Quick10K

Seneca Foods

Price	31.28		EPS	1
Shares	9		P/E	27
MCap	295		P/FCF	3
Net Debt	226		EBIT	17
TEV	522		TEV/EBIT	31
TTM 2019-09-28, in MM, except price, ratios

10-Q	2020-06-27	Filed 2020-08-05 Print
10-K	2020-03-31	Filed 2020-07-02 Print
10-Q	2019-12-28	Filed 2020-02-05 Print
10-Q	2019-09-28	Filed 2019-11-06 Print
10-Q	2019-06-29	Filed 2019-08-07 Print
10-K	2019-03-31	Filed 2019-06-13 Print
10-Q	2018-12-29	Filed 2019-02-01 Print
10-Q	2018-09-29	Filed 2018-11-09 Print
10-Q	2018-06-30	Filed 2018-07-31 Print
10-K	2018-03-31	Filed 2018-06-29 Print
10-Q	2017-12-30	Filed 2018-01-25 Print
10-Q	2017-09-30	Filed 2017-10-26 Print
10-Q	2017-07-01	Filed 2017-07-31 Print
10-K	2017-03-31	Filed 2017-05-25 Print
10-Q	2016-12-31	Filed 2017-01-25 Print
10-Q	2016-10-01	Filed 2016-11-07 Print
10-Q	2016-07-02	Filed 2016-07-29 Print
10-K	2016-03-31	Filed 2016-06-08 Print
10-Q	2015-12-26	Filed 2016-02-02 Print
10-Q	2015-09-26	Filed 2015-11-02 Print
10-Q	2015-06-27	Filed 2015-07-31 Print
10-K	2015-03-31	Filed 2015-06-09 Print
10-Q	2014-12-27	Filed 2015-02-02 Print
10-Q	2014-09-27	Filed 2014-10-23 Print
10-Q	2014-06-28	Filed 2014-08-06 Print
10-K	2014-03-31	Filed 2014-05-22 Print
10-Q	2013-12-28	Filed 2014-01-29 Print
10-Q	2013-09-28	Filed 2013-10-23 Print
10-Q	2013-06-29	Filed 2013-08-01 Print
10-K	2013-03-31	Filed 2013-05-23 Print
10-Q	2012-12-29	Filed 2013-01-31 Print
10-Q	2012-09-29	Filed 2012-10-25 Print
10-Q	2012-06-30	Filed 2012-08-03 Print
10-K	2012-03-31	Filed 2012-06-08 Print
10-Q	2011-12-31	Filed 2012-01-27 Print
10-Q	2011-10-01	Filed 2011-10-27 Print
10-Q	2011-07-02	Filed 2011-08-03 Print
10-K	2011-03-31	Filed 2011-05-26 Print
10-Q	2011-01-01	Filed 2011-01-27 Print
10-Q	2010-10-02	Filed 2010-10-28 Print
10-Q	2010-07-03	Filed 2010-08-04 Print
10-K	2010-03-31	Filed 2010-05-26 Print
10-Q	2009-12-26	Filed 2010-02-02 Print

8-K	2020-08-31	Exhibits
8-K	2020-08-18
8-K	2020-08-05	Earnings, Exhibits
8-K	2020-06-12
8-K	2020-05-28
8-K	2020-03-31	Earnings, Exhibits
8-K	2020-02-05
8-K	2019-11-06
8-K	2019-08-22
8-K	2019-08-07
8-K	2019-08-07
8-K	2019-06-13
8-K	2019-05-09
8-K	2018-12-29
8-K	2018-12-07
8-K	2018-11-09
8-K	2018-08-10
8-K	2018-07-31
8-K	2018-07-27
8-K	2018-06-29
8-K	2018-06-28
8-K	2018-02-16
8-K	2018-01-25

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Balance Sheet	Income Statement	Cash Flow
CopyHistoryView Assets, Equity	CopyHistoryView Rev, G Profit, Net Income	CopyHistoryView Ops, Inv, Fin

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SENECA FOODS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Per Share Data)

 

 

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)

 

 

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)

 

 

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)

 

 

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)

 

 

 

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)
June 27, 2020

 

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 27, 2020 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, 2020 balance sheet was derived from the audited consolidated financial statements.

