UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 1010-Q-Q
(Mark one)
| (Mark one) | ||
☑ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarter Ended July 3,October 2, 2021
☐ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____ to _____
Commission File Number 0-01989 |
Seneca Foods Corporation
(Exact name of Registrant as specified in its charter)
New York |
|
|
|
incorporation or organization) | Identification No.) |
3736 South Main Street, Marion, New York | 14505 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code (315) 926-8100
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol | Name of Exchange on Which Registered |
Common Stock Class A, $.25 Par | SENEA | NASDAQGlobal Select Market |
Common Stock Class B, $.25 Par | SENEB | NASDAQGlobal Select 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, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and “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 ☐
| 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 registrant’s classes of common stock at the latest practical date are:
Class | Shares Outstanding at |
Common Stock Class A, $.25 Par |
|
Common Stock Class B, $.25 Par | 1,705,938 |
Seneca Foods Corporation
Quarterly Report on Form 10-Q
Quarterly Report on Form 10-Q | |
Table of Contents | |
Page | ||
PART 1 | ||
Item 1 | ||
1 | ||
| 2 | ||
| 2 | ||
| 3 | ||
| 4 | ||
5 | ||
Item 2 | Management's Discussion and Analysis of Financial Condition and Results of Operations | 12 |
Item 3 |
| |
Item 4 |
| |
PART II | ||
Item 1 | | |
Item 1A | | |
Item 2 | | |
Item 3 | | |
Item 4 | | |
Item 5 | | |
Item 6 | | |
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CONDENSED CONSOLIDATED BALANCE SHEETS |
(In Thousands, Except Per Share Data) |
Unaudited | Unaudited | |||||||||||
October 2, 2021 | September 26, 2020 | March 31, 2021 | ||||||||||
Assets | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | 11,260 | $ | 14,813 | $ | 59,837 | ||||||
Accounts receivable, net | 135,338 | 128,242 | 92,221 | |||||||||
Contracts receivable | 655 | 6,551 | 911 | |||||||||
Current assets held for sale | 7,427 | 11,917 | 8,656 | |||||||||
Inventories | 608,179 | 550,704 | 343,144 | |||||||||
Refundable income taxes | 15,558 | 0 | 8,385 | |||||||||
Other current assets | 4,850 | 2,296 | 3,145 | |||||||||
Total current assets | 783,267 | 714,523 | 516,299 | |||||||||
Property, plant and equipment, net | 260,165 | 240,474 | 248,583 | |||||||||
Right-of-use assets operating, net | 42,827 | 51,241 | 42,193 | |||||||||
Right-of-use assets financing, net | 37,301 | 32,165 | 30,611 | |||||||||
Pension assets | 62,482 | 0 | 62,851 | |||||||||
Deferred income tax asset, net | 0 | 8,474 | 0 | |||||||||
Other assets | 2,384 | 19,929 | 8,811 | |||||||||
Total assets | $ | 1,188,426 | $ | 1,066,806 | $ | 909,348 | ||||||
Liabilities and Stockholders' Equity | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable | $ | 268,908 | $ | 230,130 | $ | 74,089 | ||||||
Deferred revenue | 12,010 | 7,745 | 4,287 | |||||||||
Accrued vacation | 12,153 | 12,340 | 11,660 | |||||||||
Accrued payroll | 19,085 | 16,866 | 15,366 | |||||||||
Other accrued expenses | 31,890 | 25,021 | 24,403 | |||||||||
Income taxes payable | 0 | 419 | 0 | |||||||||
Current portion of operating lease obligations | 15,837 | 18,476 | 17,047 | |||||||||
Current portion of financing lease obligations | 8,273 | 6,497 | 6,778 | |||||||||
Current portion of long-term debt | 4,000 | 63,111 | 4,500 | |||||||||
Total current liabilities | 372,156 | 380,605 | 158,130 | |||||||||
Long-term debt, less current portion | 142,779 | 109,069 | 94,085 | |||||||||
Operating lease obligations, less current portion | 26,953 | 33,464 | 27,769 | |||||||||
Financing lease obligations, less current portion | 23,509 | 21,900 | 19,232 | |||||||||
Pension liabilities | 0 | 85,001 | 0 | |||||||||
Deferred income tax liability, net | 30,512 | 0 | 28,306 | |||||||||
Other long-term liabilities | 6,178 | 4,715 | 4,011 | |||||||||
Total liabilities | 602,087 | 634,754 | 331,533 | |||||||||
Commitments and contingencies | ||||||||||||
Stockholders' equity: | ||||||||||||
Preferred stock | 662 | 681 | 663 | |||||||||
Common stock, $.25 par value per share | 3,041 | 3,041 | 3,041 | |||||||||
Additional paid-in capital | 98,558 | 98,436 | 98,502 | |||||||||
Treasury stock, at cost | (108,507 | ) | (89,482 | ) | (91,198 | ) | ||||||
Accumulated other comprehensive loss | (19,067 | ) | (79,220 | ) | (19,067 | ) | ||||||
Retained earnings | 611,652 | 498,596 | 585,874 | |||||||||
Total stockholders' equity | 586,339 | 432,052 | 577,815 | |||||||||
Total liabilities and stockholders’ equity | $ | 1,188,426 | $ | 1,066,806 | $ | 909,348 | ||||||
SENECA FOODS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Data)
Unaudited | Unaudited | |||||||||||
July 3, 2021 | June 27, 2020 | March 31, 2021 | ||||||||||
Assets | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | 59,834 | $ | 11,607 | $ | 59,837 | ||||||
Accounts receivable, net | 66,743 | 62,860 | 92,221 | |||||||||
Contracts receivable | 742 | 6,059 | 911 | |||||||||
Current assets held for sale | 8,535 | 11,989 | 8,656 | |||||||||
Inventories | 414,690 | 423,844 | 343,144 | |||||||||
Refundable income taxes | 4,621 | 0 | 8,385 | |||||||||
Other current assets | 4,745 | 7,545 | 3,145 | |||||||||
Total current assets | 559,910 | 523,904 | 516,299 | |||||||||
Property, plant and equipment, net | 254,012 | 239,524 | 248,583 | |||||||||
Right-of-use assets operating, net | 45,935 | 57,349 | 42,193 | |||||||||
Right-of-use assets financing, net | 35,814 | 32,222 | 30,611 | |||||||||
Pension assets | 62,667 | 0 | 62,851 | |||||||||
Deferred income tax asset, net | 0 | 9,185 | 0 | |||||||||
Other assets | 9,938 | 20,777 | 8,811 | |||||||||
Total assets | $ | 968,276 | $ | 882,961 | $ | 909,348 | ||||||
Liabilities and Stockholders' Equity | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable | $ | 125,571 | $ | 99,615 | $ | 74,089 | ||||||
Deferred revenue | 3,079 | 3,594 | 4,287 | |||||||||
Accrued vacation | 11,879 | 12,147 | 11,660 | |||||||||
Accrued payroll | 8,346 | 8,796 | 15,366 | |||||||||
Other accrued expenses | 24,224 | 17,182 | 24,403 | |||||||||
Income taxes payable | 0 | 8,463 | 0 | |||||||||
Current portion of operating lease obligations | 16,842 | 21,311 | 17,047 | |||||||||
Current portion of financing lease obligations | 7,716 | 6,232 | 6,778 | |||||||||
Current portion of long-term debt | 4,000 | 500 | 4,500 | |||||||||
Total current liabilities | 201,657 | 177,840 | 158,130 | |||||||||
Long-term debt, less current portion | 93,092 | 144,467 | 94,085 | |||||||||
Operating lease obligations, less current portion | 30,035 | 38,634 | 27,769 | |||||||||
Financing lease obligations, less current portion | 23,046 | 22,613 | 19,232 | |||||||||
Deferred income tax liability, net | 28,803 | 0 | 28,306 | |||||||||
Pension liabilities | 0 | 79,321 | 0 | |||||||||
Other long-term liabilities | 4,231 | 5,000 | 4,011 | |||||||||
Total liabilities | 380,864 | 467,875 | 331,533 | |||||||||
Commitments and contingencies | ||||||||||||
Stockholders' equity: | ||||||||||||
Preferred stock | 663 | 681 | 663 | |||||||||
Common stock, $.25 par value per share | 3,041 | 3,041 | 3,041 | |||||||||
Additional paid-in capital | 98,527 | 98,412 | 98,502 | |||||||||
Treasury stock, at cost | (95,750 | ) | (88,319 | ) | (91,198 | ) | ||||||
Accumulated other comprehensive loss | (19,067 | ) | (79,220 | ) | (19,067 | ) | ||||||
Retained earnings | 599,998 | 480,491 | 585,874 | |||||||||
Total stockholders' equity | 587,412 | 415,086 | 577,815 | |||||||||
Total liabilities and stockholders’ equity | $ | 968,276 | $ | 882,961 | $ | 909,348 | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF NET EARNINGS | |||||||
(Unaudited) | |||||||
|
Three Months Ended | ||||||||||||||||||||||||
July 3, | June 27, | Three Months Ended | Six Months Ended | |||||||||||||||||||||
2021 | 2020 | October 2, | September 26, 2020 | October 2, | September 26, 2020 | |||||||||||||||||||
Net sales | $ | 235,042 | $ | 288,165 | $ | 372,256 | $ | 390,294 | $ | 607,298 | $ | 678,459 | ||||||||||||
Costs and expenses: | ||||||||||||||||||||||||
Cost of product sold | 201,419 | 239,603 | 329,528 | 341,351 | 530,947 | 580,954 | ||||||||||||||||||
Selling, general and administrative | 17,274 | 18,145 | 19,136 | 19,453 | 36,410 | 37,598 | ||||||||||||||||||
Plant restructuring charge | 66 | 263 | 47 | 24 | 113 | 287 | ||||||||||||||||||
Other operating income | (1,444 | ) | (145 | ) | ||||||||||||||||||||
Other operating loss | 1,726 | 1,780 | 282 | 1,635 | ||||||||||||||||||||
Total costs and expenses | 217,315 | 257,866 | 350,437 | 362,608 | 567,752 | 620,474 | ||||||||||||||||||
Operating income | 17,727 | 30,299 | 21,819 | 27,686 | 39,546 | 57,985 | ||||||||||||||||||
