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Seneca Foods Corp - Quarter Report: 2017 December (Form 10-Q)

senea20171231_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D. C. 20549

 

Form 10-Q

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarter Ended December 30, 2017

Commission File Number 0-01989

Seneca Foods Corporation

(Exact name of Company as specified in its charter)

New York

16-0733425

(State or other jurisdiction of

(I. R. S. Employer

incorporation or organization)

Identification No.)

 

3736 South Main Street, Marion, New York

14505 

(Address of principal executive offices)

(Zip Code)

 

Company's telephone number, including area code               315/926-8100

 

Not Applicable

Former name, former address and former fiscal year,

if changed since last report

 

Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes No ☐

 

Indicate by check mark whether the Company is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and an emerging growth company in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer            Accelerated filer ☑          Non-accelerated filer ☐          Smaller reporting company ☐

Emerging growth company

 

Indicate by check mark whether the Company is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No  ☑

 

If an emerging growth company, indicate by checkmark if the Company has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act

 

The number of shares outstanding of each of the issuer's classes of common stock at the latest practical date are:

 

Class

Shares Outstanding at January 19, 2018

Common Stock Class A, $.25 Par

7,854,451

Common Stock Class B, $.25 Par

1,884,439

 

 

Seneca Foods Corporation

Quarterly Report on Form 10-Q

Table of Contents

 

   

Page

     

PART 1

FINANCIAL INFORMATION

 
     

 Item 1

Financial Statements:

 
     
 

Condensed Consolidated Balance Sheets-December 30, 2017, December 31, 2016 and March 31, 2017

   1

     
 

Condensed Consolidated Statements of Net Earnings-Three and Nine Months Ended December 30, 2017 and December 31, 2016

2
     
 

Condensed Consolidated Statements of Comprehensive Income-Three and Nine Months Ended December 30, 2017 and December 31, 2016

2
     
 

Condensed Consolidated Statements of Cash Flows-Nine Months Ended December 30, 2017 and December 31, 2016

3
     
 

Condensed Consolidated Statement of Stockholders' Equity-Nine Months Ended December 30, 2017

4
     
 

Notes to Condensed Consolidated Financial Statements

   5

     

 Item 2 

Management's Discussion and Analysis of Financial Condition and Results of Operations

12
     

 Item 3 

Quantitative and Qualitative Disclosures about Market Risk

   18

     

 Item 4 

Controls and Procedures

   19

     

PART II

OTHER INFORMATION

 
     

 Item 1

Legal Proceedings

   20

     

 Item 1A

Risk Factors

   20

     

 Item 2 

Unregistered Sales of Equity Securities and Use of Proceeds

   20

     

 Item 3

Defaults Upon Senior Securities

   20

     

 Item 4

Mine Safety Disclosures

   20

     

 Item 5

Other Information

   20

     

 Item 6 

Exhibits

   20

     

SIGNATURES

   21

 

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Per Share Data)

 

   

Unaudited

   

Unaudited

         
   

December 30,

2017

   

December 31,

2016

   

March 31,

2017

 

ASSETS

                       
                         

Current Assets:

                       

Cash and Cash Equivalents

  $ 13,122     $ 10,260     $ 11,992  

Accounts Receivable, Net

    66,233       67,357       72,080  

Assets Held For Sale

    -       5,025       -  

Inventories:

                       

Finished Goods

    576,896       511,838       435,247  

Work in Process

    39,542       24,642       32,528  

Raw Materials and Supplies

    93,680       119,888       130,281  

Total Inventories

    710,118       656,368       598,056  

Refundable Income Taxes

    2,222       -       2,471  

Other Current Assets

    2,815       11,146       3,671  

Total Current Assets

    794,510       750,156       688,270  

Property, Plant and Equipment, Net

    272,363       217,983       237,476  

Deferred Income Taxes, Net

    -       16,534       -  

Other Assets

    5,130       20,038       20,273  

Total Assets

  $ 1,072,003     $ 1,004,711     $ 946,019  
                         

LIABILITIES AND STOCKHOLDERS' EQUITY

                       
                         

Current Liabilities:

                       

Notes Payable

  $ -     $ 1,255     $ 166  

Accounts Payable

    102,020       98,170       72,824  

Accrued Vacation

    12,428       11,702       11,867  

Accrued Payroll

    5,468       5,843       6,593  

Other Accrued Expenses

    32,804       41,826       32,493  

Income Taxes Payable

    -       8,830       -  

Current Portion of Long-Term Debt and Capital Lease Obligations

    9,703       11,106       8,334  

      Total Current Liabilities

    162,423       178,732       132,277  

Long-Term Debt, Less Current Portion

    411,799       343,634       329,138  

Capital Lease Obligations, Less Current Portion

    37,447       25,992       34,194  

Pension Liabilities

    7,106       35,230       8,193  

Deferred Income Taxes, Net

    2,982       -       4,181  

Other Long-Term Liabilities

    13,447       3,509       3,775  

Total Liabilities

    635,204       587,097       511,758  

Commitments and Contingencies

                       

Stockholders' Equity:

                       

Preferred Stock

    707       1,324       1,324  

Common Stock, $.25 Par Value Per Share

    3,038       3,024       3,024  

Additional Paid-in Capital

    98,136       97,433       97,458  

Treasury Stock, at Cost

    (69,941 )     (67,550 )     (66,499 )

Accumulated Other Comprehensive Loss

    (11,023 )     (28,396 )     (11,175 )

Retained Earnings

    415,882       411,779       410,129  

Total Stockholders' Equity

    436,799       417,614       434,261  

Total Liabilities and Stockholders’ Equity

  $ 1,072,003     $ 1,004,711     $ 946,019  

 

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 30, 2017

   

December 31, 2016

   

December 30, 2017

   

December 31, 2016

 
                                 

Net Sales

  $ 392,714     $ 369,705     $ 1,049,209     $ 979,566  
                                 

Costs and Expenses:

                               

Cost of Product Sold

    361,013       332,230       981,344       891,904  

Selling, General and Administrative

    20,112       21,116       56,430       57,023  

Plant Restructuring Charge

    101       1,316       157       2,778  

Other Operating (Income) Loss

    17       1,153       (2,615 )     1,172  

Total Costs and Expenses

    381,243       355,815       1,035,316       952,877  

Operating Income

    11,471       13,890       13,893       26,689  

Earnings From Equity Investment

    -       (333 )     (21 )     (500 )

