Seneca Foods Corp - Quarter Report: 2010 July (Form 10-Q)

For the Quarter Ended July 3, 2010

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 July 31, 2010
Common Stock Class A, $.25 Par	9,572,709
Common Stock Class B, $.25 Par	2,162,922

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
		July 3,  2010				June 27,  2009				March 31, 2010
ASSETS
Current Assets:
Cash and Cash Equivalents		$	6,544			$	8,575			$	7,421
Accounts Receivable, Net			46,928				59,864				73,460
Inventories (Note 2):
Finished Goods			264,606				186,005				338,891
Work in Process			10,112				7,509				8,176
Raw Materials and Supplies			123,700				155,396				99,397
Off-Season (Note 3)			69,151				66,845				-
Total Inventories			467,569				415,755				446,464
Deferred Income Tax Asset, Net			10,033				6,438				10,032
Other Current Assets			2,555				8,749				2,850
Total Current Assets			533,629				499,381				540,227
Property, Plant and Equipment, Net			179,350				180,687				178,113
Deferred Income Tax Asset, Net			-				3,957				-
Other Assets			861				1,581				993
Total Assets		$	713,840			$	685,606			$	719,333
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable		$	87,084			$	93,264			$	67,674
Other Accrued Expenses			33,622				30,206				32,608
Accrued Vacation			10,046				9,768				10,059
Accrued Payroll			6,810				6,523				12,798
Income Taxes Payable			1,696				5,659				6,122
Current Portion of Long-Term Debt			6,477				38,377				6,356
Total Current Liabilities			145,735				183,797				135,617
Long-Term Debt, Less Current Portion			187,199				170,309				207,924
Deferred Income Taxes, Net			2,452				-				3,085
Other Long-Term Liabilities			38,297				32,377				37,697
Total Liabilities			373,683				386,483				384,323
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			1,217				35,564				1,217
Convertible, Participating Preferred Stock, $15.50
Stated Value Per Share			4,856				8,535				4,856
Convertible, Participating Preferred Stock, $24.39
Stated Value Per Share			-				25,000				25,000
Common Stock $.25 Par Value Per Share			4,118				3,082				3,861
Additional Paid-in Capital			90,705				28,609				65,910
Treasury Stock, at cost			(257	)			(257	)			(257	)
Accumulated Other Comprehensive Loss			(15,198	)			(13,561	)			(15,030	)
Retained Earnings			254,464				211,899				249,201
Stockholders' Equity			340,157				299,123				335,010
Total Liabilities and Stockholders’ Equity		$	713,840			$	685,606			$	719,333
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
			July 3, 2010	June 27, 2009
Net Sales			$       219,942	$           230,528
Costs and Expenses:
Cost of Product Sold			194,658	194,591
Selling and Administrative			15,239	16,780
Other Operating (Income) Expense			(76)	-
Total Costs and Expenses			209,821	211,371
Operating Income			10,121	19,157
Interest Expense, Net			1,936	2,637
Earnings Before Income Taxes			8,185	16,520
Income Taxes			2,910	5,434
Net Earnings			$              5,275	$            11,086
Earnings Applicable to Common Stock			$              4,792	$              6,920
Basic Earnings per Common Share			$                0.43	$               0.91
Diluted Earnings per Common Share			$                0.43	$               0.91