Loss from equity investment | 156 | 676 | 7,619 | 804 | 7,775 | 1,480 | ||||||||||||||||||
Other (income) loss | (2,376 | ) | 931 | |||||||||||||||||||||
Other (income)/loss | (2,375 | ) | 1,760 | (4,751 | ) | 2,691 | ||||||||||||||||||
Interest expense, net | 1,342 | 1,651 | 1,336 | 1,404 | 2,678 | 3,055 | ||||||||||||||||||
Earnings before income taxes | 18,605 | 27,041 | 15,239 | 23,718 | 33,844 | 50,759 | ||||||||||||||||||
Income taxes | 4,469 | 6,335 | 3,585 | 5,613 | 8,054 | 11,948 | ||||||||||||||||||
Net earnings | $ | 14,136 | $ | 20,706 | $ | 11,654 | $ | 18,105 | $ | 25,790 | $ | 38,811 | ||||||||||||
Basic earnings per common share | $ | 1.56 | $ | 2.26 | $ | 1.32 | $ | 1.98 | $ | 2.88 | $ | 4.24 | ||||||||||||
Diluted earnings per common share | $ | 1.55 | $ | 2.24 | ||||||||||||||||||||
Diluted earnings per common share: | $ | 1.31 | $ | 1.97 | $ | 2.86 | $ | 4.21 | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||
(Unaudited) | ||||
(In Thousands) |
Three Months Ended | ||||||||||||||||||||||||
July 3, | June 27, | Three Months Ended | Six Months Ended | |||||||||||||||||||||
2021 | 2020 | October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | |||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net earnings | $ | 14,136 | $ | 20,706 | $ | 11,654 | $ | 18,105 | $ | 25,790 | $ | 38,811 | ||||||||||||
Total | $ | 14,136 | $ | 20,706 | $ | 11,654 | $ | 18,105 | $ | 25,790 | $ | 38,811 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Unaudited) |
(In Thousands) |
Three Months Ended | ||||||||||||||||
July 3, | June 27, | Six Months Ended | ||||||||||||||
2021 | 2020 | October 2, 2021 | September 26, 2020 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net earnings | $ | 14,136 | $ | 20,706 | $ | 25,790 | $ | 38,811 | ||||||||
Adjustments to reconcile net earnings to net cash provided by operations: | ||||||||||||||||
Adjustments to reconcile net earnings to net cash (used in)/provided by operations: | ||||||||||||||||
Depreciation & amortization | 8,581 | 7,881 | 17,691 | 16,050 | ||||||||||||
Gain on the sale of assets | (1,166 | ) | (315 | ) | (1,911 | ) | (246 | ) | ||||||||
Provision for restructuring | 66 | 263 | 113 | 287 | ||||||||||||
Loss From equity investment | 156 | 676 | ||||||||||||||
Loss from equity investment | 7,775 | 1,480 | ||||||||||||||
Deferred income taxes | 497 | (1,313 | ) | 2,206 | (602 | ) | ||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | 25,647 | 48,493 | (42,861 | ) | (17,381 | ) | ||||||||||
Inventories | (71,546 | ) | (12,213 | ) | (265,035 | ) | (139,073 | ) | ||||||||
Other current assets | (494 | ) | (94 | ) | (1,800 | ) | 5,098 | |||||||||
Income taxes | 3,764 | 12,813 | (7,173 | ) | 4,769 | |||||||||||
Accounts payable, accrued expenses and other | 41,979 | 23,424 | 215,238 | 177,812 | ||||||||||||
Net cash provided by operations | 21,620 | 100,321 | ||||||||||||||
Net cash (used in)/provided by operations | (49,967 | ) | 87,005 | |||||||||||||
Cash flows from investing activities: | ||||||||||||||||
Additions to property, plant and equipment | (13,221 | ) | (19,230 | ) | (28,234 | ) | (27,321 | ) | ||||||||
Proceeds from the sale of assets | 1,400 | 914 | 4,649 | 1,025 | ||||||||||||
Net cash used in investing activities | (11,821 | ) | (18,316 | ) | (23,585 | ) | (26,296 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||||||
Long-term debt borrowings | 21,539 | 91,896 | ||||||||||||||
Long-term borrowing | 116,008 | 248,848 | ||||||||||||||
Payments on long-term debt | (22,532 | ) | (164,510 | ) | (67,314 | ) | (294,249 | ) | ||||||||
Other assets | (2,500 | ) | (6,950 | ) | (2,639 | ) | (6,950 | ) | ||||||||
Payments on financing leases | (1,745 | ) | (1,536 | ) | (3,759 | ) | (3,072 | ) | ||||||||
Purchase of treasury stock | (4,552 | ) | 0 | (17,309 | ) | (1,163 | ) | |||||||||
Dividends | (12 | ) | 0 | (12 | ) | (12 | ) | |||||||||
Net cash used in financing activities | (9,802 | ) | (81,100 | ) | ||||||||||||
Net cash provided by/(used in) financing activities | 24,975 | (56,598 | ) | |||||||||||||
Net (decrease) increase in cash and cash equivalents | (3 | ) | 905 | (48,577 | ) | 4,111 | ||||||||||
Cash and cash equivalents, beginning of the period | 59,837 | 10,702 | 59,837 | 10,702 | ||||||||||||
Cash and cash equivalents, end of the period | $ | 59,834 | $ | 11,607 | $ | 11,260 | $ | 14,813 | ||||||||
Supplemental disclosures of cash flow information: | ||||||||||||||||
Noncash transactions: | ||||||||||||||||
Property, plant and equipment purchased under lease obligations | $ | 14,550 | $ | 2,375 | $ | 18,766 | $ | 3,681 | ||||||||
Property, plant and equipment purchased on account | 382 | 1,145 | $ | 1,523 | $ | 1,145 | ||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY |
(Unaudited) |
|
Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||
Additional | Other | Additional | Other | |||||||||||||||||||||||||||||||||||||||||||||
Preferred | Common | Paid-In | Treasury | Comprehensive | Retained | Preferred | Common | Paid-In | Treasury | Comprehensive | Retained | |||||||||||||||||||||||||||||||||||||
Stock | Stock | Capital | Stock | Loss | Earnings | Stock | Stock | Capital | Stock | Loss | Earnings | |||||||||||||||||||||||||||||||||||||
First Quarter FY 2022: | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance March 31, 2021 | $ | 663 | $ | 3,041 | $ | 98,502 | $ | (91,198 | ) | $ | (19,067 | ) | $ | 585,874 | ||||||||||||||||||||||||||||||||||
Balances, March 31, 2021 | $ | 663 | $ | 3,041 | $ | 98,502 | $ | (91,198 | ) | $ | (19,067 | ) | $ | 585,874 | ||||||||||||||||||||||||||||||||||
Net earnings | 0 | 0 | 0 | 0 | 0 | 14,136 | 0 | 0 | 0 | 0 | 0 | 14,136 | ||||||||||||||||||||||||||||||||||||
Cash dividends declared on preferred stock | 0 | 0 | 0 | 0 | 0 | (12 | ) | 0 | 0 | 0 | 0 | 0 | (12 | ) | ||||||||||||||||||||||||||||||||||
Equity incentive program | 0 | 0 | 25 | 0 | 0 | 0 | 0 | 0 | 25 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Purchase treasury stock | 0 | 0 | 0 | (4,552 | ) | 0 | 0 | 0 | 0 | 0 | (4,552 | ) | 0 | 0 | ||||||||||||||||||||||||||||||||||
Balance July 3, 2021 | $ | 663 | $ | 3,041 | $ | 98,527 | $ | (95,750 | ) | $ | (19,067 | ) | $ | 599,998 | ||||||||||||||||||||||||||||||||||
Balances, July 3, 2021 | $ | 663 | $ | 3,041 | $ | 98,527 | $ | (95,750 | ) | $ | (19,067 | ) | $ | 599,998 | ||||||||||||||||||||||||||||||||||
Second Quarter FY 2022: | ||||||||||||||||||||||||||||||||||||||||||||||||
Net earnings | 0 | 0 | 0 | 0 | 0 | 11,654 | ||||||||||||||||||||||||||||||||||||||||||
Equity incentive program | 0 | 0 | 30 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||
Preferred stock conversion | (1 | ) | 0 | 1 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||
Purchase treasury stock | 0 | 0 | 0 | (12,757 | ) | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||
Balances, October 2, 2021 | $ | 662 | $ | 3,041 | $ | 98,558 | $ | (108,507 | ) | $ | (19,067 | ) | $ | 611,652 | ||||||||||||||||||||||||||||||||||
First Quarter FY 2021: | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance March 31, 2020 | $ | 681 | $ | 3,041 | $ | 98,384 | $ | (88,319 | ) | $ | (79,220 | ) | $ | 459,797 | ||||||||||||||||||||||||||||||||||
Balances, March 31, 2020 | $ | 681 | $ | 3,041 | $ | 98,384 | $ | (88,319 | ) | $ | (79,220 | ) | $ | 459,797 | ||||||||||||||||||||||||||||||||||
Net earnings | 0 | 0 | 0 | 0 | 0 | 20,706 | 0 | 0 | 0 | 0 | 0 | 20,706 | ||||||||||||||||||||||||||||||||||||
Cash dividends declared on preferred stock | 0 | 0 | 0 | 0 | 0 | (12 | ) | 0 | 0 | 0 | 0 | 0 | (12 | ) | ||||||||||||||||||||||||||||||||||
Equity incentive program | 0 | 0 | 28 | 0 | 0 | 0 | 0 | 0 | 28 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||
Balances, June 27, 2020 | $ | 681 | $ | 3,041 | $ | 98,412 | $ | (88,319 | ) | $ | (79,220 | ) | $ | 480,491 | ||||||||||||||||||||||||||||||||||
Second Quarter FY 2021: | ||||||||||||||||||||||||||||||||||||||||||||||||
Net earnings | 0 | 0 | 0 | 0 | 0 | 18,105 | ||||||||||||||||||||||||||||||||||||||||||
Equity incentive program | 0 | 0 | 24 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||
Purchase treasury stock | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | (1,163 | ) | 0 | 0 | |||||||||||||||||||||||||||||||||||
Balance June 27, 2020 | $ | 681 | $ | 3,041 | $ | 98,412 | $ | (88,319 | ) | $ | (79,220 | ) | $ | 480,491 | ||||||||||||||||||||||||||||||||||
Balances, September 26, 2020 | $ | 681 | $ | 3,041 | $ | 98,436 | $ | (89,482 | ) | $ | (79,220 | ) | $ | 498,596 | ||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||||||||||||||||
| 6% | 10% | 6% Voting | 10% Voting | 2003 Series | ||||||||||||||||||||||||||||||||||||||||||||
