UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q/A10-Q
(Amendment No. 1)
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended | Commission File Number 0-01989 |
Seneca Foods Corporation
(Exact name of Company as specified in its charter)
New York | 16-0733425 |
(State or other jurisdiction of | (I. R. S. Employer |
incorporation or organization) | Identification No.) |
3736 South Main Street, Marion, New York | 14505 |
(Address of principal executive offices) | (Zip Code) |
| Company's telephone number, including area code | 315/926-8100 |
Company's telephone number, including area code 315/926-8100
Not Applicable
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Yes ☑ No ☐
Indicate by check mark whether the Company is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company"company," and an emerging"emerging growth companycompany" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐ Accelerated filer ☑ Non-accelerated filer ☐ Smaller reporting company ☐
| Large accelerated filer ☐ | Accelerated filer ☑ | Non-accelerated filer ☐ | Smaller reporting company ☑ |
Emerging growth company ☐
Indicate by check mark whether the Company is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
If an emerging growth company, indicate by checkmark if the Company has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act ☐
The number of shares outstanding of each of the issuer's classes of common stock at the latest practical date are:
Class | Shares Outstanding at |
Common Stock Class A, $.25 Par |
|
Common Stock Class B, $.25 Par |
|
Explanatory Note
Restatement of Consolidated Condensed Financial Statements
Seneca Foods Corporation ("the "Company") is filing this Amendment No. 1 ("Form 10-Q/A") to our Form 10-Q for the quarterly period ended September 30, 2017, which was originally filed on October 26, 2017 ("Original Filing"), to restate our Consolidated Condensed Financial Statements and the related notes for the three and six months ended September 30, 2017 and October 1, 2016, including the financial information included in Management's Discussion and Analysis of Financial Condition and Results of Operations. We are also providing an update in our disclosures regarding the material weakness in Item 4 of this amended Form 10-Q/A.
As previously disclosed in the Form 10-K for March 31, 2018, on June 28, 2018, the Company’s Audit Committee, in consultation with the Board of Directors, concluded that the Company’s previously issued financial statements for the three and six months ended September 30, 2017 and October 1, 2016 (among other periods, see below) could no longer be relied upon. This decision was reached after discussions with the Company’s senior management and outside advisers.
In reviewing the accounting for certain transactions related to the Company’s contract packing agreement with Green Giant, our management identified a deficiency in the effectiveness of a control intended to properly document and review relevant facts in connection with our revenue recognition policy with respect to bill and hold transactions. The Company has determined that (1) the audited consolidated financial statements as of and for the years ended March 31, 2016 and 2017 and the independent registered public accounting firm’s reports thereon and (2) the unaudited condensed consolidated financial statements as of and for each of the interim periods within the years ended March 31, 2017 and 2018 should be restated to correct inadvertent errors in the application of generally accepted accounting principles dealing with complex and technical accounting issues relating to “bill and hold” revenue recognition. For more information, see footnote 2 of the Company’s March 31, 2018 10-K filed on June 29, 2018.
To correct this misstatement and to address matters related to the foregoing with respect to our disclosure controls and procedures and our internal control over financial reporting, we have restated our Consolidated Condensed Financial Statements and the related notes as of and for the three and six months ended September 30, 2017 and October 1, 2016, including the financial information included in Management's Discussion and Analysis of Financial Condition and Results of Operations.
See Note 2 - Restatement of Consolidated Condensed Financial Statements, which is included in the "Financial Statements" in Item 1 of this amended Form 10-Q/A for more detail.
Amended Items in this Form 10Q/A
The following items in the Original Filing have been amended:
Part I, Item 1. Financial Statements
Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Part I, Item 4. Controls and Procedures
Part II, Item 6. Exhibits
We are also filing currently dated certifications from our Chief Executive Officer and Chief Financial Officer as Exhibits 31.1, 31.2, 32, as well as various exhibits related to XBRL.
This amended Form 10-Q/A does not reflect events occurring after the Original Filing on October 26, 2017, or modify or update those disclosures affected by subsequent events, except for the effects of the restatement. Disclosures not affected by the restatement are unchanged and reflect the disclosures made at the time of the Original Filing.
Quarterly Report on Form 10-Q |
Table of Contents |
Page | ||
PART 1 | ||
Item 1 | ||
1 | ||
2 | ||
3 | ||
4 | ||
5 | ||
| ||
Item 2 | Management's Discussion and Analysis of Financial Condition and Results of Operations | 19 |
Item 3 | | |
Item 4 | | |
PART II | ||
Item 1 | | |
Item 1A | | |
Item 2 | | |
Item 3 | | |
Item 4 | | |
Item 5 | | |
Item 6 | | |
|
CONDENSED CONSOLIDATED BALANCE SHEETS | |||
(In Thousands, Except Per Share Data) |
Unaudited | Unaudited | |||||||||||
September 30, 2017 | October 1, 2016 | March 31, 2017 | ||||||||||
(Restated) | (Restated) | (Restated) | ||||||||||
ASSETS | ||||||||||||
Current Assets: | ||||||||||||
Cash and Cash Equivalents | $ | 14,940 | $ | 10,124 | $ | 11,992 | ||||||
Accounts Receivable, Net | 112,297 | 102,727 | 72,080 | |||||||||
Assets Held For Sale | - | 5,025 | - | |||||||||
Inventories: | ||||||||||||
Finished Goods | 721,575 | 669,291 | 466,126 | |||||||||
Work in Process | 32,287 | 18,098 | 32,528 | |||||||||
Raw Materials and Supplies | 105,284 | 114,295 | 130,281 | |||||||||
Total Inventories | 859,146 | 801,684 | 628,935 | |||||||||
Refundable Income Taxes | 336 | - | 2,471 | |||||||||
Other Current Assets | 2,649 | 15,157 | 3,671 | |||||||||
Total Current Assets | 989,368 | 934,717 | 719,149 | |||||||||
Property, Plant and Equipment, Net | 272,176 | 207,474 | 237,476 | |||||||||
Deferred Income Taxes, Net | 5,217 | 22,165 | 1,370 | |||||||||
Other Assets | 5,183 | 20,847 | 20,273 | |||||||||
Total Assets | $ | 1,271,944 | $ | 1,185,203 | $ | 978,268 | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||
Current Liabilities: | ||||||||||||
Notes Payable | $ | - | $ | - | $ | 166 | ||||||
Accounts Payable | 249,803 | 237,008 | 72,824 | |||||||||
Deferred Revenue | 75,150 | 47,716 | 46,100 | |||||||||
Accrued Vacation | 12,656 | 11,936 | 11,867 | |||||||||
Accrued Payroll | 12,178 | 10,120 | 6,593 | |||||||||
Other Accrued Expenses | 38,340 | 38,639 | 31,880 | |||||||||
Income Taxes Payable | - | 4,172 | - | |||||||||
Current Portion of Long-Term Debt and Capital Lease Obligations | 9,440 | 9,987 | 8,334 | |||||||||
Total Current Liabilities | 397,567 | 359,578 | 177,764 | |||||||||
Long-Term Debt, Less Current Portion | 395,128 | 354,905 | 329,138 | |||||||||
Capital Lease Obligations, Less Current Portion | 37,879 | 18,425 | 34,194 | |||||||||
Pension Liabilities | 9,220 | 41,119 | 8,193 | |||||||||
Other Long-Term Liabilities | 13,440 | 11,559 | 3,775 | |||||||||
Total Liabilities | 853,234 | 785,586 | 553,064 | |||||||||
Commitments and Contingencies | ||||||||||||
Stockholders' Equity: | ||||||||||||
Preferred Stock | 719 | 1,338 | 1,324 | |||||||||
Common Stock, $.25 Par Value Per Share | 3,038 | 3,024 | 3,024 | |||||||||
Additional Paid-in Capital | 98,099 | 97,395 | 97,458 | |||||||||
Treasury Stock, at Cost | (69,195 | ) | (66,730 | ) | (66,499 | ) | ||||||
Accumulated Other Comprehensive Loss | (11,073 | ) | (28,396 | ) | (11,175 | ) | ||||||
Retained Earnings | 397,122 | 392,986 | 401,072 | |||||||||
Total Stockholders' Equity | 418,710 | 399,617 | 425,204 | |||||||||
Total Liabilities and Stockholders’ Equity | $ | 1,271,944 | $ | 1,185,203 | $ | 978,268 | ||||||
Unaudited | Unaudited | |||||||||||
December 29, 2018 | December 30, 2017 | March 31, 2018 | ||||||||||
ASSETS | ||||||||||||
Current Assets: | ||||||||||||
Cash and Cash Equivalents | $ | 12,828 | $ | 13,122 | $ | 15,102 | ||||||
Accounts Receivable, Net | 82,892 | 58,743 | 66,210 | |||||||||
Current Assets Held For Sale | 20,339 | - | - | |||||||||
Current Assets Held For Sale-Discontinued Operations | 12,063 | 137,228 | 109,870 | |||||||||
Inventories: | ||||||||||||
Finished Goods | 434,713 | 462,779 | 388,905 | |||||||||
Work in Process | 33,888 | 39,541 | 41,663 | |||||||||
Raw Materials and Supplies | 107,334 | 81,913 | 116,391 | |||||||||
Total Inventories | 575,935 | 584,233 | 546,959 | |||||||||
Refundable Income Taxes | 1,422 | 2,222 | 1,142 | |||||||||
Other Current Assets | 4,520 | 2,815 | 1,856 | |||||||||
Total Current Assets | 709,999 | 798,363 | 741,139 | |||||||||
Property, Plant and Equipment, Net | 246,014 | 253,755 | 258,543 | |||||||||
Deferred Income Taxes, Net | 1,417 | - | 5,576 | |||||||||
Noncurrent Assets Held For Sale-Discontinued Operations | 1,739 | 20,182 | 20,098 | |||||||||
Other Assets | 2,890 | 3,556 | 3,489 | |||||||||
Total Assets | $ | 962,059 | $ | 1,075,856 | $ | 1,028,845 | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||
Current Liabilities: | ||||||||||||
Accounts Payable | $ | 93,586 | $ | 87,777 | $ | 56,752 | ||||||
Deferred Revenue | 6,829 | 9,698 | 8,362 | |||||||||
Accrued Vacation | 11,404 | 11,014 | 11,691 | |||||||||
Accrued Payroll | 5,350 | 5,154 | 4,955 | |||||||||
Other Accrued Expenses | 22,194 | 24,923 | 20,834 | |||||||||
Current Liabilities Held For Sale | 142 | - | - | |||||||||
Current Liabilities Held For Sale-Discontinued Operations | 8,697 | 20,647 | 28,573 | |||||||||
Current Portion of Long-Term Debt and Capital Lease Obligations | 320,579 | 7,394 | 7,468 | |||||||||
Total Current Liabilities | 468,781 | 166,607 | 138,635 | |||||||||
Long-Term Debt, Less Current Portion | 10,715 | 404,877 | 407,733 | |||||||||
Capital Lease Obligations, Less Current Portion | 29,730 | 35,804 | 34,331 | |||||||||
Pension Liabilities | 27,356 | 7,106 | 23,290 | |||||||||
Deferred Income Taxes, Net | - | 2,896 | - | |||||||||
Noncurrent Liabilities Held For Sale | 593 | - | - | |||||||||
Noncurrent Liabilities Held For Sale-Discontinued Operations | - | 8,565 | 7,964 | |||||||||
Other Long-Term Liabilities | 4,851 | 13,447 | 5,829 | |||||||||
Total Liabilities | 542,026 | 639,302 | 617,782 | |||||||||
Commitments and Contingencies | ||||||||||||
Stockholders' Equity: | ||||||||||||
Preferred Stock | 707 | 707 | 707 | |||||||||
Common Stock, $.25 Par Value Per Share | 3,038 | 3,038 | 3,038 | |||||||||
Additional Paid-in Capital | 98,236 | 98,136 | 98,161 | |||||||||
Treasury Stock, at Cost | (74,896 | ) | (69,941 | ) | (69,556 | ) | ||||||
Accumulated Other Comprehensive Loss | (25,186 | ) | (11,023 | ) | (25,067 | ) | ||||||
Retained Earnings | 418,134 | 415,637 | 403,780 | |||||||||
Total Stockholders' Equity | 420,033 | 436,554 | 411,063 | |||||||||
Total Liabilities and Stockholders’ Equity | $ | 962,059 | $ | 1,075,856 | $ | 1,028,845 | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
CONDENSED CONSOLIDATED STATEMENTS OF NET |
(Unaudited) |
(In Thousands, Except Per Share Data) |
Three Months Ended | Six Months Ended | |||||||||||||||
