	2,288
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operations:
Depreciation & Amortization			10,883				10,949
Gain on the Sale of Assets			(38	)			(283	)
Deferred Tax (Benefit) Expense			(1,080	)			39
Changes in operating assets and liabilities:
Accounts Receivable			(6,141	)			(18,635	)
Inventories			(423,965	)			(304,999	)
Off-Season Reserve			88,800				52,211
Other Current Assets			(4,703	)			5,076
Income Taxes			2,337				3,459
Accounts Payable, Accrued Expenses
and Other Liabilities			276,491				241,633
Net Cash Used in Operations			(33,905	)			(8,262	)
Cash Flows from Investing Activities:
Additions to Property, Plant and Equipment			(10,561	)			(10,004	)
Proceeds from the Sale of Assets			47				367
Net Cash Used in Investing Activities			(10,514	)			(9,637	)
Cash Flow from Financing Activities:
Long-Term Borrowing			234,633				176,752
Payments on Long-Term Debt and Capital Lease Obligations			(186,613	)			(157,760	)
Other			256				258
Dividends			(12	)			(12	)
Net Cash Provided by Financing Activities			48,264				19,238
Net Increase in Cash and Cash Equivalents			3,845				1,339
Cash and Cash Equivalents, Beginning of the Period			5,849				10,322
Cash and Cash Equivalents, End of the Period		$	9,694			$	11,661

 

 

 

2.

The Company implemented the Last-In, First-Out (“LIFO”) inventory valuation method during 2008.  First-In, First-Out (“FIFO”) based inventory costs exceeded LIFO based inventory costs by $95,927,000 as of September 26, 2009.  The increase in the LIFO Reserve for the first six months of fiscal 2010 ended September 26, 2009 was $9,429,000 as compared to $24,572,000 for the first six months ended September 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 six-month period ended September 26, 2009, there were 3,057,419 shares, or $37,218,000, of Convertible Participating Preferred Stock converted to Class A Common Stock and 573,815 shares, or $143,000, 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 for the three months and six months periods ended September 26, 2009 and September 27, 2008 (In thousands):

		Three Months Ended			Six Months Ended
		September 26, 2009		September 27, 2008	September 26, 2009		September 27, 2008
	Comprehensive Income:
	Net Earnings	$12,425		$4,365	$23,511		$2,288
	Change in 401(k) stock adjustment (net of tax)	(67)		15	56		15
	Change in pension and post retirement benefits   adjustment (net of tax)	-		-	5,476		-
	Total	$12,358		$4,380	$29,043		$2,303

6.	The changes in the Stockholders’ Equity accounts for the six months period ended September 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			-				-				-				-				-				23,511
Cash dividends paid
on preferred stock			-				-				-				-				-				(12	)
Equity incentive program			-				-				28				-				-				-
Stock conversions			(37,218	)			764				36,454				-				-				-
Change in pension and post retirement
benefits adjustment (net of tax $3,538)			-				-				-				-				5,533				-
Balance September 26, 2009		$	32,185			$	3,844			$	65,028			$	(257	)		$	(13,627	)		$	224,312

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

		Three Months Ended								Six Months Ended
		September 26, 2009				September 27, 2008				September 26, 2009				September 27, 2008
		(In thousands)
Service  Cost		$	2,315			$	703			$	2,723			$	1,513
Interest Cost			767				1,434				2,312				2,869
Expected Return on Plan Assets			(998	)			(1,475	)			(1,995	)			(2,949	)
Amortization of Actuarial Loss			1,206				-				1,206				-
Amortization of Transition Asset			(69	)			(69	)			(138	)			(138	)
Net Periodic Benefit Cost		$	3,221			$	593			$	4,108			$	1,295

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		$3,928		$11,829
	Balance March 31, 2009		$        -		$250		$1,035		$1,285
	Second Quarter Charge		-		-		19		19
	Cash payments/write offs		-		-		(128)		(128)
	Balance September 26, 2009		$        -		$250		$926		$1,176
	Total costs incurred
	to date		$2,152		$5,499		$3,002		$10,653

9.

During the six months ended September 26, 2009, the Company sold some unused fixed assets which resulted in a gain of $38,000.  During the six months ended September 27, 2008, the Company sold some unused fixed assets which resulted in a gain of $283,000.  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 results of operations or financial position.

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, amends FAS 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.

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 FAS 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 EITF did not have an impact on the Company’s consolidated financial statements.