Interest Expense, Net

    4,012       2,414       10,662       6,709  

Earnings Before Income Taxes

    7,459       11,809       3,252       20,480  
                                 

Income Taxes (Benefit) Expense

    (268 )     3,628       (2,524 )     6,217  

Net Earnings

  $ 7,727     $ 8,181     $ 5,776     $ 14,263  
                                 

Earnings Applicable to Common Stock

  $ 7,690     $ 8,100     $ 5,730     $ 14,116  
                                 

Basic Earnings per Common Share

  $ 0.79     $ 0.83     $ 0.59     $ 1.44  
                                 

Diluted Earnings per Common Share

  $ 0.78     $ 0.82     $ 0.58     $ 1.43  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In Thousands)

 

   

Three Months Ended

   

Nine Months Ended

 
   

December 30, 2017

   

December 31, 2016

   

December 30, 2017

   

December 31, 2016

 
                                 

Comprehensive income:

                               

Net earnings

  $ 7,727     $ 8,181     $ 5,776     $ 14,263  

Change in pension, post retirement benefits and other (net of tax of $30 and $93)

    50       -       152       -  

Total

  $ 7,777     $ 8,181     $ 5,928     $ 14,263  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Thousands)

 

   

Nine Months Ended

 
   

December 30,

2017

   

December 31,

2016

 

Cash Flows from Operating Activities:

               

Net Earnings

  $ 5,776     $ 14,263  

Adjustments to Reconcile Net Earnings to

               

Net Cash Used In Operations (Net of Acquisition):

               

Depreciation & Amortization

    23,112       18,209  

(Gain) Loss on the Sale of Assets

    (1,590 )     149  

Bargain Purchase Gain

    (1,078 )     -  

Provision for Restructuring and Impairment

    157       3,830  

Earnings From Equity Investment

    (21 )     (500 )

Deferred Income Tax Benefit

    (903 )     (3,637 )

Changes in Operating Assets and Liabilities:

               

Accounts Receivable

    11,891       9,431  

Inventories

    (95,986 )     (88,661 )

Other Current Assets

    954       4,619  

Income Taxes

    240       5,856  

Accounts Payable, Accrued Expenses and Other Liabilities

    30,700       26,732  

Net Cash Used in Operations

    (26,748 )     (9,709 )

Cash Flows from Investing Activities:

               

Additions to Property, Plant and Equipment

    (21,120 )     (23,389 )

Cash Paid for Acquisition (Net of Cash Acquired)

    (14,420 )     -  

Proceeds from the Sale of Assets

    1,841       123  

Net Cash Used In Investing Activities

    (33,699 )     (23,266 )

Cash Flow from Financing Activities:

               

Long-Term Borrowing

    438,730       411,483  

Payments on Long-Term Debt and Capital Lease Obligations

    (373,298 )     (374,577 )

Borrowings (Payments) on Notes Payable

    (166 )     853  

Other Assets

    (235 )     (1,273 )

Purchase of Treasury Stock

    (3,442 )     (1,841 )

Dividends

    (12 )     (12 )

Net Cash Provided by Financing Activities

    61,577       34,633  
                 

Net Increase in Cash and Cash Equivalents

    1,130       1,658  

Cash and Cash Equivalents, Beginning of the Period

    11,992       8,602  

Cash and Cash Equivalents, End of the Period

  $ 13,122     $ 10,260  
                 

Supplemental Disclosures of Cash Flow Information:

               

Noncash Transactions:

               

Property, Plant and Equipment Purchased Under Capital Lease Obligations

  $ 8,381     $ 23,056  
       Silgan Payable   $ 8,000     $ -  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(Unaudited)

(In Thousands)

 

                                   

Accumulated

         
                   

Additional

           

Other

         
   

Preferred

   

Common

   

Paid-In

   

Treasury

   

Comprehensive

   

Retained

 
   

Stock

   

Stock

   

Capital

   

Stock

   

Loss

   

Earnings

 

Balance March 31, 2017

  $ 1,324     $ 3,024     $ 97,458     $ (66,499 )   $ (11,175 )   $ 410,129  

Net earnings

    -       -       -       -       -       5,776  

Cash dividends on preferred stock

    -       -       -       -       -       (23 )

Equity incentive program

    -       -       75       -       -       -  

Preferred stock conversion

    (617 )     14       603       -       -       -  

Purchase treasury stock

    -       -       -       (3,442 )     -       -  

Change in pension, post retirement benefits, other adjustment (net of tax of $93)

    -       -       -       -       152       -  

Balance December 30, 2017

  $ 707     $ 3,038     $ 98,136     $ (69,941 )   $ (11,023 )   $ 415,882  

 

 
   

Preferred Stock

   

Common Stock

 
      6%       10%                                  
   

Cumulative Par

   

Cumulative Par

           

2003 Series

                 
   

Value $.25

   

Value $.025

   

Participating

   

Participating

   

Class A

   

Class B

 
   

Callable at Par

   

Convertible

   

Convertible Par

   

Convertible Par

   

Common Stock

   

Common Stock

 
   

Voting

   

Voting

   

Value $.025

   

Value $.025

   

Par Value $.25

   

Par Value $.25

 

Shares authorized and designated:

                                               

December 30, 2017

    200,000       1,400,000       37,529       500       20,000,000       10,000,000  

Shares outstanding:

                                               

December 30, 2017

    200,000       807,240       37,529       500       7,854,451       1,884,439  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 30, 2017

 

 
1. Unaudited Condensed Consolidated Financial Statements
   
  In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, which are normal and recurring in nature, necessary to present fairly the financial position of Seneca Foods Corporation (the “Company”) as of December 30, 2017 and results of its operations and its cash flows for the interim periods presented. All significant intercompany transactions and accounts have been eliminated in consolidation. The March 31, 2017 balance sheet was derived from the audited consolidated financial statements.
   
  The results of operations for the three and nine month periods ended December 30, 2017 are not necessarily indicative of the results to be expected for the full year.
   