Cumulative Par | Cumulative Par | 2003 Series | Cumulative | Cumulative | Participating | Participating | Class A | Class B | ||||||||||||||||||||||||||||||||||||||||
Value $.25 | Value $.025 | Participating | Participating | Class A | Class B | Callable | Convertible | Convertible | Convertible | Common | Common | |||||||||||||||||||||||||||||||||||||
Callable at Par | Convertible | Convertible Par | Convertible Par | Common Stock | Common Stock | Par $0.25 | Par $0.025 | Par $0.025 | Par $0.025 | Par $0.25 | Par $0.25 | |||||||||||||||||||||||||||||||||||||
Voting | Voting | Value $.025 | Value $.025 | Par Value $.25 | Par Value $.25 | |||||||||||||||||||||||||||||||||||||||||||
Shares authorized and designated: | ||||||||||||||||||||||||||||||||||||||||||||||||
July 3, 2021 | 200,000 | 1,400,000 | 33,855 | 500 | 20,000,000 | 10,000,000 | ||||||||||||||||||||||||||||||||||||||||||
October 2, 2021 | 200,000 | 1,400,000 | 33,756 | 500 | 20,000,000 | 10,000,000 | ||||||||||||||||||||||||||||||||||||||||||
Shares outstanding: | ||||||||||||||||||||||||||||||||||||||||||||||||
July 3, 2021 | 200,000 | 807,240 | 33,855 | 500 | 7,268,432 | 1,705,938 | ||||||||||||||||||||||||||||||||||||||||||
October 2, 2021 | 200,000 | 807,240 | 33,756 | 500 | 7,014,873 | 1,705,938 | ||||||||||||||||||||||||||||||||||||||||||
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)
July 3,
October 2, 2021
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 July 3,October 2, 2021 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, 2021 balance sheet was derived from the audited consolidated financial statements.
The results of operations for the three and sixmonth periodperiods ended July 3,October 2, 2021 are not necessarily indicative of the results to be expected for the full year.
For the threesix months ended July 3,October 2, 2021 and June 27,September 26, 2020, 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.
Additionally, the Company assesses the potential for an other-than-temporary impairment of its equity method investment when impairment indicators are identified. The Company considers all available information, including the recoverability of the investment, the earnings and near-term prospects of the investment, factors related to the industry, amongst others relevant information. If an investment is considered to be impaired and the decline in value is other than temporary, an impairment charge is recorded. During fiscal 2021, the Company recorded an other-than-temporary impairment charge of $9.7 million to its equity method investment representing the difference between the carrying value of the Company’s investment and its proportionate share of the investment’s fair value. During fiscal 2022, the Company recorded an impairment charge of $6.3 million to reduce the carrying value of the investment to $0, as the value of the investment was determined to not be recoverable. The charges were included in “Loss from equity investment” in the Company’s Condensed Consolidated Statements of Net Earnings.
The accounting policies followed by the Company are set forth in Note 1 to the Company's Consolidated Financial Statements in the Company’s 2021 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 2021 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. | Assets Held For Sale |
The Company classifies its assets as held for sale at the time management commits to a plan to sell the asset, the asset is actively marketed and available for immediate sale, and the sale is expected to be completed within one year. Due to market conditions, certain assets may be classified as held for sale for more than one year as the Company continues to actively market the assets. The Company has certain non-operating assets in the Midwest that meet the criteria to be classified as held for sale and are recorded 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 that were classified as held for sale in our Condensed Consolidated Balance Sheets (in thousands):
July 3, | June 27, | March 31, | ||||||||||
2021 | 2020 | 2021 | ||||||||||
Property, Plant and Equipment (net) | $ | 8,535 | $ | 11,989 | $ | 8,656 | ||||||
Current Assets Held For Sale | $ | 8,535 | $ | 11,989 | $ | 8,656 | ||||||
October 2, | September 26, | March 31, | ||||||||||
2021 | 2020 | 2021 | ||||||||||
Property, plant and equipment (net) | $ | 7,427 | $ | 11,917 | $ | 8,656 | ||||||
Current assets held for sale | $ | 7,427 | $ | 11,917 | $ | 8,656 | ||||||
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
July 3,October 2, 2021
3. | Revenue Recognition |
In the following table, revenue is disaggregated by product category groups (in thousands):
Three Months Ended | ||||||||
July 3, | June 27, | |||||||
2021 | 2020 | |||||||
Canned Vegetables | $ | 187,944 | $ | 221,018 | ||||
Frozen Vegetables | 22,584 | 17,833 | ||||||
Fruit Products | 15,873 | 18,861 | ||||||
Snack Products | 3,412 | 2,364 | ||||||
Prepared Foods | 0 | 24,224 | ||||||
Other | 5,229 | 3,865 | ||||||
| $ | 235,042 | $ | 288,165 | |||||
Three Months Ended | Six Months Ended | |||||||||||||||
October 2, | September 26, | October 2, | September 26, | |||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Canned vegetables | $ | 299,588 | $ | 302,291 | $ | 487,532 | $ | 523,309 | ||||||||
Frozen vegetables | 40,850 | 31,023 | 63,434 | 48,856 | ||||||||||||
Fruit products | 22,286 | 23,953 | 38,159 | 42,814 | ||||||||||||
Snack products | 3,685 | 3,052 | 7,097 | 5,416 | ||||||||||||
Prepared foods | 0 | 24,146 | 0 | 48,370 | ||||||||||||
Other | 5,847 | 5,829 | 11,076 | 9,694 | ||||||||||||
| $ | 372,256 | $ | 390,294 | $ | 607,298 | $ | 678,459 | |||||||||
4. | Inventories |
First-In, First-OutThe Company uses the last-in, first-out (“LIFO”) method of valuing inventory. An actual valuation of inventory under the LIFO method is made at the end of each fiscal year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels, production pack yields, sales and the expected rate of inflation or deflation for the year. The interim LIFO calculations are subject to adjustment in the final year-end LIFO inventory valuation.
As of October 2, 2021 and September 26, 2020, first-in, first-out (“FIFO”) based inventory costs exceeded Last-In, First-Out (“LIFO”)LIFO based inventory costs, resulting in a LIFO reserve of $131.5$140.3 million and $142.1$144.7 million, as of July 3, 2021 and June 27, 2020, respectively. The LIFO reserve increased by $2.8Company recorded an increase to cost of products sold of $8.8 million during the three months ended July 3, 2021 as a compared to a decrease of $2.1and $2.5 million for the three months ended June 27, 2020.October 2, 2021 Theand September 26, 2020, respectively, and an increase in the LIFO reserve duringto cost of products sold of $11.6 million and $0.4 million for the firstsix quarter of fiscalmonths ended 2022October 2, 2021 reflects the projected impact of expected cost increases and an overall inventory quantity increase as comparedSeptember 26, 2020, respectively, to fiscal 2021.state inventories at LIFO.
The following table shows inventory by category and the related LIFO balancereserve (in thousands):
July 3, | June 27, | March 31, | October 2, | September 26, | March 31, | |||||||||||||||||||
2021 | 2020 | 2021 | 2021 | 2020 | 2021 | |||||||||||||||||||
Finished products | $ | 340,468 | $ | 330,071 | 317,654 | $ | 629,503 | $ | 536,015 | $ | 317,654 | |||||||||||||
In process | 17,070 | 29,875 | 25,175 | 17,810 | 26,514 | 25,175 | ||||||||||||||||||
Raw materials and supplies | 188,661 | 206,024 | 128,987 | 101,177 | 132,830 | 128,987 | ||||||||||||||||||
FIFO inventories | 546,199 | 565,970 | 471,816 | |||||||||||||||||||||
| 748,490 | 695,359 | 471,816 | ||||||||||||||||||||||
Less excess of FIFO cost over LIFO cost | 131,509 | 142,126 | 128,672 | 140,311 | 144,655 | 128,672 | ||||||||||||||||||
Total LIFO inventories | $ | 414,690 | $ | 423,844 | $ | 343,144 | ||||||||||||||||||
Total inventories | $ | 608,179 | $ | 550,704 | $ | 343,144 | ||||||||||||||||||
5. | Leases |
The Company determines whether an arrangement is a lease at inception of the agreement. Presently, the Company leases land, machinery and equipment under various operating and financing leases.
Right-of-Use, or ROU, assets represent the Company’s right to use the underlying assets for the lease term and lease obligations represent the net present value of the Company’s obligation to make payments arising from these leases. ROU assets and lease obligations are recognized at commencement date based on the present value of lease payments over the lease term using the implicit lease interest rate or, when unknown, an incremental borrowing rate based on the information available at commencement date or April 1, 2019 for leases that commenced prior to that date.