September 30, 2017 | October 1, 2016 | September 30, 2017 | October 1, 2016 | |||||||||||||
(Restated) | (Restated) | (Restated) | (Restated) | |||||||||||||
Net Sales | $ | 338,470 | $ | 352,606 | $ | 627,397 | $ | 624,741 | ||||||||
Costs and Expenses: | ||||||||||||||||
Cost of Product Sold | 321,059 | 321,581 | 594,451 | 571,761 | ||||||||||||
Selling, General and Administrative | 18,865 | 18,702 | 36,318 | 35,907 | ||||||||||||
Plant Restructuring (Credit) Charge | (25 | ) | 277 | 56 | 1,462 | |||||||||||
Other Operating (Income) Loss | (20 | ) | 31 | (2,632 | ) | 19 | ||||||||||
Total Costs and Expenses | 339,879 | 340,591 | 628,193 | 609,149 | ||||||||||||
Operating Income | (1,409 | ) | 12,015 | (796 | ) | 15,592 | ||||||||||
Loss (Earnings) From Equity Investment | - | 270 | (21 | ) | (167 | ) | ||||||||||
Interest Expense, Net | 3,433 | 2,151 | 6,650 | 4,295 | ||||||||||||
(Loss) Earnings Before Income Taxes | (4,842 | ) | 9,594 | (7,425 | ) | 11,464 | ||||||||||
Income Taxes (Benefit) Expense | (1,884 | ) | 2,773 | (3,487 | ) | 3,678 | ||||||||||
Net (Loss) Earnings | $ | (2,958 | ) | $ | 6,821 | $ | (3,938 | ) | $ | 7,786 | ||||||
(Loss) Earnings Applicable to Common Stock | $ | (2,952 | ) | $ | 6,753 | $ | (3,928 | ) | $ | 7,703 | ||||||
Basic (Loss) Earnings per Common Share | $ | (0.30 | ) | $ | 0.69 | $ | (0.40 | ) | $ | 0.79 | ||||||
Diluted (Loss) Earnings per Common Share | $ | (0.30 | ) | $ | 0.69 | $ | (0.40 | ) | $ | 0.78 | ||||||
|
|
|
|
Three Months Ended | Six Months Ended | |||||||||||||||
September 30, 2017 | October 1, 2016 | September 30, 2017 | October 1, 2016 | |||||||||||||
(Restated) | (Restated) | (Restated) | (Restated) | |||||||||||||
Comprehensive (loss) income: | ||||||||||||||||
Net (loss) earnings | $ | (2,958 | ) | $ | 6,821 | $ | (3,938 | ) | $ | 7,786 | ||||||
Change in pension, post retirement benefits and other (net of tax of $26 and $63) | 43 | - | 102 | - | ||||||||||||
Total | $ | (2,915 | ) | $ | 6,821 | $ | (3,836 | ) | $ | 7,786 | ||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
December 29, 2018 | December 30, 2017 | December 29, 2018 | December 30, 2017 | |||||||||||||
Net Sales | $ | 372,238 | $ | 354,894 | $ | 936,991 | $ | 923,733 | ||||||||
Costs and Expenses: | ||||||||||||||||
Cost of Product Sold | 374,334 | 326,116 | 911,291 | 859,783 | ||||||||||||
Selling, General and Administrative | 19,389 | 19,202 | 55,432 | 53,984 | ||||||||||||
Plant Restructuring Charge | 1,396 | 101 | 2,279 | 157 | ||||||||||||
Other Operating Loss (Income) | 776 | 17 | (3,498 | ) | (2,615 | ) | ||||||||||
Total Costs and Expenses | 395,895 | 345,436 | 965,504 | 911,309 | ||||||||||||
Operating (Loss) Income | (23,657 | ) | 9,458 | (28,513 | ) | 12,424 | ||||||||||
Earnings From Equity Investment | - | - | - | (21 | ) | |||||||||||
Other Income | (607 | ) | (1,658 | ) | (2,649 | ) | (4,594 | ) | ||||||||
Interest Expense, Net | 3,864 | 3,475 | 11,587 | 9,053 | ||||||||||||
(Loss) Earnings From Continuing Operations Before Income Taxes | (26,914 | ) | 7,641 | (37,451 | ) | 7,986 | ||||||||||
Income Taxes (Benefit) From Continuing Operations | (6,874 | ) | (1,245 | ) | (9,617 | ) | (1,710 | ) | ||||||||
(Loss) Earnings From Continuing Operations | (20,040 | ) | 8,886 | (27,834 | ) | 9,696 | ||||||||||
Earnings (Loss) From Discontinued Operations (net of income taxes) | 34,056 | (1,157 | ) | 42,211 | (3,909 | ) | ||||||||||
Net Earnings | $ | 14,016 | $ | 7,729 | $ | 14,377 | $ | 5,787 | ||||||||
Basic (Loss) Earnings per Common Share: | ||||||||||||||||
Continuing Operations | $ | (2.07 | ) | $ | 0.91 | $ | (2.86 | ) | $ | 0.98 | ||||||
Discontinued Operations | 3.52 | (0.12 | ) | 4.34 | (0.40 | ) | ||||||||||
Net Basic Earnings (Loss) per Common Share | $ | 1.45 | $ | 0.79 | $ | 1.48 | $ | 0.58 | ||||||||
Diluted (Loss) Earnings per Common Share: | ||||||||||||||||
Continuing Operations | $ | (2.07 | ) | $ | 0.90 | $ | (2.86 | ) | $ | 0.98 | ||||||
Discontinued Operations | 3.50 | (0.12 | ) | 4.31 | (0.40 | ) | ||||||||||
Net Diluted Earnings (Loss) per Common Share | $ | 1.43 | $ | 0.78 | $ | 1.45 | $ | 0.58 | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
CONDENSED CONSOLIDATED STATEMENTS OF | |||||
(Unaudited) | |||||
(In Thousands) |
Six Months Ended | ||||||||
September 30, 2017 | October 1, 2016 | |||||||
(Restated) | (Restated) | |||||||
Cash Flows from Operating Activities: | ||||||||
Net (Loss) Earnings | $ | (3,938 | ) | $ | 7,786 | |||
Adjustments to Reconcile Net Loss (Earnings) to Net Cash Used In Operations (Net of Acquisition): | ||||||||
Depreciation & Amortization | 15,349 | 12,018 | ||||||
(Gain) Loss on the Sale of Assets | (1,591 | ) | 48 | |||||
Bargain Purchase Gain | (1,096 | ) | - | |||||
Provision for Restructuring and Impairment | 56 | 1,462 | ||||||
Earnings From Equity Investment | (21 | ) | (167 | ) | ||||
Deferred Income Tax Benefit | (3,503 | ) | (1,378 | ) | ||||
Changes in Operating Assets and Liabilities: | ||||||||
Accounts Receivable | (34,173 | ) | (25,939 | ) | ||||
Inventories | (214,135 | ) | (192,203 | ) | ||||
Other Current Assets | 1,106 | 608 | ||||||
Income Taxes | 2,126 | 1,198 | ||||||
Accounts Payable, Deferred Revenue, Accrued Expenses and Other Liabilities | 222,030 | 168,146 | ||||||
Net Cash Used in Operations | (17,790 | ) | (28,421 | ) | ||||
Cash Flows from Investing Activities: | ||||||||
Additions to Property, Plant and Equipment | (13,743 | ) | (14,518 | ) | ||||
Cash Paid for Acquisition (Net of Cash Acquired) | (14,420 | ) | - | |||||
Proceeds from the Sale of Assets | 1,790 | 13 | ||||||
Net Cash Used In Investing Activities | (26,373 | ) | (14,505 | ) | ||||
Cash Flow from Financing Activities: | ||||||||
Long-Term Borrowing | 282,862 | 183,744 | ||||||
Payments on Long-Term Debt and Capital Lease Obligations | (232,706 | ) | (136,613 | ) | ||||
Payments on Notes Payable | (166 | ) | (402 | ) | ||||
Other Assets | (171 | ) | (1,248 | ) | ||||
Purchase of Treasury Stock | (2,696 | ) | (1,021 | ) | ||||
Dividends | (12 | ) | (12 | ) | ||||
Net Cash Provided by Financing Activities | 47,111 | 44,448 | ||||||
Net Increase in Cash and Cash Equivalents | 2,948 | 1,522 | ||||||
Cash and Cash Equivalents, Beginning of the Period | 11,992 | 8,602 | ||||||
Cash and Cash Equivalents, End of the Period | $ | 14,940 | $ | 10,124 | ||||
Supplemental Disclosures of Cash Flow Information: | ||||||||
Noncash Transactions: | ||||||||
Property, Plant and Equipment Purchased Under Capital Lease Obligations | $ | 7,155 | $ | 15,416 | ||||
Three Months Ended | Nine Months Ended | |||||||||||||||
December 29, 2018 | December 30, 2017 | December 29, 2018 | December 30, 2017 | |||||||||||||
Comprehensive income: | ||||||||||||||||
Net earnings | $ | 14,016 | $ | 7,729 | $ | 14,377 | $ | 5,787 | ||||||||
Change in pension, post retirement benefits and other (net of tax) | 17 | 50 | 119 | 152 | ||||||||||||
Total | $ | 14,033 | $ | 7,779 | $ | 14,496 | $ | 5,939 | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
CONDENSED CONSOLIDATED | ||
(Unaudited) | ||
(In Thousands) |
Accumulated | ||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||
Preferred | Common | Paid-In | Treasury | Comprehensive | Retained | |||||||||||||||||||
Stock | Stock | Capital | Stock | Loss | Earnings | |||||||||||||||||||
Balance March 31, 2017 (Restated) | $ | 1,324 | $ | 3,024 | $ | 97,458 | $ | (66,499 | ) | $ | (11,175 | ) | $ | 401,072 | ||||||||||
Net loss | - | - | - | - | - | (3,938 | ) | |||||||||||||||||
Cash dividends paid on preferred stock | - | - | - | - | - | (12 | ) | |||||||||||||||||
Equity incentive program | - | - | 50 | - | - | - | ||||||||||||||||||
Preferred stock conversion | (605 | ) | 14 | 591 | - | - | - | |||||||||||||||||
Purchase treasury stock | - | - | - | (2,696 | ) | - | - | |||||||||||||||||
Change in pension, post retirement benefits, other adjustment (net of tax of $63) | - | - | - | - | 102 | - | ||||||||||||||||||
Balance September 30, 2017 (Restated) | $ | 719 | $ | 3,038 | $ | 98,099 | $ | (69,195 | ) | $ | (11,073 | ) | $ | 397,122 | ||||||||||
Preferred Stock | Common Stock | |||||||||||||||||||||||
| 6% | 10% | |||||||||||||||||||||||
Cumulative Par | Cumulative Par | 2003 Series | ||||||||||||||||||||||
Value $.25 | Value $.025 | Participating | Participating | Class A | Class B | |||||||||||||||||||
Callable at Par | Convertible | Convertible Par | Convertible Par | Common Stock | Common Stock | |||||||||||||||||||
Voting | Voting | Value $.025 | Value $.025 | Par Value $.25 | Par Value $.25 | |||||||||||||||||||
Shares authorized and designated: | ||||||||||||||||||||||||
September 30, 2017 | 200,000 | 1,400,000 | 38,542 | 500 | 20,000,000 | 10,000,000 | ||||||||||||||||||
Shares outstanding: | ||||||||||||||||||||||||
September 30, 2017 | 200,000 | 807,240 | 38,542 | 500 | 7,875,188 | 1,884,439 | ||||||||||||||||||
Nine Months Ended | ||||||||
December 29, 2018 | December 30, 2017 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net (Loss) Earnings From Continuing Operations | $ | (27,834 | ) | $ | 9,696 | |||
Net Earnings (Loss) From Discontinued Operations (Net of Tax) | 42,211 | (3,909 | ) | |||||
Adjustments to Reconcile Net (Loss) Earnings to | ||||||||
Net Cash Used In Operations (Net of Acquisition): | ||||||||
Depreciation & Amortization | 23,550 | 23,112 | ||||||
Gain on the Sale of Assets | (55,863 | ) | (1,590 | ) | ||||
Bargain Purchase Gain | - | (1,078 | ) | |||||
Provision for Restructuring and Impairment | 6,537 | 157 | ||||||
Earnings From Equity Investment | - | (21 | ) | |||||
Deferred Income Tax (Benefit) | 4,159 | (988 | ) | |||||
Changes in Operating Assets and Liabilities: | ||||||||
Accounts Receivable | (5,537 | ) | 11,891 | |||||
Inventories | 52,836 | (99,839 | ) | |||||
Other Current Assets | (8,353 | ) | 954 | |||||
Income Taxes | (280 | ) | 240 | |||||
Accounts Payable, Accrued Expenses and Other Liabilities | 15,004 | 34,627 | ||||||
Net Cash Provided By (Used In) Operations | 46,430 | (26,748 | ) | |||||
Cash Flows from Investing Activities: | ||||||||
Additions to Property, Plant and Equipment | (30,468 | ) | (21,120 | ) | ||||
Cash Paid for Acquisition (Net of Cash Acquired) | - | (14,420 | ) | |||||
Proceeds from the Sale of Assets | 84,975 | 1,841 | ||||||
Net Cash Used In (Provided By) Investing Activities | 54,507 | (33,699 | ) | |||||
Cash Flows from Financing Activities: | ||||||||
Long-Term Borrowing | 419,102 | 438,730 | ||||||
Payments on Long-Term Debt and Capital Lease Obligations | (517,187 | ) | (373,298 | ) | ||||
Payments on Notes Payable | - | (166 | ) | |||||
Other Assets | 226 | (235 | ) | |||||
Purchase of Treasury Stock | (5,340 | ) | (3,442 | ) | ||||
Dividends | (12 | ) | (12 | ) | ||||
Net Cash (Used In) Provided By Financing Activities | (103,211 | ) | 61,577 | |||||
Net (Decrease) Increase in Cash and Cash Equivalents | (2,274 | ) | 1,130 | |||||
Cash and Cash Equivalents, Beginning of the Period | 15,102 | 11,992 | ||||||
Cash and Cash Equivalents, End of the Period | $ | 12,828 | $ | 13,122 | ||||
Supplemental Disclosures of Cash Flow Information: | ||||||||
Noncash Transactions: | ||||||||
Property, Plant and Equipment Purchased Under Capital Lease Obligations | $ | 258 | $ | 8,381 | ||||
Silgan Payable | $ | - | $ | 8,000 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
SENECA FOODS CORPORATION AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
September 30, 2017
| ||||||
(Unaudited) | ||||||
(In Thousands) |
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 September 30, 2017 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, 2017 balance sheet was derived from the audited consolidated financial statements.