  During the nine months ended December 30, 2017, the Company sold $112,768,000 of Green Giant finished goods inventory to B&G Foods, Inc. for cash, on a bill and hold basis, as compared to $95,253,000 for the nine months ended December 31, 2016. Under the terms of the bill and hold agreement, title to the specified inventory transferred to B&G. The Company believes it has met the criteria required for bill and hold treatment.
   
  The accounting policies followed by the Company are set forth in Note 1 to the Company's Consolidated Financial Statements in the Company’s 2017 Annual Report on Form 10-K.
   
  Other footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes included in the Company's 2017 Annual Report on Form 10-K.
   
  All references to years are fiscal years ended or ending March 31 unless otherwise indicated. Certain percentage tables may not foot due to rounding.
   
  Reclassifications—Certain previously reported amounts have been reclassified to conform to the current period classification.

 

 

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 30, 2017

 

2. Acquisition
   

 

In April 2014, the Company purchased a 50% equity interest in Truitt Bros. Inc. ("Truitt") for $16,242,000 which was accounted for as an equity investment. The purchase agreement granted the Company the right to acquire the remaining 50% ownership of Truitt in the future under certain conditions. On April 3, 2017, the Company purchased the remaining 50% equity interest in Truitt. This was considered a step acquisition, whereby the Company remeasured the previously held investment to fair value during the first quarter of 2018. As a result, the Company’s first quarter 2018 net loss includes a non-taxable bargain purchase gain of $1,078,000 of which $562,000 was related to the remeasurement of the previously held investment. Gross profit in the first quarter of fiscal 2018 included a charge of $542,000 related to the recognition of the Truitt inventory step-up through cost of sales for the portion of acquired inventory that was sold during the period. The business, based in Salem, Oregon, has two state-of-the-art plants located in Oregon and Kentucky. The purchase price for the more recent 50% was $14,420,000 (net of cash acquired of $3,030,000) plus the assumption of certain liabilities. The Company had an equity method investment of $17,422,000, so the total investment was $34,872,000. In conjunction with the closing, the Company paid off $3,608,000 of liabilities acquired. The rationale for the acquisition was twofold: (1) the business is a complementary fit with our existing business and (2) Truitt is known for its industry innovation related to packing shelf stable foods in trays, pouches and bowls. This acquisition was financed with proceeds from the Company's revolving credit facility. The purchase price to acquire Truitt Bros., Inc. was allocated based on the internally developed fair value of the assets acquired and liabilities assumed and the independent valuation of inventory, intangibles, and property, plant, and equipment. The total purchase price of $31,842,000 has been allocated as follows (in thousands):

 

Purchase Price (net of cash received)

  $ 31,842  
         

Approximate fair values of assets acquired and liabilities assumed:

       

Current assets

  $ 22,823  

Other long-term assets

    1,744  

Property, plant and equipment

    28,696  

Current liabilities

    (5,068 )

Deferred taxes

    389  

Other long-term liabilities

    (15,664 )

Bargain purchase gain

    (1,078 )

Total

  $ 31,842  

 

The Company is continuing to evaluate the purchase price allocation and these preliminary estimates could change. Proforma results of operations for the Truitt acquisition are not presented because the effects are not material to the consolidated financial statements.

 

 

3.

Inventories

First-In, First-Out (“FIFO”) based inventory costs exceeded LIFO based inventory costs by $152,091,000 as of the end of the third quarter of fiscal 2018 as compared to $139,709,000 as of the end of the third quarter of fiscal 2017. The change in the LIFO Reserve for the three months ended December 30, 2017 was an increase of $994,000 as compared to a decrease of $3,941,000 for the three months ended December 31, 2016. The LIFO Reserve increased by $18,835,000 in the first nine months of fiscal 2018 compared to an increase of $434,000 in the first nine months of fiscal 2017. This reflects the projected impact of an overall cost increase expected in fiscal 2018 versus fiscal 2017.

 

 

4.

Revolving Credit Facility

The Company completed the closing of a new five-year revolving credit facility (“Revolver”) on July 5, 2016. Maximum borrowings under the Revolver total $400,000,000 from April through July and $500,000,000 from August through March.   The Revolver balance as of December 30, 2017 was $290,196,000 and is included in Long-Term Debt in the accompanying Condensed Consolidated Balance Sheet since the Revolver matures on July 5, 2021. The Company utilizes its Revolver for general corporate purposes, including seasonal working capital needs, to pay debt principal and interest obligations, and to fund capital expenditures and acquisitions. Seasonal working capital needs are affected by the growing cycles of the vegetables and fruits the Company processes. The majority of vegetable and fruit inventories are produced during the months of June through November and are then sold over the following year. Payment terms for vegetable and fruit produce are generally three months but can vary from a few days to seven months. Accordingly, the Company’s need to draw on the Revolver may fluctuate significantly throughout the year.

 

6

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 30, 2017

 

The decrease in average amount of Revolver borrowings during the first nine months of fiscal 2018 compared to the first nine months of fiscal 2017 was attributable to the $100,000,000 term loan from Farm Credit obtained in December 2016 less the cash paid for the Truitt acquisition of $14,420,000 made during the first nine months of fiscal 2018, Accounts Receivable which are $7,168,000 lower than the same period last year (excluding the amount from the acquisition), and total Inventories, excluding the inventories of the acquisition, which are $37,674,000 higher than the same period last year, partially offset by net earnings in the last twelve months ended December 30, 2017 of $4,126,000.

 

General terms of the Revolver include payment of interest at LIBOR plus a defined spread.

 

The following table documents the quantitative data for Revolver borrowings during the third quarter and year-to-date periods of fiscal 2018 and fiscal 2017:

 

   

Third Quarter

   

Year-to-Date

 
   

2018

   

2017

   

2018

   

2017

 
   

(In thousands)

   

(In thousands)

 

Reported end of period:

                               

Outstanding borrowings

  $ 290,196     $ 232,586     $ 290,196     $ 232,586  

Weighted average interest rate

    3.04

%

    2.00

%

    3.04

%

    2.00

%

Reported during the period:

                               

Maximum amount of borrowings

  $ 296,088     $ 349,710     $ 296,088     $ 361,800  

Average outstanding borrowings

  $ 280,960     $ 301,395     $ 246,414     $ 289,949  

Weighted average interest rate

    2.82

%

    1.89

%

    2.59

%

    1.88

%

 

 

 

5.