SENECA FOODS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
		Three Months Ended
		July 3, 2010				June 27, 2009
Cash Flows from Operating Activities:
Net Earnings		$	5,275			$	11,086
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operations:
Depreciation & Amortization			5,547				5,401
Gain on the Sale of Assets			(76	)			-
Deferred Tax Expense			(634	)			(755	)
Changes in operating assets and liabilities:
Accounts Receivable			26,532				16,849
Inventories			48,046				44,045
Off-Season			(69,151	)			(66,845	)
Other Current Assets			295				(2,783	)
Income Taxes			(4,319	)			4,002
Accounts Payable, Accrued Expenses
and Other Liabilities			14,678				20,375
Net Cash Provided by Operations			26,193				31,375
Cash Flows from Investing Activities:
Additions to Property, Plant and Equipment			(6,638	)			(6,661	)
Proceeds from the Sale of Assets			76				-
Net Cash Used in Investing Activities			(6,562	)			(6,661	)
Cash Flow from Financing Activities:
Long-Term Borrowing			45,043				48,255
Payments on Long-Term Debt			(65,647	)			(70,371	)
Other			108				128
Dividends			(12	)			-
Net Cash Used in Financing Activities			(20,508	)			(21,988	)
Net (Decrease) Increase in Cash and Cash Equivalents			(877	)			2,726
Cash and Cash Equivalents, Beginning of the Period			7,421				5,849
Cash and Cash Equivalents, End of the Period		$	6,544			$	8,575

 

 

 

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 $93.6 million as of the end of the first quarter of 2011 as compared to $91.2 million as of the end of the first quarter of 2010.  The change in the LIFO Reserve for the first three months of fiscal 2011 ended July 3, 2010 was a reduction of $4,132,000 as compared to an increase of $4,701,000 for the first three months ended June 27, 2009.  This reflects the projected impact of reduced inflationary cost increases expected in fiscal 2011 versus fiscal 2010.

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 accounted for in an inventory account and are included in inventories on the Condensed Consolidated Balance Sheets. Depending on the time of year, the off-season account reflects either the excess of absorbed expenses over incurred expenses to date resulting in a credit balance, or the excess of incurred expenses over absorbed expenses to date resulting in a debit 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 balances are zero at fiscal year end.

4.	The changes in the stockholders’ equity accounts for the three months period ended July 3, 2010 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, 2010		$	31,325			$	3,861			$	65,910			$	(257	)		$	(15,030	)		$	249,201
Net earnings			-				-				-				-				-				5,275
Cash dividends paid
on preferred stock			-				-				-				-				-				(12	)
Equity incentive program			-				-				19				-				-				-
Stock issued for bonus program			-				-				33				-				-				-
Stock conversions			(25,000	)			257				24,743				-				-				-
Change in pension and post retirement
benefits adjustment (net of tax $107)			-				-				-				-				(168	)			-
Balance July 3, 2010		$	6,325			$	4,118			$	90,705			$	(257	)		$	(15,198	)		$	254,464

5.	The following schedule presents comprehensive income (loss) for the three month periods ended July 3, 2010 and June 27, 2009 (in thousands):

		Three Months Ended
		July 3, 2010				June 27, 2009
Comprehensive income (loss):
Net earnings		$	5,275			$	11,086
Change in pension and post retirement benefits   adjustment (net of tax)			(168	)			5,599
Total		$	5,107			$	16,685

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

		Three Months Ended
		July 3, 2010				June 27, 2009
Service cost		$	1,300			$	408
Interest cost			1,637				1,545
Expected return on plan assets			(1,844	)			(997	)
Amortization of actuarial loss			364				-
Amortization of transition asset			(69	)			(69	)
Net periodic benefit cost		$	1,388			$	887

7.	The following table summarizes the restructuring charges recorded and the accruals established (in thousands):

Total expected
restructuring charge		$	3,926
Balance March 31, 2010		$	794
First quarter charge			1
Cash payments/write offs			(68	)
Balance July 3, 2010		$	727
Total costs incurred
to date		$	3,199

8.	During the three months ended July 3, 2010, the Company sold some unused fixed assets which resulted in a gain of $76,000.  This gain is included in other operating income in the Unaudited Condensed Consolidated Statements of Net Earnings.

9.

Recently Issued Accounting Standards – In January 2010, the FASB issued ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements ,” which requires additional disclosures about the amounts of and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements. This standard also clarifies existing disclosure requirements related to the level of disaggregation of fair value measurements for each class of assets and liabilities and disclosures about inputs and valuation techniques used to measure fair value for both recurring and non-recurring Level 2 and Level 3 measurements. Since this new accounting standard only required additional disclosure, the adoption of the standard in the first quarter of 2011 did not impact the Company’s consolidated financial statements. Additionally, effective for interim and annual periods beginning after December 15, 2010, this standard will require additional disclosure and require an entity to present disaggregated information about activity in Level 3 fair value measurements on a gross basis, rather than one net amount.