Accumulated | ||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||
Preferred | Common | Paid-In | Treasury | Comprehensive | Retained | |||||||||||||||||||
Stock | Stock | Capital | Stock | Loss | Earnings | |||||||||||||||||||
Balance March 31, 2018 | $ | 707 | $ | 3,038 | $ | 98,161 | $ | (69,556 | ) | $ | (25,067 | ) | $ | 403,780 | ||||||||||
First Quarter FY 2019: | ||||||||||||||||||||||||
Net loss | - | - | - | - | - | (8,755 | ) | |||||||||||||||||
Cash dividends paid on preferred stock | - | - | - | - | - | (12 | ) | |||||||||||||||||
Equity incentive program | - | - | 25 | - | - | - | ||||||||||||||||||
Change in pension, post retirement benefits, other adjustment (net of tax) | - | - | - | - | (51 | ) | - | |||||||||||||||||
Second Quarter FY 2019: | ||||||||||||||||||||||||
Net earnings | - | - | - | - | - | 9,116 | ||||||||||||||||||
Equity incentive program | - | - | 25 | - | - | - | ||||||||||||||||||
Purchase treasury stock | - | - | - | (1,579 | ) | - | - | |||||||||||||||||
Change in pension, post retirement benefits, other adjustment (net of tax) | - | - | - | - | (51 | ) | - | |||||||||||||||||
Third Quarter FY 2019: | ||||||||||||||||||||||||
Net earnings | - | - | - | - | - | 14,016 | ||||||||||||||||||
Cash dividends paid on preferred stock | - | - | - | - | - | (11 | ) | |||||||||||||||||
Equity incentive program | - | - | 25 | - | - | - | ||||||||||||||||||
Purchase treasury stock | - | - | - | (3,761 | ) | - | - | |||||||||||||||||
Change in pension, post retirement benefits, other adjustment (net of tax) | - | - | - | - | (17 | ) | - | |||||||||||||||||
Balance December 29, 2018 | $ | 707 | $ | 3,038 | $ | 98,236 | $ | (74,896 | ) | $ | (25,186 | ) | $ | 418,134 | ||||||||||
The results of operations for the threeand six month periods ended September 30, 2017 are not necessarily indicative of the results to be expected for the full year.
The accounting policies followed by the Company are set forth in Note 1 to the Company's Consolidated Financial Statements in the Company’s 2017 Annual Report on Form 10-K.
Preferred Stock | Common Stock | |||||||||||||||||||||||
| 6 | % | 10 | % | |||||||||||||||||||||
Cumulative Par | Cumulative Par | 2003 Series | ||||||||||||||||||||||
Value $.25 | Value $.025 | Participating | Participating | Class A | Class B | |||||||||||||||||||
Callable at Par | Convertible | Convertible Par | Convertible Par | Common Stock | Common Stock | |||||||||||||||||||
Voting | Voting | Value $.025 | Value $.025 | Par Value $.25 | Par Value $.25 | |||||||||||||||||||
Shares authorized and designated: | ||||||||||||||||||||||||
December 29, 2018 | 200,000 | 1,400,000 | 37,529 | 500 | 20,000,000 | 10,000,000 | ||||||||||||||||||
Shares outstanding: | ||||||||||||||||||||||||
December 29, 2018 | 200,000 | 807,240 | 37,529 | 500 | 7,700,102 | 1,874,901 | ||||||||||||||||||
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 2017 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.
|
|
The Consolidated Statements of Cash Flows are not presented in the following tables because there is no impact on total cash flows from operating activities, investing activities and financing activities. The impact from the restatements for the three and six month periods ended September 30, 2017 and October 1, 2016 within the operating activities section of the cash flow statement is illustrated in the balance sheet adjustments and income statement corrections presented below.
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
September 30, 2017
(Unaudited)
The following tables present a summary of the effects of these restatements: December 29, 2018
Consolidated Statements of Earnings (Loss) Three Months Ended | ||||||||||||||||||||||||
September 30, 2017 (Unaudited) | October 1, 2016 (Unaudited) | |||||||||||||||||||||||
As | As | As | As | |||||||||||||||||||||
Reported | Correction | Restated | Reported | Correction | Restated | |||||||||||||||||||
Net Sales | $ | 376,308 | $ | (37,838 | ) | $ | 338,470 | $ | 357,247 | $ | (4,641 | ) | $ | 352,606 | ||||||||||
Cost of Products Sold | 355,904 | (34,845 | ) | 321,059 | 327,035 | (5,454 | ) | 321,581 | ||||||||||||||||
Gross Profit | 20,404 | (2,993 | ) | 17,411 | 30,212 | 813 | 31,025 | |||||||||||||||||
Operating Income/(Loss) | 1,584 | (2,993 | ) | (1,409 | ) | 11,202 | 813 | 12,015 | ||||||||||||||||
Earnings/(Loss) Before Income Taxes | (1,849 | ) | (2,993 | ) | (4,842 | ) | 8,781 | 813 | 9,594 | |||||||||||||||
Income Tax (Benefit) Expense | (737 | ) | (1,147 | ) | (1,884 | ) | 2,637 | 136 | 2,773 | |||||||||||||||
Net Earnings (Loss) | (1,112 | ) | (1,846 | ) | (2,958 | ) | 6,144 | 677 | 6,821 | |||||||||||||||
Earnings Per Common Share-Basic | $ | (0.11 | ) | $ | (0.19 | ) | $ | (0.30 | ) | $ | 0.62 | $ | 0.07 | $ | 0.69 | |||||||||
Earnings Per Common Share-Diluted | $ | (0.11 | ) | $ | (0.19 | ) | $ | (0.30 | ) | $ | 0.62 | $ | 0.07 | $ | 0.69 | |||||||||
1. | Unaudited Condensed Consolidated Financial Statements |
Six Months Ended | ||||||||||||||||||||||||
September 30, 2017 (Unaudited) | October 1, 2016 (Unaudited) | |||||||||||||||||||||||
As | As | As | As | |||||||||||||||||||||
Reported | Correction | Restated | Reported | Correction | Restated | |||||||||||||||||||
Net Sales | $ | 656,495 | $ | (29,098 | ) | $ | 627,397 | $ | 609,861 | $ | 14,880 | $ | 624,741 | |||||||||||
Cost of Products Sold | 620,331 | (25,880 | ) | 594,451 | 559,674 | 12,087 | 571,761 | |||||||||||||||||
Gross Profit | 36,164 | (3,218 | ) | 32,946 | 50,187 | 2,793 | 52,980 | |||||||||||||||||
Operating Income/(Loss) | 2,422 | (3,218 | ) | (796 | ) | 12,799 | 2,793 | 15,592 | ||||||||||||||||
Earnings/(Loss) Before Income Taxes | (4,207 | ) | (3,218 | ) | (7,425 | ) | 8,671 | 2,793 | 11,464 | |||||||||||||||
Income Tax (Benefit) Expense | (2,256 | ) | (1,231 | ) | (3,487 | ) | 2,589 | 1,089 | 3,678 | |||||||||||||||
Net Earnings (Loss) | (1,951 | ) | (1,987 | ) | (3,938 | ) | 6,082 | 1,704 | 7,786 | |||||||||||||||
Earnings Per Common Share-Basic | $ | (0.20 | ) | $ | (0.20 | ) | $ | (0.40 | ) | $ | 0.61 | $ | 0.18 | $ | 0.79 | |||||||||
Earnings Per Common Share-Diluted | $ | (0.20 | ) | $ | (0.20 | ) | $ | (0.40 | ) | $ | 0.61 | $ | 0.17 | $ | 0.78 | |||||||||
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, which are normal and recurring in nature, necessary to present fairly the financial position of Seneca Foods Corporation (the “Company”) as of December 29, 2018 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, 2018 balance sheet was derived from the audited consolidated financial statements. |
| Consolidated Balance Sheets | ||||||||||||||||||||||||
As of September 30, 2017 (Unaudited) | As of March 31, 2017 (Audited) | |||||||||||||||||||||||
As | As | As | As | |||||||||||||||||||||
| Reported | Correction | Restated | Reported | Correction | Restated | ||||||||||||||||||
| Assets | ||||||||||||||||||||||||
Inventory | $ | 802,387 | $ | 56,759 | $ | 859,146 | $ | 598,056 | $ | 30,879 | $ | 628,935 | ||||||||||||
Total Current Assets | 932,609 | 56,759 | 989,368 | 688,270 | 30,879 | 719,149 | ||||||||||||||||||
Total Assets | 1,209,968 | 61,976 | 1,271,944 | 946,019 | 32,249 | 978,268 | ||||||||||||||||||
Liabilities and Stockholders' Equity | ||||||||||||||||||||||||
Deferred Revenue | $ | 542 | $ | 74,608 | $ | 75,150 | $ | 545 | $ | 45,555 | $ | 46,100 | ||||||||||||
Total Current Liabilities | 322,982 | 74,585 | 397,567 | 132,277 | 45,487 | 177,764 | ||||||||||||||||||
Total Liabilities | 780,214 | 73,020 | 853,234 | 511,758 | 41,306 | 553,064 | ||||||||||||||||||
Stockholders' Equity | 429,754 | (11,044 | ) | 418,710 | 434,261 | (9,057 | ) | 425,204 | ||||||||||||||||
Total Liabilities and Stockholders' Equity | 1,209,968 | 61,976 | 1,271,944 | 946,019 | 32,249 | 978,268 | ||||||||||||||||||
The results of operations for the three and ninemonth periods ended December 29, 2018 are not necessarily indicative of the results to be expected for the full year. |
As of October 1, 2016 (Unaudited) | ||||||||||||||||||||||||
As | As | |||||||||||||||||||||||
Reported | Correction | Restated | ||||||||||||||||||||||
| Assets | �� | |||||||||||||||||||||||
Inventory | $ | 771,996 | $ | 29,688 | $ | 801,684 | ||||||||||||||||||
Total Current Assets | 905,029 | 29,688 | 934,717 | |||||||||||||||||||||
Total Assets | 1,148,714 | 36,489 | 1,185,203 | |||||||||||||||||||||
Liabilities and Stockholders' Equity | ||||||||||||||||||||||||
Deferred Revenue | $ | 550 | $ | 47,166 | $ | 47,716 | ||||||||||||||||||
Total Current Liabilities | 312,466 | 47,112 | 359,578 | |||||||||||||||||||||
Total Liabilities | 738,474 | 47,112 | 785,586 | |||||||||||||||||||||
Stockholders' Equity | 410,240 | (10,623 | ) | 399,617 | ||||||||||||||||||||
Total Liabilities and Stockholders' Equity | 1,148,714 | 36,489 | 1,185,203 | |||||||||||||||||||||
During the nine months ended December 29, 2018, the Company sold on a gross basis including case and labeling and future warehousing of $65,741,000 of Green Giant finished goods inventory to B&G Foods, Inc. for cash, on a bill and hold basis, as compared to $112,768,000 for the nine months ended December 30, 2017. Under the terms of the bill and hold agreement, title to the specified inventory transferred to B&G. Under the new revenue recognition standard discussed in Note 4 below, this contract qualifies for bill and hold accounting treatment as the Company has concluded that control of the unlabeled products transfers to the customer at the time title transfers and the Company has the right to payment (prior to physical delivery), which results in earlier revenue recognition. Labeling and storage services that are provided after control of the goods has transferred to the customer are accounted for as separate performance obligations for which revenue is deferred until the services are performed. |
The accounting policies followed by the Company are set forth in Note 1 to the Company's Consolidated Financial Statements in the Company’s 2018 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 2018 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. |
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
September 30, 2017
(Unaudited)
3. AcquisitionDecember 29, 2018In April 2014, the Company purchased a 50% equity interest in Truitt Bros. Inc. ("Truitt") for $16,242,000 which was accounted for as an equity investment. The purchase agreement granted the Company the right to acquire the remaining 50% ownership of Truitt in the future under certain conditions. On April 3, 2017, the Company purchased the remaining 50% equity interest in Truitt. This was considered a step acquisition, whereby the Company remeasured the previously held investment to fair value during the first quarter of 2018. As a result, the Company’s first quarter 2018 net loss includes a non-taxable bargain purchase gain of $1,096,000 of which $562,000 was related to the remeasurement of the previously held investment. Gross profit in the first quarter of fiscal 2018 included a charge of $542,000 related to the recognition of the Truitt inventory step-up through cost of sales for the portion of acquired inventory that was sold during the period. The business, based in Salem, Oregon, has two state-of-the-art plants located in Oregon and Kentucky. The purchase price for the more recent 50% was $14,420,000 (net of cash acquired of $3,030,000) plus the assumption of certain liabilities. The Company had an equity method investment of $17,422,000, so the total investment was $34,872,000. In conjunction with the closing, the Company paid off $3,608,000 of liabilities acquired. The rationale for the acquisition was twofold: (1) the business is a complementary fit with our existing business and (2) Truitt is known for its industry innovation related to packing shelf stable foods in trays, pouches and bowls. This acquisition was financed with proceeds from the Company's revolving credit facility. The purchase price to acquire Truitt Bros., Inc. was allocated based on the internally developed fair value of the assets acquired and liabilities assumed and the independent valuation of inventory, intangibles, and property, plant, and equipment. The total purchase price of $31,842,000 has been allocated as follows (in thousands):
Purchase Price (net of cash received) | $ | 31,842 | ||
Approximate fair values of assets acquired and liabilities assumed: | ||||
Current assets | $ | 22,823 | ||
Other long-term assets | 1,744 | |||
Property, plant and equipment | 28,696 | |||
Current liabilities | (5,068 | ) | ||
Deferred taxes | 407 | |||
Other long-term liabilities | (15,664 | ) | ||
Bargain purchase gain | (1,096 | ) | ||
Total | $ | 31,842 |
The Company is continuing to evaluate the purchase price allocation and these preliminary estimates could change. Proforma results of operations for the Truitt acquisition are not presented because the effects are not material to the consolidated financial statements.