Stockholders’ Equity

During the nine-month period ended December 30, 2017 the Company repurchased 114,532 shares or $3,441,000 of its Class A Common Stock as Treasury Stock. As of December 30, 2017, there are 2,414,678 shares or $69,941,000 of repurchased stock. These shares are not considered outstanding.

 

 

6.

Retirement Plans

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

 

   

Three Months Ended

   

Nine Months Ended

 
   

December 30,

2017

   

December 31,

2016

   

December 30,

2017

   

December 31,

2016

 
   

(In thousands)

 

Service Cost

  $ 1,981     $ 2,164     $ 5,944     $ 6,491  

Interest Cost

    1,985       1,919       5,956       5,756  

Expected Return on Plan Assets

    (3,673 )     (2,978 )     (10,640 )     (8,934 )

Amortization of Actuarial Loss

    -       679       -       2,037  

Amortization of Transition Asset

    30       27       90       82  

Net Periodic Benefit Cost

  $ 323     $ 1,811     $ 1,350     $ 5,432  

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 30, 2017

 

There was a contribution of $2,500,000 to the pension plan in the nine month period ended December 30, 2017. There was a contribution of $8,000,000 made in the nine month period ended December 31, 2016.

 

 

7.

Plant Restructuring

The following table summarizes the rollforward of restructuring charges and related asset impairment charges recorded and the accruals established:

 

           

Long-Lived

                 
   

Severance

   

Asset Charges

   

Other Costs

   

Total

 
   

(In thousands)

 
                                 

Balance March 31, 2017

  $ 37     $ 4,773     $ 305     $ 5,115  

First quarter charge

    36       9       36       81  

Second quarter charge (credit)

    -       8       (33 )     (25 )

Third quarter charge (credit)

    98       -       3       101  

Cash payments/write offs

    (73 )     (3,888 )     (311 )     (4,272 )

Balance December 30, 2017

  $ 98     $ 902     $ -     $ 1,000  
                                 
                                 

Balance March 31, 2016

  $ -     $ 4,975     $ 3,897     $ 8,872  

First quarter charge (credit)

    127       (6 )     1,064       1,185  

Second quarter charge (credit)

    112       (286 )     451       277  

Third quarter charge (credit)

    1,261       62       (7 )     1,316  

Cash payments/write offs

    (1,480 )     164       (3,588 )     (4,904 )

Balance December 31, 2016

  $ 20     $ 4,909     $ 1,817     $ 6,746  

 

 

During fiscal 2016, the Company recorded a restructuring charge of $10,302,000 related to the closing of a plant in the Northwest of which $162,000 was related to severance cost, $5,065,000 was related to asset impairments (contra fixed assets), and $5,075,000 was related to other costs (mostly operating lease costs). During fiscal 2017, the Company adjusted this restructuring charge by $1,829,000 related to the closing of this Northwest plant of which a charge of $1,590,000 was related to severance cost, a credit of $384,000 was related to asset impairments (contra fixed assets), and charge of $635,000 was related to other costs (mostly operating lease costs).

 

During the nine months ended December 30, 2017, the Company recorded an additional restructuring charge of $157,000 related to the previous closing of this Northwest plant.

 

 

 

8.

Other Operating Income and Expense

During the nine months ended December 30, 2017, the Company sold unused fixed assets which resulted in a gain of $1,590,000 as compared to a gain of $149,000 during the nine months ended December 31, 2016. $1,081,000 of the current year gain was related to the sale of a closed plant in the Midwest. In addition, the Company recorded a bargain purchase gain of $1,078,000 as discussed in the Acquisition footnote during  the nine months ended December 30, 2017. These items are included in other operating income in the Unaudited Condensed Consolidated Statements of Net Earnings.

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 30, 2017

 

 

9.

Recently Issued Accounting Standards

In May 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard will be effective for the Company on April 1, 2018 (beginning of fiscal 2019). The standard permits the use of either the retrospective or cumulative effect transition method. The Company has selected the modified retrospective approach for its transition method and applied the five-step model of the new standard to a selection of contracts within each of the revenue streams and has compared the results to our current accounting practices. 
The Company’s assessment efforts to date have has included reviewing current accounting policies, processes, and system requirements, as well as assigning internal resources and engaging third-party consultants to assist in the process.  Additionally, the Company has reviewed our current contracts and other arrangements to identify potential differences that could arise from the adoption of ASU 2014-09.  Most notably, the Company is evaluating its current conclusions with respect to the timing of revenue recognition for certain co-pack contract arrangements where revenue is at point in time, to determine whether the application of ASU 2014-09 necessitates changes to such reporting whereby revenue would be recognized over time.  The Company will continue to evaluate our business processes, systems and controls, and potential differences, if any, in the timing and method of revenue recognition.  However, the Company will not be able to make a complete determination about the impact of the standard on its consolidated financial statements until the time of adoption based upon outstanding contracts at that time. The Company will continue its evaluation of the standards update through the date of adoption.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018 (beginning fiscal 2020 for the Company), including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. While we are still evaluating the impact of our pending adoption of the new standard on our consolidated financial statements, we expect that upon adoption we will recognize ROU assets and lease liabilities and that the amounts could be material.

 

In January 2017, the FASB issued ASU No. 2017-01 ("ASU 2017-01"), which clarifies the definition of a business, with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, and early adoption is permitted for transactions which occur before the issuance or effective date of the amendments, only when the transaction has not been reported in the financial statements that have been issued or made available for issuance. ASU 2017-01 is to be applied on a prospective basis. The Company does not expect the adoption of ASU 2017-01 to have a material impact on its consolidated financial statements.

 

In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.”  ASU 2017-07 requires that the service cost component of net periodic benefit costs from defined benefit and other postretirement benefit plans be included in the same statement of earnings captions as other compensation costs arising from services rendered by the covered employees during the period.  The other components of net benefit cost will be presented in the statement of earnings separately from service costs.  ASU 2017-07 is effective for fiscal years beginning after December 31, 2017 (fiscal year 2019 for the Company).  Following adoption, only service costs will be eligible for capitalization into manufactured inventories, which should reduce diversity in practice.  The amendments of ASU 2017-07 should be applied retrospectively for the presentation of the service cost component and the other components of net periodic benefit costs from defined benefit and other postretirement benefit plans in the statement of earnings and prospectively, on and after the effective date, for the capitalization of the service cost component into manufactured inventories.  Early adoption is permitted as of the beginning of the Company's fiscal year 2018. The Company will adopt the new guidance in fiscal year 2019, and expects charges to earnings before income taxes to be immaterial in the year of adoption.

