Seneca Foods Corp - Quarter Report: 2019 December (Form 10-Q)

 

 

Table of Contents

 

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 28, 2019

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, every Interactive Data File required to be submitted 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 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 ☐

 

				Name of Exchange on
Title of Each Class		Trading Symbol		Which Registered
Common Stock Class A, $.25 Par		SENEA		NASDAQ Global Market
Common Stock Class B, $.25 Par		SENEB		NASDAQ Global Market

 

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 24, 2020
Common Stock Class A, $.25 Par	7,418,535
Common Stock Class B, $.25 Par	1,735,636

 

 

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 28, 2019, December 29, 2018 and March 31, 2019	1
	Condensed Consolidated Statements of Net Earnings-Three and Nine Months Ended December 28, 2019 and , December 29, 2018	2
	Condensed Consolidated Statements of Comprehensive Income-Three and Nine Months Ended December 28, 2019 and , December 29, 2018	2
	Condensed Consolidated Statements of Cash Flows-Nine Months Ended December 28, 2019 and , December 29, 2018	3
	Condensed Consolidated Statement of Stockholders' Equity-Three and Nine Months Ended December 28, 2019	4
	Notes to Condensed Consolidated Financial Statements	6
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3	Quantitative and Qualitative Disclosures about Market Risk	23
Item 4	Controls and Procedures	24
PART II	OTHER INFORMATION
Item 1	Legal Proceedings	25
Item 1A	Risk Factors	25
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3	Defaults Upon Senior Securities	25
Item 4	Mine Safety Disclosures	25
Item 5	Other Information	25
Item 6	Exhibits	25
SIGNATURES		26

 

 

		Unaudited				Unaudited
		December 28, 2019				December 29, 2018				March 31, 2019
ASSETS
Current Assets:
Cash and Cash Equivalents		$	13,858			$	12,828			$	11,480
Accounts Receivable, Net			79,040				82,892				84,122
Contracts Receivable			7,620				-				-
Current Assets Held For Sale			-				20,339				1,568
Current Assets Held For Sale-Discontinued Operations			98				12,063				98
Inventories			493,065				575,935				501,684
Refundable Income Taxes			-				1,422				1,221
Other Current Assets			6,272				4,520				3,075
Total Current Assets			599,953				709,999				603,248
Property, Plant and Equipment, Net			219,311				246,014				239,273
Right-of-Use Assets Operating Net			67,915				-				-
Right-of-Use Assets Financing, Net			34,784				-				-
Deferred Income Taxes, Net			-				1,417				2,417
Noncurrent Assets Held For Sale-Discontinued Operations			1,054				1,739				1,143
Other Assets			9,643				2,890				2,801
Total Assets		$	932,660			$	962,059			$	848,882
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable		$	84,295			$	93,586			$	61,024
Deferred Revenue			12,105				6,829				4,098
Accrued Vacation			11,898				11,404				11,678
Accrued Payroll			6,157				5,350				5,105
Other Accrued Expenses			19,903				22,194				19,363
Income Taxes Payable			4,869				-				-
Current Liabilities Held For Sale			-				142				61
Current Liabilities Held For Sale-Discontinued Operations			2,744				8,697				4,285
Current Portion of Operating Lease Obligations			24,430				-				-
Current Portion of Financing Lease Obligations			6,584				-				-
Current Portion of Capital Lease Obligations			-				5,922				6,418
Current Portion of Long-Term Debt			-				314,657				345
Total Current Liabilities			172,985				468,781				112,377
Long-Term Debt, Less Current Portion			225,337				10,715				265,900
Operating Lease Obligations, Less Current Portion			47,965				-				-
Financing Lease Obligations, Less Current Portion			27,007				-				-
Capital Lease Obligations, Less Current Portion			-				29,730				31,286
Pension Liabilities			19,463				27,356				17,349
Deferred Income Taxes, Net			866				-				-
Noncurrent Liabilities Held For Sale			-				593				305
Other Long-Term Liabilities			3,852				4,851				4,180
Total Liabilities			497,475				542,026				431,397
Commitments and Contingencies
Stockholders' Equity:
Preferred Stock			703				707				707
Common Stock, $.25 Par Value Per Share			3,040				3,038				3,039
Additional Paid-in Capital			98,338				98,236				98,260
Treasury Stock, at Cost			(87,194	)			(74,896	)			(75,740	)
Accumulated Other Comprehensive Loss			(18,285	)			(25,186	)			(18,285	)
Retained Earnings			438,583				418,134				409,504
Total Stockholders' Equity			435,185				420,033				417,485
Total Liabilities and Stockholders’ Equity		$	932,660			$	962,059			$	848,882