| Assets Held For Sale |
As of December 29, 2018, the Company has certain operating units in the East that met the criteria to be classifed as held for sale, which requires the Company to present the related assets and liabilities as separate line items in our Condensed Consolidated Balance Sheet. The Company is required to record the assets held for sale at the lower of carrying value or fair value less costs to sell. The following table presents information related to the major classes of assets and liabilities that were held for sale in our Condensed Consolidated Balance sheets (in thousands): |
Inventories | $ | 10,539 | ||
Property, Plant and Equipment (net) | 9,800 | |||
Current Assets Held For Sale | $ | 20,339 | ||
Capital Lease Obligations Current Portion | $ | 142 | ||
Current Liabilities Held For Sale | $ | 142 | ||
Capital Lease Obligations | $ | 593 | ||
Noncurrent Liabilities Held For Sale | $ | 593 |
3. | Discontinued Operations |
On July 13, 2018, the Company executed a nonbinding letter of intent with a perspective buyer of the Modesto facility. On October 9, 2018, the Company closed on the sale of the facility to this outside buyer with net proceeds of $63,326,000. Based on its magnitude of revenue to the Company (approximately 15%) and because the Company was exiting the production of peaches, this sale represented a significant strategic shift that has a material effect on the Company’s operations and financial results. Accordingly, the Company has applied discontinued operations treatment for this sale as required by Accounting Standards Codification 210-05—Discontinued Operations. This business we are exiting is part of the Fruit and Vegetable segment. |
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 29, 2018
The following table presents information related to the major classes of assets and liabilities of Modesto that are classified as Held For Sale-Discontinued Operations in the Company's Consolidated Condensed balance sheets (in thousands): |
December 29 | December 30 | March 31 | ||||||||||
2018 | 2017 | 2018 | ||||||||||
Accounts Receivable | $ | 1,441 | $ | 7,490 | $ | 12,586 | ||||||
Inventories | 4,645 | 129,738 | 96,996 | |||||||||
Other Current Assets | 5,977 | - | 288 | |||||||||
Current Assets Held For Sale-Discontinued Operations | $ | 12,063 | $ | 137,228 | $ | 109,870 | ||||||
Other Assets | $ | 1,739 | $ | 1,574 | $ | 1,616 | ||||||
Property, Plant and Equipment (net) | - | 18,608 | 18,482 | |||||||||
Noncurrent Assets Held For Sale-Discontinued Operations | $ | 1,739 | $ | 20,182 | $ | 20,098 | ||||||
Accounts Payable and Accrued Expenses | $ | 8,697 | $ | 18,338 | $ | 26,226 | ||||||
Long-Term Debt and Capital Leases Current Portion | - | 2,309 | 2,347 | |||||||||
Current Liabilities Held For Sale-Discontinued Operations | $ | 8,697 | $ | 20,647 | $ | 28,573 | ||||||
Long-Term Debt and Capital Lease Obligations | $ | - | $ | 8,565 | $ | 7,964 | ||||||
Noncurrent Liabilities Held For Sale-Discontinued Operations | $ | - | $ | 8,565 | $ | 7,964 | ||||||
The operating results of the discontinued operations that are reflected in the Unaudited Condensed Consolidated Statements of Net Earnings (Loss) from discontinued operations are as follows (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
December 29, | December 30, | December 29, | December 30, | |||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net Sales | $ | 1,644 | $ | 37,547 | $ | 111,693 | $ | 123,629 | ||||||||
Costs and Expenses: | ||||||||||||||||
Cost of Product Sold | 5,796 | 36,280 | 129,872 | 124,297 | ||||||||||||
Selling, General and Administrative | 137 | 910 | 1,135 | 2,446 | ||||||||||||
Plant Restructuring Charge (a) | 854 | - | 4,350 | - | ||||||||||||
Interest (Income) Expense (b) | - | 537 | 1,077 | 1,609 | ||||||||||||
| Total cost and expenses | 6,787 | 37,727 | 136,434 | 128,352 | ||||||||||||
Loss From Discontinued Operations Before Income Taxes | (5,143 | ) | (180 | ) | (24,741 | ) | (4,723 | ) | ||||||||
Gain on the Sale of Assets Before Income Taxes (c) (d) (e) | (50,411 | ) | - | (80,677 | ) | - | ||||||||||
Income Tax Expense (Benefit) | 11,212 | 977 | 13,725 | (814 | ) | |||||||||||
Net Earnings (Loss) From Discontinued Operations, Net of Tax | $ | 34,056 | $ | (1,157 | ) | $ | 42,211 | $ | (3,909 | ) | ||||||
| (a) | Includes $278,000 and $3,579,000 of Modesto severance in the three and nine month periods of fiscal 2019, respectively. |
| (b) | Includes interest on debt directly related to Modesto including the building mortgage and equipment leases and an allocation of the Company's line of credit facility. |
| (c) | Includes a $24,211,000 gain as a result of LIFO layer liquidations from the disposal of the inventory for nine months. |
| (d) | Includes $50,411,000 and $51,491,000 gain on the sale of Modesto plant and equipment in the three and nine month periods of fiscal 2019, respectively. |
| (e) | Includes a $4,975,000 gain on the sale of bins for the nine months period. |
Supplemental Information on Discontinued Operations (in thousands): | ||||||||||||||||
Capital Expenditures | - | 621 | 3,937 | 1,889 | ||||||||||||
Depreciation | 7 | 491 | 1,302 | 1,583 |
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 29, 2018
4. | Revenue Recognition |
The Company adopted Accounting Standard Codification Topic 606,Revenue from Contracts with Customers (“ASC 606”) as of April 1, 2018, utilizing the full retrospective method of transition, which requires a restatement of each prior reporting period presented. The Company implemented new policies, processes and systems to enable both the preparation of financial information and internal controls over financial reporting in connection with its adoption of ASC 606. The updated accounting policy for revenue recognition follows: |
Nature of products |
We manufacture and sell the following: |
private label products to retailers, such as supermarkets, mass merchandisers, and specialty retailers, for resale under the retailers’ own or controlled labels;
private label and branded products to the foodservice industry, including foodservice distributors and national restaurant operators;
branded products under our own proprietary brands, primarily on a national basis to retailers;
branded products under co-pack agreements to other major branded companies for their distribution; and
products to our industrial customer base for repackaging in portion control packages and for use as ingredients by other food manufacturers.
Disaggregation of revenue |
In the following table, segment revenue is disaggregated by product category groups (in millions). |
Three Months Ended | Nine Months Ended | |||||||||||||||
December 29, 2018 | December 30, 2017 | December 29, 2018 | December 30, 2017 | |||||||||||||
Canned Vegetables | $ | 259.5 | $ | 224.4 | $ | 631.1 | $ | 563.2 | ||||||||
B&G* | 27.7 | 42.1 | 66.7 | 121.9 | ||||||||||||
Frozen | 29.7 | 29.0 | 87.5 | 80.1 | ||||||||||||
Fruit Products | 27.2 | 24.9 | 70.7 | 69.5 | ||||||||||||
Chip Products | 2.5 | 2.4 | 7.7 | 7.9 | ||||||||||||
Prepared Foods | 22.0 | 28.2 | 59.2 | 69.4 | ||||||||||||
Other | 3.6 | 3.9 | 14.1 | 11.7 | ||||||||||||
| $ | 372.2 | $ | 354.9 | $ | 937.0 | $ | 923.7 | |||||||||
*B&G includes both canned and frozen vegetable sales exclusively for B&G under the Green Giant label. |
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 29, 2018
When Performance Obligations Are Satisfied |
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue recognition. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s primary performance obligation is the production of food products and secondarily case and labeling services and storage services for certain bill and hold sales. |
Revenue recognition is completed primarily at a point in time basis when product control is transferred to the customer. In general, control transfers to the customer when the product is shipped or delivered to the customer based upon applicable shipping terms, as the customer can direct the use and obtain substantially all of the remaining benefits from the asset at this point in time. |
Customer contracts generally do not include more than one performance obligation. When a contract does contain more than one performance obligation, we allocate the contract’s transaction price to each performance obligation based on its relative standalone selling price. The standalone selling price for each distinct good is generally determined by directly observable data. |
The performance obligations in our contracts are generally satisfied within one year. As such, we have not disclosed the transaction price allocated to remaining performance obligations for labeling and storage as of December 29, 2018 which is included in deferred revenue. |
Significant Payment Terms |
Our customer contracts identify the product, quantity, price, payment and final delivery terms. Payment terms usually include early pay discounts. We grant payment terms consistent with industry standards. Although some payment terms may be more extended, no terms beyond one year are granted at contract inception. As a result, we do not adjust the promised amount of consideration for the effects of a significant financing component because the period between our transfer of a promised good or service to a customer and the customer’s payment for that good or service will be generally 30 days or less. |
Shipping |
All shipping and handling costs associated with outbound freight are accounted for as fulfillment costs and are included in the cost of sales; this includes shipping and handling costs after control over a product has transferred to a customer. |
Variable Consideration |
In addition to fixed contract consideration, some contracts include some form of variable consideration. 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 sales, include amounts paid to retailers for shelf space, to obtain favorable display positions and to offer temporary price reductions for the sale of our products to consumers. Accruals for trade promotions are recorded primarily at the time of sale 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 the Company. 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. Final determination of the permissible deductions may take extended periods of time. |
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 29, 2018
Contract balances |
Contract asset and liability balances as of December 29, 2018 are immaterial. The Company does not have significant deferred revenue or unbilled receivable balances because of transactions with customers. The Company does have deferred revenue for prepaid case and labeling and storage services which have been collected from B&G for Green Giant bill and hold sales. |
Contract Costs |
We have identified certain incremental costs to obtain a contract, primarily sales commissions, requiring capitalization under the new standard. The Company continues to expense these costs as incurred because the amortization period for the costs would have been one year or less. The Company does not incur significant fulfillment costs requiring capitalization. |
Impact of Adoption |
Due to the changes in ASC 606, the December 30, 2017 inventory decreased $3.9 million and deferred revenue decreased $4.2 million. There were no material impacts to the Condensed Consolidated Statement of Cash Flows. The following table summarizes the impact of our adoption of ASC 606 on a full retrospective basis on selected Condensed Consolidated Statement of Net Earnings items. |
Condensed Consolidated Statements of Net Earnings (Loss) (in thousands) |
For the Three Months Ended | ||||||||||||||||
December 30, 2017 | ||||||||||||||||
As Reported (1) | 606 Adjustments | Less Discontinued Operations | As Adjusted | |||||||||||||
Net sales | $ | 387,689 | $ | 4,752 | $ | (37,547 | ) | $ | 354,894 | |||||||
Cost of products sold | 357,188 | 5,208 | (36,280 | ) | 326,116 | |||||||||||
Gross profit (loss) | 30,501 | (456 | ) | (1,267 | ) | 28,778 | ||||||||||
Operating income (loss) | 10,271 | (456 | ) | (357 | ) | 9,458 | ||||||||||
Earnings before income taxes | 6,259 | 1,202 | 180 | 7,641 | ||||||||||||
Net earnings from continuing operations | 4,377 | 3,352 | 1,157 | 8,886 | ||||||||||||
For the Nine Months Ended | ||||||||||||||||
December 30, 2017 | ||||||||||||||||
As Reported (1) | 606 Adjustments | Less Discontinued Operations | As Adjusted | |||||||||||||
Net sales | $ | 1,015,086 | $ | 32,276 | $ | (123,629 | ) | $ | 923,733 | |||||||
Cost of products sold | 951,639 | 32,441 | (124,297 | ) | 859,783 | |||||||||||
Gross profit (loss) | 63,447 | (165 | ) | 668 | 63,950 | |||||||||||
Operating income (loss) | 9,475 | (165 | ) | 3,114 | 12,424 | |||||||||||
(Earnings) loss before income taxes | (1,166 | ) | 4,429 | 4,723 | 7,986 | |||||||||||
Net earnings from continuing operations | 439 | 5,348 | 3,909 | 9,696 | ||||||||||||
(1) These reported amounts for the three and nine months ended December 30, 2017 are restated amounts. See the Company's Annual Report on Form 10-K for the year ended March 31, 2018 which was filed on June 29, 2018 and the amended 10-Q filed September 7, 2018 for more information on the restatement.