 

There were no other recently issued accounting pronouncements that impacted the Company’s condensed consolidated financial statements. In addition, the Company did not adopt any new accounting pronouncements during the quarter ended December 30, 2017.

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 30, 2017

 

 

10.

Earnings per Common Share

Earnings per share for the quarters ended December 30, 2017 and December 31, 2016 are as follows:

 

   

Q U A R T E R

   

Y E A R T O D A T E

 

(Thousands, except share amounts)

 

Fiscal 2018

   

Fiscal 2017

   

Fiscal 2018

   

Fiscal 2017

 
                                 

Basic

                               
                                 

Net earnings

  $ 7,727     $ 8,181     $ 5,776     $ 14,263  

Deduct preferred stock dividends paid

    6       6       17       17  
                                 

Undistributed earnings

    7,721       8,175       5,759       14,246  

Earnings attributable to participating preferred

    31       75       29       130  
                                 

Earnings attributable to common shareholders

  $ 7,690     $ 8,100     $ 5,730     $ 14,116  
                                 

Weighted average common shares outstanding

    9,740       9,770       9,782       9,790  
                                 

Basic earnings per common share

  $ 0.79     $ 0.83     $ 0.59     $ 1.44  
                                 

Diluted

                               
                                 

Earnings attributable to common shareholders

  $ 7,690     $ 8,100     $ 5,730     $ 14,116  

Add dividends on convertible preferred stock

    5       5       15       15  
                                 

Earnings attributable to common stock on a diluted basis

  $ 7,695     $ 8,105     $ 5,745     $ 14,131  
                                 

Weighted average common shares outstanding-basic

    9,740       9,770       9,782       9,790  
                                 

Additional shares issued related to the equity compensation plan

    2       2       2       2  

Additional shares to be issued under full conversion of preferred stock

    67       67       67       67  
                                 

Total shares for diluted

    9,809       9,839       9,851       9,859  
                                 

Diluted earnings per common share

  $ 0.78     $ 0.82     $ 0.58     $ 1.43  

 

 

11.

Fair Value of Financial Instruments

As required by Accounting Standards Codification ("ASC") 825, “Financial Instruments,” the Company estimates the fair values of financial instruments on a quarterly basis. The estimated fair value for long-term debt (classified as Level 2 in the fair value hierarchy) is determined by the quoted market prices for similar debt (comparable to the Company’s financial strength) or current rates offered to the Company for debt with the same maturities. Long-term debt, including current portion had a carrying amount of $415,448,000 and an estimated fair value of $415,173,000 as of December 30, 2017. As of March 31, 2017, the carrying amount was $332,633,000 and the estimated fair value was $332,926,000. Capital lease obligations, including current portion had a carrying amount of $43,501,000 and an estimated fair value of $40,621,000 as of December 30, 2017. As of March 31, 2017, the carrying amount was $39,033,000 and the estimated fair value was $37,505,000. The fair values of all the other financial instruments approximate their carrying value due to their short-term nature.

 

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 30, 2017

 

 

12.

Income Taxes

The effective tax rate was (77.6)% and 30.4% for the nine month periods ended December 30, 2017 and December 31, 2016, respectively. The 108.0 percentage point decrease in the effective tax rate represents the tax rate change which reduced the tax provision by $3,040,000 due to the recently passed Tax Cut and Jobs Act.  This amount reflects the effect of the rate change on beginning of the year deferred tax balances.

   
  The Tax Cut and Jobs Act was signed into law on December 22, 2017 and reduced the federal corporate income tax rate from 35% to 21%.

 

 

 

 

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

December 30, 2017

 

Seneca Foods Corporation (the “Company”) is a leading provider of packaged fruits and vegetables, with facilities located throughout the United States. The Company’s product offerings include canned, frozen and bottled produce and snack chips. Its products are sold under private label as well as national and regional brands that the Company owns or licenses, including Seneca®, Libby’s®, Aunt Nellie’s®, Cherryman®, Green Valley®, READ® and Seneca Farms®. The Company’s canned fruits and vegetables are sold nationwide by major grocery outlets, including supermarkets, mass merchandisers, limited assortment stores, club stores and dollar stores. The Company also sells its products to foodservice distributors, industrial markets, other food processors, export customers in over 90 countries and federal, state and local governments for school and other food programs.  The Company packs Green Giant®, Le Sueur® and other brands of canned vegetables as well as select Green Giant® frozen vegetables for B&G Foods North America (“B&G”) under a contract packing agreement.  In addition, the Seneca provides contract packing services mostly through its wholly owned subsidiary Truitt Bros., Inc.

 

The Company’s raw product is harvested mainly between June through November.

 

Results of Operations:

 

Sales:

 

Third fiscal quarter 2018 results include net sales of $392,714,000, which represents a 6.2% increase, or $23,009,000, from the third quarter of fiscal 2017.  The net increase in sales is attributable to higher selling prices/sales mix of $34,554,000 partially offset by a sales volume decrease $11,545,000. The increase in sales is primarily from the acquisition of Truitt during the current year with sales of $28,214,000, a $2,055,000 increase in Frozen sales partially offset by a $3,757,000 decrease in B&G Foods, Inc. sales, a $1,105,000 decrease in Canned Vegetable sales, a $1,241,000 decrease in Canned Fruit sales and a $1,157,000 decrease in Other sales.

 

Nine months ended December 30, 2017 include net sales of $1,049,209,000, which represents a 7.1% increase, or $69,643,000, from the first nine months of fiscal 2017.  The net increase in sales is attributable to a sales volume increase of $32,903,000, and higher selling prices/sales mix of $36,740,000. The increase in sales is primarily from the acquisition of Truitt during the current year with sales of $69,352,000, a $10,316,000 increase in B&G Foods, Inc. sales, a $12,181,000 increase in Canned Vegetable sales, $7,982,000 increase in Frozen sales, partially offset by a $24,035,000 decrease in Canned Fruit sales, a $3,999,000 decrease in Other sales and a $2,154,000 decrease in Snack sales.

