Seneca Foods Corp - Quarter Report: 2019 June (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 June 29, 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

 

                                                                                                                                                                             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

 

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:

 

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

Emerging growth company ☐

 

 

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 ☐ 

 

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

Yes ☐ No  ☑

 

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 July 31, 2019
Common Stock Class A, $.25 Par	7,540,472
Common Stock Class B, $.25 Par	1,753,361

 

 

 

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-June 29, 2019, June 30, 2018 and March 31, 2019	1
	Condensed Consolidated Statements of Net Earnings (Loss)-Three Months Ended  June 29, 2019 and June 30, 2018	2
	Condensed Consolidated Statements of Comprehensive Income (Loss)-Three Months Ended  June 29, 2019 and June 30, 2018	2
	Condensed Consolidated Statements of Cash Flows-Three Months Ended  June 29, 2019 and June 30, 2018	3
	Condensed Consolidated Statements of Stockholders' Equity-Three Months Ended  June 29, 2019 and June 30, 2018	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3	Quantitative and Qualitative Disclosures about Market Risk	24
Item 4	Controls and Procedures	25
PART II	OTHER INFORMATION
Item 1	Legal Proceedings	26
Item 1A	Risk Factors	26
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3	Defaults Upon Senior Securities	26
Item 4	Mine Safety Disclosures	26
Item 5	Other Information	26
Item 6	Exhibits	26
SIGNATURES		27

 

 

 

		Unaudited				Unaudited
		June 29, 2019				June 30, 2018				March 31, 2019
ASSETS
Current Assets:
Cash and Cash Equivalents		$	16,901			$	12,626			$	11,480
Accounts Receivable, Net			74,000				73,743				84,122
Contracts Receivable			5,157				-				-
Current Assets Held For Sale			-				3,859				1,568
Current Assets Held For Sale-Discontinued Operations			98				16,696				98
Inventories			493,498				567,594				501,684
Refundable Income Taxes			441				1,505				1,221
Other Current Assets			3,577				3,277				3,075
Total Current Assets			593,672				679,300				603,248
Property, Plant and Equipment, Net			206,188				252,045				239,273
Right-of-Use Assets Operating Net			83,742				-				-
Right-of-Use Assets Financing, Net			34,294				-				-
Deferred Income Taxes, Net			3,722				7,805				2,417
Noncurrent Assets Held For Sale-Discontinued Operations			1,143				21,632				1,143
Other Assets			2,547				3,394				2,801
Total Assets		$	925,308			$	964,176			$	848,882
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable		$	77,571			$	87,336			$	61,024
Deferred Revenue			1,936				3,080				4,098
Accrued Vacation			11,843				12,696				11,678
Accrued Payroll			6,002				7,748				5,105
Other Accrued Expenses			17,550				25,072				19,363
Current Liabilities Held For Sale			-				-				61
Current Liabilities Held For Sale-Discontinued Operations			3,653				33,656				4,285
Current Portion of Operating Lease Obligations			26,641				-				-
Current Portion of Financing Lease Obligations			6,573				-				-
Current Portion of Capital Lease Obligations			-				5,863				6,418
Current Portion of Long-Term Debt			88				4,873				345
Total Current Liabilities			151,857				180,324				112,377
Long-Term Debt, Less Current Portion			246,645				318,282				265,900
Operating Lease Obligations, Less Current Portion			60,979				-				-
Financing Lease Obligations, Less Current Portion			29,907				-				-
Capital Lease Obligations, Less Current Portion			-				32,835				31,286
Pension Liabilities			18,005				24,761				17,349
Noncurrent Liabilities Held For Sale			-				-				305
Noncurrent Liabilities Held For Sale-Discontinued Operations			-				624				-
Other Long-Term Liabilities			4,077				5,080				4,180
Total Liabilities			511,470				561,906				431,397
Commitments and Contingencies
Stockholders' Equity:
Preferred Stock			707				707				707
Common Stock, $.25 Par Value Per Share			3,039				3,038				3,039
Additional Paid-in Capital			98,285				98,186				98,260
Treasury Stock, at Cost			(78,484	)			(69,556	)			(75,740	)
Accumulated Other Comprehensive Loss			(18,285	)			(25,118	)			(18,285	)
Retained Earnings			408,576				395,013				409,504
Total Stockholders' Equity			413,838				402,270				417,485
Total Liabilities and Stockholders’ Equity		$	925,308			$	964,176			$	848,882

---

 