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 29, 2018
5. | Inventories |
First-In, First-Out (“FIFO”) based inventory costs exceeded LIFO based inventory costs by |
The change in the LIFO Reserve |
SENECA FOODS CORPORATION AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
September 30, 2017
| Revolving Credit Facility |
The Company The Company also has a $100 million unsecured term loan with Farm Credit which was in violation of an interest ratio covenant requirement at the balance sheet date, but the Company obtained a waiver for the quarter ended December 29, 2018. A more restrictive covenant must be met at March 31, 2019 and it is probable that the Company will fail to meet that requirement at that date as well unless an additional waiver or amendment is obtained. Therefore, the Company concluded that the Farm Credit term loan, as of December 29, 2018, should be classified as a current liability. In addition, the Revolver agreement contains a cross-default provision. The Revolver agreement has triggered an event of default as of December 29, 2018, due to the Farm Credit loan default. A waiver was obtained from the lender to provide temporary relief of default as of this measurement date. However, the Company believes that it is probable that the Revolver will be in default as of March 31, 2019 given the likelihood of a Farm Credit default again thus triggering a cross-default. Therefore, the Company concluded that the Revolver should be classified as a current liability as of December 29, 2018. |
The decrease in average amount of Revolver borrowings during the first six months of fiscal 2018 compared to the first six months of fiscal 2017 was attributable to the $100,000,000 term loan from Farm Credit less the acquisition of $14,420,000 made during the first six months of fiscal 2018, Accounts Receivables which are $3,526,000 higher than the same period last year (excluding the amount from the acquisition), and total Inventories, excluding the inventories of the acquisition, which are $41,386,000 higher than the same period last year, partially offset by net earnings in the last twelve months ended September 30, 2017 of $4,171,000.
General terms of the Revolver include payment of interest at LIBOR plus a defined spread.
The following table documents the quantitative data for Revolver borrowings during the second quarter and year-to-date periods of fiscal 2018 and fiscal 2017:
Second Quarter | Year-to-Date | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Reported end of period: | ||||||||||||||||
Outstanding borrowings | $ | 272,609 | $ | 342,935 | $ | 272,609 | $ | 342,935 | ||||||||
Weighted average interest rate | 2.75 | % | 1.88 | % | 2.75 | % | 1.88 | % | ||||||||
Reported during the period: | ||||||||||||||||
Maximum amount of borrowings | $ | 274,117 | $ | 361,800 | $ | 274,117 | $ | 361,800 | ||||||||
Average outstanding borrowings | $ | 244,160 | $ | 314,102 | $ | 229,235 | $ | 284,287 | ||||||||
Weighted average interest rate | 2.58 | % | 1.78 | % | 2.45 | % | 1.93 | % | ||||||||
|
|
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
September 30, 2017 (Unaudited)
December 29, 2018
The decrease in the reported end of period amount of Revolver borrowings during the firstnine months of fiscal 2019 compared to the firstnine months of fiscal 2018 was attributable to Working Capital which is $390,538,000 ($181,953,000 excluding the Revolver reclassification to current) lower than the same period last year due to the Modesto disposal, partially offset by a net loss in the last twelve months ended December 29, 2018. |
General terms of the Revolver include payment of interest at LIBOR plus a defined spread. |
The following table documents the quantitative data for Revolver borrowings during the third quarter and year-to-date of fiscal 2019 and fiscal 2018: |
Third Quarter | Year-to-Date | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Reported end of period: | ||||||||||||||||
Outstanding borrowings | $ | 214,161 | $ | 290,196 | $ | 214,161 | $ | 290,196 | ||||||||
Weighted average interest rate | 4.02 | % | 3.04 | % | 4.02 | % | 3.04 | % | ||||||||
Reported during the period: | ||||||||||||||||
Maximum amount of borrowings | $ | 242,947 | $ | 296,088 | $ | 294,062 | $ | 296,088 | ||||||||
Average outstanding borrowings | $ | 192,323 | $ | 280,960 | $ | 225,345 | $ | 246,414 | ||||||||
Weighted average interest rate | 3.86 | % | 2.82 | % | 3.64 | % | 2.59 | % | ||||||||
| Stockholders’ Equity |
During the nine-month period ended December 29, 2018, the Company repurchased 160,179 shares of its Class A Common Stock and 9,290 of Class B Common Stock as Treasury Stock. As of December 29, 2018, there are 2,578,565 shares or $74,896,000 of repurchased stock. These shares are not considered outstanding. |
8. | Retirement Plans |
The net periodic benefit cost for the Company’s pension plan consisted of: |
Three Months Ended | Six Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
September 30, 2017 | October 1, 2016 | September 30, 2017 | October 1, 2016 |
| December 29, 2018 | December 30, 2017 | December 29, 2018 | December 30, 2017 | ||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||
Service Cost | $ | 1,981 | $ | 2,164 | $ | 3,963 | $ | 4,328 | $ | 1,831 | $ | 1,981 | $ | 6,716 | $ | 5,944 | ||||||||||||||||
Interest Cost | 1,985 | 1,919 | 3,971 | 3,838 | 2,362 | 1,985 | 6,848 | 5,956 | ||||||||||||||||||||||||
Expected Return on Plan Assets | (3,482 | ) | (2,978 | ) | (6,967 | ) | (5,957 | ) | (3,593 | ) | (3,673 | ) | (10,785 | ) | (10,640 | ) | ||||||||||||||||
Amortization of Actuarial Loss | - | 679 | - | 1,358 | ||||||||||||||||||||||||||||
Amortization of Transition Asset | 30 | 27 | 60 | 55 | ||||||||||||||||||||||||||||
Amortization of Prior Service Cost | 30 | 0 | 90 | 0 | ||||||||||||||||||||||||||||
Amortization of Net Gain | 593 | 30 | 1,198 | 90 | ||||||||||||||||||||||||||||
Net Periodic Benefit Cost | $ | 514 | $ | 1,811 | $ | 1,027 | $ | 3,622 | $ | 1,223 | $ | 323 | $ | 4,067 | $ | 1,350 | ||||||||||||||||
There was no contributionnone and $2,500,000 in contributions to the pension plan induring the sixthree and nine month periodperiods ended SeptemberDecember 29, 2018 and December 30, 2017. There was a contribution2017, respectively.
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 29, 2018
| Plant Restructuring |
The following table summarizes the rollforward of continuing restructuring charges |
Long-Lived | ||||||||||||||||
Severance | �� | Asset Charges | Other Costs | Total | ||||||||||||
(In thousands) | ||||||||||||||||
Balance March 31, 2017 | $ | 37 | $ | 4,773 | $ | 305 | $ | 5,115 | ||||||||
First quarter charge | 36 | 9 | 36 | 81 | ||||||||||||
Second quarter charge (credit) | - | 8 | (33 | ) | (25 | ) | ||||||||||
Cash payments/write offs | (73 | ) | (3,888 | ) | (308 | ) | (4,269 | ) | ||||||||
Balance September 30, 2017 | $ | - | $ | 902 | $ | - | $ | 902 | ||||||||
Balance March 31, 2016 | $ | - | $ | 4,975 | $ | 3,897 | $ | 8,872 | ||||||||
First quarter charge (credit) | 127 | (6 | ) | 1,064 | 1,185 | |||||||||||
Second quarter charge (credit) | 112 | (286 | ) | 451 | 277 | |||||||||||
Cash payments/write offs | (123 | ) | 240 | (3,242 | ) | (3,125 | ) | |||||||||
Balance October 1, 2016 | $ | 116 | $ | 4,923 | $ | 2,170 | $ | 7,209 | ||||||||
Restructuring Payable | ||||||||||||
Severance | Other Costs | Total | ||||||||||
(In thousands) | ||||||||||||
Balance March 31, 2018 | $ | - | $ | - | $ | - | ||||||
First quarter charge | 110 | - | 110 | |||||||||
Second quarter charge | 841 | - | 841 | |||||||||
Third quarter charge | 378 | - | 378 | |||||||||
Cash payments/write offs | (976 | ) | - | (976 | ) | |||||||
Balance December 29, 2018 | $ | 353 | $ | - | $ | 353 | ||||||
Severance | Other Costs | Total | ||||||||||
(In thousands) | ||||||||||||
Balance March 31, 2017 | $ | 37 | $ | 305 | $ | 342 | ||||||
First quarter charge | 36 | 36 | 72 | |||||||||
Second quarter credit | - | (33 | ) | (33 | ) | |||||||
Third quarter charge | 98 | 3 | 101 | |||||||||
Cash payments/write offs | (73 | ) | (311 | ) | (384 | ) | ||||||
Balance December 30, 2017 | $ | 98 | $ | - | $ | 98 | ||||||
During fiscal 2016, the Company recorded a restructuring charge of $10,302,000 related to the closing of a plant in the Northwest of which $162,000 was related to severance cost, $5,065,000 was related to asset impairments (contra fixed assets), and $5,075,000 was related to other costs (mostly operating lease costs). During fiscal 2017, the Company adjusted this restructuring charge by $1,829,000 related to the closing of this Northwest plant of which a charge of $1,578,000 was related to severance cost, a credit of $384,000 was related to asset impairments (contra fixed assets), and charge of $635,000 was related to other costs (mostly operating lease costs)
During the nine months ended December 29, 2018, the Company recorded a restructuring charge of $2,279,000 related to the closing and sale of plants in the East and Northwest of which $1,329,000 was related to severance cost, and $950,000 which was related to other costs (mostly equipment moves). |
During the six months ended September 30, 2017, the Company recorded an additional restructuring charge of $57,000 related to the previous closing of this Northwest plant.
