Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended December 27, 2003 Commission File Number 0-1989
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Seneca Foods Corporation
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(Exact name of Company as specified in its charter)
New York 16-0733425
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
3736 South Main Street, Marion, New York 14505
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(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code 315/926-8100
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Not Applicable
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Former name, former address and former fiscal year,
if changed since last report
Check mark indicates whether 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 X No
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Indicate by check mark whether the Company is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act).
Yes X No
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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 31, 2004
----- --------------------------------------
Common Stock Class A, $.25 Par 3,945,830
Common Stock Class B, $.25 Par 2,764,005
PART I ITEM 1 FINANCIAL INFORMATION
SENECA FOODS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
Unaudited
12/27/03 3/31/03
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ASSETS
Current Assets:
Cash and Cash Equivalents $ 3,733 $ 64,984
Accounts Receivable, Net 53,695 31,799
Inventories:
Finished Goods 290,705 88,769
Work in Process 23,953 13,911
Raw Materials 30,090 38,969
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344,748 141,649
Off-Season Reserve (Note 2) (66,830) -
Deferred Income Tax Asset, Net 3,300 3,300
Assets Held For Sale 1,693 -
Refundable Income Taxes 1,827 715
Other Current Assets 6,571 1,254
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Total Current Assets 348,737 243,701
Property, Plant and Equipment, Net 188,986 132,969
Other Assets 7,318 2,870
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Total Assets $545,041 $379,540
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes Payable $ 61,320 $ -
Accounts Payable 38,913 22,730
Accrued Expenses 39,066 25,602
Current Portion of Long-Term Debt and Capital
Lease Obligations 20,784 22,987
--------------- ---------------
Total Current Liabilities 160,083 71,319
Long-Term Debt 168,405 127,107
Capital Lease Obligations 6,670 6,230
Deferred Income Tax Liability 11,619 9,023
Other Long-Term Liabilities 12,461 6,497
Commitments - -
10% Preferred Stock, Series A, Voting, Cumulative,
Convertible, $.025 Par Value Per Share 10 10
10% Preferred Stock, Series B, Voting, Cumulative,
Convertible, $.025 Par Value Per Share 10 10
6% Preferred Stock, Voting, Cumulative, $.25 Par Value 50 50
Convertible, Participating Preferred Stock, $12.00
Stated Value 41,141 41,586
Convertible, Participating Preferred Stock, $15.50
Stated Value 15,000 -
Common Stock 2,858 2,849
Paid in Capital 16,117 14,616
Accumulated Other Comprehensive Income 1,351 422
Retained Earnings 109,266 99,821
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Stockholders' Equity 185,803 159,364
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Total Liabilities and Stockholders' Equity $545,041 $379,540
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
SENECA FOODS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF NET EARNINGS
(Unaudited)
(In Thousands, except Per Share Data)
Three Months Ended
------------------
12/27/03 12/28/02
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Net Sales $ 325,303 $ 235,430
Costs and Expenses:
Cost of Product Sold 307,735 221,559
Selling, General, and Administrative 10,194 5,493
Interest Expense (net) 4,280 3,343
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Total Costs and Expenses 322,209 230,395
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Earnings Before Income Taxes 3,094 5,035
Income Taxes 1,207 1,888
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Net Earnings $ 1,887 $ 3,147
================= ================
Basic:
Earnings Per Common Share (2002
restated - Note 6) $ .17 $ .31
================= ================
Weighted Average Shares
Outstanding 11,126 10,158
================== =================
Diluted:
Earnings Per Common Share $ .17 $ .31
================= ================
Weighted Average Shares
Outstanding 11,193 10,225
================== =================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
SENECA FOODS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF NET EARNINGS
(Unaudited)
(In Thousands, except Per Share Data)
Nine Months Ended
-----------------
12/27/03 12/28/02
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(Continued)