		Three Months Ended
		June 29, 2019				June 30, 2018
Net Sales		$	264,925			$	244,093
Costs and Expenses:
Cost of Product Sold			245,751				227,305
Selling, General and Administrative			16,258				17,688
Plant Restructuring Charge			4,806				38
Other Operating Income			(4,827	)			(915	)
Total Costs and Expenses			261,988				244,116
Operating Income (Loss)			2,937				(23	)
Other Income			(1,803	)			(1,020	)
Interest Expense, Net			3,352				3,825
Earnings (Loss) From Continuing Operations Before Income Taxes			1,388				(2,828	)
Income Taxes (Benefit) From Continuing Operations			285				(668	)
Earnings (Loss) From Continuing Operations			1,103				(2,160	)
Earnings (Loss) From Discontinued Operations (net of income taxes)			-				(6,595	)
Net Earnings (Loss)		$	1,103			$	(8,755	)
Basic Earnings (Loss) per Common Share:
Continuing Operations		$	0.12			$	(0.22	)
Discontinued Operations		$	-			$	(0.67	)
Net Basic Earnings (Loss) per Common Share		$	0.12			$	(0.90	)
Diluted Earnings (Loss) per Common Share:
Continuing Operations		$	0.12			$	(0.22	)
Discontinued Operations		$	-			$	(0.67	)
Net Diluted Earnings (Loss) per Common Share		$	0.12			$	(0.90	)

 

		Three Months Ended
		June 29, 2019				June 30, 2018
Comprehensive income (loss):
Net earnings (loss)		$	1,103			$	(8,755	)
Change in pension, post retirement benefits and other (net of tax)			-				51
Total		$	1,103			$	(8,704	)

---

 

		Three Months Ended
		June 29, 2019				June 30, 2018
Cash Flows from Operating Activities:
Net Earnings (Loss) From Continuing Operations		$	1,103			$	(2,160	)
Net Loss From Discontinued Operations (Net of Tax)			-				(6,595	)
Adjustments to Reconcile Net Earnings (Loss) to
Net Cash Used In Operations:
Depreciation & Amortization			7,382				8,046
Gain on the Sale of Assets			(4,663	)			(6,444	)
Provision for Restructuring and Impairment			4,806				1,820
Deferred Income Tax Benefit			(1,305	)			(2,229	)
Changes in Operating Assets and Liabilities:
Accounts Receivable			4,965				(9,827	)
Inventories			8,186				74,622
Other Current Assets			(502	)			(1,210	)
Income Taxes			1,453				(363	)
Accounts Payable, Accrued Expenses and Other Liabilities			16,418				31,290
Net Cash Provided By Operations			37,843				86,950
Cash Flows from Investing Activities:
Additions to Property, Plant and Equipment			(9,776	)			(10,462	)
Proceeds from the Sale of Assets			6,398				10,387
Net Cash Used In Investing Activities			(3,378	)			(75	)
Cash Flows from Financing Activities:
Long-Term Borrowing			93,600				89,546
Payments on Long-Term Debt and Lease Obligations			(118,272	)			(178,845	)
Other Assets			-				(40	)
Payments on Financing Leases			(1,616	)			-
Purchase of Treasury Stock			(2,744	)			-
Dividends			(12	)			(12	)
Net Cash Used In Financing Activities			(29,044	)			(89,351	)
Net Increase (Decrease) in Cash and Cash Equivalents			5,421				(2,476	)
Cash and Cash Equivalents, Beginning of the Period			11,480				15,102
Cash and Cash Equivalents, End of the Period		$	16,901			$	12,626
Supplemental Disclosures of Cash Flow Information:
Noncash Transactions:
Property, Plant and Equipment Purchased Under Lease Obligations		$	4,775			$	-

---

 

																		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
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				-				-				-
Purchase treasury stock			-				-				-				-				-				-
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

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:

June 29, 2019

200,000

1,400,000

37,529

500

20,000,000

10,000,000

Shares outstanding:

June 29, 2019

200,000

807,240

37,529

500

7,557,913

1,874,861

---

 

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 June 29, 2019 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, 2019 balance sheet was derived from the audited consolidated financial statements.

 

The results of operations for the three month period ended June 29, 2019 are not necessarily indicative of the results to be expected for the full year.

During the three months ended June 29, 2019, the Company sold $5,706,000 of Green Giant finished goods inventory to B&G Foods, Inc. for cash, on a bill and hold basis, as compared to $6,885,000 for the three months ended June 30, 2018. Under the terms of the bill and hold agreement, title to the specified inventory is 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 as the customer has the right to control the inventory (prior to physical delivery) and the Company has a right to payment, 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. The business we exited is part of the Fruit and Vegetable segment.

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

June 29, 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 Condensed Consolidated Balance Sheets (in thousands):

 

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

June 29, 2019

 

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:

 

 

 

(a)	Includes $1,653,000 of Modesto severance in first quarter of fiscal 2019.
(b)	Includes interest on debt directly related to Modesto including the building mortgage and equipment leases and an allocation of the Company's line of credit facility.
(c)	Includes $663,000 gain on the sale of Modesto equipment in first quarter of fiscal 2019.
(d)	Includes a $4,975,000 gain on the sale of bins in the first quarter of fiscal 2019.