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
October 2, 2021
Lease terms may include options to extend or terminate the lease, and the impact of these options are included in the calculation of the ROU asset and lease obligation only 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. 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, or short-term leases, are not recorded on the accompanying Condensed Consolidated Balance Sheets
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
July 3, 2021
ROU assets and lease obligations for the Company’s operating and financing leases are disclosed separately in the Company’s Condensed Consolidated Balance Sheets.
The components of lease cost were as follows (in thousands):
Three Months Ended | Three Months Ended | Six Months Ended | ||||||||||||||||||||||
July 3, | June 27, | October 2, | September 26, | October 2, | September 26, | |||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
Lease cost: | ||||||||||||||||||||||||
Amortization of right of use asset | $ | 1,295 | $ | 1,186 | $ | 1,546 | $ | 1,145 | $ | 2,841 | $ | 2,331 | ||||||||||||
Interest on lease liabilities | 257 | 294 | 279 | 278 | 536 | 572 | ||||||||||||||||||
Finance lease cost | 1,552 | 1,480 | 1,825 | 1,423 | 3,377 | 2,903 | ||||||||||||||||||
Operating lease cost | 5,000 | 6,407 | 4,960 | 6,239 | 9,960 | 12,646 | ||||||||||||||||||
Total lease cost | $ | 6,552 | $ | 7,887 | $ | 6,785 | $ | 7,662 | $ | 13,337 | $ | 15,549 | ||||||||||||
Cash paid for amounts included in the measurement of lease liabilities | ||||||||||||||||||||||||
Operating cash flows from finance leases | $ | 257 | $ | 294 | $ | 536 | $ | 572 | ||||||||||||||||
Operating cash flows from operating leases | 6,498 | 7,278 | 12,248 | 15,211 | ||||||||||||||||||||
Financing cash flows from finance leases | 1,745 | 1,536 | 3,759 | 3,072 | ||||||||||||||||||||
| $ | 8,500 | $ | 9,108 | $ | 16,543 | $ | 18,855 | |||||||||||||||||
Right-of-use assets obtained in exchange for new finance lease liabilities | $ | 6,498 | $ | 35 | $ | 9,531 | $ | 1,122 | ||||||||||||||||
Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 8,052 | $ | 2,340 | $ | 9,235 | $ | 2,559 | ||||||||||||||||
Weighted-average lease term (years): | ||||||||||||||||||||||||
Financing leases | 4.9 | 5.1 | 4.8 | 4.9 | ||||||||||||||||||||
Operating leases | 4.4 | 3.7 | 4.2 | 3.6 | ||||||||||||||||||||
Weighted-average discount rate (percentage): | ||||||||||||||||||||||||
Financing leases | 3.5 | 4.1 | 3.4 | 4.1 | ||||||||||||||||||||
Operating leases | 4.3 | 4.4 | 4.2 | 4.4 | ||||||||||||||||||||
Undiscounted future lease payments under non-cancelable operating and financing leases, along with a reconciliation of undiscounted cash flows to operating and financing lease obligations, respectively, as of July 3,October 2, 2021 were as follows (in thousands):
Years ending March 31: | Operating | Financing | Operating | Financing | ||||||||||||||
Balance of 2022 | $ | 12,891 | $ | 6,499 | $ | 6,914 | $ | 4,610 | ||||||||||
2023 | 15,315 | 8,665 | 15,446 | 9,220 | ||||||||||||||
2024 | 8,396 | 7,096 | 8,937 | 7,651 | ||||||||||||||
2025 | 4,636 | 3,713 | 5,110 | 4,268 | ||||||||||||||
2026 | 2,618 | 2,625 | 2,898 | 3,179 | ||||||||||||||
| 2027-2033 | 7,436 | 4,941 | 7,524 | 5,575 | ||||||||||||||
Total minimum payment required | $ | 51,292 | $ | 33,539 | $ | 46,829 | $ | 34,503 | ||||||||||
Less interest | 4,415 | 2,777 | 4,039 | 2,721 | ||||||||||||||
Present value of minimum lease payments | 46,877 | 30,762 | 42,790 | 31,782 | ||||||||||||||
Amount due within one year | 16,842 | 7,716 | 15,837 | 8,273 | ||||||||||||||
Long-term lease obligations | $ | 30,035 | $ | 23,046 | $ | 26,953 | $ | 23,509 | ||||||||||
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
July 3,October 2, 2021
6. | Revolving Credit Facility |
On March 24, 2021, the Company entered into a Fourth Amended and Restated Loan and Security Agreement that provides for a senior revolving credit facility of up to $400.0 million that is seasonally adjusted (the “Revolver”). Maximum borrowings under the Revolver total $300.0 million from April through July and $400.0 million from August through March. The Revolver balance is included in Long-Term Debt in the accompanying Condensed Consolidated Balance Sheet due to the Revolver’s March 24, 2026 maturity. In order to maintain availability of funds under the facility, the Company pays a commitment fee on the unused portion of the Revolver. The Revolver is secured by substantially all of the Company’s accounts receivable and inventories and contains borrowing base requirements as well as a financial covenant, if certain circumstances apply. 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 the Company packages. The majority of vegetable inventories are produced during the months of June through November and are then sold over the following year. Payment terms for vegetable 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.
General terms of the Revolver include payment of interest at LIBOR plus a defined spread.
The following table documents theillustrates certain quantitative data for Revolver borrowings during the first quarter of fiscal 2022 and fiscal 2021 (in thousands):
As of: | ||||||||
July 3, | June 27, | |||||||
2021 | 2020 | |||||||
Reported end of period: | ||||||||
Outstanding borrowings | $ | 1,000 | $ | 34,406 | ||||
Weighted average interest rate | 1.35 | % | 1.75 | % | ||||
Three Months Ended: | ||||||||
July 3, | June 27, | |||||||
2021 | 2020 | |||||||
Reported during the period: | ||||||||
Maximum amount of borrowings | $ | 1,071 | $ | 107,967 | ||||
Average outstanding borrowings | $ | 938 | $ | 57,281 | ||||
Weighted average interest rate | 1.35 | % | 2.03 | % | ||||
As of: | ||||||||
October 2, | September 26, | |||||||
2021 | 2020 | |||||||
Outstanding borrowings | $ | 51,679 | $ | 62,611 | ||||
Interest rate | 1.33 | % | 1.75 | % | ||||
Three Months Ended | Six Months Ended | |||||||||||||||
October 2, | September 26, | October 2, | September 26, | |||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Maximum amount of borrowings | $ | 51,679 | $ | 68,078 | $ | 51,679 | $ | 107,967 | ||||||||
Average outstanding borrowings | $ | 11,206 | $ | 48,733 | $ | 5,989 | $ | 51,593 | ||||||||
Weighted average interest rate | 1.29 | % | 1.75 | % | 1.34 | % | 1.98 | % | ||||||||
7. | Stockholders’ Equity |
During the threesix month period ended July 3,October 2, 2021, the Company repurchased $4.6 million342,472 shares of its Class A Common Stock at a cost of $17.3 million, and are included in Treasury Stock. During the nonesix-month period ended September 26, 2020, the Company repurchased 28,600 shares of its Class A Common Stock at a cost of $1.2 million. The Company did not repurchase any of its Class B Common Stock as Treasury Stock. There were 0 repurchases of stock during thein either threesix-month period ended June 27, 2020. month interim period. As of July 3,October 2, 2021, there are 3.23.4 million shares or $95.8$108.5 million of repurchased stock being held as Treasury Stock. These shares are not considered outstanding.
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
July 3,October 2, 2021
8. | Retirement Plans |
The net periodic benefit cost for the Company’s pension plan consisted of (in thousands):
Three Months Ended | ||||||||
July 3, | June 27, | |||||||
2021 | 2020 | |||||||
Service Cost Including Administration | $ | 2,560 | $ | 2,574 | ||||
Interest Cost | 1,878 | 2,251 | ||||||
Expected Return on Plan Assets | (4,276 | ) | (3,567 | ) | ||||
Amortization of Prior Service Cost | 23 | 23 | ||||||
Amortization of Net Loss | 0 | 2,224 | ||||||
Net Periodic Benefit Cost | $ | 185 | $ | 3,505 | ||||
Three Months Ended | Six Months Ended | |||||||||||||||
October 2, | September 26, | October 2, | September 26, | |||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Service cost including administration | $ | 2,560 | $ | 3,259 | $ | 5,121 | $ | 6,519 | ||||||||
Interest cost | 1,878 | 2,302 | 3,756 | 4,605 | ||||||||||||
Expected return on plan assets | (4,276 | ) | (3,510 | ) | (8,553 | ) | (7,021 | ) | ||||||||
Amortization of prior service cost | 23 | 23 | 46 | 46 | ||||||||||||
Amortization of net loss | 0 | 2,531 | 0 | 5,060 | ||||||||||||
Net periodic benefit cost | $ | 185 | $ | 4,605 | $ | 370 | $ | 9,209 | ||||||||
There were 0 contributions made during the threesix month periods ended July 3,October 2, 2021 and June 27,September 26, 2020.
