Form 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended June 28, 2003 Commission File Number 0-1989 Seneca Foods Corporation (Exact name of Company as specified in its charter) New York 16-0733425 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 3736 South Main Street, Marion, New York 14505 (Address of principal executive offices) (Zip Code) Company's telephone number, including area code 315/926-8100 Not Applicable Former name, former address and former fiscal year, if changed since last report Check mark indicates whether Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ Indicate by check mark whether the Company in an accelerated filer (as define in Rule 12b-2 of the Exchange Act). Yes X No _____ The number of shares outstanding of each of the issuer's classes of common stock at the latest practical date are: Class Shares Outstanding at July 31, 2003 Common Stock Class A, $.25 Par 3,911,480 Common Stock Class B, $.25 Par 2,764,005
<TABLE> PART I ITEM 1 FINANCIAL INFORMATION SENECA FOODS CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (In Thousands of Dollars) <CAPTION> 6/28/03 3/31/03 ------- ------- <S> <C> <C> ASSETS Current Assets: Cash and Cash Equivalents $ 2,576 $ 64,984 Accounts Receivable, Net 58,248 31,799 Inventories: Finished Goods 134,072 88,769 Work in Process 8,514 13,911 Raw Materials 68,525 38,969 -------- -------- 211,111 141,649 Off-Season Reserve (Note 2) 39,225 - Deferred Income Tax Asset, Net 3,300 3,300 Assets Held For Sale 9,169 - Refundable Income Taxes - 715 Other Current Assets 2,373 1,254 -------- -------- Total Current Assets 316,833 243,701 Property, Plant and Equipment, Net 202,856 132,969 Other Assets 5,885 2,870 -------- -------- $525,574 $379,540 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes Payable $ 60,386 $ - Accounts Payable 60,884 22,730 Accrued Expenses 43,985 25,602 Income Taxes Payable 695 - Current Portion of Long-Term Debt and Capital Lease Obligations 23,807 22,987 -------- -------- Total Current Liabilities 189,757 71,319 Long-Term Debt 128,588 127,107 Capital Lease Obligations 7,178 6,230 Deferred Income Tax Liability 9,891 9,023 Other Long-Term Liabilities 10,905 6,497 10% Preferred Stock, Series A, Voting, Cumulative, Convertible, $.025 Par Value Per Share 10 10 10% Preferred Stock, Series B, Voting, Cumulative, Convertible, $.025 Par Value Per Share 10 10 6% Preferred Stock, Voting, Cumulative, $.25 Par Value 50 50 Convertible, Participating Preferred Stock, $12 Stated Value 41,551 41,586 Convertible, Participating Preferred Stock, $15.50 Stated Value 15,000 - Common Stock 2,850 2,849 Paid in Capital 15,716 14,616 Accumulated Other Comprehensive Income 587 422 Retained Earnings 103,481 99,821 -------- -------- Stockholders' Equity 179,255 159,364 -------- -------- $525,574 $379,540 ======== ======== <FN> The accompanying notes are an integral part of these financial statements. </FN> </TABLE>
<TABLE> SENECA FOODS CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited) (In Thousands, except Share Data) <CAPTION> Three Months Ended ------------------ 6/28/03 6/29/02 ------- ------- <S> <C> <C> Net Sales $ 151,296 $ 123,255 Costs and Expenses: Cost of Product Sold 135,735 111,489 Selling, General, and Administrative 6,130 4,830 Interest Expense 3,411 3,662 ----------------- -------------- Total Costs and Expenses 145,276 119,981 Earnings Before Income Taxes 6,020 3,274 Income Taxes 2,348 1,342 ----------------- -------------- Net Earnings $ 3,672 $ 1,932 ================= ============== Basic: Earnings Per Common Share $ .55 $ .29 ================= ============== Diluted: Earnings Per Common Share $ .35 $ .19 ================= ============== <FN> The accompanying notes are an integral part of these condensed financial statements. </FN> </TABLE>
<TABLE> SENECA FOODS CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands) <CAPTION> Three Months Ended ------------------ 6/28/03 6/29/02 ------- ------- <S> <C> <C> Cash Flows From Operations: Net Earnings $ 3,672 $ 1,932 Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities: Depreciation and Amortization 6,399 5,885 Deferred Income Taxes 798 405 Changes in Working Capital: Accounts Receivable 6,603 3,150 Inventories 12,912 15,938 Off-Season Reserve (39,225) (26,857) Other Current Assets (1,057) (392) Refundable Income Taxes 1,410 934 Accounts Payable, Accrued Expenses, and Other Liabilities 23,788 6,200 ---------------- --------------- Net Cash Provided by Operations 15,300 7,195 Cash Flows From Investing Activities: Acquisition (110,449) - Proceeds from the Sale of Assets 39,585 - Asset Held For Sale (9,169) - Cash Received with Acquistion 2,563 - Additions to Property, Plant, and Equipment (2,913) (715) ---------------- --------------- Net Cash Used in Investing Activities (80,383) (715) Cash Flows From Financing Activities: Net Borrowings on Notes Payable 