 

The following table presents sales by product category (in millions):

 

   

Three Months Ended

   

Nine Months Ended

 
   

December 30,

2017

   

December 31,

2016

   

December 30,

2017

   

December 31,

2016

 

Canned Vegetables

  $ 226.1     $ 227.2     $ 564.8     $ 552.6  

B&G*

    42.3       46.1       123.8       113.5  

Frozen

    27.3       25.3       78.5       70.5  

Fruit Products

    62.5       63.7       193.1       217.2  

Chip Products

    2.4       2.4       7.9       10.0  

Truitt

    28.2       0.0       69.4       0.0  

Other

    3.9       5.0       11.7       15.8  
    $ 392.7     $ 369.7     $ 1,049.2     $ 979.6  

 

*B&G includes frozen vegetable sales exclusively for B&G.

 

 

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

December 30, 2017

 

Operating Income:

The following table presents components of operating income as a percentage of net sales:

 

   

Three Months Ended

   

Nine Months Ended

 
   

December 30,

2017

   

December 31,

2016

   

December 30,

2017

   

December 31,

2016

 

Gross Margin

    8.1 %     10.1 %     6.5 %     8.9 %
                                 

Selling

    2.6 %     3.0 %     2.7 %     2.9 %

Administrative

    2.5 %     2.7 %     2.7 %     2.9 %

Plant Restructuring

    0.0 %     0.4 %     0.0 %     0.3 %

Other Operating Expense (Income)

    0.0 %     0.3 %     -0.2 %     0.1 %
                                 

Operating Income

    2.9 %     3.8 %     1.3 %     2.7 %
                                 

Interest Expense, Net

    1.0 %     0.7 %     1.0 %     0.7 %

 

For the three month period ended December 30, 2017, the gross margin decreased from the prior year quarter from 10.1% to 8.1% due primarily to a higher LIFO charge in the third quarter of 2018. The LIFO charge for the third quarter ended December 30, 2017 was $994,000 as compared to a credit of $3,941,000 for the third quarter ended December 31, 2016 and reflects the impact on the quarter of higher cost increases incurred in fiscal 2018, compared with smaller cost increases to fiscal 2017. On an after-tax basis, LIFO net earnings decreased by $785,000 for the quarter ended December 30, 2017 and decreased LIFO net earnings by $2,562,000 for the quarter ended December 31, 2016, based on the historical statutory federal income tax rate.

 

For the nine month period ended December 30, 2017, the gross margin decreased from the prior year period from 8.9% to 6.5% due primarily to a higher LIFO charge in the current year. The LIFO charge for the nine months ended December 30, 2017 was $18,835,000 as compared to a charge of $434,000 for the nine months ended December 31, 2016 and reflects the impact on the nine months of cost increases expected in fiscal 2018, compared to cost decreases in fiscal 2017. On an after-tax basis, LIFO decreased net earnings by $14,880,000 for the nine months ended December 30, 2017 and decreased net earnings by $282,000 for the nine months ended December 31, 2016, based on the

historical statutory federal income tax rate.

 

For the three month period ended December 30, 2017, selling costs as a percentage of sales decreased from 3.0% to 2.6% for the same period in the prior year. For the nine month period ended December 30, 2017, selling costs as a percentage of sales decreased from 2.9% to 2.7% for the same period in the prior year. The nine month decrease is primarily as a result of the Green Giant sales increase, which don't incur selling costs.

 

For the three month period ended December 30, 2017, administrative expense as a percentage of sales decreased from 2.7% to 2.5%. For the nine month period ended December 30, 2017, administrative expense as a percentage of sales decreased from 2.9% to 2.7% primarily due to lower employment costs in the current year.

 

During the nine months ended December 30, 2017, the Company sold some unused fixed assets which resulted in a gain of $1,590,000. $1,081,000 of the current year gain was related to the sale of a closed plant in the Midwest. In addition, the Company recorded a bargain purchase gain of $1,078,000 as discussed in the Acquisition footnote to the Condensed Consolidated Financial Statements. During the quarter ended December 31, 2016, the Company recorded a charge for impairment of a long-term asset of $1,052,000. During the nine months ended December 31, 2016, the Company sold some unused fixed assets which resulted in a loss of $149,000. These items are included in other operating income in the Unaudited Condensed Consolidated Statements of Net Earnings.

 

 

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

December 30, 2017

 

Interest expense for the third quarter ended December 30, 2017, as a percentage of sales, increased to 1.0% from 0.7% in third quarter ended December 31, 2016. For the nine month period ended December 30, 2017, interest expense as a percentage of sales increased from 0.7% to 1.0% compared to nine months ended December 31, 2016. During fiscal 2018, overall borrowings and interest rates were higher than the previous year.

 

Income Taxes:

 

The effective tax rate was (77.6)% and 30.4% for the nine month periods ended December 30, 2017 and December 31, 2016, respectively. The 108.0 percentage point decrease in the effective tax rate represents the tax rate change which reduced the tax provision by $3,040,000 due to the recently passed Tax Cut and Jobs Act.  This amount reflects the effect of the rate change on beginning of the year deferred tax balances.

 

The Tax Cut and Jobs Act was signed into law on December 22, 2017 and reduced the federal corporate income tax rate from 35% to 21%.

 

Earnings per Share:

 

Basic earnings per share were $0.79 and $0.83 for the three months ended December 30, 2017 and December 31, 2016, respectively. Diluted earnings per share were $0.78 and $0.82 for the three months ended December 30, 2017 and December 31, 2016, respectively. Basic earnings per share were $0.59 and $1.44 for the nine months ended December 30, 2017 and December 31, 2016, respectively. Diluted earnings per share were $0.58 and $1.43 for the nine months ended December 30, 2017 and December 31, 2016, respectively. For details of the calculation of these amounts, refer to footnote 10 of the Notes to Condensed Consolidated Financial Statements.