During the nine months ended December 30, 2017, the Company recorded a restructuring charge of $140,000 related to the previous closing of a Northwest plant and the Company also incurred a long-lived asset impairment charge of $17,000. |
| Other Operating Income and Expense |
During the |
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)
September 30, 2017
(Unaudited)
December 29, 2018
| Recently Issued Accounting Standards |
In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with customers, now commonly referred to as Accounting Standards Codification Topic 606 (“ASC 606”). The FASB issued ASC 606 to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes the most current revenue recognition guidance. ASC 606 requires the recognition of revenue when control of performance obligations as stipulated in the contracts, is transferred to a customer for an amount that reflects the consideration the entity expects to receive in exchange for promised goods and services. |
The Company adopted ASC 606 as of April 1, 2018, utilizing the full retrospective method of transition, which requires a restatement of each prior reporting period presented. In adopting ASC 606, the Company used the practical expedient where the transaction price allocated to the remaining performance obligations before the date of the initial application is not disclosed. The Company implemented new policies, processes and systems to enable both the preparation of financial information and internal controls over financial reporting in connection with its adoption of ASC 606. The primary impact of adopting ASC 606 on the Company’s 2019 and 2018 revenue was to report the product sales to B&G as bill and hold sales, but deferring a small portion of the sale for future case and labeling services along with storage services. See Note 4 for more information. |
In February 2016, the FASB issued ASU |
In January 2017, the FASB issued ASU No.2017-01 ("ASU 2017-01"), which clarifies the definition of a business, with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017 and interim periods within |
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018 (beginning fiscal 2020 for the Company), including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. While we are still evaluating the impact of our pending adoption of the new standard on our consolidated financial statements, we expect that upon adoption we will recognize ROU assets and lease liabilities and that the amounts could be material.
In January 2017, the FASB issued Accounting Standards Update No. 2017-01 ("ASU 2017-01"), which clarifies the definition of a business, with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, and early adoption is permitted for transactions which occur before the issuance or effective date of the amendments, only when the transaction has not been reported in the financial statements that have been issued or made available for issuance. ASU 2017-01 is to be applied on a prospective basis. The Company does not expect the adoption of ASU 2017-01 to have a material impact on its consolidated financial statements.
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 new accounting pronouncements during the quarter ended September 30, 2017.
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 29, 2018
September 30,
In March 2017,the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” ASU 2017-07 requires that the service cost component of net periodic benefit costs from defined benefit and other postretirement benefit plans be included in the same statement of earnings captions as other compensation costs arising from services rendered by the covered employees during the period. The other components of net benefit cost will be presented in the statement of earnings separately from service costs. ASU 2017-07 is effective for fiscal years beginning after December 31, 2017 (fiscal year 2019 for the Company). Following adoption, only service costs will be eligible for capitalization into manufactured inventories, which should reduce diversity in practice. The amendments of ASU 2017-07 should be applied retrospectively for the presentation of the service cost component and the other components of net periodic benefit costs from defined benefit and other postretirement benefit plans in the statement of earnings and prospectively, on and after the effective date, for the capitalization of the service cost component into manufactured inventories. The Company adopted the new guidance in first quarter of fiscal year 2019, and the changes to earnings before income taxes were immaterial in the year of adoption. |
There were no other recently issued accounting pronouncements that impacted the Company’s condensed consolidated financial statements. In addition, the Company did not adopt any other new accounting pronouncements during the quarter ended December 29, 2018. |
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 29, 2018
| Earnings (Loss) |
Earnings (loss) per share for the |
Q U A R T E R | Y E A R T O D A T E | Q U A R T E R | Y E A R T O D A T E | |||||||||||||||||||||||||||||
(Thousands, except share amounts) | Fiscal 2018 | Fiscal 2017 | Fiscal 2018 | Fiscal 2017 | Fiscal 2019 | Fiscal 2018 | Fiscal 2019 | Fiscal 2018 | ||||||||||||||||||||||||
(Restated) | (Restated) | (Restated) | (Restated) | |||||||||||||||||||||||||||||
Basic | ||||||||||||||||||||||||||||||||
Net (loss) earnings | $ | (2,958 | ) | $ | 6,821 | $ | (3,938 | ) | $ | 7,786 | ||||||||||||||||||||||
(Loss) earnings from continuing operations | $ | (20,040 | ) | $ | 8,886 | $ | (27,834 | ) | $ | 9,696 | ||||||||||||||||||||||
Deduct preferred stock dividends paid | 6 | 6 | 12 | 12 | 6 | 6 | 17 | 17 | ||||||||||||||||||||||||
Undistributed (loss) earnings | (2,964 | ) | 6,815 | (3,950 | ) | 7,774 | ||||||||||||||||||||||||||
(Loss) earnings attributable to participating preferred | (12 | ) | 62 | (22 | ) | 71 | ||||||||||||||||||||||||||
Undistributed (loss) earnings from continuing operations | (20,046 | ) | 8,880 | (27,851 | ) | 9,679 | ||||||||||||||||||||||||||
(Loss) earnings from continuing operations attributable to participating preferred | (78 | ) | 35 | (109 | ) | 49 | ||||||||||||||||||||||||||
(Loss) earnings attributable to common shareholders | $ | (2,952 | ) | $ | 6,753 | $ | (3,928 | ) | $ | 7,703 | ||||||||||||||||||||||
(Loss) earnings from continuing operations attributable to common shareholders | $ | (19,968 | ) | $ | 8,845 | $ | (27,742 | ) | $ | 9,630 | ||||||||||||||||||||||
Weighted average common shares outstanding | 9,792 | 9,792 | 9,803 | 9,800 | 9,625 | 9,740 | 9,694 | 9,782 | ||||||||||||||||||||||||
Basic (loss) earnings per common share | $ | (0.30 | ) | $ | 0.69 | $ | (0.40 | ) | $ | 0.79 | ||||||||||||||||||||||
Basic (loss) earnings per common share from continuing operations | $ | (2.07 | ) | $ | 0.91 | $ | (2.86 | ) | $ | 0.98 | ||||||||||||||||||||||
Diluted | ||||||||||||||||||||||||||||||||
(Loss) earnings attributable to common shareholders | $ | (2,952 | ) | $ | 6,753 | $ | (3,928 | ) | $ | 7,703 | ||||||||||||||||||||||
(Loss) earnings from continuing operations attributable to common shareholders | $ | (19,968 | ) | $ | 8,845 | $ | (27,742 | ) | $ | 9,630 | ||||||||||||||||||||||
Add dividends on convertible preferred stock | 5 | 5 | 10 | 10 | - | 5 | - | 15 | ||||||||||||||||||||||||
(Loss) earnings attributable to common stock on a diluted basis | $ | (2,947 | ) | $ | 6,758 | $ | (3,918 | ) | $ | 7,713 | ||||||||||||||||||||||
(Loss) earnings from continuing operations attributable to common stock on a diluted basis | $ | (19,968 | ) | $ | 8,850 | $ | (27,742 | ) | $ | 9,645 | ||||||||||||||||||||||
Weighted average common shares outstanding-basic | 9,792 | 9,792 | 9,803 | 9,800 | 9,625 | 9,740 | 9,694 | 9,782 | ||||||||||||||||||||||||
Additional shares issued related to the equity compensation plan | - | 3 | - | 3 | - | 2 | - | 2 | ||||||||||||||||||||||||
Additional shares to be issued under full conversion of preferred stock | - | 67 | - | 67 | - | 67 | - | 67 | ||||||||||||||||||||||||
Total shares for diluted | 9,792 | 9,862 | 9,803 | 9,870 | 9,625 | 9,809 | 9,694 | 9,851 | ||||||||||||||||||||||||
Diluted (loss) earnings per common share | $ | (0.30 | ) | $ | 0.69 | $ | (0.40 | ) | $ | 0.78 | ||||||||||||||||||||||
Diluted (loss) earnings per common share from continuing operations | $ | (2.07 | ) | $ | 0.90 | $ | (2.86 | ) | $ | 0.98 | ||||||||||||||||||||||
Note: For fiscal 2018, add backs2019 addbacks for equity compenstioncompensation and additional shares that were dilutiveanti-dilutive were excluded.
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 29, 2018
| Fair Value of Financial Instruments |
As required by Accounting Standards Codification ("ASC") 825, “Financial Instruments,” the Company estimates the fair values of financial instruments on a quarterly basis. The estimated fair value for long-term debt (classified as Level 2 in the fair value hierarchy) is determined by the quoted market prices for similar debt (comparable to the Company’s financial strength) or current rates offered to the Company for debt with the same maturities. Long-term debt, including current portion had a carrying amount of |
| Income Taxes |
The effective tax rate from continuing operations was |
15. | Subsequent Event |
On January 23, 2019, the sale of the |
ITEM 2 MANAGEMENT'SMANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 2017 (Unaudited)
December 29, 2018
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®, READ® and Seneca Farms®. 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. In addition, theThe Company packs Green Giant®, Le Sueur® and other brands of canned vegetables as well as select Green Giant® frozen vegetables for B&G Foods North America (“B&G”) under a contract packing agreement. In addition, Seneca provides contract packing services mostly through its wholly owned subsidiary Truitt Bros., Inc.
On February 16, 2018, the Company announced production at its fruit (primarily peaches) processing plant in Modesto, California will cease prior to the 2018 production season. During the second fiscal quarter of 2019, the Company sold and transferred most of the remaining inventory in the facility and completed most of the labeling and casing required to PCP for the fruit inventory sold to them in the first quarter. The Company continued to ready the building and equipment for sale during the second quarter and into the third quarter. The Modesto operations have met the requirements (approximately a 15% reduction in revenue and a strategic shift away from producing peaches) for discontinued operations and those operations have been presented as such in these financial statements. During October 2018, the building and the land was sold to an unrelated third party for net proceeds of $63,326,000 and the Company auctioned off the remaining equipment in the third quarter. See note 3 Discontinued Operations for more details.
The Company’s raw product is harvested mainly between June through November.
Results of Operations:
Sales:
SecondThe third fiscal quarter 20182019 results include net continuing sales of $338,470,000,$372,238,000, which represents a 4.0% decrease,4.9% increase, or $14,136,000,$17,344,000, from the secondthird quarter of fiscal 2017.2018. The decreasenet increase in sales is higher selling prices/sales mix of $45,419,000 partially offset by a sales volume decrease of $13,266,000 and to lower selling prices/sales mix of $870,000.$28,075,000. The decreaseincrease in sales is primarily from a $19,587,000$35,019,000 increase in Canned Vegetable sales, a $2,375,000 increase in other Canned Fruit sales and a $732,000 increase in Frozen sales, which was partially offset by a $14,377,000 decrease in B&G Foods, Inc. sales, a $13,527,000 decrease in Canned Fruit sales, a $2,945,000$242,000 decrease in Other sales and a $461,000$6,260,000 decrease in Snack sales, partially offset by from acquisition of Truitt during the current year withPrepared Food sales.
The nine months ended 2019 results include net continuing sales of $19,446,000, a $2,141,000 increase in Frozen sales, a $797,000 increase in Canned Vegetable sales,
Six months ended September 30, 2017 include net sales of $627,397,000,$936,991,000, which represents a 0.4%1.4% increase, or $2,656,000,$13,258,000, from the first six monthsthird quarter of fiscal 2017.2018. The net increase in sales is sales volume increase of $3,000,000 partially offset by lowerhigher selling prices/sales mix of $344,000.$60,157,000 partially offset by a sales volume decrease of $46,899,000. The increase in sales is primarily from the acquisition of Truitt during the current year with sales of $41,138,000, a $13,286,000$67,966,000 increase in Canned Vegetable sales, $5,927,000a $7,338,000 increase in Frozen sales and a $2,325,000 increase in Other sales, which was partially offset by a $22,794,000 decrease in Canned Fruit sales, a $29,905,000$55,278,000 decrease in B&G Foods, Inc. sales, and a $2,846,000$10,154,000 decrease in Other sales, and a $2,150,000 decrease in SnackPrepared Food sales.
The following table presents sales by product category (in millions):
Three Months Ended | Six Months Ended | |||||||||||||||
September 30, 2017 | October 1, 2016 | September 30, 2017 | October 1, 2016 | |||||||||||||
| (Restated) | (Restated) | (Restated) | (Restated) | |||||||||||||
Canned Vegetables | $ | 184.9 | $ | 184.1 | $ | 338.7 | $ | 325.4 | ||||||||
B&G* | 33.0 | 52.6 | 52.3 | 82.2 | ||||||||||||
Frozen | 24.2 | 22.0 | 51.2 | 45.2 | ||||||||||||
Fruit Products | 70.7 | 84.3 | 130.7 | 153.5 | ||||||||||||
Chip Products | 3.3 | 3.7 | 5.5 | 7.7 | ||||||||||||
Truitt | 19.4 | 0.0 | 41.1 | 0.0 | ||||||||||||
Other | 3.0 | 5.9 | 7.9 | 10.7 | ||||||||||||
| $ | 338.5 | $ | 352.6 | $ | 627.4 | $ | 624.7 | |||||||||
*B&G includes frozen vegetable sales exclusively for B&G.