 

The results of operations for the three month period ended June 27, 2020 are not necessarily indicative of the results to be expected for the full year.

For the three months ended June 27, 2020 and June 29, 2019 the Company sold certain finished goods inventory for cash on a bill and hold basis.  The terms of the bill and hold agreement(s) provide that title to the specified inventory is transferred to the customer(s) prior to shipment and the Company has the right to payment (prior to physical delivery) which results in recorded revenue as determined under the revenue recognition standard.

 

The accounting policies followed by the Company are set forth in Note 1 to the Company's Consolidated Financial Statements in the Company’s 2020 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 2020 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. In addition, the Company has adjusted its prior quarter cash flow statement to properly reflect lease payments made on operating leases under ASC 842.  This adjustment reduced net cash provided by operations and reduced net cash used in financing activities.

 

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.

 

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SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 27, 2020

 

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 Balance Sheets (in thousands):

 

Copy History

		June 27				June 29		March 31
		2020				2019		2020
Other Current Assets			182				98	182
Current Assets Held For Sale-Discontinued Operations		$	182			$	98	182
Other Assets		$	1,026			$	1,143	1,026
Noncurrent Assets Held For Sale-Discontinued Operations		$	1,026			$	1,143	1,026
Accounts Payable and Accrued Expenses		$	-			$	3,653	880
Current Liabilities Held For Sale-Discontinued Operations		$	-			$	3,653	880

 

3.	Assets Held For Sale

 

As of June 27, 2020, the Company has certain non-operating units in the Midwest that met the criteria to be classified as held for sale, which requires the Company to present the related assets and liabilities as separate line items in our Condensed Consolidated Balance Sheet. The Company is required to record the assets held for sale at the lower of carrying value or fair value less costs to sell. The following table presents information related to the major classes of assets and liabilities that were held for sale in our Condensed Consolidated Balance sheets (in thousands):

 

Property, Plant and Equipment (net)		$	11,989
Current Assets Held For Sale		$	11,989

 

4.	Revenue Recognition

 

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

 

Copy History

		Three Months Ended
		June 27, 2020				June 29, 2019
Canned Vegetables		$	221.0			$	187.2
Frozen			17.9				18.2
Fruit Products			18.8				22.7
Chip Products			2.4				2.9
Prepared Foods			24.2				29.8
Other			3.9				4.1
		$	288.2			$	264.9

 

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SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 27, 2020

 

5.	Inventories

 

First-In, First-Out (“FIFO”) based inventory costs exceeded LIFO based inventory costs by $142,126,000 as of the end of the first quarter of fiscal 2021 as compared to $164,517,000 as of the end of the first quarter of fiscal 2020. The change in the LIFO Reserve for the three months ended June 27, 2020 was a decrease of $2,141,000 as compared to an increase of $3,176,000 for the three months ended June 29, 2019. This reflects the projected impact of an overall cost decrease expected in fiscal 2021 versus fiscal 2020. The following table shows inventory by category and the related LIFO balance (in thousands):

 

Copy History

		June 27, 2020				June 29, 2019				March 31, 2020
Finished products		$	330,071			$	405,372			$	351,251
In process			29,875				33,568				31,173
Raw materials and supplies			206,024				219,075				173,474
			565,970				658,015				555,898
Less excess of FIFO cost over LIFO cost			142,126				164,517				144,267
Total inventories		$	423,844			$	493,498			$	411,631

 

 

6.

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. 

 

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SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 27, 2020

 

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 were shortened due to the planned closure of the facility after the year’s pack.