Net Sales $ 724,793 $ 542,491
Costs and Expenses:
Cost of Product Sold 671,677 504,680
Selling, General, and Administrative 25,815 14,980
Other Expense - 620
Interest Expense (net) 11,778 10,583
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Total Costs and Expenses 709,270 530,863
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Earnings Before Income Taxes 15,523 11,628
Income Taxes 6,054 4,459
------------------ -----------------
Net Earnings $ 9,469 $ 7,169
================= ================
Basic:
Earnings Per Common Share (2002
restated - Note 6) $ .87 $ .70
================= ================
Weighted Average Shares
Outstanding 10,911 10,158
================== =================
Diluted:
Earnings Per Common Share $ .86 $ .70
================= ================
Weighted Average Shares
Outstanding 10,978 10,225
================== =================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
SENECA FOODS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Nine Months Ended
-----------------
12/27/03 12/28/02
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Cash Flows From Operating Activities:
Net Earnings $ 9,469 $ 7,169
Adjustments to Reconcile Net Earnings
to Net Cash (Used in) Provided by
Operating Activities:
Depreciation and Amortization 21,914 17,091
Deferred Income Taxes 2,057 3,937
Impairment Provision - 620
Changes in Working Capital:
Accounts Receivable 2,181 (405)
Inventories (118,320) (2,172)
Off-Season Reserve 66,830 43,140
Other Current Assets (5,255) (1,651)
Refundable Income Taxes (1,112) (478)
Accounts Payable, Accrued
Expenses, and Other Liabilities (231) (7,585)
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Net Cash (Used in) Provided by Operating
Activities (22,467) 59,666
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Cash Flows From Investing Activities:
Acquisition (113,691) -
Proceeds from the Sale of Assets 46,077 15
Additions to Property, Plant,
and Equipment (13,963) (3,513)
Cash Received with Acquisition 2,560 -
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Net Cash Used in Investing
Activities (79,017) (3,498)
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Cash Flows From Financing Activities:
Proceeds from Issuance of Long-Term Debt 42,500 165
Payments of Long-Term Debt and Capital
Lease Obligations (38,440) (5,318)
Net Borrowings on Notes Payable 35,945 -
Other 252 14
Dividends (24) (24)
------------------ -----------------
Net Cash Provided by (Used in)
Financing Activities 40,233 (5,163)
------------------ -----------------
Net (Decrease) Increase in Cash and Cash
Equivalents (61,251) 51,005
Cash and Cash Equivalents,
Beginning of Period 64,984 24,973
------------------------------------------
Cash and Cash Equivalents,
End of Period $ 3,733 $ 75,978
================== ==================
Supplemental information on non-cash investing and financing activities:
$16.1 million of Preferred Stock was issued in partial consideration for the CPF
acquisition. The Company assumed $9.1 million of long-term debt related to the
CPF acquisition (see Note 5).
The accompanying notes are an integral part of these condensed consolidated
financial statements.
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In Thousands)
December 27, 2003
1. 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 the Company as of December 27, 2003 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, 2003 balance sheet was derived from
consolidated financial statements.
The results of operations for the three and nine month periods ended
December 27, 2003 are not necessarily indicative of the results to be
expected for the full year.
In the nine months ended December 27, 2003, the Company sold for cash,
on a bill and hold basis, $212,826,000 of Green Giant finished goods
inventory to General Mills Operations, Inc. ("GMOI"). At the time of the
sale of the Green Giant vegetables to GMOI, title of the specified
inventory transferred to GMOI. In addition, the aforementioned finished
goods inventory was complete, ready for shipment and segregated from the
Company's other finished goods inventory. Further, the Company had
performed all of its obligations with respect to the sale of the
specified Green Giant finished goods inventory.
The accounting policies followed by the Company are set forth in Note 1
to the Company's Consolidated financial statements in the 2003 Seneca
Foods Corporation Annual Report and Form 10-K/A.
Other footnote disclosures normally included in annual financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted.
These condensed consolidated financial statements should be read in
conjunction with the financial statements and notes included in the
Company's 2003 Annual Report and Form 10-K/A.