 

		Three Months Ended								Nine Months Ended
		December 28, 2019				December 29, 2018				December 28, 2019				December 29, 2018
Net Sales		$	392,971			$	372,238			$	1,027,898			$	936,991
Costs and Expenses:
Cost of Product Sold			340,694				374,334				932,392				911,291
Selling, General and Administrative			19,986				19,389				53,936				55,432
Plant Restructuring Charge			793				1,396				6,745				2,279
Other Operating (Income) Loss			(1,617	)			776				(8,618	)			(3,498	)
Total Costs and Expenses			359,856				395,895				984,455				965,504
Operating Income (Loss)			33,115				(23,657	)			43,443				(28,513	)
Other Income			(1,656	)			(607	)			(5,263	)			(2,649	)
Interest Expense, Net			2,690				3,864				9,183				11,587
Earnings (Loss) From Continuing Operations Before Income Taxes			32,081				(26,914	)			39,523				(37,451	)
Income Taxes (Benefit) From Continuing Operations			7,653				(6,874	)			9,357				(9,617	)
Earnings (Loss) From Continuing Operations			24,428				(20,040	)			30,166				(27,834	)
Earnings From Discontinued Operations (net of income taxes)			955				34,056				955				42,211
Net Earnings		$	25,383			$	14,016			$	31,121			$	14,377
Basic Earnings (Loss) per Common Share:
Continuing Operations		$	2.65			$	(2.07	)		$	3.23			$	(2.86	)
Discontinued Operations		$	0.10			$	3.52			$	0.10			$	4.34
Net Basic Earnings per Common Share		$	2.75			$	1.45			$	3.33			$	1.48
Diluted Earnings (Loss) per Common Share:
Continuing Operations		$	2.63			$	(2.07	)		$	3.20			$	(2.86	)
Discontinued Operations		$	0.10			$	3.50			$	0.10			$	4.31
Net Diluted Earnings per Common Share		$	2.73			$	1.43			$	3.31			$	1.45

 

		Three Months Ended								Nine Months Ended
		December 28, 2019				December 29, 2018				December 28, 2019				December 29, 2018
Comprehensive income:
Net earnings		$	25,383			$	14,016			$	31,121			$	14,377
Change in pension, post retirement benefits and other (net of tax)			-				17				-				119
Total		$	25,383			$	14,033			$	31,121			$	14,496

 

		Nine Months Ended
		December 28, 2019				December 29, 2018
Cash Flows from Operating Activities:
Net Earnings (Loss) From Continuing Operations		$	30,166			$	(27,834	)
Net Earnings From Discontinued Operations (Net of Tax)			955				42,211
Adjustments to Reconcile Net Earnings (Loss) to
Net Cash Provided By Operations:
Depreciation & Amortization			22,644				23,550
Gain on the Sale of Assets			(9,049	)			(55,863	)
Provision for Restructuring and Impairment			5,573				6,537
Deferred Income Tax Benefit			3,283				4,159
Changes in Operating Assets and Liabilities:
Accounts Receivable			(2,538	)			(5,537	)
Inventories			8,619				52,836
Other Current Assets			(3,197	)			(8,353	)
Income Taxes			6,763				(280	)
Accounts Payable, Accrued Expenses and Other Liabilities			52,101				15,004
Net Cash Provided By Operations			115,320				46,430
Cash Flows from Investing Activities:
Additions to Property, Plant and Equipment			(47,681	)			(30,468	)
Proceeds from the Sale of Assets			22,175				84,975
Net Cash (Used In) Provided By Investing Activities			(25,506	)			54,507
Cash Flows from Financing Activities:
Long-Term Borrowing			401,053				419,102
Payments on Long-Term Debt and Lease Obligations			(465,099	)			(517,187	)
Other Assets			(7,125	)			226
Payments on Financing Leases			(4,799	)			-
Purchase of Treasury Stock			(11,454	)			(5,340	)
Dividends			(12	)			(12	)
Net Cash Used In Financing Activities			(87,436	)			(103,211	)
Net Increase (Decrease) in Cash and Cash Equivalents			2,378				(2,274	)
Cash and Cash Equivalents, Beginning of the Period			11,480				15,102
Cash and Cash Equivalents, End of the Period		$	13,858			$	12,828
Supplemental Disclosures of Cash Flow Information:
Noncash Transactions:
Property, Plant and Equipment Purchased Under Lease Obligations		$	9,782			$	258