9. | Plant Restructuring |
The following table summarizes the rollforward of restructuring charges and related asset impairment charges recorded and the accruals established (in thousands):
Restructuring Payable | ||||||||||||
Severance | Other Costs | Total | ||||||||||
Balance March 31, 2021 | $ | 0 | $ | 0 | $ | 0 | ||||||
First quarter charge | 0 | 66 | 66 | |||||||||
Cash payments/write offs | 0 | (66 | ) | (66 | ) | |||||||
Balance July 03, 2021 | $ | 0 | $ | 0 | $ | 0 | ||||||
Severance | Other Costs | Total | Restructuring Payable | |||||||||||||||||||||
Severance | Other Costs | Total | ||||||||||||||||||||||
Balance March 31, 2020 | $ | 202 | $ | 0 | $ | 202 | ||||||||||||||||||
Balance March 31, 2021 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||
First quarter charge | 219 | 44 | 263 | 0 | 66 | 66 | ||||||||||||||||||
Second quarter charge | 0 | 47 | 47 | |||||||||||||||||||||
Cash payments/write offs | (203 | ) | (44 | ) | (247 | ) | 0 | (113 | ) | (113 | ) | |||||||||||||
Balance June 27, 2020 | $ | 218 | $ | 0 | $ | 218 | ||||||||||||||||||
Balance October 2, 2021 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||
Severance | Other Costs | Total | ||||||||||
Balance March 31, 2020 | $ | 202 | $ | 0 | $ | 202 | ||||||
First quarter charge | 219 | 44 | 263 | |||||||||
Second quarter charge | 8 | 16 | 24 | |||||||||
Cash payments/write offs | (399 | ) | (60 | ) | (459 | ) | ||||||
Balance September 26, 2020 | $ | 30 | $ | 0 | $ | 30 | ||||||
During the three months ended October 2, 2021, the Company recorded a restructuring charge of $0.04 million related to closed plants. During the three months ended July 3, 2021, the Company recorded a restructuring charge of $0.1$0.06 million mostly related to health costcare costs from a closed plant.
During the three months ended September 26, 2020, the Company recorded a restructuring charge of $0.02 million related to closed plants. During the quarter ended June 27, 2020, the Company recorded a restructuring charge of $0.3 million related to the closing of plants in the Northwest, of which $0.2 million was related to severance and $0.1 million was for lease impairments.impairments
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
October 2, 2021
10. | Other Operating Income and Expense |
During the three months ended July 3,October 2, 2021, the Company recorded a charge of $2.1 million for a supplemental early retirement plan and a gain of $0.8 million from the sale of a plant in the Midwest. The Company also recorded miscellaneous expenses of $0.6 million, partially offset by miscellaneous income of $0.3 million. During the three months ended September 26, 2020 the Company recorded a charge of $1.2 million for a supplemental early retirement plan and a loss of $0.5 million from the sale of unused fixed assets.
During the six months ended October 2, 2021, the Company recorded a charge of $2.4 million for supplemental early retirement plans, which was offset by a gain from the sale of an aircraft of $1.2$1.1 million, a gain of $0.8 million from the sale of a plant in the Midwest and a gain from debt forgiveness of $0.5 million on an economic development loan in which the Company met all required milestones andmilestones. The Company also recorded miscellaneous expenses of $1.0 million, partially offset by miscellaneous income of $0.7 million. During the six months ended September 26, 2020 the Company recorded a charge of $0.3$1.2 million for a supplemental early retirement plan. The Company also recorded miscellaneous incomeplan, a loss of $0.5 million partially offset by miscellaneous expenses of $0.4 million. During the three months ended June 27, 2020 the Company recorded a gain onfrom the sale of unused fixed assets, of $0.5 million. The Company also recordedand a loss of $0.4 million on the disposal of equipment from a sold Northwest plant. These items are included in Other Operating Income inplant partially offset by a gain on the Unaudited Condensed Consolidated Statementssale of Net Earnings.
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
July 3, 2021
$0.5 million
11. | Recently Issued Accounting Standards |
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). UnderEffective as of April 1, 2022, the Company will no longer qualify as a smaller reporting company and is therefore no longer eligible for the above-mentioned deferral, thedeferral. The Company expects to adopt ASU No. 2016-03, and the related ASU No. 2018-19 amendments, beginning as of April 1, 20232022 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.
In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (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 became effective for the Company during the first quarter of fiscal year 2022. The adoption of this ASU did not impact to the Company’s consolidated financial statements and related disclosures.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting which provides optional guidance for a limited time to ease the potential accounting burden associated with the expected market transition away from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. LIBOR is used to determine interest expense related to the Company’s Revolver, which matures in 2026. This update was effective starting March 12, 2020 and the Company may elect to apply the amendments prospectively through December 31, 2022. We are currently evaluating the effect that ASU 2020-04 will have on our 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 quartersix months ended July 3,October 2, 2021.
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
July 3,October 2, 2021
12. | Earnings per Common Share |
Earnings per share for the three and sixmonths ended July 3,October 2, 2021 and June 27,September 26, 2020 are as follows (in thousands, except per share amounts):
Three Months Ended | ||||||||||||||||||||||||
July 3, | June 27, | Three Months Ended | Six Months Ended | |||||||||||||||||||||
2021 | 2020 | October 2, | September 26, | October 2, | September 26, | |||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||
Basic | ||||||||||||||||||||||||
Net earnings | $ | 14,136 | $ | 20,706 | $ | 11,654 | $ | 18,105 | $ | 25,790 | $ | 38,811 | ||||||||||||
Deduct preferred stock dividends paid | 6 | 6 | 6 | 6 | 12 | 12 | ||||||||||||||||||
Undistributed net earnings | 14,130 | 20,700 | 11,648 | 18,099 | 25,778 | 38,799 | ||||||||||||||||||
Earnings attributable to participating preferred | 54 | 81 | 45 | 71 | 99 | 152 | ||||||||||||||||||
Earnings attributable to common shareholders | $ | 14,076 | $ | 20,619 | $ | 11,603 | $ | 18,028 | $ | 25,679 | $ | 38,647 | ||||||||||||
Weighted average common shares outstanding | 9,025 | 9,118 | 8,810 | 9,095 | 8,917 | 9,106 | ||||||||||||||||||
Basic earnings per common share | $ | 1.56 | $ | 2.26 | $ | 1.32 | $ | 1.98 | $ | 2.88 | $ | 4.24 | ||||||||||||
Diluted | ||||||||||||||||||||||||
Earnings attributable to common shareholders | $ | 14,076 | $ | 20,619 | $ | 11,603 | $ | 18,028 | $ | 25,679 | $ | 38,647 | ||||||||||||
Add dividends on convertible preferred stock | 5 | 5 | 5 | 5 | 10 | 10 | ||||||||||||||||||
Earnings attributable to common stock on a diluted basis | $ | 14,081 | $ | 20,624 | $ | 11,608 | $ | 18,033 | $ | 25,689 | $ | 38,657 | ||||||||||||
Weighted average common shares outstanding-basic | 9,025 | 9,118 | 8,810 | 9,095 | 8,917 | 9,106 | ||||||||||||||||||
Additional shares issued related to the equity compensation plan | 5 | 3 | 3 | 2 | 3 | 2 | ||||||||||||||||||
Additional shares to be issued under full conversion of preferred stock | 67 | 67 | 67 | 67 | 67 | 67 | ||||||||||||||||||
Total shares for diluted | 9,097 | 9,188 | 8,880 | 9,164 | 8,987 | 9,175 | ||||||||||||||||||
Diluted earnings per common share | $ | 1.55 | $ | 2.24 | $ | 1.31 | $ | 1.97 | $ | 2.86 | $ | 4.21 | ||||||||||||
13. | Fair Value of Financial Instruments |
On a quarterly basis, the Company estimates the fair values for financial instruments that are recorded at carrying value on the Consolidated Condensed Balance Sheets. 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 $97.1 million and an estimatedThe fair value of $96.7 million as of July 3, 2021. Long-term debt, including current portion had aand carrying amount of $145.0 million and an estimated fair value of $145.3 millionthe Company’s long-term debt are as of June 27, 2020. As of March 31, 2021, the carrying amount was $98.6 million and the estimated fair value was $97.2 million. The fair values of all the other financial instruments approximate their carrying value due to their short-term nature.follows (in thousands):
October 2, | September 26, | March 31, | ||||||||||
2021 | 2020 | 2021 | ||||||||||
Carrying value | $ | 146,779 | $ | 172,180 | $ | 98,585 | ||||||
Fair value | $ | 146,387 | $ | 172,997 | $ | 97,226 | ||||||
14. | Income Taxes |
The effective tax rate for continuing operations was 24.0%23.8% and 23.4%23.5% for the threesix month periodperiods ended July 3,October 2, 2021 and June 27,September 26, 2020, respectively. In fiscal 2021, theThe effective tax rate was decreasedreduced in the prior year six month interim period by 1.0% as a result0.5% due to the receipt of the accrual of interest income related to a federal refund for the NOL carryback claim filed as a result of the CARES Act.claim. Because a similar amount of interest has not been accrued forreceived in the current yearsix month interim period, the rate is effectively increased by 1.0%0.5% when compared to the prior year. Additionally, there were decreases in the effective tax rate to date in both fiscal 2022 and fiscal 2021 from the reversal of accrued interest related to uncertain tax benefits that expired during the second fiscal quarter of each year. The interest reversal in fiscal 2022 was smaller than in fiscal 2021, effectively increasing the effective tax rate by 0.2% in fiscal 2022 when compared to the same period of the prior year. This increase wasperiod. These increases were offset by various insignificant decreases including 0.2% from permanent differences and 0.2% from state income tax rate changes.
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OPERATIONS
July 3,October 2, 2021
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 also packs canned and frozen vegetables under contract packing agreements.
The Company’s raw product is harvested mainly between June through November.
Smaller Reporting Company Status:
Management performed the annual public float test as of the last business day of the Company’s second fiscal quarter ended October 2, 2021, and determined that the Company no longer qualifies as a smaller reporting company due to its public float exceeding $250 million. The Company will continue to use the scaled disclosures permitted for a smaller reporting company through its annual report on Form 10-K for the fiscal year ending March 31, 2022. Beginning with the first quarterly report on Form 10-Q in fiscal 2023, the Company will no longer be eligible to rely on the scaled disclosure exemptions applicable to smaller reporting companies. The Company’s status as an accelerated filer was not impacted.