2. The seasonal nature of the Company's Food Processing business results in
a timing difference between expenses (primarily overhead expenses)
incurred and absorbed into product cost. All Off-Season Reserve balances,
which essentially represent a contra-inventory account, are zero at
fiscal year end. Depending on the time of year, Off-Season Reserve is
either the excess of absorbed expenses over incurred expenses to date or
the excess of incurred expenses over absorbed expenses to date. Other
than the first quarter of each year, absorbed expenses exceed incurred
expenses due to timing of production.
3. Comprehensive income consisted of net earnings and net unrealized gains
on securities classified as available-for-sale. The following table
provides the results for the periods presented:
Three Months Ended Nine Months Ended
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12/27/03 12/28/02 12/27/03 12/28/02
-------- -------- -------- --------
Net Earnings $1,887 $3,147 $9,469 $7,169
Other Comprehensive
Earnings, Net of Tax:
Net Unrealized Gains on
Investment 533 112 929 18
------------------------------------------------------------
Comprehensive
Income $2,420 $3,259 $10,398 $7,187
============================================================
4. Recently issued accounting standards have been considered by the Company
and are not expected to have a material effect on the Company's financial
position or results of operations.
5. On May 27, 2003, the Company completed its acquisition of 100% of the
membership interest in Chiquita Processed Foods, L.L.C. ("CPF") from
Chiquita Brands International, Inc. The primary reason for the
acquisition was to acquire additional production capacity in the Canned
Vegetable business. The purchase price totaled $126.1 million plus the
assumption of certain liabilities. This acquisition was financed with
cash, proceeds from a new $200 million revolving credit facility, and
$16.1 million of the Company's Participating Convertible Preferred Stock.
The Preferred Stock is convertible into the Company's Class A Common
Stock on a one-for-one basis. The Preferred Stock was valued at $16.60
per share based on the market value of the Class A Common Stock at the
time the acquisition was announced.
The new $200 million revolving credit facility has a five-year term.
During the quarter ended September 27, 2003, the Company refinanced $42.5
million of debt outstanding under the revolving credit facility with new
term debt from an insurance company. The new term debt from the insurance
company of $42.5 million, when combined with the refinancing of existing
insurance company debt of $32.5 million, has an interest rate of 8.03%, a
fifteen year amortization and a ten year term.
As part of this acquisition, the Company assumed seasonal notes payable
from the CPF revolving credit facility of $25.4 million which was paid
off at the time of acquisition with proceeds from the new $200 million
revolving credit facility. The Company also assumed $35.9 million of CPF
long-term debt and capital lease obligations, of which $26.8 million was
paid off at the time of acquisition with proceeds from the new $200
million revolving credit facility. The remaining long-term debt
principally involves two Industrial Revenue Development Bonds totaling
$5.5 million and consisting of a $3 million Pickett, Wisconsin issue due
on June 1, 2005 with an interest rate of 7.75% and a $2.5 million Walla
Walla, Washington issue due on September 1, 2005 with an interest rate of
8.5%. The balance of the debt acquired, totaling $3.6 million, has
interest rates ranging from 1.9% to 9% and is due through 2011.
In conjunction with the allocation to the purchase price for this
acquisition, the Company accrued $4,161,000 for severance related to
former employees of CPF, of which $3,507,000 has been paid out as of
December 27, 2003. This liability was reflected in the opening balance
sheet.