 

 

Liquidity and Capital Resources:

 

The financial condition of the Company is summarized in the following table and explanatory review:

 

   

December 30,

   

December 31,

   

March 31,

   

March 31,

 
   

2017

   

2016

   

2017

   

2016

 

Working Capital:

                               

Balance

  $ 632,087     $ 571,424     $ 555,993     $ 274,429  

Change in Quarter

    22,460       (21,139 )                

Long-Term Debt, Less Current Portion

    411,799       343,634       329,138       35,967  

Capital Lease Obligations, Less Current Portion

    37,447       25,992       34,194       4,988  

Total Stockholders' Equity Per Equivalent

                               

Common Share (see Note below)

    44.37       42.11       43.63       40.63  

Stockholders' Equity Per Common Share

    44.78       42.66       44.20       41.15  

Current Ratio

    4.89       4.20       5.20       1.69  

 

 

Note: Equivalent common shares are either common shares or, for convertible preferred shares, the number of common shares that the preferred shares are convertible into. See Note 7 of the Notes to Consolidated Financial Statements of the Company’s 2017 Annual Report on Form 10-K for conversion details.

 

 

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

December 30, 2017

 

 

As shown in the Condensed Consolidated Statements of Cash Flows, net cash used in operating activities was $26,748,000 in the first nine months of fiscal 2018, compared to $9,709,000 in the first nine months of fiscal 2017. The $17,039,000 increase in cash used is primarily attributable to a $95,986,000 increase in inventory in the first nine months of fiscal 2018 as compared to an $88,661,000 increase in inventory in the first nine months of fiscal 2017, decreased net earnings of $8,487,000 as previously discussed, and a $5,616,000 decrease in cash provided by income taxes, partially offset by a $3,968,000 increase in cash provided by accounts payable, accrued expenses and other liabilities, a $2,734,000 decrease in cash used by deferred income taxes and and a $2,460,000 increase in cash provided by accounts receivable.

 

As compared to December 31, 2016, inventory increased $53,750,000 to $710,118,000 at December 30, 2017 (including $16,076,000 increase from the Truitt Bros. Inc. acquisition). The components of the inventory increase reflect a $65,058,000 increase in finished goods, a $14,900,000 increase in work in process and a $26,208,000 decrease in raw materials and supplies. The finished goods increase is primarily due to the Truitt acquisition and reflects higher inventory quantities due to the magnitude and timing of the fiscal year 2018 pack versus fiscal year 2017 pack partially offset by increased sales volume as compared to the prior year. The raw materials and supplies decrease is primarily due to a decrease in cans and raw steel quantities compared to the prior year. FIFO based inventory costs exceeded LIFO based inventory costs by $152,091,000 as of the end of the third quarter of 2018 as compared to $139,709,000 as of the end of the third quarter of 2017.

 

Cash used in investing activities was $33,699,000 in the first nine months of fiscal 2018 compared to cash used in investing activities of $23,266,000 in the first nine months of fiscal 2017. Additions to property, plant and equipment were $21,120,000 in the first nine months of fiscal 2018 as compared to $23,389,000 in first nine months of fiscal 2017. The prior year purchases include $4,767,000 of fixed assets purchased from Monsanto in connection with our seed processing in August 2016. In April 2017, the Company acquired the other 50% of Truitt Bros., Inc. for $14,420,000 (net of cash acquired).

 

Cash provided by financing activities was $61,577,000 in the first nine months of fiscal 2018, which included borrowings of $438,730,000 and the repayment of $373,298,000 of long-term debt, principally consisting of borrowing and repayment on the revolving credit facility (“Revolver”). Cash provided by financing activities was $34,633,000 in the first nine months of fiscal 2017, which included borrowings of $411,483,000 and the repayment of $374,577,000 of long-term debt, principally consisting of borrowing and repayment on the Revolver. Other than borrowings under the Revolver, there was no new long-term debt during the first nine months of fiscal 2018. During the nine months ended December 31, 2016, the Company paid off $22,596,000 of Industrial Revenue Bonds. During the nine months ended December 30, 2017, the Company repurchased $3,442,000 of its Class A and Class B Common Stock as treasury stock compared to $1,841,000 in the prior period.

 

During the nine months ended December 30, 2017, the Company entered into $8,381,000 of equipment capital leases compared to $23,056,000 in the same period in the prior year.

 

The Company completed the closing of a new five-year revolving credit facility on July 5, 2016. Available borrowings on the Revolver total $400,000,000 from April through July and $500,000,000 from August through March with a maturity date of July 5, 2021.  The interest rate on the Revolver is based on LIBOR plus an applicable margin based on excess availability and the Company's fixed charge coverage ratio. As of December 30, 2017, the interest rate was approximately 2.90% on a balance of $290,196,000. We believe that cash flows from operations, availability under our Revolver and other financing sources will provide adequate funds for our working capital needs, planned capital expenditures, and debt obligations for at least the next 12 months.

 

 

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

December 30, 2017

 

The Company’s credit facilities contain standard representations and warranties, events of default, and certain affirmative and negative covenants, including various financial covenants. At December 30, 2017, the Company was in compliance with all such financial covenants.

 

New Accounting Standards

 

Refer to footnote 9 of the Notes to Condensed Consolidated Financial Statements.

 

Seasonality

 

The Company's revenues are typically higher in the second and third fiscal quarters. This is due in part because the Company sells, on a bill and hold basis, Green Giant canned and frozen vegetables to B&G either weekly during production for specialty items, or at the end of each pack cycle, which typically occurs during these quarters. B&G buys the product from the Company at cost plus a specified fee for each equivalent case. See the Critical Accounting Policies section below for further details. The Company’s non-Green Giant sales also exhibit seasonality with the third fiscal quarter generating the highest retail sales due to holidays that occur during that quarter.

 

Forward-Looking Information

 

The information contained in this report contains, or may contain, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this report and include statements regarding the intent, belief or current expectations of the Company or its officers (including statements preceded by, followed by or that include the words “believes,” “expects,” “anticipates” or similar expressions) with respect to various matters, including (i) the Company’s anticipated needs for, and the availability of, cash, (ii) the Company’s liquidity and financing plans, (iii) the Company’s ability to successfully integrate acquisitions into its operations, (iv) trends affecting the Company’s financial condition or results of operations, including anticipated sales price levels and anticipated expense levels, in particular higher production, fuel and transportation costs, (v) the Company’s plans for expansion of its business (including through acquisitions) and cost savings, and (vi) the impact of competition.