 

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

June 29, 2019

 

 

3.	Revenue Recognition

 

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

 

 

*B&G includes 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 $164,517,000 as of the end of the first quarter of fiscal 2020 as compared to $121,607,000 as of the end of the first quarter of fiscal 2019. The change in the LIFO Reserve for the three months ended June 29, 2019 was an increase of $3,176,000 as compared to a decrease of $710,000 for the three months ended June 30, 2018. The following table shows inventory by category and the related LIFO balance (in thousands):

 

 

 

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.

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

June 29, 2019

 

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). Lastly, 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)

June 29, 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:

 

 

Estimated 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 June 29, 2019 (in thousands) were as follows:

 

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

June 29, 2019

 

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 entered into a 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 June 29, 2019 was $136,014,000 and is included in Long-Term Debt in the accompanying Condensed Consolidated Balance Sheets 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.

 

The decrease in average amount of Revolver borrowings during the first three months of fiscal 2020 compared to the first three months of fiscal 2019 was attributable to the sale of certain Company facilities during the last year (mostly Modesto, California).

 

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

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

June 29, 2019

 

The following table documents the quantitative data for Revolver borrowings during the first quarter of fiscal 2020 and fiscal 2019:

 

 

 

7.	Stockholders’ Equity

 

During the three-month period ended June 29, 2019, the Company repurchased $2,744,000 of its Class A Common Stock as Treasury Stock. As of June 29, 2019, there are 2,864,133 shares or $78,484,000 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 was no contribution to the pension plan in the three month periods ended June 29, 2019 or June 30, 2018.

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

June 29, 2019

 

 

9.	Plant Restructuring

The following table summarizes the rollforward of restructuring charges and accelerated amortization of operating leases recorded and the accruals established:

 

 

 

 

During the quarter ended June 29, 2019, the Company recorded a restructuring charge of $4,806,000 related to the closing of plants in the Midwest and Northwest, of which $1,975,000 was mostly related to equipment moves and $586,000 was related to severance. In addition, the Company recorded $2,245,000 for accelerated amortization of right-of-use operating lease assets due to the planned closure of Sunnyside this Fall.

 

During the quarter ended June 30, 2018, the Company recorded a restructuring charge of $38,000 related to the closing of a plant in the Northwest.

 

 

10.	Other Operating Income and Expense

 

During the three months ended June 29, 2019, the Company recorded a gain on the partial sale of a plant in the Midwest of $4,075,000. The Company also recorded a gain of on the sale of unused fixed assets of $752,000. During the three months ended June 30, 2018, the Company sold unused fixed assets which resulted in a gain of $806,000. These items are included in other operating income in the Unaudited Condensed Consolidated Statements of Net Earnings (Loss).

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

June 29, 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.  The Company adjustment to retained earnings of $2,019,000, was due to 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 June 29, 2019.

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

June 29, 2019

 

 

12.	Earnings per Common Share

 
Earnings per share from continuing and discontinued operations for the quarters ended June 29, 2019 and June 30, 2018 are as follows:

 

 

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

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

June 29, 2019

 

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 $246,733,000 and an estimated fair value of $246,639,000 as of June 29, 2019. 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.

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

June 29, 2019

 

 

14.	Income Taxes

 

The effective tax rate for continuing operations was 20.5% and 23.6% for the three month periods ended June 29, 2019 and June 30, 2018, respectively. The change in tax rate resulting from federal credits and incentives is a 4.0 percentage point decrease.  This change is a majority of the 3.1 percentage point decrease in the effective tax rate.  The dollar amount of these credits and incentives did not change significantly from 2019 to 2020.  The decrease is the result of the change in projected pre-tax income from 2019 to 2020. This resulted in the federal credits and incentives having a larger impact on the tax rate in 2020.

 

 

15\.	Legal Proceedings and Other Contingencies

 

In the ordinary course of its business, the Company is made a party to certain legal proceedings seeking monetary damages, including proceedings involving product liability claims, workers’ compensation along with other employee claims, tort and other general liability claims, for which it carries insurance, as well as patent infringement and related litigation. The Company is in a highly regulated industry and is also periodically involved in government actions for regulatory violations and other matters surrounding the manufacturing of its products, including, but not limited to, environmental, employee, and product safety issues. While it is not feasible to predict or determine the ultimate outcome of these matters, the Company does not believe that an adverse decision in any of these legal proceedings would have a material adverse impact on its financial position, results of operations, or cash flows.

 

 

 

 

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