The Company's statement of net earnings for the nine months ended
December 27, 2003 includes seven months of the CPF acquired operations. A
pro forma income statement as if the operations were acquired at the
beginning of the periods presented follows:
Three Months Ended
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12/27/03 12/28/02
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Net Sales $325,303 $352,563
Cost of Product Sold 307,735 328,383
Selling, General, and
Administrative 10,194 12,435
Interest Expense (net) 4,280 4,294
Other Expense (net) - 6,944
----------------------
Total Costs and Expenses 322,209 352,056
Earnings Before Income Taxes 3,094 507
Income Taxes 1,207 198
----------------------
Net Earnings 1,887 309
======================
Basic Earnings Per Share $ 0.17 $ 0.03
======================
Diluted Earnings Per Share $ 0.17 $ 0.03
======================
Nine Months Ended
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12/27/03 12/28/02
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Net Sales $779,275 $842,038
Cost of Product Sold 722,607 780,246
Selling, General, and
Administrative 30,120 36,959
Interest Expense (net) 12,628 13,757
Other Expense (net) 1,882 6,612
----------------------
Total Costs and Expenses 767,237 837,574
Earnings Before Income Taxes 12,038 4,464
Income Taxes 4,695 1,741
----------------------
Net Earnings 7,343 2,723
======================
Basic Earnings Per Share $ 0.67 $ 0.27
======================
Diluted Earnings Per Share $ 0.67 $ 0.27
======================
The Company sold three former Chiquita Processed Foods plants and related
assets to Lakeside Foods, Inc. on June 17, 2003. The Company sold one
additional plant of Chiquita Processed Foods and related assets to
Lakeside Foods, Inc. on August 6, 2003. The aforementioned sales to
Lakeside Foods generated $46 million in cash proceeds, which was used to
pay down debt. The Company sold additional plant locations that were
designated as assets held for sale during the current quarter.
The allocation of purchase price is preliminary and is subject to change
as additional information regarding the fair value of assets acquired and
liabilities assumed is obtained.
6. Earnings per Share-Subsequent to the issuance of its condensed
consolidated financial statements for the three and nine month periods
ended December 28, 2002, the Company determined that it should have
included convertible participating preferred stock in its calculation
of basic earnings per common share under the if-converted method.
As a result, the accompanying condensed consolidated financial
statements for the three and nine months ended December 28, 2002 have
been restated from the amounts previously reported to reduce basic
earnings per common share for the three and nine month periods ended
December 28, 2002 from $.48 to $.31 and $1.09 to $.70, respectively.
Three Months Ended Nine Months Ended
------------------ -----------------
12/27/03 12/28/02 12/27/03 12/28/02
-------- -------- -------- --------
Basic Net Earnings Applicable to Common Stock
(In thousands except per share data):
Net Earnings $ 1,887 $ 3,147 $ 9,469 $ 7,169
Deduct Preferred Cash Dividends 6 6 18 18
----------------------------------------------------------------------
Net Earnings Applicable to
Common Stock $ 1,881 $ 3,141 $ 9,451 $ 7,151
======================================================================
Weighted Average Common Shares
Outstanding 6,693 6,590 6,684 6,591
Weighted Average Participating
Preferred Shares 4,433 3,568 4,227 3,567
----------------------------------------------------------------------
Weighted Average Shares
Outstanding for Basic Earnings
per Common Share 11,126 10,158 10,911 10,158
======================================================================
Basic Earnings Per Common Share $ .17 $ .31 $ .87 $ .70
======================================================================
Diluted Net Earnings Applicable to Common Stock
(In thousands except per share data):
Net Earnings Applicable to
Common Stock $ 1,881 $ 3,141 $ 9,451 $ 7,151
Add Back Preferred Cash Dividends 5 5 15 15
----------------------------------------------------------------------
Net Earnings Applicable to
Common Stock-Diluted $ 1,886 $ 3,146 $ 9,466 $ 7,166
======================================================================
Weighted Average
Shares Outstanding for Basic
Earnings per Common Share 11,126 10,158 10,911 10,158
Effect of Convertible Preferred Stock 67 67 67 67
-----------------------------------------------------------------------------------------------
Weighted Average Shares
Outstanding for Diluted Earnings
per Common Share 11,193 10,225 10,978 10,225
======================================================================
Diluted Earnings Per Common Share $ .17 $ .31 $ .86 $ .70
======================================================================
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION RESULTS AND OF OPERATIONS
December 27, 2003
Results of Operations:
Sales:
Total sales reflect an increase of 38.2% for the quarter ended December 27, 2003
versus the quarter ended December 28, 2002. The sales increase for the three and
nine month periods ended December 27, 2003 primarily reflects seven months of
operating activity related to Chiquita Processed Foods, L.L.C. acquired May 27,
2003.