35,011 - Payments of Long-Term Debt and Capital Lease Obligations (32,210) (417) Other (114) 5 Dividends (12) (12) ----------------- --------------- Net Cash Used in Financing Activities 2,675 (424) Net (Decrease) Increase in Cash and Short- Term Investments (62,408) 6,056 Cash and Cash Equivalents, Beginning of Period 64,984 24,973 ----------------- ----------------- Cash and Cash Equivalents, End of Period $ 2,576 $ 31,029 ================ ================ <FN> Supplemental information on non-cash investing and financing activities: $16.1 million of Preferred Stock was issued in parital consideration for the CPF acquisition. The Company assumed $9.1 million of long-term debt related to the CPF acquisition. (see footnotes for details). The accompanying notes are an integral part of these condensed financial statements. </FN> </TABLE>
SENECA FOODS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS June 28, 2003 1. Consolidated Condensed Financial Statements In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments, which are normal and recurring in nature, necessary to present fairly the financial position of the Company as of June 28, 2003 and results of its operations and its cash flows for the interim periods presented. All significant intercompany transactions and accounts have been eliminated in consolidation. The March 31, 2003 balance sheet was derived from audited financial statements. The results of operations for the three month period ended June 28, 2003 and June 29, 2002 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 financial statements in the 2003 Seneca Foods Corporation Annual Report and Form 10-K. Other footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these consolidated condensed financial statements be read in conjunction with the financial statements and notes included in the Company's 2003 Annual Report and Form 10-K. 2. The seasonal nature of the Company's Food Processing business results in a timing difference between expenses (primarily overhead expenses) incurred and absorbed into product cost. All Off-Season Reserve balances are zero at fiscal year end. Depending on the time of year, Off-Season Reserve is either the excess of absorbed expenses over incurred expenses to date or the excess of incurred expenses over absorbed expenses to date. During the first quarter of each year, incurred expenses exceed absorbed expenses due to timing of production. 3. Comprehensive income consisted solely of Net Earnings,and Net Unrealized Gain Change on Moog, Inc. Stock. The following table provides the results for the periods presented: Three Months Ended ------------------ 6/28/03 6/29/02 ------- ------- Net Earnings $3,672 $1,932 Other Comprehensive Earnings, Net of Tax: Net Unrealized Gain Change on Investment 165 349 -------------------- Comprehensive Earnings $3,837 $2,281 ====================
4. Recently Issued Accounting Standards: none of the recently issued accounting standards whether effective for the Company or not currently, are expected to have a material effect on the Company's financial position or results of operations. 5. On May 27, 2003, the Registrant completed its acquisition of the membership interest in Chiquita Processed Foods, L.L.C. ("CPF") from Chiquita Brands International, Inc. The purchase price totaled $126.1 million plus the assumption of certain liabilities. This acquisition was financed with cash, proceeds from a new $200 million revolving credit facility, and $16.1 million of the Registrant's Participating Convertible Preferred Stock. In early fiscal July, the Registrant refinanced $20.0 million of outstanding debt under the revolving credit facility with new term debt from an insurance company. The new $200 million revolving credit facility has a five-year term. The Preferred Stock is convertible into the Company's Class A Common Stock on a one-for-one basis (see Part II Item 2 for details). The new term debt from an insurance company of $20 million, when combined with the refinance of existing insurance company debt of $32.5 million, has an interest rate of 8.37%, a fifteen year amortization and a ten year term. As part of this acquisition, the Company assumed seasonal notes payable from the CPF revolving credit facility of $25.4 million which was paid off at the time of acquisition with proceeds from the new $200 million revolving credit facility. The Company also assumed $35.9 million of CPF long-term debt and capital lease obligations, of which $26.8 million was paid off at the time of acquisition with proceeds from the new $200 million revolving credit facility. The remaining long-term debt principally involves two Industrial Revenue Development Bonds totaling $5.5 million and consisting of a $3 million Pickett, Wisconsin issue due on June 1, 2005 with an interest rate of 7.75% and a $2.5 million Walla Walla, Washington