Impact of the COVID-19 Pandemic:
Business Impact – Commencing at the onset of the pandemic, we implemented a wide range of precautionary measures at our manufacturing facilities and other work locations in response to COVID-19. We have also been working closely with our supply chain partners to ensure that we can continue to provide uninterrupted service. To date, there has been minimal disruption in our supply chain network, including the supply of fruits and vegetables, packaging or other sourced materials. We also continue to work closely with our customers to meet their needs and ensure a consistent supply across our retail partners during this period of high demand.
We continue to monitor the latest guidance from the CDC, FDA and other federal, state and local authorities regarding COVID-19 to ensure our safety protocols remain current to protect our employees, customers, suppliers and other business partners.
The COVID-19 pandemic continues to pose the risk that our employees, contractors, suppliers, customers and other business partners may be prevented from conducting business activities, partially or completely, for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities or imposed by management, or that the pandemic may otherwise interrupt or impair business activities. The Occupational Safety and Health Administration (OSHA) has been directed to develop a rule requiring each employer with 100 or more employees to ensure its workforce is fully vaccinated or require any workers who remain unvaccinated to produce a negative test result on at least a weekly basis before coming to work. In addition, President Biden has announced an executive order mandating COVID-19 vaccination of U.S. based employees of companies that work on, or in support for, federal contracts. The Company is actively encouraging employees to be vaccinated and has achieved some success in these efforts. The Company also has begun preparing to fulfill its legal obligations under the executive order and the pending OSHA final rule. However, management cannot currently predict the impact that the OSHA rule, if adopted, and executive order would have on our workforce, our ability to secure skilled labor in the future, or the cost of implementation and compliance with such rule and the executive order.
Financial Impact to Date – As previously disclosed, theThe pandemic has to date had a positive impact on our operating results, and significantly improved our net sales, net income, and net cash provided by operating activities in fiscal 2021. For the threesix months ended July 3,October 2, 2021, our net sales decreased when compared to the threesix months ended June 27,September 26, 2020 due to the extraordinary demand for our products that began in March 2020 and carried into the first quarter of fiscal 2021 as the COVID-19 pandemic reached the United States and consumers began pantry loading and increasing their at-home consumption as a result of increased social distancing and stay-at-home and work-from-home mandates and recommendations. However, demand for our products remains strong and base business net sales are expected to be in line with pre-pandemic levels, prior to the extraordinary demand and pantry loading at the height of the pandemic.
We continue to incur incremental costs to take the precautionary health and safety measures described above. Most of the incremental costs impact our costs of goods sold and the remaining portion impacts our selling, general and administrative expenses.
Expectations and Risk Factors in Light of the COVID-19 Pandemic –The ultimate impact of the COVID-19 pandemic on our business will depend on many factors, including, among others: how long social distancing and stay-at-home and work-from home policies and recommendations remain in effect; whether additional waves of COVID-19 will affect the United States and the rest of North America; our ability to continue to operate our manufacturing facilities, retain a sufficient seasonal workforce, fill open full time positions, maintain our supply chain without material disruption, procure ingredients, packaging and other raw materials when needed despite unprecedented demand in the food industry; the extent to which macroeconomic conditions resulting from the pandemic and the pace of the subsequent recovery may impact consumer eating and shopping habits; and the extent to which consumers continue to work remotely even after the pandemic subsides and how that may impact consumer habits. We have also seen and expect to continue to see cost inflation for various inputs, including steel, commodities, ingredients, packaging and transportation.
Internal controls over financial reporting have not been impacted by COVID-19. Management is continuously monitoring to ensure controls are effective and properly maintained.
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OPERATIONS
July 3,October 2, 2021
Expectations and Risk Factors in Light of the COVID-19 Pandemic –The ultimate impact of the COVID-19 pandemic on our business will depend on many factors, including, among others: how long social distancing and stay-at-home and work-from home policies and recommendations remain in effect; whether additional waves of COVID-19 will affect the United States and the rest of North America; our ability to continue to operate our manufacturing facilities, retain a sufficient seasonal workforce, fill open full time positions, maintain our supply chain without material disruption, procure ingredients, packaging and other raw materials when needed despite unprecedented demand in the food industry; the extent to which macroeconomic conditions resulting from the pandemic and the pace of the subsequent recovery may impact consumer eating and shopping habits; and the extent to which consumers continue to work remotely even after the pandemic subsides and how that may impact consumer habits. We have also seen and expect to continue to see cost inflation for various inputs, including steel, commodities, ingredients, packaging and transportation.
Internal controls over financial reporting have not been impacted by COVID-19. Management is continuously monitoring to ensure controls are effective and properly maintained.
Results of Operations:
Net Sales:
The following table presents net sales by product category (in thousands):
Three Months Ended | ||||||||
July 3, | June 27, | |||||||
2021 | 2020 | |||||||
Canned Vegetables | $ | 187,944 | $ | 221,018 | ||||
Frozen Vegetables | 22,584 | 17,833 | ||||||
Fruit Products | 15,873 | 18,861 | ||||||
Snack Products | 3,412 | 2,364 | ||||||
Prepared Foods | - | 24,224 | ||||||
Other | 5,229 | 3,865 | ||||||
| $ | 235,042 | $ | 288,165 | |||||
Three Months Ended | Six Months Ended | |||||||||||||||
October 2, | September 26, | October 2, | September 26, | |||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Canned vegetables | $ | 299,588 | $ | 302,291 | $ | 487,532 | $ | 523,309 | ||||||||
Frozen vegetables | 40,850 | 31,023 | 63,434 | 48,856 | ||||||||||||
Fruit products | 22,286 | 23,953 | 38,159 | 42,814 | ||||||||||||
Snack products | 3,685 | 3,052 | 7,097 | 5,416 | ||||||||||||
Prepared foods | - | 24,146 | - | 48,370 | ||||||||||||
Other | 5,847 | 5,829 | 11,076 | 9,694 | ||||||||||||
| $ | 372,256 | $ | 390,294 | $ | 607,298 | $ | 678,459 | |||||||||
Three Months Ended October 2, 2021 and September 26, 2020
Net sales amounted to $235.0$372.3 million for the three months ended July 3,October 2, 2021 as compared with $288.2$390.3 million for the three months ended June 27,September 26, 2020. The overall net sales decrease of $53.2$18.1 million, or 18.5%4.6%, was primarily due to lower sales volumes, which equated to a $52.7$38.4 million decrease and lowerpartially offset by higher selling prices/improved sales mix representinggenerating a favorable impact of $20.3 million over the remaining $0.5prior year quarter.
Prepared foods decreased $24.1 million, all due to volume, as the segment was exited in the third quarter of fiscal 2021 after the sale of the total decrease.prepared foods business. Canned vegetable sales decreased $2.7 million on reduced sales volumes during the three months ended October 2, 2021 given the extraordinary level of demand in fiscal 2021 due to consumer pantry loading resulting from the COVID-19 pandemic. The canned vegetable sales volume decrease was partially offset by higher selling prices. Additionally, there was a $1.7 million decrease in fruit product sales. Frozen vegetables partially offset the other categorical decreases, increasing by $9.8 million, primarily due to higher sales volumes and to a lesser extent higher selling prices. Additionally, snack products increased by $0.6 million while other sales remained essentially flat over the prior year quarter.
Six Months Ended October 2, 2021 and September 26, 2020
Net sales amounted to $607.3 million for the six months ended October 2, 2021 as compared with $678.5 million for the six months ended September 26, 2020. The overall net sales decrease of $71.2 million, or 10.5%, was primarily due to lower sales volumes, which equated to a $91.2 million decrease partially offset by higher selling prices/improved sales mix generating a favorable impact of $20.0 million over the prior year six month period.
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OPERATIONS
October 2, 2021
Canned vegetable sales decreased $33.1$35.8 million, as there was extraordinary sales demand during the threesix months ended June 27,September 26, 2020 due to consumer pantry loading that was experienced at the onset of the pandemic.pandemic and continued throughout fiscal 2021. Prepared foods decreased $24.2$48.4 million due to exiting the segment in fiscal 2021 after the sale of the prepared foods business. Additionally, there was a $3.0$4.7 million decrease in fruit product sales. The decreases to net sales were partially offset by a $4.8$14.6 million increase in frozen vegetable sales driven by increased sales volumes, a $1.0$1.7 million increase in snack product sales, and a $1.3$1.4 million increase in other sales.
Operating Income:Income:
The following table presents components of operating income as a percentage of net sales:
Three Months Ended | ||||||||
July 3, | June 27, | |||||||
2021 | 2020 | |||||||
Gross Margin | 14.3 | % | 16.9 | % | ||||
Selling | 3.0 | % | 2.8 | % | ||||
Administrative | 4.4 | % | 3.5 | % | ||||
Plant Restructuring | 0.0 | % | 0.1 | % | ||||
Other Operating Income | -0.6 | % | -0.1 | % | ||||
Operating Income | 7.5 | % | 10.5 | % | ||||
Interest Expense, Net | 0.6 | % | 0.6 | % | ||||
Three Months Ended | Six Months Ended | |||||||||||||||
October 2, | September 26, | October 2, | September 26, | |||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Gross margin | 11.5 | % | 12.5 | % | 12.6 | % | 14.4 | % | ||||||||
Selling | 2.3 | % | 1.8 | % | 2.5 | % | 2.2 | % | ||||||||
Administrative | 2.9 | % | 3.2 | % | 3.5 | % | 3.3 | % | ||||||||
Other operating loss/(income) | 0.5 | % | 0.5 | % | 0.0 | % | 0.2 | % | ||||||||
Operating income | 5.9 | % | 7.1 | % | 6.5 | % | 8.5 | % | ||||||||
Interest expense, net | 0.4 | % | 0.4 | % | 0.4 | % | 0.5 | % | ||||||||
Three Months Ended October 2, 2021 and September 26, 2020
Gross margin: Gross margin for the three months ended July 3,October 2, 2021 was 14.3%11.5% as compared with 16.9%12.5% for the three months ended June 27,September 26, 2020. The decrease in gross margin for the three months ended July 3,October 2, 2021 was due primarily to cost inflation for various inputs, including steel, commodities, ingredients, packaging and transportation as well as a larger LIFO charge in fiscal 2022 as compared to athe fiscal 2021 LIFO credit in fiscal 2021.charge. The Company’s LIFO charge for the three months ended July 3,October 2, 2021 was $2.8$8.8 million as compared to a creditcharge of $2.1$2.5 million for the three months ended June 27,September 26, 2020. The increase in the LIFO reserve over the three months ended July 3,October 2, 2021 reflects the projected impact of expected cost increases and an overall inventory quantity increase as compared to fiscal 2021. On an after-tax basis, LIFO decreased net earnings by $2.1$6.6 million and $1.9 million for the three months ended July 3,October 2, 2021 and increased net earnings by $1.6 million for the three months ended June 27,September 26, 2020, respectfully, based on the historical statutory federal income tax rate.