Costs and Expenses:
The following table shows costs and expenses as a percentage of sales:
Three Months Ended Nine Months Ended
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12/27/03 12/28/02 12/27/03 12/28/02
Cost of Product Sold 94.6% 94.1% 92.7 93.0
Selling 2.8 2.0 3.1 2.3
Administrative 0.3 0.3 0.5 0.5
Other Expense - - - 0.1
Interest Expense 1.3 1.4 1.6 2.0
------------------------------------------
99.0% 97.8% 97.9% 97.9%
===========================================
Favorable cost of manufacturing variances were a major contributing factor in
improved operating results for the nine month period ended December 27, 2003.
The higher cost of product sold percentage in the 3rd quarter ended December 27,
2003 reflects unfavorable manufacturing variances incurred related to the 2003
pack.
There are no selling costs on the Green Giant sales. Green Giant sales as a
percentage of total sales decreased due to the additional sales resulting from
the CPF acquisition. Therefore, selling expenses as a percentage of sales
increased.
Income Taxes:
The effective tax rate was 39% and 37.5% for the three month periods ended
December 27, 2003 and December 28, 2002, respectively. The effective tax rate
was 39% and 38.3% for the nine month periods ended December 27, 2003 and
December 28, 2002, respectively.
Financial Condition:
The financial condition of the Company is summarized in the following table and
explanatory review (In Thousands):
For the Quarter For the Year
Ended December Ended March
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2003 2002 2003 2002
---- ---- ---- ----
Working Capital Balance $188,654 $180,944 $172,382 $163,606
Quarter Change (2,659) 1,773 - -
Notes Payable 61,320 - - -
Long-Term Debt 175,075 150,830 133,337 156,100
Current Ratio 2.18:1 3.41:1 3.42:1 3.00:1
The change in Working Capital for the December 2003 quarter from the December
2002 quarter is largely due to higher capital expenditures in the current
quarter than the prior quarter ($5.3 million in 2003 vs. $2.0 million in 2002).
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
December 27, 2003
Inventory increased $160.7 million from December 28, 2002. The Inventory
increase reflects the net inventory acquired in the Chiquita Processed Foods,
L.L.C. ("CPF") deal as well as the effect of seasonal production from the eight
plants acquired. Cash and short term investments decreased $72.2 million due to
the acquisition.
See Condensed Consolidated Statements of Cash Flows for further details.
On May 27, 2003, the Company completed its acquisition of 100% of the membership
interest in CPF from Chiquita Brands International, Inc. The primary reason for
the acquisition was to acquire additional production capacity in the Canned
Vegetable business. The purchase price totaled $126.1 million plus the
assumption of certain liabilities. This acquisition was financed with cash,
proceeds from a new $200 million revolving credit facility, and $16.1 million of
the Company's Participating Convertible Preferred Stock. The Preferred Stock was
valued at $16.60 per share based on the market value of the Class A Common Stock
at the time the acquisition was announced.
The new $200 million revolving credit facility has a five-year term. The
Preferred Stock is convertible into the Company's Class A Common Stock on a
one-for-one basis. In the second quarter, the Company refinanced $42.5 million
of debt outstanding under the revolving credit facility with new term debt from
an insurance company. The new term debt from the insurance company of $42.5
million, when combined with the refinancing of existing insurance company debt
of $32.5 million, has an interest rate of 8.03%, a fifteen year amortization and
a ten year term.
As part of this acquisition, the Company assumed seasonal notes payable from the
CPF revolving credit facility of $25.4 million which was paid off at the time of
acquisition with proceeds from the new $200 million revolving credit facility.