 

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

 

Copy History

		Three Months Ended
		June 27, 2020				June 29, 2019
		(In thousands)				(In thousands)
Lease cost:
Amortization of right of use asset		$	1,186			$	1,067
Interest on lease liabilities			294				368
Finance lease cost			1,480				1,435
Operating lease cost			6,407				7,900
Total lease cost		$	7,887			$	9,335
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases		$	294			$	368
Operating cash flows from operating leases			7,278				8,961
Financing cash flows from finance leases			1,536				1,616
		$	9,108			$	10,945
Right-of-use assets obtained in exchange for new finance lease liabilities		$	35			$	237
Right-of-use assets obtained in exchange for new operating lease liabilities		$	2,340			$	4,538
Weighted-average lease term (years):
Financing leases			5.1				5.7
Operating leases			3.7				4.1
Weighted-average discount rate (percentage):
Financing leases			4.1				4.2
Operating leases			4.4				4.6

 

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SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 27, 2020

 

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 27, 2020 (in thousands) were as follows:

 

Copy History

Years ending March 31:			Operating				Financing
Balance of 2021			$	17,076			$	5,442
2022				19,469				7,255
2023				13,675				7,255
2024				6,819				5,728
2025				3,262				2,374
2026-2032				4,598				4,005
Total minimum payment required			$	64,899			$	32,059
Less interest				4,954				3,214
Present value of minimum lease payments				59,945				28,845
Amount due within one year				21,311				6,232
Long-term lease obligations			$	38,634			$	22,613

 

7.	Revolving Credit Facility

 

The Company entered into a five-year revolving credit facility (“Revolver”) on July 5, 2016. Maximum borrowings under the Revolver total $300,000,000 from April through July and $400,000,000 from August through March.   The Revolver balance as of June 27, 2020 was $34,406,000 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 2021 compared to the first three months of fiscal 2020 was attributable to the high sales in March through June 2020 due to pantry loading as a result of COVID-19.

 

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

 

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SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 27, 2020

 

The following table documents the quantitative data for Revolver borrowings during the first quarter of fiscal 2021 and fiscal 2020:

 

Copy History

		First Quarter
		2021				2020
		(In thousands)
Reported end of period:
Outstanding borrowings		$	34,406			$	136,014
Weighted average interest rate			1.75	%			4.00	%
Reported during the period:
Maximum amount of borrowings		$	107,967			$	151,107
Average outstanding borrowings		$	57,281			$	134,135
Weighted average interest rate			2.03	%			3.96	%

 

8.	Stockholders’ Equity

 

There were no repurchases of stock during the three-month period ended June 27, 2020. As of June 27, 2020, there are 3,042,092 shares or $88,319,000 of repurchased stock. These shares are not considered outstanding.

 

9.	Retirement Plans

 

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

 

Copy History

		Three Months Ended
		June 27, 2020				June 29, 2019
Service Cost Including Administration		$	2,574			$	2,288
Interest Cost			2,251				2,296
Expected Return on Plan Assets			(3,567	)			(3,958	)
Amortization of Prior Service Cost			23				30
Amortization of Net Loss			2,224				-
Net Periodic Benefit Cost		$	3,505			$	656

 

There was no contribution to the pension plan in the three month periods ended June 27, 2020 or June 29, 2019.

 

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SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 27, 2020

 

10.	Plant Restructuring

 

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

 

Copy History

		Restructuring Payable
		Severance				Other Costs				Total
		(In thousands)
Balance March 31, 2020		$	202			$	-			$	202
First quarter charge			219				44				263
Cash payments/write offs			(203	)			(44	)			(247	)
Balance June 27, 2020		$	218			$	-			$	218

 

Copy History

		Severance				Other Costs				Total
		(In thousands)
Balance March 31, 2019		$	225			$	1			$	226
First quarter charge			586				4,220				4,806
Cash payments/write offs			(170	)			(4,220	)			(4,390	)
Balance June 29, 2019		$	641			$	1			$	642

 

During the quarter ended June 27, 2020, the Company recorded a restructuring charge of $263,000 related to the closing of plants in the Northwest, of which $219,000 was related to severance and $44,000 was for lease impairments.