 

																		Accumulated
										Additional								Other
		Preferred				Common				Paid-In				Treasury				Comprehensive				Retained
		Stock				Stock				Capital				Stock				Loss				Earnings
First Quarter FY 2020:
Balance March 31, 2019		$	707			$	3,039			$	98,260			$	(75,740	)		$	(18,285	)		$	409,504
Net earnings			-				-				-				-				-				1,103
Cash dividends paid on preferred stock			-				-				-				-				-				(12	)
Equity incentive program			-				-				25				-				-				-
Purchase treasury stock			-				-				-				(2,744	)			-				-
Operating lease impairment adjustment upon the adoption of ASU 2016-02 "Leases" (net of tax)			-				-				-				-				-				(2,019	)
Balance June 29, 2019		$	707			$	3,039			$	98,285			$	(78,484	)		$	(18,285	)		$	408,576
Second Quarter FY 2020:
Net earnings			-				-				-				-				-				4,635
Equity incentive program			-				-				25				-				-				-
Preferred stock conversion			(4	)			1				3				-				-				-
Purchase treasury stock			-				-				-				(5,836	)			-				-
Balance September 28, 2019		$	703			$	3,040			$	98,313			$	(84,320	)		$	(18,285	)		$	413,211
Third Quarter FY 2020:
Net earnings			-				-				-				-				-				25,383
Cash dividends paid on preferred stock			-				-				-				-				-				(11	)
Equity incentive program			-				-				25				-				-				-
Purchase treasury stock			-				-				-				(2,874	)			-				-
Balance December 28, 2019		$	703			$	3,040			$	98,338			$	(87,194	)		$	(18,285	)		$	438,583
First Quarter FY 2019:
Balance March 31, 2018		$	707			$	3,038			$	98,161			$	(69,556	)		$	(25,067	)		$	403,780
Net loss			-				-				-				-				-				(8,755	)
Cash dividends paid on preferred stock			-				-				-				-				-				(12	)
Equity incentive program			-				-				25				-				-				-
Change in pension, post retirement benefits, other (net of tax)			-				-				-				-				(51	)			-
Balance June 30, 2018		$	707			$	3,038			$	98,186			$	(69,556	)		$	(25,118	)		$	395,013
Second Quarter FY 2019:
Net earnings			-				-				-				-				-				9,116
Equity incentive program			-				-				25				-				-				-
Purchase treasury stock			-				-				-				(1,579	)			-				-
Change in pension, post retirement benefits, other (net of tax)			-				-				-				-				(51	)			-
Balance September 29, 2018		$	707			$	3,038			$	98,211			$	(71,135	)		$	(25,169	)		$	404,129
Third Quarter FY 2019:
Net earnings			-				-				-				-				-				14,016
Cash dividends paid on preferred stock			-				-				-				-				-				(11	)
Equity incentive program			-				-				25				-				-				-
Purchase treasury stock			-				-				-				(3,761	)			-				-
Change in pension, post retirement benefits, other (net of tax)			-				-				-				-				(17	)			-
Balance December 29, 2018		$	707			$	3,038			$	98,236			$	(74,896	)		$	(25,186	)		$	418,134

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 28, 2019

200,000

1,400,000

37,155

500

20,000,000

10,000,000

Shares outstanding:

December 28, 2019

200,000

807,240

37,155

500

7,416,735

1,735,636

 

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 28, 2019 and December 29, 2018 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, 2019 balance sheet was derived from the audited consolidated financial statements.