Selling: Selling costs as a percentage of net sales for the three months ended July 3,October 2, 2021 were 3.0%2.3% as compared with 2.8%1.8% for the three months ended June 27, 2020. Despite an 18.4% decrease in net sales, sellingprior year quarter. Selling costs as a percentage of net sales remained relatively consistent givenincreased in part due to the direct correlationdecrease in net sales and the fixed nature of most ofcertain selling expenses. Additionally, the selling costs with net sales.
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OPERATIONS
July 3, 2021Company incurred increased charges for certain shipping supplies in an effort to mitigate any potential future supply chain interruptions.
Administrative: Administrative costs as a percentage of net sales for the three months ended JulyOctober 3, 2021 were 4.4%2.9% as compared with 3.5%3.2% for the three months ended June 27, 2020.prior year quarter. The increasedecrease in administrative costs as a percentage of net sales for the three months ended July 3, 2021 is primarilywas due to decreased salesthe sale of the prepared foods business, and the fixed nature of certainCompany no longer incurring the related administrative expenses.expenses for that business.
Other operating loss: During the three months ended July 3,October 2, 2021, the Company recorded a gain from the sale of an aircraft of $1.2 million, a gain from debt forgiveness of $0.5 million on an economic development loan in which the Company met all required milestones and a charge of $0.3$2.1 million for a supplemental early retirement plan.plan and a gain of $0.8 million from the sale of a plant in the Midwest. The Company also recorded miscellaneous income $0.5expenses of $0.6 million, partially offset by miscellaneous expensesincome of $0.4$0.3 million. During the three months ended June 27,September 26, 2020 the Company recorded a gain oncharge of $1.2 million for a supplemental early retirement plan and a loss of $0.5 million from the sale of unused fixed assets of $0.5 million. The Company also recorded a loss of $0.4 million on the disposal of equipment from a sold Northwest plant. These items are included in Other Operating Income in the Unaudited Condensed Consolidated Statements of Net Earnings.assets.
Interest expense: Interest expense as a percentage of net sales was 0.6%0.4% for the three months ended July 3,October 2, 2021 and June 27,September 26, 2020. During the three months ended July 3,October 2, 2021, overallthe average borrowings outstanding and weighted average interest rates were lower than the previous year’syear resulting in lower interest expense, however,expense. However, net sales also decreased year over year which contributed to interest expenses as a percentage of net sales remaining flat when comparing fiscal 2022 to fiscal 2021.
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OPERATIONS
October 2, 2021
Six Months Ended October 2, 2021 and September 26, 2020
Gross margin: Gross margin for the six months ended October 2, 2021 was 12.6% as compared with 14.4% for the six months ended September 26, 2020. The decrease in gross margin for the six months ended October 2, 2021 was due primarily to cost inflation for various inputs, including steel, commodities, ingredients, packaging and transportation as well as a larger LIFO charge in fiscal 2022 as compared to the fiscal 2021 LIFO charge. The Company’s LIFO charge for the six months ended October 2, 2021 was $11.6 million as compared to a charge of $0.4 million for the six months ended September 26, 2020. The increase in the LIFO reserve over the six months ended October 2, 2021 reflects the projected impact of expected cost increases and an overall inventory quantity increase as compared to fiscal 2021. On an after-tax basis, LIFO decreased net earnings by $8.7 million for the six months ended October 2, 2021 and decreased net earnings by $0.3 million for the six months ended September 26, 2020, based on the historical statutory federal income tax rate.
Selling: Selling costs as a percentage of net sales for the six month period ended October 2, 2021 were 2.5% as compared with 2.2% for the same period of the prior year. Selling costs as a percentage of net sales increased in part due to the decrease in net sales and the fixed nature of certain selling expenses. Additionally, the Company incurred increased charges for certain shipping supplies in an effort to mitigate any potential future supply chain interruptions.
Administrative: For the six month period ended September 26, 2020, administrative costs as a percentage of net sales were 3.5% as compared with 3.3% for the same period of the prior year. Net sales decreased 10.4% for the first six months of fiscal 2022 when compared to the same period in fiscal 2021. While the sale of the Company’s prepared foods business did reduce administrative costs in fiscal 2022, the net sales decrease together with the fixed nature of the administrative expenses caused the percentage of net sales to increase for the six months ended October 2, 2021.
Other operating loss: During the six months ended October 2, 2021, the Company recorded a charge of $2.4 million for supplemental early retirement plans, which was offset by a gain from the sale of an aircraft of $1.2 million, a gain of $0.8 million from the sale of a plant in the Midwest and a gain from debt forgiveness of $0.5 million on an economic development loan in which the Company met all required milestones. The Company also recorded miscellaneous expenses of $1.0 million, partially offset by miscellaneous income of $0.8 million. During the six months ended September 26, 2020 the Company recorded a charge of $1.2 million for a supplemental early retirement plan, a loss of $0.5 million from the sale of unused fixed assets, and a loss of $0.4 million on the disposal of equipment from a sold Northwest plant partially offset by a gain on the sale of unused fixed assets of $0.5 million.
Interest expense: Interest expense as a percentage of net sales was 0.4% and 0.5% for the six months ended October 2, 2021 and September 26, 2020, respectively. During the six months ended October 2, 2021, the average borrowings outstanding and weighted average interest rates were lower than the previous year’s resulting in lower interest expense when comparing fiscal 2022 to fiscal 2021.
Income Taxes:Taxes
:
The effective tax rate for continuing operations was 24.0%23.8% and 23.4%23.5% for the threesix month periodperiods ended July 3,October 2, 2021 and June 27,September 26, 2020, respectively. In fiscal 2021, theThe effective tax rate was decreasedreduced in the prior year six month interim period by 1.0% as a result0.5% due to the receipt of the accrual of interest income related to a federal refund for the NOL carryback claim filed as a result of the CARES Act.claim. Because a similar amount of interest has not been accrued forreceived in the current year six month interim period, the rate is effectively increased by 1.0%0.5% when compared to the prior year. Additionally, there were decreases in the effective tax rate to date in both fiscal 2022 and fiscal 2021 from the reversal of accrued interest related to uncertain tax benefits that expired during the second fiscal quarter of each year. The interest reversal in fiscal 2022 was smaller than in fiscal 2021, effectively increasing the effective tax rate by 0.2% in fiscal 2022 when compared to the same period of the prior year. This increase wasperiod. These increases were offset by various insignificant decreases including 0.2% from permanent differences and 0.2% from state income tax rate changes.
Earnings per Share:
Basic earnings per share were $1.56$1.32 and $2.26$1.98 for the three months ended July 3,October 2, 2021 and June 27,September 26, 2020 respectively. Diluted earnings per share were $1.55$1.31 and $2.24$1.97 for the three months ended July 3,October 2, 2021 and June 27,September 26, 2020 respectively. For details of the calculation of these amounts, refer to footnote 12 of the Notes to Condensed Consolidated Financial Statements.
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OPERATIONS
October 2, 2021
Liquidity and Capital Resources:
The financial condition of the Company is summarized in the following table and explanatory review (dollar amounts in thousands, except per share data):
July 3, | June 27, | March 31, | March 31, | |||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Working Capital: | ||||||||||||||||
Balance | $ | 358,253 | $ | 346,064 | $ | 358,169 | $ | 401,946 | ||||||||
Change in Quarter | 84 | (55,882 | ) | |||||||||||||
Long-Term Debt, Less Current Portion | 93,092 | 144,467 | 94,085 | 217,081 | ||||||||||||
Operating Lease Obligations, Less Current Portion | 30,035 | 38,634 | 27,769 | 42,760 | ||||||||||||
Financing Lease Obligations, Less Current Portion | 23,046 | 22,613 | 19,232 | 24,366 | ||||||||||||
Total Stockholders' Equity Per Equivalent | ||||||||||||||||
Common Share (see Note below) | 64.72 | 45.01 | 63.05 | 42.77 | ||||||||||||
Stockholders' Equity Per Common Share | 65.38 | 45.45 | 63.68 | 43.17 | ||||||||||||
Current Ratio | 2.78 | 2.95 | 3.27 | 3.69 | ||||||||||||
October 2, | September 26, | March 31, | March 31, | |||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Working capital: | ||||||||||||||||
Balance | $ | 411,111 | $ | 333,918 | $ | 358,169 | $ | 401,946 | ||||||||
Change in quarter | $ | 52,858 | $ | (12,146 | ) | |||||||||||
Current portion of long-term debt | $ | 4,000 | $ | 63,111 | $ | 4,500 | $ | 500 | ||||||||
Long-term debt, less current portion | $ | 142,779 | $ | 109,069 | $ | 94,085 | $ | 217,081 | ||||||||
Operating lease obligations, less current portion | $ | 26,953 | $ | 33,464 | $ | 27,769 | $ | 42,760 | ||||||||
Financing lease obligations, less current portion | $ | 23,509 | $ | 21,900 | $ | 19,232 | $ | 24,366 | ||||||||
Total stockholders' equity per equivalent common share (1) | 66.46 | 47.00 | 63.05 | 42.77 | ||||||||||||
Stockholders' equity per common share | 67.16 | 47.46 | 63.68 | 43.17 | ||||||||||||
Current ratio | 2.10 | 1.88 | 3.27 | 3.69 | ||||||||||||
Note: Equivalent common shares are either common shares or, for convertible preferred shares, the number of common shares that the preferred shares are convertible into. See Note 9 of the Notes to Consolidated Financial Statements of the Company’s 2021 Annual Report on Form 10-K for conversion details.