 

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 $2,245,000 was for accelerated amortization of right of use operating lease assets, $1,975,000 was mostly related to equipment moves and $586,000 was related to severance.

 

11.	Other Operating Income and Expense

 

During the three months ended June 27, 2020 the Company recorded a gain on the sale of unused fixed assets of $534,000. The Company also recorded a loss of $389,000 on the disposal of equipment from a sold Northwest plant. 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. These items are included in other operating income in the Unaudited Condensed Consolidated Statements of Net Earnings.

 

12.	Recently Issued Accounting Standards

 

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.

 

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SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 27, 2020

 

In December 2019, the FASB issued ASU No. 2019-12 to simplify the accounting for income taxes by removing certain exceptions to the general principles and simplify areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enacted tax laws or rate changes. The new standard will be effective for the Company in the first quarter fiscal year 2022. We are currently evaluating the effect that the new standard will have on the Company’s financial position, results of operations and related disclosures.

 

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which was subsequently amended in November 2018 through ASU No. 2018-19, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses." ASU No. 2016-13 will require entities to estimate lifetime expected credit losses for trade and other receivables along with other financial instruments which will result in earlier recognition of credit losses. Further, the new credit loss model will affect how entities in all industries estimate their allowance for losses for receivables that are current with respect to their payment terms. In November 2019, the FASB issued ASU No. 2019-10, which, among other things, deferred the application of the new guidance on credit losses for smaller reporting companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This guidance will be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., a modified-retrospective approach). Under the above-mentioned deferral, the Company expects to adopt ASU No. 2016-03, and the related ASU No. 2018-19 amendments, beginning as of April 1, 2023 and is in the process of assessing the impact, if any, that this new guidance is expected to have on the Company’s results of operations, financial condition and/or financial statement 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 27, 2020.

 

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SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 27, 2020

 

13.	Earnings per Common Share

 

Earnings per share for the quarters ended June 27, 2020 and June 29, 2019 are as follows: 

 

Copy History

		Q U A R T E R
(Thousands, except per share amounts)		Fiscal 2021				Fiscal 2020
Basic
Net Earnings		$	20,706			$	1,103
Deduct preferred stock dividends paid			6				6
Undistributed earnings			20,700				1,097
Earnings attributable to participating preferred			81				4
Earnings attributable to common shareholders		$	20,619			$	1,093
Weighted average common shares outstanding			9,118				9,477
Basic earnings per common share		$	2.26			$	0.12
Diluted
Earnings from attributable to common shareholders		$	20,619			$	1,093
Add dividends on convertible preferred stock			5				5
Earnings attributable to common stock on a diluted basis		$	20,624			$	1,098
Weighted average common shares outstanding-basic			9,118				9,477
Additional shares issued related to the equity compensation plan			3				2
Additional shares to be issued under full conversion of preferred stock			67				67
Total shares for diluted			9,188				9,546
Diluted earnings per common share		$	2.24			$	0.12

 

14.	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 $144,967,000 and an estimated fair value of $145,261,000 as of June 27, 2020. As of March 31, 2020, the carrying amount was $217,581,000 and the estimated fair value was $217,559,000. The fair values of all the other financial instruments approximate their carrying value due to their short-term nature.

 

15.	Income Taxes

 

The effective tax rate for continuing operations was 23.4% and 20.5% for the three month periods ended June 27, 2020 and June 29, 2019, respectively. The change in tax rate resulting from federal credits and incentives is a 4.8 percentage point increase.  This change is the majority of the 2.9 percentage point increase in the effective tax rate.  The dollar amount of these credits and incentives did not change significantly from 2020 to 2021.  The projected pre-tax income increased significantly from 2020 to 2021 which resulted in the federal credits and incentives having a smaller impact on the tax rate in 2021.  This increase was partially offset by a 1.3 percentage point decrease resulting from interest received from the federal refund for the NOL carryback claim filed as a result of the CARES Act.