 

Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Investors are cautioned not to place undue reliance on such statements, which speak only to events as of the date the statements were made. Among the factors that could cause actual results to differ materially are:

 

 

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;

 

the availability of financing;

 

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 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

December 30, 2017

 

Except for ongoing obligations to disclose material information as required by the federal securities laws, the Company does not undertake any obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of the filing of this report or to reflect the occurrence of unanticipated events.

 

Critical Accounting Policies

 

During the nine months ended December 30, 2017, the Company sold $112,768,000 of Green Giant finished goods inventory to B&G Foods North America (“B&G”) for cash, on a bill and hold basis, as compared to $95,253,000 for the nine months ended December 31, 2016. Under the terms of the bill and hold agreement, title to the specified inventory transferred to B&G. The Company believes it has met the criteria required for bill and hold treatment.

 

Trade promotions are an important component of the sales and marketing of the Company’s branded products, and are critical to the support of the business. Trade promotion costs, which are recorded as a reduction of net sales, include amounts paid to encourage retailers to offer temporary price reductions for the sale of our products to consumers, amounts paid to obtain favorable display positions in retailers’ stores, and amounts paid to retailers for shelf space in retail stores. Accruals for trade promotions are recorded primarily at the time of sale of product to the retailer based on expected levels of performance. Settlement of these liabilities typically occurs in subsequent periods primarily through an authorized process for deductions taken by a retailer from amounts otherwise due to us. As a result, the ultimate cost of a trade promotion program is dependent on the relative success of the events and the actions and level of deductions taken by retailers for amounts they consider due to them. Final determination of the permissible deductions may take extended periods of time.

 

The Company uses the lower of cost, determined under the LIFO (last-in, first out) method, or market, to value substantially all of its inventories. In a high inflation environment that the Company was experiencing, the Company believes that the LIFO method was preferable over the FIFO method because it better compares the cost of current production to current revenue.

 

The Company assesses its long-lived assets for impairment whenever there is an indicator of impairment. Property, plant, and equipment are depreciated over their assigned lives. The assigned lives and the projected cash flows used to test impairment are subjective. If actual lives are shorter than anticipated or if future cash flows are less than anticipated, a future impairment charge or a loss on disposal of the assets could be incurred. Impairment losses are evaluated if the estimated undiscounted value of the cash flows is less than the carrying value. If such is the case, a loss is recognized when the carrying value of an asset exceeds its fair value.

 

 

ITEM 3 Quantitative and Qualitative Disclosures About Market Risk

 

In the ordinary course of business, the Company is exposed to various market risk factors, including changes in general economic conditions, competition and raw material pricing and availability. In addition, the Company is exposed to fluctuations in interest rates, primarily related to its revolving credit facility and the $100,000,000 term loan. To manage interest rate risk, the Company uses both fixed and variable interest rate debt plus fixed interest rate capital lease obligations. There have been no material changes to the Company’s exposure to market risk since March 31, 2017.

 

 

ITEM 4 Controls and Procedures

 

The Company maintains a system of internal and disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported on a timely basis. The Company’s Board of Directors, operating through its Audit Committee, which is composed entirely of independent outside directors, provides oversight to the financial reporting process.

 

An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of December 30, 2017, our disclosure controls and procedures were effective. The Company continues to examine, refine and formalize its disclosure controls and procedures and to monitor ongoing developments in this area.

 

There have been no changes during the period covered by this report to the Company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. However, with the acquisition of Truitt Bros., Inc. on April 3, 2017, the Company is still in the process of evaluating their internal controls.

 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings
   
  Refer to footnote 13 to the Consolidated Financial Statements included in Part II Item 8 of the Annual Report on Form 10-K.
   
Item 1A. Risk Factors
   
  There have been no material changes to the risk factors disclosed in the Company’s Form 10-K for the period ended March 31, 2017 except to the extent factual information disclosed elsewhere in this Form 10-Q relates to such risk factors.
   

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

Total Number of 

 

Average Price Paid

Total Number

Maximum Number

 

Shares Purchased

 

per Share

of Shares

(or Approximate

 

 

 

 

 

 

 

Purchased as

Dollar Value) or 

 

 

 

 

 

 

 

Part of Publicly 

Shares that May

 

 

 

 

 

 

 

Announced 

Yet Be Purchased 

 

Class A 

Class B 

Class A 

 

Class B 

Plans or 

Under the Plans or

Period

Common

Common

Common

 

Common

Programs

Programs

10/01/2017 – 

 

 

 

 

 

 

 

 

10/31/2017

16,800 (1) 

-

$

35.73

$

-

 

 

11/01/2017

 

 

 

 

 

 

 

 

11/30/2017

        4,950 

-

$

29.34

$

-

              4,950 

 

12/01/2017

 

 

 

 

 

 

 

 

12/31/2017

- 

- 

$

-

$

-

 

 

Total

      21,750 

-

$

34.27

$

-,

            4,950

1,066,829

 

Note 1: These shares were purchased in open market transactions by the trustees under the Seneca Foods Corporation Employees' Savings Plan 401(k) Retirement Savings Plan to provide employee matching contributions under the plan.

 

 

Item 3. Defaults Upon Senior Securities
   
  None.
   
Item 4.  Mine Safety Disclosures
   
  None.
   
Item 5. Other Information
   
  None.

        

 

Item 6.  Exhibits

    

31.1

Certification of Kraig H. Kayser pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

 

31.2

Certification of Timothy J. Benjamin pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

 

32

Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

 

101

The following materials from Seneca Foods Corporation’s Quarterly Report on Form 10-Q for the nine months ended December 30, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of net loss, (iii) condensed consolidated statements of comprehensive loss, (iv) condensed consolidated statements of cash flows, (v) condensed consolidated statement of stockholders’ equity and (vi) the notes to condensed consolidated financial statements.

 

 

SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

 

 

Seneca Foods Corporation

 

 

 

     (Company)

 

       
       
       

 

 

/s/ Kraig H. Kayser     

 

January 25, 2018

 

 

 

    Kraig H. Kayser  
    President and  
    Chief Executive Officer  
       
       

 

 

/s/Timothy J. Benjamin         

 

January 25, 2018      
    Timothy J. Benjamin  
    Chief Financial Officer  

 

22