 

The results of operations for the three and nine month periods ended December 28, 2019 are not necessarily indicative of the results to be expected for the full year.

During the nine months ended December 28, 2019, the Company sold on a gross basis including casing and labeling and future warehousing $116,515,000 of Green Giant finished goods inventory to B&G Foods, Inc. for cash, on a bill and hold basis, as compared to $65,741,000 for the nine months ended December 29, 2018. Under the terms of the bill and hold agreement, title to the specified inventory transferred to B&G. Under the new revenue recognition standard, this contract qualifies for bill and hold accounting treatment as the Company has concluded that control of the unlabeled products transfers to the customer at the time title transfers and the Company has the right to payment (prior to physical delivery), which results in earlier revenue recognition. Labeling and storage services that are provided after control of the goods has transferred to the customer are accounted for as separate performance obligations for which revenue is deferred until the services are performed.

 

The accounting policies followed by the Company are set forth in Note 1 to the Company's Consolidated Financial Statements in the Company’s 2019 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 2019 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.

 

2.	Discontinued Operations

 

On July 13, 2018, the Company executed a nonbinding letter of intent with a perspective buyer of the Modesto facility. On October 9, 2018, the Company closed on the sale of the facility to this outside buyer with net proceeds of $63,326,000. During the second quarter of fiscal 2019, the Company ceased use of the Modesto facility. Based on its magnitude of revenue to the Company (approximately 15%) and because the Company was exiting the production of peaches, this sale represented a significant strategic shift that has a material effect on the Company’s operations and financial results. Accordingly, the Company has applied discontinued operations treatment for this sale as required by Accounting Standards Codification 210-05—Discontinued Operations. This business we are exiting is part of the Fruit and Vegetable segment.

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 28, 2019

 

The following table presents information related to the major classes of assets and liabilities of Modesto that are classified as Held For Sale-Discontinued Operations in the Company's Consolidated Condensed balance sheets (in thousands):

 

 

The operating results of the discontinued operations that are reflected in the Unaudited Condensed Consolidated Statements of Net Earnings (Loss) from discontinued operations are as follows (in thousands):

 

 

	(a)	Includes $902,000 credit for pension termination in both the three and nine month periods of the current year.
		Includes $278,000 and $3,579,000 of Modesto severance in the three and nine month periods of prior year, respectively.
	(b)	Includes interest on debt directly related to Modesto including the building mortgage and equipment capital leases and an allocation of the Company's line of credit facilty.
	(c)	Includes a $24,211,000 gain from LIFO layer liquidations from the disposal of the inventory for both prior three and nine months.
	(d)	Includes a $4,975,000 gain on the sale of bins for the prior nine months period.

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 28, 2019

 

3.	Revenue Recognition

 

In the following table, segment revenue is disaggregated by product category groups (in millions).

 

 

*B&G includes both canned and frozen vegetable sales exclusively for B&G.

 

 

4.	Inventories

 

First-In, First-Out (“FIFO”) based inventory costs exceeded LIFO based inventory costs by $153,884,000 as of the end of the third quarter of fiscal 2020 as compared to $160,727,000 as of the end of the third quarter of fiscal 2019. The change in the LIFO Reserve for the three months ended December 28, 2019 was a decrease of $11,337,000 as compared to an increase of $25,776,000 for the three months ended December 29, 2018.

 

The change in the LIFO Reserve for the nine months ended December 28, 2019 was a decrease of $7,457,000 as compared to an increase of $15,722,000 for the nine months ended December 29, 2018. The prior year-to-date decrease includes a decrease of $24,211,000 related to the LIFO impact of gain on sale of Modesto Fruit which is included in Other Operating Income under Discontinued Operations. The $15,722,000 also includes an increase of $39,933,000 related to Continuing Operations included in Cost of Product Sold. This reflects the projected impact of the disposal of Modesto Fruit partially offset by an overall cost increase expected in fiscal 2020 versus fiscal 2019.

 

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 28, 2019

 

5.