The Company also assumed $35.9 million of CPF long-term debt and capital lease
obligations, of which $26.8 million was paid off at the time of acquisition with
proceeds from the new $200 million revolving credit facility. The remaining
long-term debt principally involves two Industrial Revenue Development Bonds
totaling $5.5 million and consisting of a $3 million Pickett, Wisconsin issue
due on June 1, 2005 with an interest rate of 7.75% and a $2.5 million Walla
Walla, Washington issue due on September 1, 2005 with an interest rate of 8.5%.
The balance of the debt acquired, totaling $3.6 million, has interest rates
ranging from 1.9% to 9% and is due through 2011.
In conjunction with the allocation of the purchase price for this acquisition,
the Company accrued $4,161,000 for severance related to former employees of CPF,
of which $3,507,000 has been paid out as of December 27, 2003. This liability
was reflected in the opening balance sheet.
The Company's statement of net earnings for the nine months ended December 27,
2003 includes seven months of the CPF acquired operations. A pro forma income
statement as if the operations were acquired at the beginning of the periods
presented follows:
Three Months Ended
------------------
12/27/03 12/28/02
-------- --------
Net Sales $325,303 $352,563
Cost of Product Sold 307,735 328,383
Selling, General, and
Administrative 10,194 12,435
Interest Expense (net) 4,280 4,294
Other Expense (net) - 6,944
----------------------
Total Costs and Expenses 322,209 352,056
Earnings Before Income Taxes 3,094 507
Income Taxes 1,207 198
----------------------
Net Earnings 1,887 309
======================
Basic Earnings Per Share $ 0.17 $ 0.03
======================
Diluted Earnings Per Share $ 0.17 $ 0.03
======================
Nine Months Ended
-----------------
12/27/03 12/28/02
-------- --------
Net Sales $779,275 $842,038
Cost of Product Sold 722,607 780,246
Selling, General, and
Administrative 30,120 36,959
Interest Expense (net) 12,628 13,757
Other Expense (net) 1,882 6,612
----------------------
Total Costs and Expenses 767,237 837,574
Earnings Before Income Taxes 12,038 4,464
Income Taxes 4,695 1,741
----------------------
Net Earnings 7,343 2,723
======================
Basic Earnings Per Share $ 0.67 $ 0.27
======================
Diluted Earnings Per Share $ 0.67 $ 0.27
======================
The Company sold three former Chiquita Processed Foods plants and related assets
to Lakeside Foods, Inc. on June 17, 2003. The Company sold one additional plant
of Chiquita Processed Foods and related assets to Lakeside Foods, Inc. on August
6, 2003. The aforementioned sales to Lakeside Foods generated $46 million in
cash proceeds, which was used to pay down debt. The Company sold additional
plant locations that were designated as assets held for sale during the current
quarter.
The allocation of purchase price is preliminary and is subject to change as
additional information regarding the fair value of assets acquired and
liabilities assumed is obtained.
Seasonality
The Company's revenues typically have been higher in the second and third
quarters, primarily because the Company sells, on a bill and hold basis, Green
Giant canned and frozen vegetables to General Mills Operations, Inc. at the end
of each pack cycle. The two largest commodities are peas and corn, which are
sold in the second and third quarters, respectively. See the Critical Accounting
Policies section below for further details. In addition, our non Green Giant
sales have exhibited seasonality with the third quarter generating the highest
sales. This quarter reflects increased sales of the Company's products during
the holiday period.
Forward-Looking Statements
Except for the historical information contained herein, the matters discussed in
this report are forward-looking statements as defined in the Private Securities
Litigation Reform Act (PSLRA) of 1995. The Company wishes to take advantage of
the "safe harbor" provisions of the PSLRA by cautioning that numerous important
factors which involve risks and uncertainties, including but not limited to
economic, competitive, governmental and technological factors affecting the
Company's operations, markets, products, services and prices, and other factors
discussed in the Company's filings with the Securities and Exchange Commission,
in the future, could affect the Company's actual results and could cause its
actual consolidated results to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, the Company.