issue due on September 1, 2005 with an interest rate of 7.75%. The balance of the debt acquired, totaling $3.6 million, has interest rates ranging from 1.9% to 9% and is due through 2011. The Company's statements of income for the quarter ended June 28, 2003 include one month of the CPF acquired operations. A pro forma income statement as if the operations were acquired at the beginning of the periods presented follows: Three Months Ended June ----------------------- 2003 2002 ---- ---- Net Sales $205,778 $210,195 Cost of Product Sold 186,665 192,063 Selling, General, and Administrative 10,435 12,390 Interest Expense 4,261 4,860 Other Expense (Income) 1,882 (23) ---------------------- Total Costs and Expenses 203,243 209,290 Earnings From Continuing Operations Before Income Taxes 2,535 905 Income Taxes 989 371 ---------------------- Net Earnings From Continuing Operations 1,546 534 ====================== Basic Net Earnings From Continuing Operations $ 0.23 $ 0.08 ====================== The Registrant sold three former Chiquita Processed Foods plants and related assets to Lakeside Foods, Inc. on June 17, 2003. The Registrant sold one additional plant of Chiquita Processed Foods and related assets to Lakeside Foods, Inc. on August 6, 2003. The sales to Lakeside Foods generated $47 million in cash proceeds, which was used to pay down debt. In late August, the Registrant expects to refinance up to an additional $22.5 million of outstanding debt under the revolving credit facility with new term debt from an insurance company. The refinancing of the additional outstanding debt is subject to the negotiation of definitive documentation. Therefore, there can be no assurance that this transaction will be completed. The allocation of purchase price is preliminary and is subject to change as additional information regarding the fair value of assets and liabilities acquired is obtained.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION RESULTS AND OF OPERATIONS June 28, 2003 Results of Operations: Sales: Total sales reflect an increase of 22.8% for the first quarter versus 2002. The sales increase, primarily reflects one month of operating activity related to the Chiquita Processed Foods, L.L.C. acquired May 27, 2003. Costs and Expenses: The following table shows costs and expenses as a percentage of sales: Three Months Ended ------------------ 6/28/03 6/29/02 ------- ------- Cost of Product Sold 89.6% 90.4% Selling 3.2 3.2 Other Expense 0.0 0.0 Administrative 0.9 0.7 Interest Expense 2.3 3.0 ------- ------ 96.0% 97.3% ====== ====== Favorable cost of manufacturing variances were a major contributing factor in improved operating results. Income Taxes: The effective tax rate was 39% in 2003 and 41% in 2002. Financial Condition: The financial condition of the Company is summarized in the following table and explanatory review (In Thousands): <TABLE> <CAPTION> For the Quarter For the Year Ended June Ended March --------------- ------------ 2003 2002 2003 2002 ---- ---- ---- ---- <S> <C> <C> <C> <C> Working Capital Balance $124,027 $173,963 $172,382 $163,606 Quarter Change (45,306) 4,500 - - Notes Payable 60,386 - - - Long-Term Debt 135,766 173,792 133,337 156,100 Current Ratio 1.65:1 3.38:1 3.42:1 3.00:1 </TABLE> The change in Working Capital for the June 2003 quarter from the June 2002 quarter is largely due to the acquisition of the membership interest in Chiquita Processed Foods, L.L.C. for $110 million in cash and $16.1 million in preferred stock. This was partially offset by higher earnings in the current year quarter than the prior year quarter ($3,672,000 earnings as compared to $1,932,000 earnings last year). See Consolidated Condensed Statements of Cash Flows for further details.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS June 28, 2003 Inventory increased $45.2 million from the same period last year primarily reflecting an increase of $82.8 million representing the net effect of the CPF acquisition less the inventory sold to Lakeside Foods, Inc., discussed above. The $84.4 million increase was partially offset by the Company's continued emphasis on inventory management and the reduced pack from last year. Cash and short term investments decreased $28.5 million again due to the acquisition. On May 27, 2003, the Registrant completed its acquisition of the membership interest in Chiquita Processed Foods, L.L.C. ("CPF") from Chiquita Brands International, Inc. The purchase price totaled $126.1 million plus the assumption of certain liabilities. This acquisition was financed with cash, proceeds from a new $200 million revolving credit facility, and $16.1 million of the Registrant's Participating Convertible Preferred Stock. In early fiscal July, the Registrant refinanced $20.0 million of outstanding debt under the revolving credit facility with new term debt from an insurance company. The