As shown in the Condensed Consolidated Statements of Cash Flows, net cash used in operating activities was $50.0 million for the six months ended October 2, 2021, compared to $87.0 million provided by operating activities was $21.6 million for the three months ended July 3, 2021, compared to $100.3 million for the same period of the prior year, a decrease of $78.7$137.0 million. For the first threesix months of fiscal 2022 as compared to the first threesix months of fiscal 2021, the reduction in cash provided by operating activities is primarily comprised of decreases in cash provided by inventories, $59.3$126.0 million, accounts receivable, $22.8$25.6 million, income taxes, $9.0$11.9 million, and net earnings, $6.6$13.0 million. The increase in cash provided by accounts payable, accrued expenses and other of $18.6$37.6 million for the first threesix months of fiscal 2022 as compared to the first threesix months of fiscal 2021 partially offset the decreases to operating cash provided by operating activities.
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OPERATIONS
July 3, 2021flows.
Cash used in investing activities was $11.8$23.6 million for the threesix months ended July 3,October 2, 2021 as compared to $18.3$26.3 million for the threesix months ended June 27,September 26, 2020. Additions to property, plant and equipment decreased $6.0increased $0.9 million from $19.2$27.3 million during the first quartersix months of fiscal 2021 to $13.2$28.2 million during the first quartersame period of fiscal 2022. Proceeds from the sale of assets increased $0.5$3.6 million from $0.9$1.0 million during the first threesix months of fiscal 2021 to $1.4$4.6 million during the first quartersame period of fiscal 2022.
Cash used inprovided by financing activities was $9.8$25.0 million for the threesix months ended July 3,October 2, 2021, a decreasean increase of $71.3$81.6 million compared to cash used in financing activities for the threesix months ended June 27,September 26, 2020 of $81.1$56.6 million. The decreaseincrease in cash used infrom financing activities was primarily driven by the Company payingborrowing on the Revolver in fiscal 2022 in support of seasonal working capital needs. In fiscal 2021, the Company paid down substantially all of its Revolver during fiscal 2021.given the additional sales as a result of pantry loading due to the COVID-19 pandemic. The Company borrowed $21.5$116.0 million and paid down $22.5$67.3 million of long-term debt during the threesix months ended July 3,October 2, 2021, a net useincrease of cash inprovided by financing activities of $1.0$48.7 million. By comparison, the Company borrowed $91.9$248.8 million and paid down $164.5$294.2 million of long-term debt during the threesix months ended June 27,September 26, 2020, a net use of cash in financing activities of $72.6$45.4 million. Other than borrowings under the Revolver, there was no new long-term debt during the first threesix months of fiscal 2022. Additionally, during fiscal 2022 the Company repurchased $17.3 million of its common stock under a stock repurchase program that was authorized in the first quarter of fiscal 2022. By comparison, the Company repurchased $1.2 million during the six months ended September 26, 2020, an increase in cash used in financing activities of $16.1 million.
On March 24, 2021, the Company entered into a Fourth Amended and Restated Loan and Security Agreement that provides for a senior revolving credit facility of up to $400.0 million that is seasonally adjusted (the “Revolver”). Maximum borrowings under the Revolver total $300.0 million from April through July and $400.0 million from August through March. The Revolver balance is included in Long-Term Debt in the accompanying Condensed Consolidated Balance Sheet due to the Revolver’s March 24, 2026 maturity. In order to maintain availability of funds under the facility, the Company pays a commitment fee on the unused portion of the Revolver. The Revolver is secured by substantially all of the Company’s accounts receivable and inventories and contains borrowing base requirements as well as a financial covenant, if certain circumstances apply. 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 the Company packages. The majority of vegetable inventories are produced during the months of June through November and are then sold over the following year. Payment terms for vegetable 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.
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OPERATIONS
October 2, 2021
The Company’s credit facilities contain standard representations and warranties, events of default, and certain affirmative and negative covenants, including various financial covenants. At July 3,October 2, 2021, the Company was in compliance with all such financial covenants.
New Accounting Standards
Refer to footnote 11 of the Notes to Condensed Consolidated Financial Statements.
Seasonality
The Company’s revenues typically are highest in the second and third fiscal quarters. This is due, in part, because the Company sells canned and frozen vegetables to a co-pack customer on a bill and hold basis at the end of each pack cycle, which typically occurs during these quarters. In addition, the Company’s other fruit and vegetable sales exhibit seasonal increases in the third fiscal quarter due to increased retail demand during the holiday season.
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, and (vii) the potential impact of COVID-19 on our facilities.
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OPERATIONS
July 3, 2021competition.
Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Investors are cautioned not to place undue reliance on such statements, which speak only to events as of the date the statements were made. Among the factors that could cause actual results to differ materially are:
● | general economic and business conditions; |
● | cost and availability of commodities and other raw materials such as vegetables, steel and packaging materials; |
● | transportation costs; |
● | climate and weather affecting growing conditions and crop yields; |
● | the availability of financing; |
● | leverage and the Company’s ability to service and reduce its debt; |
● | Potential impact of COVID-19 related issues at our facilities; |
● | foreign currency exchange and interest rate fluctuations; |
● | effectiveness of the Company’s marketing and trade promotion programs; |
● | changing consumer preferences; |
● | competition; |
● | product liability claims; |
● | the loss of significant customers or a substantial reduction in orders from these customers; |
● | changes in, or the failure or inability to comply with, U.S., foreign and local governmental regulations, including environmental and health and safety regulations; and |
● | other risks detailed from time to time in the reports filed by the Company with the SEC. |
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
October 2, 2021
Critical Accounting Policies
For the threesix months ended July 3,October 2, 2021 and June 27,September 26, 2020, 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)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 (first-in, first-out) 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, 2021.
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 July 3,October 2, 2021, 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.
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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. |
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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, 2021 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
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Total Number of | Average Price Paid | Total Number | Maximum Number | |||||||||||||||||||||
Shares Purchased | per Share | of Shares | (or Approximate | |||||||||||||||||||||
Purchased as | Dollar Value) of | |||||||||||||||||||||||
Part of Publicly | Shares that May | |||||||||||||||||||||||
Announced | Yet Be Purchased | |||||||||||||||||||||||
Class A | Class B | Class A | Class B | Plans or | Under the Plans or | |||||||||||||||||||
Period | Common | Common | Common | Common | Programs | Programs | ||||||||||||||||||
4/01/2021 – | ||||||||||||||||||||||||
4/30/2021 (1) | 13,500 | - | 49 | - | - | |||||||||||||||||||
5/01/2021 – | ||||||||||||||||||||||||
5/31/2021 | - | - | - | - | - | |||||||||||||||||||
6/01/2020 – | ||||||||||||||||||||||||
6/30/2021 | 65,853 | - | $ | 49.81 | - | 65,853 | ||||||||||||||||||
Total | 79,353 | - | $ | 49.63 | - | 65,853 | 1,434,147 | |||||||||||||||||
Total Number of | Average Price | |||||||||||||||||||||||
Shares Purchased | Paid per Share | Maximum Number | ||||||||||||||||||||||
Period | Class A Common | Class B Common | Class A Common | Class B Common | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||||||||
7/01/2021 – 7/31/2021 (1) | 91,261 | - | $ | 52.90 | - | 79,504 | ||||||||||||||||||
8/01/2021 – 8/31/2021 | 82,194 | - | $ | 51.03 | - | 82,194 | ||||||||||||||||||
9/01/2020 – 9/30/2021 | 84,164 | - | $ | 47.50 | - | 84,164 | ||||||||||||||||||
Total | 79,353 | - | $ | 50.48 | - | 245,862 | 1,188,285 | |||||||||||||||||
(1) The 13,500Includes 11,757 shares that were purchased in open market transactions by the trustees under the Seneca Foods Corporation Employees' Savings Plan 401(k) Retirement Savings Plan to provide employee matching contributions under the plan.
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Item 3. Defaults Upon Senior Securities None. |
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Item 4. Mine Safety Disclosures None. |
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There are no arrangements or understandings between Mr. Kayser and any other persons pursuant to which he was appointed a director of the Company.
There are no family relationships between Mr. Kayser and any director or executive officer of the Company. Mr. Kayser has not had a direct or indirect material interest in any transaction since the beginning of the Company’s last fiscal year, or in any currently proposed transaction, involving an amount in excess of $120,000 which be reportable under Item 404(a) of Regulation S-K other than (i) his prior employment relationship with the Company and any compensation and benefits in connection with his retirement as disclosed in a Current Report on Form 8-K dated June 11, 2021)filed with the Securities and Exchange Commission on September 1, 2020 and (ii) certain surviving spouse benefits paid to Mr. Kayser’s mother under a supplemental pension arrangement relating to her husband’s prior service with the Company.
32 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
101.INS Inline XBRL Instance Document (filed herewith).
101.1.SCH Inline XBRL Taxonomy Extension Calculation Schema Document (filed herewith).
101.2.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).
101.3.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).
101.4.LAB Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith).
101.5.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).
104 Cover page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*)
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) | ||||
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/s/Paul L. Palmby | ||||
Paul L. Palmby | ||||
President and Chief Executive Officer | ||||
November 12, 2021 | ||||
/s/Timothy J. Benjamin | ||||
Timothy J. Benjamin | ||||
Chief Financial Officer | ||||
November 12, 2021 | ||||