 

 

 

 

ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OPERATIONS

June 27, 2020

 

.

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® and READ®. 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 canned vegetables as well as frozen vegetables under contract packing agreements. In addition, 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:

 

The first fiscal quarter 2021 results include net sales of $288,165,000, which represents an 8.8% increase, or $23,240,000, from the first quarter of fiscal 2020.  The net increase in sales is due to higher selling prices/sales mix of $25,446,000 partially offset by volume decreases of $2,206,000. The increase in sales is primarily from a $33,785,000 increase in Canned Vegetable sales, partially offset by a $5,590,000 decrease in Prepared Food sales, a $3,906,000 decrease in other Canned Fruit sales, a $544,000 decrease in Snack sales, a $240,000 decrease in Frozen sales, and a $265,000 decrease in Other sales.

 

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

 

 

 

ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OPERATIONS

June 27, 2020

 

Operating Income:

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

 

 

For the three month period ended June 27, 2020, the gross margin increased from the prior year quarter from 7.2% to 16.9% due primarily to higher prices in the first quarter of 2021. The Company’s LIFO credit for the first quarter ended June 27, 2020 was $2,141,000 as compared to a charge of $3,176,000 for the first quarter ended June 29, 2019. This reflects the impact on the quarter of lower cost increases expected to be incurred in fiscal 2021, compared with to fiscal 2020. On an after-tax basis, LIFO increased net earnings by $1,606,000 for the quarter ended June 27, 2020 and LIFO decreased net earnings by $2,382,000 for the quarter ended June 29, 2019, based on the historical statutory federal income tax rates.

 

For the three month period ended June 27, 2020, selling costs as a percentage of sales remained the same at 2.8% compared to the same period in the prior year.

 

For the three month period ended June 27, 2020, administrative expense as a percentage of sales increased from 3.3% to 3.5% primarily due to higher employment costs.

 

During the three months ended June 27, 2020 the Company recorded a gain on the sale of unused fixed assets of $534,000. The Company also recorded a loss of $389,000 on the disposal of equipment from a sold Northwest plant. 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. These items are included in other operating income in the Unaudited Condensed Consolidated Statements of Net Earnings.

 

Interest expense for the first quarter ended June 27, 2020, as a percentage of sales, decreased to 0.6% from 1.3% in first quarter ended June 29, 2019. During fiscal 2021, overall borrowings were lower than the previous year along with higher sales for the current period.

 

Income Taxes:

 

The effective tax rate for continuing operations was 23.4% and 20.5% for the three month periods ended June 27, 2020 and June 29, 2019, respectively. The change in tax rate resulting from federal credits and incentives is a 4.8 percentage point increase.  This change is the majority of the 2.9 percentage point increase in the effective tax rate.  The dollar amount of these credits and incentives did not change significantly from 2020 to 2021.  The projected pre-tax income increased significantly from 2020 to 2021 which resulted in the federal credits and incentives having a smaller impact on the tax rate in 2021.  This increase was partially offset by a 1.3 percentage point decrease resulting from interest received from the federal refund for the NOL carryback claim filed as a result of the CARES Act.

 

 

ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OPERATIONS

June 27, 2020

 

Earnings per Share:

 

Basic earnings per share were $2.26 and $0.12 for the three months ended June 27, 2020 and June 29, 2019, respectively. Diluted earnings per share were $2.24 and $0.12 for the three months ended June 27, 2020 and June 29, 2019, respectively. For details of the calculation of these amounts, refer to footnote 13 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:

 

 

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 9 of the Notes to Consolidated Financial Statements of the Company’s 2020 Annual Report on Form 10-K for conversion details.