new $200 million revolving credit facility has a five-year term. The Preferred Stock is convertible into the Company's Class A Common Stock on a one-for-one basis (see Part II Item 2 for details). The new term debt from an insurance company of $20 million, when combined with the refinance of existing insurance company debt of $32.5 million, has an interest rate of 8.37%, a fifteen year amortization and a ten year term. As part of this acquisition, the Company assumed seasonal notes payable from the CPF revolving credit facility of $25.4 million which was paid off at the time of acquisition with proceeds from the new $200 million revolving credit facility. The Company also assumed $35.9 million of CPF long-term debt and capital lease obligations, of which $26.8 million was paid off at the time of acquisition with proceeds from the new $200 million revolving credit facility. The remaining long-term debt principally involves two Industrial Revenue Development Bonds totaling $5.5 million and consisting of a $3 million Pickett, Wisconsin issue due on June 1, 2005 with an interest rate of 7.75% and a $2.5 million Walla Walla, Washington issue due on September 1, 2005 with an interest rate of 7.75%. The balance of the debt acquired, totaling $3.6 million, has interest rates ranging from 1.9% to 9% and is due through 2011. The Company's statements of income for the quarter ended June 28, 2003 include one month of the CPF acquired operations. A pro forma income statement as if the operations were acquired at the beginning of the periods presented follows: Three Months Ended June ----------------------- 2003 2002 ---- ---- Net Sales $205,778 $210,195 Cost of Product Sold 186,665 192,063 Selling, General, and Administrative 10,435 12,390 Interest Expense 4,261 4,860 Other Expense (Income) 1,882 (23) ---------------------- Total Costs and Expenses 203,243 209,290 Earnings From Continuing Operations Before Income Taxes 2,535 905 Income Taxes 989 371 ---------------------- Net Earnings From Continuing Operations 1,546 534 ====================== Basic Net Earnings From Continuing Operations $ 0.23 $ 0.08 ====================== The Registrant sold three former Chiquita Processed Foods plants and related assets to Lakeside Foods, Inc. on June 17, 2003. The Registrant sold one additional plant of Chiquita Processed Foods and related assets to Lakeside Foods, Inc. on August 6, 2003. The sales to Lakeside Foods generated $47 million in cash proceeds, which was used to pay down debt. In late August, the Registrant expects to refinance up to an additional $22.5 million of outstanding debt under the revolving credit facility with new term debt from an insurance company. The refinancing of the additional outstanding debt is subject to the negotiation of definitive documentation. Therefore, there can be no assurance that this transaction will be completed. The allocation of purchase price is preliminary and is subject to change as additional information regarding the fair value of assets and liabilities acquired is obtained. Forward-Looking Statements Except for the historical information contained herein, the matters discussed in this report are forward-looking statements as defined in the Private Securities Litigation Reform Act (PSLRA) of 1995. The Company wishes to take advantage of the "safe harbor" provisions of the PSLRA by cautioning that numerous important factors which involve risks and uncertainties, including but not limited to economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices, and other factors discussed in the Company's filings with the Securities and Exchange Commission, in the future, could affect the Company's actual results and could cause its actual consolidated results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company. Critical Accounting Policies In the first three months ended June 28, 2003, the Company sold for cash, on a bill and hold basis, $23,706,000 of Green Giant finished goods inventory to General Mills Operations, Inc. ("GMOI"). At the time of the sale of the Green Giant vegetables to GMOI, title of the specified inventory transferred to GMOI. In addition, the aforementioned finished goods inventory was complete, ready for shipment and segregated from the Company's other finished goods inventory. Further, the Company had performed all of its obligations with respect to the sale of the specified Green Giant finished goods inventory. Off-Season Reserve is the excess of absorbed expenses over incurred expenses to date. During the first quarter of each year, incurred expenses exceed absorbed expenses due to timing of production. The seasonal nature of the Company's Food Processing business results in a timing difference between expenses (primarily overhead expenses) incurred and absorbed into product cost. All Off-Season Reserve balances are zero at fiscal year end.