 

 

10.	Earnings per share for the Quarters Ended July 3, 2010 and June 27, 2009 are as follows:

Quarter Ended			Q U A R T E R
July 3, 2010 and June 27, 2009			2010	2009
			(In thousands, except per share amounts)
	Basic
	Net  earnings	$               5,275		$              11,086
	Deduct preferred stock dividends paid	6		6
	Undistributed earnings	5,269		11,080
	Earnings allocated to participating preferred	477		4,160
	Earnings allocated to common shareholders	$               4,792		$                6,920
	Weighted average common shares outstanding	11,049		7,584
	Basis earnings per common share	$                 0.43		$                  0.91
	Diluted
	Earnings allocated to common shareholders	$               4,792		$               6,920
	Add dividends on convertible preferred stock	5		5
	Earnings applicable to common stock on a diluted basis	$               4,797		$               6,925
	Weighted average common shares outstanding-basic	11,049		7,584
	Additional shares issued related to the equity compensation plan	3		2
	Additional shares to be issued under full conversion of preferred stock	67		67
	Total shares for diluted	11,119		7,653
	Diluted earnings per common share	$                 0.43		$                 0.91

11.

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.

12.

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 $193,676,000 and an estimated fair value of $191,441,000 as of July 3, 2010.  As of March 31, 2010, the carrying amount was $214,280,000 and the estimated fair value was $212,035,000.

13.

On or about June 14, 2010, the Company received a Notice of Violation of the California Safe Drinking Water and Toxic Enforcement Act of 1986, commonly known as Proposition 65, from the Environmental Law Foundation (ELF).  This notice was made to the California Attorney General and various other government officials, and to 49 companies including Seneca Foods Corporation who ELF alleges manufactured, distributed or sold packaged peaches, pears, fruit cocktail and fruit juice that contain lead without providing a clear and reasonable warning to consumers.  Under California law, proper notice must be made to the State and involved firms at least 60 days before any suit under Proposition 65 may be filed by private litigants like ELF.  That 60-day period has not expired and to date neither the California Attorney General nor any appropriate district attorney or city attorney has initiated an action against the Company.  If an action is commenced under Proposition 65, the Company will defend itself vigorously.  As this matter is at a very early stage, we are not able to predict the probability of the outcome or estimate of loss, if any, related to this matter.

 

 

 

 

		Three Months Ended
		July 3, 2010				June 27, 2009
Canned Vegetables		$	154.9			$	161.3
Green Giant Alliance			6.6				1.8
Frozen Vegetables			9.7				9.8
Fruit Products			42.3				47.1
Snack			2.7				7.4
Other			3.7				3.1
		$	219.9			$	230.5

		Three Months Ended
		July 3, 2010				June 27, 2009
Gross margin			11.5	%			15.6	%
Selling			3.6	%			3.8	%
Administrative			3.3	%			3.5	%
Other operating income			0.0	%			0.0	%
Operating income			4.6	%			8.3	%
Interest expense			0.9	%			1.1	%

 
 

		June								March
		2010				2009				2010				2009
Working capital:
Balance		$	387,894			$	315,584			$	404,610			$	332,082
Change in quarter			(16,716	)			(16,498	)			-				-
Long-term debt, less current portion			187,199				170,309				207,924				191,853
Total stockholders' equity per equivalent
common share (see Note)			27.81				24.49				27.43				23.13
Stockholders' equity per common share			28.45				30.27				28.37				28.10
Current ratio			3.66				2.72				3.98				3.13

·	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
4/01/10 – 4/30/10	15,200	-	$29.93	-	N/A
5/01/10 – 5/31/09	7,900	-	$32.35	-	N/A
6/01/10 – 6/30/10	6,100	-	$32.17	-	N/A
Total	29,200	-	$31.05	-	N/A	486,500