ITEM 2 MANAGEMENT'SMANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 2017 (Unaudited)
December 29, 2018
The following table presents continuing sales by product category (in millions):
Three Months Ended | Nine Months Ended | |||||||||||||||
December 29, 2018 | December 30, 2017 | December 29, 2018 | December 30, 2017 | |||||||||||||
Canned Vegetables | $ | 259.5 | $ | 224.4 | $ | 631.1 | $ | 563.2 | ||||||||
B&G* | 27.7 | 42.1 | 66.7 | 121.9 | ||||||||||||
Frozen | 29.7 | 29.0 | 87.5 | 80.1 | ||||||||||||
Fruit Products | 27.2 | 24.9 | 70.7 | 69.5 | ||||||||||||
Chip Products | 2.5 | 2.4 | 7.7 | 7.9 | ||||||||||||
Prepared Foods | 22.0 | 28.2 | 59.2 | 69.4 | ||||||||||||
Other | 3.6 | 3.9 | 14.1 | 11.7 | ||||||||||||
| $ | 372.2 | $ | 354.9 | $ | 937.0 | $ | 923.7 | |||||||||
*B&G includes canned and frozen vegetable sales exclusively for B&G. |
Operating Income:
The following table presents components of continuing operating income as a percentage of net sales:
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
September 30, 2017 | October 1, 2016 | September 30, 2017 | October 1, 2016 | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||
| (Restated) | (Restated) | (Restated) | (Restated) | December 29, 2018 | December 30, 2017 | December 29, 2018 | December 30, 2017 | |||||||||||||||||||||||||
Gross Margin | 5.1 | % | 8.8 | % | 5.3 | % | 8.5 | % | -0.4 | % | 8.1 | % | 2.8 | % | 6.9 | % | ||||||||||||||||
Selling | 2.7 | % | 2.6 | % | 2.8 | % | 2.8 | % | 2.6 | % | 2.9 | % | 2.9 | % | 3.0 | % | ||||||||||||||||
Administrative | 2.8 | % | 2.7 | % | 2.9 | % | 2.9 | % | 2.6 | % | 2.8 | % | 3.1 | % | 3.1 | % | ||||||||||||||||
Plant Restructuring | 0.0 | % | 0.1 | % | 0.0 | % | 0.2 | % | 0.4 | % | 0.0 | % | 0.2 | % | 0.0 | % | ||||||||||||||||
Other Operating Income | 0.0 | % | 0.0 | % | -0.4 | % | 0.0 | % | ||||||||||||||||||||||||
Other Operating Expense (Income) | 0.2 | % | 0.0 | % | -0.4 | % | -0.3 | % | ||||||||||||||||||||||||
Operating Income | -0.4 | % | 3.4 | % | -0.1 | % | 2.5 | % | -6.2 | % | 2.7 | % | -3.0 | % | 1.3 | % | ||||||||||||||||
Interest Expense, Net | 1.0 | % | 0.6 | % | 1.1 | % | 0.7 | % | 1.2 | % | 1.0 | % | 1.3 | % | 1.0 | % | ||||||||||||||||
For the three month period ended September 30, 2017,December 29, 2018, the gross margin decreased from the prior year quarter from 8.8%8.1% to 5.1%(0.4)% due primarily to a higher LIFO charge in the third quarter of 2019. The LIFO charge for continuing operations for the secondthird quarter ended September 30, 2017 whichDecember 29, 2018 was $12,053,000$25,776,000 or 6.9% of sales as compared to a charge of $1,361,000$1,268,000 or 0.4% of sales for the secondthird quarter ended October 1, 2016December 30, 2017 and reflects the impact on the quarter of higher cost increases expectedincurred for higher steel costs and lower yields for peas and corn in fiscal 2018,2019, compared with smaller cost increases to fiscal 2017.2018. On an after-tax basis, LIFO net earnings decreased by $7,834,000$19,332,000 for the quarter ended September 30, 2017December 29, 2018 and decreased LIFO net earnings by $885,000$951,000 for the quarter ended October 1, 2016,December 30, 2017, based on the historical statutory federal income tax rate.
For the sixnine month period ended September 30, 2017,December 29, 2018, the gross margin decreased from the prior year period from 8.5%6.9% to 5.3%2.8% due primarily to a higher LIFO charge in the current year. The LIFO charge for the sixfirst nine months ended September 30, 2017December 29, 2018 which was $19,354,000$39,933,000 or 4.3% of sales as compared to a charge of $2,413,000$19,763,000 or 2.1% of sales for the sixnine months ended October 1, 2016December 30, 2017 and reflects the impact on the six monthsquarter of higher cost increases expectedincurred for higher steel costs and lower yields for peas and corn in fiscal 2018,2019, compared with smaller cost increases to cost decreases in fiscal 2017.2018. On an after-tax basis, LIFO net earnings increased by $29,950,000 for the nine months ended December 29, 2018 and decreased LIFO net earnings by $12,580,000$14,822,000 for the sixnine months ended SeptemberDecember 30, 2017, and decreased net earnings by $1,568,000 for the six months ended October 1, 2016, based on the historical statutory federal income tax rate.
For the three month period ended September 30, 2017, selling costs as a percentage of sales increased from 2.6% to 2.7% for the same period in the prior year. For the six month period ended September 30, 2017, selling costs as a percentage of sales remained unchanged at 2.8% from the same period in the prior year. The three month increase is primarily as a result of the Green Giant sales decrease, which don't incur selling costs.
For the three month period ended September 30, 2017, administrative expense as a percentage of sales increased from 2.7% to 2.8%. For the six month period ended September 30, 2017, administrative expense as a percentage of sales was unchanged at 2.9%.
During the six months ended September 30, 2017, the Company sold some unused fixed assets which resulted in a gain of $1,591,000. $1,081,000 of the current year gain was related to the sale of a closed plant in the Midwest. In addition, the Company recorded a bargain purchase gain of $1,096,000 as discussed in the Acquisition footnote to the Condensed Consolidated Financial Statements. During the six months ended October 1, 2016, the Company sold some unused fixed assets which resulted in a loss of $48,000. These items are included in other operating income in the Unaudited Condensed Consolidated Statements of Net Earnings.
ITEM 2 MANAGEMENT'SMANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 2017 (Unaudited)
December 29, 2018
For the three month period ended December 29, 2018, selling costs as a percentage of sales remained the same at 2.6% for each period. For the nine month period ended December 29, 2018, selling costs as a percentage of sales remained the same at 2.8% for each period.
For the three month period ended December 29, 2018, administrative expense as a percentage of sales decreased from 2.8% to 2.6%. For the nine month period ended December 29, 2018, administrative expense as a percentage of sales remained the same at 3.1%. This primarily due to higher sales during compared to same periods in the prior year and the fixed nature of these administrative costs.
During the nine months ended December 29, 2018, the Company sold unused fixed assets which resulted in a gain of $3,920,000 as compared to a gain of $1,590,000 during the nine months ended December 30, 2017. The current year gain was mostly related to the sale of a closed plant in the Midwest. $1,081,000 of the prior year gain was related to the sale of a closed plant in the Midwest. In addition, the Company recorded a bargain purchase gain of $1,078,000 during the nine months ended December 30, 2017. These items are included in other operating income (loss) in the Unaudited Condensed Consolidated Statements of Net Earnings. |
Interest expense for the secondthird quarter ended September 30, 2017,December 29, 2018, as a percentage of sales, increased to 1.2% from 0.6% to 1.0% in secondthird quarter ended October 1, 2016. ForDecember 30, 2017. Interest expense for the six month periodnine months ended September 30, 2017, interest expenseDecember 29, 2018, as a percentage of sales, increased to 1.3% from 0.7% to 1.1% compared to six1.0% in nine months ended October 1, 2016.December 30, 2017. During fiscal 2018,2019, overall borrowings and interest rates were higher than the previous year.
Income Taxes:
The effective tax rate from continuing operations was 47.0%25.7% and 32.1%(21.4)% for the sixnine month periods ended SeptemberDecember 29, 2018 and December 30, 2017, and October 1, 2016, respectively. The 14.9%47.1 percentage point increase in the effective tax rate representsis the result of a 38.1% increase due to the Tax Cuts and Jobs Act and an 8.6% increase indue to federal and state income tax benefit as acredits. The amount of federal and state income tax credits has remained consistent with the prior year. However, the percentage of book loss when comparedfederal and state income tax credits in relation to the same period last year. The major contributors to this increase are a result2019 pre-tax loss versus the percentage of the Truitt acquisition. The bargain purchase gain is non-taxable and the deferred tax liability relatedstate credits in relation to the outside basis difference in the Truitt investment was written off because the investment can now be recovered2018 pre-tax income has resulted in a tax-free manner. significant increase.
Earnings (Loss)per Share:
Basic
Continuing basic earnings (loss) earnings per share were $(0.30)$(2.07) and $0.69$0.91 for the three months ended SeptemberDecember 29, 2018 and December 30, 2017, and October 1, 2016, respectively. DilutedContinuing diluted earnings (loss) earnings per share were $(0.30)$(2.07) and $0.69$0.90 for the three months ended SeptemberDecember 29, 2018 and December 30, 2017, respectively. Continuing basic and October 1, 2016, respectively. Basicdiluted earnings (loss) earnings per share were $(0.40)$(2.86) and $0.79$0.98 for the sixnine months ended SeptemberDecember 29, 2018 and December 30, 2017, and October 1, 2016, respectively. Diluted earnings per share were $(0.40) and $0.78 for the six months ended September 30, 2017 and October 1, 2016, respectively. For details of the calculation of these amounts, refer to footnote 1112 of the Notes to Condensed Consolidated Financial Statements.
|
Discontinued Operations
On July 13, 2018, the Company executed a nonbinding letter of intent with a perspective buyer of the Modesto facility. On October 9, 2018, the Company closed on the sale of the facility to this outside buyer with net proceeds of $63,326,000. Based on its magnitude of revenue to the Company (approximately 15%) and because the Company was exiting the production of peaches, this sale represented a significant strategic shift that has a material effect on the Company’s operations and financial results. Accordingly, the Company has applied discontinued operations treatment for this sale as required by Accounting Standards Codification 210-05—Discontinued Operations. This business we are exiting is part of the Fruit and Vegetable segment. For the three months ended December 29, 208, the Company reported a loss from operations before taxes of $5,143,000 compared to a loss of $180,000 for the three months ended December 30, 2017. For the nine months ended December 29, 208, the Company reported a loss from operations before taxes of $24,741,000 compared to a loss of $4,723,000 for the nine months ended December 30, 2017. |
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
December 29, 2018
Liquidity and Capital Resources:
The financial condition of the Company is summarized in the following table and explanatory review:
September 30, | October 1, | March 31, | March 31, | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | December 29, | December 30, | March 31, | March 31, | |||||||||||||||||||||||||
| (Restated) | (Restated) | (Restated) | (Restated) | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||
Working Capital: | ||||||||||||||||||||||||||||||||
Balance | $ | 591,801 | $ | 575,139 | $ | 541,385 | $ | 254,200 | $ | 241,218 | $ | 631,756 | $ | 602,504 | $ | 555,993 | ||||||||||||||||
Change in Quarter | $ | 38,965 | 79,306 | (313,541 | ) | 22,461 | ||||||||||||||||||||||||||
Current Portion of Long-Term Debt and Capital Lease Obligations | 320,579 | 7,394 | 7,468 | 8,334 | ||||||||||||||||||||||||||||
Long-Term Debt, Less Current Portion | 395,128 | 354,905 | 329,138 | 35,967 | 10,715 | 404,877 | 407,733 | 329,138 | ||||||||||||||||||||||||
Capital Lease Obligations, Less Current Portion | 37,879 | 18,425 | 34,194 | 4,988 | 29,730 | 35,804 | 34,331 | 34,194 | ||||||||||||||||||||||||
Total Stockholders' Equity Per Equivalent | ||||||||||||||||||||||||||||||||
Common Share (see Note below) | 42.44 | 40.21 | 42.72 | 39.40 | 43.39 | 44.35 | 41.66 | 43.63 | ||||||||||||||||||||||||
Stockholders' Equity Per Common Share | 42.83 | 40.72 | 43.27 | 39.90 | 43.79 | 44.75 | 42.05 | 44.20 | ||||||||||||||||||||||||
Current Ratio | 2.49 | 2.60 | 4.05 | 1.55 | 1.52 | 4.79 | 5.35 | 5.20 | ||||||||||||||||||||||||
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 710 of the Notes to Consolidated Financial Statements of the Company’s 20172018 Annual Report on Form 10-K for conversion details.