Trade promotions are an important component of the sales and marketing of the Company's branded products, and are critical to the support of the business. Trade promotion costs include amounts paid to encourage retailers to offer temporary price reductions for the sale of our products to consumers, amounts paid to obtain favorable display positions in retailers' stores, and amounts paid to retailers for shelf space in retail stores. Accruals for trade promotions are recorded primarily at the time of sale of product to the retailer based on expected levels of performance. 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. Recently Issued Accounting Standards none of the recently issued accounting standards whether effective for the Company or not currently, are expected to have a material effect on the Company's financial position or results of operations. ITEM 3 Quantitative and Qualitative Disclosures about Market Risk The Company has not experienced any material changes in Market Risk since our March 31, 2003 report. ITEM 4 Controls and Procedures (a) Disclosure controls and procedures. We evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Our disclosure controls and procedures are the controls and other procedures that we designed to ensure that we record, process, summarize and report in a timely manner the information we must disclose in reports that we file with or submit to the SEC. Kraig H. Kayser, our President and Chief Executive Officer, and Philip G. Paras, our Chief Financial Officer, reviewed and participated in this evaluation. Based on this evaluation, Messrs. Kayser and Paras concluded that as of the end of our most recent fiscal quarter, our disclosure controls were effective. (b) Internal controls. Since the date of the last evaluation, there have not been any significant changes in our internal accounting controls or in other factors that could significantly affect those controls.
PART II - OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities On May 27, 2003, the Company issued 967,742 shares of Convertible Participating Preferred Stock, May 2003 Series, to Friday Holdings L.L.C. as partial consideration for the acquisition of the membership interest in Chiquita Processed Foods, L.L.C. These shares are exempt from registration pursuant to Section 4(2) of the Securities Act of 1933. Upon issuance, these preferred shares were initially convertible into Seneca Foods Class A Common Stock on a one-for-one basis. Additional conversion provisions, including among other things, adjustments to the one-for-one conversion ratio resulting from stock splits, stock dividends, reorganizations and sales by the Company of Class A Common Stock (or securities convertible into that stock) at a price below current market price of Class A Common Stock are set forth in the Amendment to the Company's Articles of Incorporation filed as an exhibit to the Company's Form 8-K filed on June 10, 2003. The proceeds were valued at $16.60 per share based on the market value of the Class A Common Stock at the time of the acquisition. Item 3. Defaults on Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 11 Computation of earnings per share (filed herewith) 31 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K (1) Form 8-K Filed June 10, 2003 A Current Report on Form 8-K was filed related to the acquisition of Chiquita Processed Foods, L.L.C.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Seneca Foods Corporation (Company) /s/Kraig H. Kayser ------------------------ August 12, 2003 Kraig H. Kayser President and Chief Executive Officer /s/Jeffrey L. Van Riper ------------------------- August 12, 2003 Jeffrey L. Van Riper Controller and Chief Accounting Officer