 

As shown in the Condensed Consolidated Statements of Cash Flows, net cash provided by operating activities was $100,321,000 in the first three months of fiscal 2021, compared to $28,807,000 in the first three months of fiscal 2020. The $71,514,000 increase in cash provided is a $43,528,000 increase in cash provided for in accounts receivable in the first three months of fiscal 2021 as compared to the first three months of fiscal 2020, a $19,603,000 increase in cash provided by net earnings, a $11,360,000 increase in cash provided by income taxes, a $17,394,000 increase in cash provided by accounts payable, accrued expenses and other liabilities and a $408,000 increase in cash provided by other current assets, partially offset by a $20,399,000 decrease in inventories.

 

As compared to June 29, 2019, inventory decreased $69,654,000 to $423,844,000 at June 27, 2020. The components of the inventory decrease (excluding LIFO) reflect a $75,301,000 decrease in finished goods, a $3,693,000 decrease in work in process and a $13,051,000 decrease in raw materials and supplies. The finished goods decrease primarily reflects higher sales due to COVID-19 pantry loading and lower inventory quantities attributable to the lower calendar year 2019 pack versus the calendar year 2018 pack. 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 $142,126,000 as of the end of the first quarter of 2021 as compared to $164,517,000 as of the end of the first quarter of 2020.

 

Cash used in investing activities was $18,316,000 in the first three months of fiscal 2021 compared to cash used in investing activities of $3,378,000 in the first three months of fiscal 2020. Additions to property, plant and equipment were $19,230,000 in the first three months of fiscal 2021 as compared to $9,776,000 in first three months of fiscal 2011. Proceeds from the sale of assets were $914,000 for the first three months of fiscal 2021 as compared to $6,398,000 in first three months of fiscal 2020.

 

 

ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OPERATIONS

June 27, 2020

 

Cash used in financing activities was $81,100,000 in the first three months of fiscal 2021, which included borrowings of $91,896,000 and the repayment of $164,510,000 of long-term debt, principally consisting of borrowings and repayments on the revolving credit facility (“Revolver”). Other than borrowings under the Revolver, there was no new long-term debt during the first three months of fiscal 2020. The Company did not repurchase treasury stock in the first three months of fiscal 2021 but repurchased $2,744,000 of treasury stock during the first quarter of fiscal year 2020.

 

The Company entered into a five-year revolving credit facility on July 5, 2016. Available borrowings on the Revolver total $300,000,000 from April through July and $400,000,000 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 June 27, 2020, the interest rate was approximately 1.75% on a balance of $34,406,000. 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.

 

The Company’s credit facilities contain standard representations and warranties, events of default, and certain affirmative and negative covenants, including various financial covenants. At June 27, 2020, the Company was in compliance with all such financial covenants.

 

New Accounting Standards

 

Refer to footnote 12 of the Notes to Condensed Consolidated Financial Statements.

 

Seasonality

 

The Company's revenues are typically higher in the second and third fiscal quarters. The Company’s sales exhibit seasonality with the third fiscal quarter generating the highest retail sales due to holidays that occur during that quarter. See the Critical Accounting Policies section below for further details.

 

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.

 

 

ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OPERATIONS

June 27, 2020

 

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:

 

 

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.

 

 

ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OPERATIONS

June 27, 2020

 

Critical Accounting Policies

 

For the three months ended June 27, 2020 and June 29, 2019 the Company sold certain finished goods inventory for cash on a bill and hold basis. The terms of the bill and hold agreement(s) provide that title to the specified inventory is transferred to the customer(s) prior to shipment and the Company has the right to payment (prior to physical delivery) which results in recorded revenue as determined under the revenue recognition standard.

 

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 is 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. To manage interest rate risk, the Company uses both fixed and variable interest rate debt plus fixed interest rate lease obligations. There have been no material changes to the Company’s exposure to market risk since March 31, 2020.

 

 

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 June 27, 2020, 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.

 

 

PART II – OTHER INFORMATION

 

Item 1.

Legal Proceedings

 

Refer to footnote 15 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, 2020 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