As shown in the Condensed Consolidated Statements of Cash Flows, net cash used inprovided by operating activities was $17,790,000$46,430,000 in the first sixnine months of fiscal 2018,2019, compared to $28,421,000net cash used by operating activities of $26,748,000 in the first sixnine months of fiscal 2017.2018. The $10,631,000 decrease$73,178,000 increase in cash usedprovided is primarily attributable to an $214,135,000 increasea a considerable decrease in inventory ($152,675,000) due to the Modesto closure and to poor yields for peas and corn, which was partially offset by a $9,307,000 decrease in the first six months of fiscal 2018 as compared to $192,203,000 increasecash provided by other current assets, a $520,000 decrease in inventory in the first six months of fiscal 2017,cash provided by income taxes, and a $53,884,000 increase$19,623,000 decrease in cash provided by accounts payable, deferred revenue, accrued expenses and other liabilities, a $928,000 increase in cash provided by income taxes partially offset by decreased net earnings of $11,724,000 as previously discussed and an $8,234,000$17,428,000 increase in cash used by accounts receivable.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 2017
$8,590,000 which included a gain on the sale of assets totaling $55,863,000 in the nine months ended December 29, 2018.
As compared to October 1, 2016, inventory increased $57,462,000 to $859,146,000 at SeptemberDecember 30, 2017, inventory decreased $8,298,000 to $575,935,000 at December 29, 2018 (including $16,076,000 increase$55,800,000 decrease from the Truitt Bros. Inc. acquisition)Pacific Coast Producers inventory sale). The components of the inventory increase reflect a $52,284,000 increase$28,066,000 decrease in finished goods, a $14,189,000 increase$5,653,000 decrease in work in process and a $9,011,000 decrease$25,421,000 increase in raw materials and supplies. The finished goods increase is primarily duereflects lower inventory quantities attributable to the Truitt acquisition and reflects higher inventory quantities due to the magnitude and timing of the fiscalcalendar year 2018 pack versus fiscalthe calendar year 2017 pack partially offset by increased sales volume as comparedthe $55,800,000 inventory sale to the prior year.PCP. The raw materials and supplies decreaseincrease is primarily due to a decreasean increase in cans and raw steel quantities compared to the prior year. FIFO based inventory costs exceeded LIFO based inventory costs by $163,193,000$160,727,000 as of the end of the secondthird quarter of 20182019 as compared to $156,351,000$152,091,000 as of the end of the secondthird quarter of 2017.2018.
Cash used inprovided by investing activities was $26,373,000$54,507,000 in the first sixnine months of fiscal 20182019 compared to cash used in investing activities of $14,505,000$33,699,000 in the first sixnine months of fiscal 2017.2018. Additions to property, plant and equipment were $13,743,000$30,468,000 in the first sixnine months of fiscal 20182019 as compared to $14,518,000$21,120,000 in first sixnine months of fiscal 2017.2018. The prior year purchases include $4,767,000Company received cash proceeds from the sale of fixedvarious assets purchased from Monsanto in connection with our seed processing in August 2016.Modesto and Buhl which totaled $84,975,000 during the nine months ended December 29, 2018. In April 2017, the Company acquired the other 50% of Truitt Bros., Inc. for $14,420,000 (net of cash acquired).
Cash provided byused in financing activities was $47,111,000$103,211,000 in the first sixnine months of fiscal 2018,2019, which included borrowings of $282,862,000$419,102,000 and the repayment of $232,706,000$517,187,000 of long-term debt, principally consisting of borrowingborrowings and repaymentrepayments on the revolving credit facility (“Revolver”). Cash provided by financing activities was $44,448,000 in the first six months of fiscal 2017, which included borrowings of $183,744,000 and the repayment of $136,613,000 of long-term debt, principally consisting of borrowing and repaymentThe Company made additional repayments on the Revolver.Revolver from cash proceeds received from the sale of Modesto and Buhl assets. Other than borrowings under the Revolver, there was no new long-term debt during the first sixnine months of fiscal 2018. During2018 other than the six months ended October 1, 2016,$13,470,000 acquired via the Companyacquisition of Truitt Bros., Inc. of which $3,515,000 was paid off $22,596,000 of Industrial Revenue Bonds. During the six months ended September 30, 2017, theimmediately. The Company repurchased $2,696,000$5,340,000 and $3,442,000 of its Class Astock during the first nine months of fiscal year 2019 and Class B Common Stock as treasury stock compared to $1,021,000 in the prior period.2018, respectively.
During the six months ended September 30, 2017, the Company entered into $7,155,000
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
December 29, 2018
The Company completed the closing ofentered into a new five-year revolving credit facility on July 5, 2016. Available borrowings on the Revolver total $400,000,000 from April through July and $500,000,000 from August through March with a maturity date of July 5, 2021. The interest rate on the Revolver is based on LIBOR plus an applicable margin based on excess availability and the Company's fixed charge coverage ratio. As of September 30, 2017,December 29, 2018, the interest rate was approximately 2.75%4.01% on a balance of $272,609,000.$214,161,000. We believe that cash flows from operations, availability under our Revolver and other financing sources will provide adequate funds for our working capital needs, planned capital expenditures, and debt obligations for at least the next 12 months.
The Company’s credit facilities contain standard representations and warranties, events of default, and certain affirmative and negative covenants, including various financial covenants. At September 30, 2017,The Company is in violation of a Farm Credit term loan covenant requirement at the balance sheet date, but obtained a waiver for the quarter ended December 29, 2018. A more restrictive covenant must be met at March 31, 2019, and it is probable that the Company was in compliance with all such financial covenants.will fail to meet that requirement at that date, unless an additional waiver or amendment is obtained. Therefore, the Company concluded that the Farm Credit term loan, as of December 29, 2019, should be classified as a current liability. However, the Company is looking to amend the Farm Credit covenants on a longer term basis during the fourth quarter.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 2017
default as of December 29, 2018, due to the Farm Credit loan default. A waiver was obtained from the lender to provide temporary relief of default as of this measurement date. The Company believes that it is probable that the Revolver will be in default as of March 31, 2019 given the likelihood of a Farm Credit default thus triggering a cross-default. Therefore, the Company concluded that the Revolver should be classified as a current liability as of December 29, 2018.
New Accounting Standards
Refer to footnote 1011 of the Notes to Condensed Consolidated Financial Statements.
Seasonality
The Company's revenues are typically higher in the second and third fiscal quarters. This is due in part because the Company sells, on a bill and hold basis, Green Giant canned and frozen vegetables to B&G either weekly during production for specialty items, or at the end of each pack cycle, which typically occurs during these quarters. B&G buys the product from the Company at cost plus a specified fee for each equivalent case. See the Critical Accounting Policies section below for further details. The Company’s non-Green Giant sales also exhibit seasonality with the third fiscal quarter generating the highest retail sales due to holidays that occur during that quarter.
Forward-Looking Information
The information contained in this report contains, or may contain, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this report and include statements regarding the intent, belief or current expectations of the Company or its officers (including statements preceded by, followed by or that include the words “believes,” “expects,” “anticipates” or similar expressions) with respect to various matters, including (i) the Company’s anticipated needs for, and the availability of, cash, (ii) the Company’s liquidity and financing plans, (iii) the Company’s ability to successfully integrate acquisitions into its operations, (iv) trends affecting the Company’s financial condition or results of operations, including anticipated sales price levels and anticipated expense levels, in particular higher production, fuel and transportation costs, (v) the Company’s plans for expansion of its business (including through acquisitions) and cost savings, and (vi) the impact of competition.
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
December 29, 2018
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; |
● | 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. |
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 2017
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.
Critical Accounting Policies
During the nine months ended December 29, 2018, the Company sold $65,741,000 of Green Giant finished goods inventory to B&G Foods North America (“B&G”) for cash, on a bill and hold basis, as compared to $112,768,000 for the nine months ended December 30, 2017. Under the terms of the bill and hold agreement, title to the specified inventory transferred to B&G. Under the new revenue recognition standard, this contract qualifies for bill and hold accounting treatment as the Company has concluded that control of the unlabeled products transfers to the customer at the time title transfers and the Company has the right to payment (prior to physical delivery), which results in earlier revenue recognition. Labeling and storage services that are provided after control of the goods has transferred to the customer are accounted for as separate performance obligations for which revenue is deferred until the services are performed.
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.
ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
December 29, 2018
The Company uses the lower of cost, determined under the LIFO (last-in, first out) method, or market, to value substantially all of its inventories. In a high inflation environment that the Company was experiencing, the Company believes that the LIFO method was preferable over the FIFO method because it better compares the cost of current production to current revenue.
The Company assesses its long-lived assets for impairment whenever there is an indicator of impairment. Property, plant, and equipment are depreciated over their assigned lives. The assigned lives and the projected cash flows used to test impairment are subjective. If actual lives are shorter than anticipated or if future cash flows are less than anticipated, a future impairment charge or a loss on disposal of the assets could be incurred. Impairment losses are evaluated if the estimated undiscounted value of the cash flows is less than the carrying value. If such is the case, a loss is recognized when the carrying value of an asset exceeds its fair value.
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk
In the ordinary course of business, the Company is exposed to various market risk factors, including changes in general economic conditions, competition and raw material pricing and availability. In addition, the Company is exposed to fluctuations in interest rates, primarily related to its revolving credit facility and the $100,000,000 term loan. To manage interest rate risk, the Company uses both fixed and variable interest rate debt plus fixed interest rate capital lease obligations. There have been no material changes to the Company’s exposure to market risk since March 31, 2017.2018.
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 September 30, 2017,December 29, 2018, our disclosure controls and procedures were not effective dueeffective. The Company continues to the material weaknessexamine, refine and formalize its disclosure controls and procedures and to monitor ongoing developments in the Company’s internal control over financial reporting reported in the Company’s Annual Report on Form 10-K for the year ended March 31, 2018 that the Company determined was also present as of September 30, 2017.this area.
As a result ofThere have been no changes during the control deficiencies identified in the Company’s Annual Report on Form 10-K for the year ended March 31, 2018, the Company restated its unaudited quarterly financial information for the fiscal quarters ended September 30, 2017 and October 1, 2016. During the fiscal quarter ended September 30, 2017, there were no changesperiod covered by this report to the Company's internal control over financial reporting that has materially affected, or areis reasonably likely to materially affect, the Company’s internal control over financial reportingreporting.
Legal Proceedings |
Refer to footnote 13 to the Consolidated Financial Statements included in Part II Item 8 of the Annual Report on Form 10-K.
| Refer to footnote 13 to the Consolidated Financial Statements included in Part II Item 8 of the Annual Report on Form 10-K. |
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, 2017 except to the extent factual information disclosed elsewhere in this Form 10-Q relates to such 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, 2018 except to the extent factual information disclosed elsewhere in this Form 10-Q relates to such risk factors. |
Unregistered Sales of Equity Securities and Use of Proceeds |
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 | ||||||||||||||||||
10/01/2018 – | ||||||||||||||||||||||||
10/31/2018 (1) | 41,808 | - | $ | 31.78 | $ | - | 24,808 | |||||||||||||||||
11/01/2018 – | ||||||||||||||||||||||||
11/30/2018 | 22,202 | 9,290 | $ | 33.40 | $ | 33.88 | 31,492 | |||||||||||||||||
12/01/2018 – | ||||||||||||||||||||||||
12/31/2018 (2) | 48,302 | - | $ | 30.82 | $ | - | 27,202 | |||||||||||||||||
Total | 112,312 | 9,290 | $ | 31.69 | $ | 33.88 | 83,502 | 946,189 | ||||||||||||||||
Total Number of | Average Price Paid | Total Number | Maximum Number | |||||||||||||||||||||
Shares Purchased | per Share | of Shares | (or Approximate | |||||||||||||||||||||
Purchased as | Dollar Value) or | |||||||||||||||||||||||
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 | ||||||||||||||||||
7/01/2017 – 7/31/2017 | - | - | $ | - | $ | - | ||||||||||||||||||
8/01/2017 – 8/31/2017 | 89,532 | 200 | $ | 29.02 | $ | 32.53 | 89,732 | |||||||||||||||||
9/01/2017 – 9/30/2017 | 3,050 | - | $ | 29.92 | $ | - | 3,050 | |||||||||||||||||
Total | 92,582 | 200 | $ | 29.06 | $ | 32.53 | 92,782 | 1,088,579 | ||||||||||||||||
Note 1: 17,000 of these shares 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.
Note 2: 21,100 of these shares 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.
Defaults Upon Senior Securities |
None.
| None. |
Mine Safety Disclosures |
None.
| None. |
Other Information |
None.
| None. |
Exhibits |
31.2 |
32 | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
101 | The following materials from Seneca Foods Corporation’s Quarterly Report on Form 10-Q for the |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Seneca Foods Corporation (Company) | |
| /s/Kraig H. Kayser | |
Kraig H. Kayser President and Chief Executive Officer | |
| /s/Timothy J. Benjamin | |
| Timothy J. Benjamin Chief Financial Officer |
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