Leases

 

The Company determines if an arrangement is a lease at inception of the agreement. Operating leases are included in right-of-use operating assets, and current and noncurrent operating lease obligations in the Company’s Condensed Consolidated Balance Sheets. Lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. If the lease does not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The right-of-use operating lease assets also include in its calculation any prepaid lease payments made and excludes any lease incentives received from the arrangement. The Company’s lease terms may include options to extend or terminate the lease, and the impact of these options are included in the lease liability and lease asset calculations when the exercise of the option is at the Company’s sole discretion and it is reasonably certain that the Company will exercise that option. The Company will not separate lease and nonlease components for its leases when it is impractical to separate the two, such as leases with variable payment arrangements. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

 

The Company has operating leases for land, machinery and equipment. The Company also has finance leases for machinery and equipment. The commencement date used for the calculation of the lease obligation is the latter of the commencement date of the new standard (April 1, 2019) or the lease start date. Certain of the leases have options to extend the life of the lease, which are included in the liability calculation when the option is at the sole discretion of the Company and it is reasonably certain that the Company will exercise the option. In addition, the Company has certain leases that have variable payments based solely on output or usage of the leased asset. These variable operating lease assets are excluded from the Company’s balance sheet presentation and expensed as incurred. Leases with an initial term of 12 months or less are not material. The Company currently has finance leases which were accounted for as capital leases under the previous standard and were unchanged as a result of this standard implementation.

 

Upon adoption of ASU 2016-02, the Company determined its right-of-use assets related to the operating leases for its plant equipment in Sunnyside, Washington were partially impaired and therefore were reduced with a corresponding charge to retained earnings of $2,019,000 (which is net of tax). The estimated lives of these assets will be shortened due to the planned closure of the facility after the year’s pack.

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 28, 2019

 

Lease expense for lease payments is recognized on a straight-line basis over the lease term. The components of lease expense were as follows (In thousands):

 

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 28, 2019

 

Undiscounted future lease payments under non-cancelable operating leases and financial leases, along with a reconciliation of undiscounted cash flows to operating and financing lease liabilities, respectively, as of December 28, 2019 (in thousands) were as follows:

 

 

As the Company has not restated prior year information for its adoption of ASC Topic 842, the following presents its future minimum lease payments for operating and capital leases under ASC Topic 840 on March 31, 2019:

 

 

 

6.	Revolving Credit Facility

 

The Company has a five-year revolving credit facility (“Revolver”) with maximum borrowings totaling $400,000,000 from April through July and $500,000,000 from August through March and the Revolver matures on July 5, 2021. The Revolver balance as of December 28, 2019 was $114,689,000 and is included in Long-Term Debt in the accompanying Condensed Consolidated Balance Sheet. 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.

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 28, 2019

 

The decrease in the reported average outstanding Revolver borrowings during the first nine months of fiscal 2020 compared to the first nine months of fiscal 2019 was attributable to the sale of various Company facilities during the period.

 

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 of fiscal 2020 and fiscal 2019:

 

 

7.	Stockholders’ Equity

 

During the nine-month period ended December 28, 2019 the Company repurchased $7,571,000 of its Class A Common Stock and $3,883,000 of Class B Common Stock as Treasury Stock. As of December 28, 2019, there are 3,008,762 shares or $87,194,000 of repurchased stock. These shares are not considered outstanding.

 

8.	Retirement Plans

 

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

 

 

There were no contributions to the pension plan in the three and nine month periods ended December 28, 2019 and December 29, 2018, respectively.

 

Effective January 1, 2020, the Company closed its defined benefit pension plan to new participants. Employees excluded from the pension plan have a 3% match opportunity in the 401(k) plan.

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 28, 2019

 

9.	Plant Restructuring

 

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

 

 

 

During the nine months ended December 28, 2019 the Company recorded a restructuring charge of $6,745,000 related to the closing of plants in the Midwest and Northwest of which $5,266,000 was for accelerated amortization of right-of-use operating lease assets, $2,354,000 was mostly related to equipment moves and $1,000,000 was related to severance. The Company also recorded a credit of $1,875,000 for the reduced lease liability of previously impaired leases.