 

 

 

 

 

 

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

Quarter Periods Ended			Q U A R T E R
September 26, 2009 and September 27, 2008			2009		2008
			(In thousands, except per share amounts)
	Basic
	Net  Earnings	$             12,425		$                4,365
	Deduct preferred stock dividends paid	6		6
	Undistributed earnings	12,419		4,359
	Earnings allocated to participating preferred	1,540		1,637
	Earnings allocated to common shareholders	$             10,879		$                2,722
	Weighted average common shares outstanding	10,640		7,591
	Basis earnings per common share	$                 1.02		$                  0.36
	Diluted
	Earnings allocated to common shareholders	$             10,879		$                2,722
	Add dividends on convertible preferred stock	5		5
	Earnings applicable to common stock on a diluted basis	$             10,884		$                2,727
	Weighted average common shares outstanding-basic	10,640		7,591
	Additional shares issued related to the equity compensation plan	2		1
	Additional shares to be issued under full conversion of preferred stock	67		67
	Total shares for diluted	10,709		7,659
	Diluted Earnings per common share	$                 1.02		$                  0.36

Year-to-date Periods Ended	Y E A R  T O  D A T E
September 26, 2009 and September 27, 2008	2009	2008
	(In thousands, except share amounts)
Basic
Net  Earnings	$               23,511	$           2,288
Deduct preferred stock dividends paid	12	12
Undistributed earnings	23,500	2,277
Earnings allocated to participating preferred	5,868	855
Earnings allocated to common shareholders	$17,632	$           1,422
Weighted average common shares outstanding	9,112	7,591
Basis earnings per common share	$1.94	$0.19
Diluted
Earnings allocated to common shareholders	$               17,632	$           1,422
Add dividends on convertible preferred stock	10	10
Earnings applicable to common stock on a diluted basis	$               17,642	$           1,432
Weighted average common shares outstanding-basic	9,112	7,591
Additional shares issued related to the equity compensation plan	2	1
Additional shares to be issued under full conversion of preferred stock	67	67
Total shares for diluted	9,181	7,659
Diluted Earnings per common share	$1.92	$0.19

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 or about September 30, 2009; (v) provide that the remaining depreciation and lease costs related to certain closed plants will be deducted from that final note payment on or about 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 is filed with this Form 10-Q as Exhibit 10.

The secured subordinated promissory note to GMOL, with a balance of $32.1 million, was scheduled to mature on September 30, 2009 and is, therefore, included in current portion of long-term debt in the Consolidated Balance Sheet.  This debt was paid off, as scheduled, on September 30, 2009, subsequent to the end of the second fiscal quarter.

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 $278,814,000 and an estimated fair value of $276,589,000 as of September 26, 2009.  As of March 31, 2009, the carrying amount was $230,802,000 and the fair value was $228,492,000.

 

 

 

 

		Three Months Ended								Six Months Ended
		September 26, 2009				September 27, 2008				September 26, 2009				September 27, 2008
Canned Vegetables		$	177.6			$	167.8			$	338.9			$	318.4
Green Giant Alliance			74.2				77.2				76.0				80.1
Frozen Vegetables			13.3				10.5				23.2				20.6
Fruit Products			46.6				49.8				93.7				95.8
Snack			6.7				3.4				14.0				7.1
Other			4.8				6.7				7.9				10.1
		$	323.2			$	315.4			$	553.7			$	532.1

		Three Months Ended								Six Months Ended
		September 26, 2009				September 27, 2008				September 26, 2009				September 27, 2008
Gross Margin			11.8	%			9.1	%			13.4	%			8.3	%
Selling			2.8	%			3.5	%			3.2	%			3.8	%
Administrative			2.1	%			2.1	%			2.7	%			2.5	%
Other Operating Income			0.0	%			0.0	%			0.0	%			-0.1	%
Operating Income			6.9	%			3.5	%			7.5	%			2.1	%
Interest Expense			0.8	%			1.1	%			0.9	%			1.4	%

 
 

		September								March
		2009				2008				2009				2008
Working Capital:
Balance		$	406,395			$	398,185			$	332,082			$	370,102
Change in Quarter			90,811				71,621				-				-
Long-Term Debt, Less Current Portion			240,525				268,890				191,853				250,039
Total Stockholders' Equity Per Equivalent
Common Share (see Note)			25.50				23.05				23.13				22.86
Stockholders' Equity Per Common Share			26.24				27.96				28.10				27.66
Current Ratio			1.94				2.12				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
7/01/09 – 7/31/09	6,500	-	$32.44	-	N/A	N/A
8/01/09 – 8/31/09	5,700	-	$26.44	-	N/A	N/A
9/01/09 – 9/30/09	-	-	-	-	N/A	N/A
Total	12,200	-	$29.64	-	N/A	N/A