Critical Accounting Policies
In the nine months ended December 27, 2003, the Company sold for cash, on a bill
and hold basis, $212,826,000 of Green Giant finished goods inventory to General
Mills Operations, Inc. ("GMOI"). At the time of the sale of the Green Giant
vegetables to GMOI, title of the specified inventory transferred to GMOI. In
addition, the aforementioned finished goods inventory was complete, ready for
shipment and segregated from the Company's other finished goods inventory.
Further, the Company had performed all of its obligations with respect to the
sale of the specified Green Giant finished goods inventory.
The seasonal nature of the Company's Food Processing business results in a
timing difference between expenses (primarily overhead expenses) incurred and
absorbed into product cost. All Off-Season Reserve balances, which essentially
represent a contra-inventory account, are zero at fiscal year end. Depending on
the time of year, Off-Season Reserve is either the excess of absorbed expenses
over incurred expenses to date or the excess of incurred expenses over absorbed
expenses to date. Other than the first quarter of each year, absorbed expenses
exceed incurred expenses due to timing of production.
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 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 and are recorded as a reduction of
revenue. 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 up to four years.
Recently issued accounting standards have been considered by the Company and are
not expected to have a material effect on the Company's financial position or
results of operations.
ITEM 3 Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
As a result of its regular borrowing activities, the Company's operating results
are exposed to fluctuations in interest rates, which it manages primarily
through its regular financing activities, which involves borrowing with a
combination of floating rate and fixed rate instruments. In connection with the
acquisition of CPF, the Company entered into a new $200 million revolving credit
facility with a five-year term to finance its seasonal working capital
requirements. Interest is based on LIBOR plus a spread. Repayment is required at
the expiration date of the facility, which is May 27, 2008. The Company had
$61.3 million outstanding under this facility as of December 27, 2003. The
Company maintains investments in cash equivalents (none at December 27, 2003 and
$60.9 million as of March 31, 2003) and has investments of $4.2 million in
marketable securities at December 27, 2003. Long-term debt represents secured
and unsecured debentures, certain notes payable to insurance companies used to
finance long-term investments such as business acquisitions, and capital lease
obligations. Long-term debt bears interest at fixed and variable rates. Except
for the effects of above, Long-Term Debt, Short Term Debt and Short Term
Investments are consistent with March 31, 2003. Therefore, refer to the March
31, 2003 report for the table of Interest Rate Sensitivity.
ITEM 4 Controls and Procedures
(a) Disclosure controls and procedures. We evaluated the effectiveness of the
design and operation of our disclosure controls and procedures. Our disclosure
controls and procedures are the controls and other procedures that we designed
to ensure that we record, process, summarize and report in a timely manner the
information we must disclose in reports that we file with or submit to the SEC.
Kraig H. Kayser, our President and Chief Executive Officer, and Philip G. Paras,
our Chief Financial Officer, reviewed and participated in this evaluation. We
adopted several improvements to increase the effectiveness of our disclosure
controls and procedures during the second fiscal quarter. Based on this
evaluation, Messrs. Kayser and Paras have concluded that as of the end of our
most recent fiscal quarter, our disclosure controls were effective.
(b) Internal controls. During the period covered by this report, there have not
been any significant changes in our internal controls over financial reporting
that has materially affected, or is reasonable likely to materially affect, the
Company's internal controls over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults on Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of Kraig H. Kayser pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith) 31.2 Certification of Philip G.
Paras pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(filed herewith)
(b) Reports on Form 8-K
(1) Form 8-K Filed October 10, 2003
A Current Report on Form 8-K was filed related to the change of
Auditors.
(2) Form 8-K Filed November 12, 2003
A Current Report on Form 8-K was filed with the Company's earnings
press release.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Seneca Foods Corporation
(Company)
/s/Kraig H. Kayser
-----------------------
February 9, 2004 Kraig H. Kayser
President and
Chief Executive Officer
/s/Jeffrey L. Van Riper
-----------------------
February 9, 2004 Jeffrey L. Van Riper
Controller and
Chief Accounting Officer