 

During the nine months ended December 29, 2018, the Company recorded a restructuring charge of $2,279,000 related to the closing and sale of plants in the East and Northwest of which $1,333,000 was related to severance cost, and $946,000 which was related to other costs (mostly equipment moves).

 

10.	Other Operating Income and Expense

 

During the nine months ended December 28, 2019 the Company recorded a gain on the partial sale of a plant in the Midwest of $3,742,000 and a gain on the partial sale of a plant in the Northwest of $1,737,000. The Company also recorded a gain of on the sale of unused fixed assets of $3,139,000.

 

During the nine months ended December 29, 2018, the Company sold unused fixed assets which resulted in a gain of $3,920,000 mostly related to the sale of a closed plant in the Midwest. These items are included in other operating income (loss) in the Unaudited Condensed Consolidated Statements of Net Earnings.

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 28, 2019

 

11.	Recently Issued Accounting Standards

 

In February 2016, the FASB issued ASU 2016-02, “Leases.” ASU 2016-02 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. In July 2018, the FASB issued ASU No. 2018-11, Targeted Improvements – Leases (Topic 842)." This update provides an optional transition method that allows entities to elect to apply the standard retrospectively at the beginning of the period of adoption, versus recasting the prior periods presented. If elected, an entity would recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This guidance is effective for annual periods beginning after December 15, 2018. We adopted ASU 2016-02 as of April 1, 2019, using the optional transition method provided by ASU 2018-11.  The standard resulted in the initial recognition of $88,333,000 of total operating lease assets and $91,025,000 of net operating lease liabilities and a net adjustment to retained earnings totaling $2,019,000 ($2,692,000 less tax effect of $673,000) on the Condensed Consolidated Balance Sheet on April 1, 2019. The standard did not materially impact the Condensed Consolidated Statement of Income or Condensed Consolidated Statement of Cash Flows. At adoption, the Company recorded an adjustment to retained earnings of $2,019,000, which includes an impairment loss that was related to a Northwest plant impairment which was incurred in March 2019 just prior to adoption of this standard. The disclosures required by the recently adopted accounting standard are included in Note 5 of the Notes to the Condensed Consolidated Financial Statements.

 

In August 2018, the FASB issued ASU No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which modifies the disclosure requirements for defined benefit pension plans and other postretirement plans. ASU 2018-14 is effective for annual periods beginning after December 15, 2020, with early adoption permitted. The amendments in this ASU should be applied on a retrospective basis to all periods presented. We are currently evaluating the effect that ASU 2018-14 will have on our condensed consolidated financial statements and related disclosures.

 

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 other new accounting pronouncements during the quarter ended December 28, 2019.

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 28, 2019

 

12.	Earnings per Common Share From Continuing Operations

 

Earnings per share for the three and nine months ended December 28, 2019 and December 29, 2018 are as follows:

 

 

Note: For fiscal 2019 addbacks for equity compensation and additional shares that were anti-dilutive were excluded.

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 28, 2019

 

Earnings per Common Share From Discontinued Operations

 

 

Note: For fiscal 2019, add backs for equity compensation and additional shares that were anti-dilutive were excluded.

 

13.	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 $225,337,000 and an estimated fair value of $225,287,000 as of December 28, 2019. Long-term debt, including current portion had a carrying amount of $325,373,000 and an estimated fair value of $325,276,000 as of December 29, 2018. As of March 31, 2019, the carrying amount was $266,245,000 and the estimated fair value was $266,140,000. The fair values of all the other financial instruments approximate their carrying value due to their short-term nature.

 

14.	Income Taxes

 

The effective tax rate from continuing operations was 23.7% and 25.7% for the nine month periods ended December 28, 2019 and December 29, 2018, respectively. The 2.0 percentage point decrease in the effective tax rate is due primarily to federal income tax credits and incentives.  The dollar amount of the federal credits and incentives did not change significantly from 2019 to 2020. The decrease is the result of having a pre-tax loss in 2018 and pre-tax income in 2019. The 2018 federal credits and incentives created a tax benefit which increased the tax rate because of the pre-tax loss.  The 2019 federal credits and incentives also created a tax benefit.  However, in 2019 the tax benefit decreased the tax rate because of the pre-tax income.