Form 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 27, 1997 Commission File Number 0-1989 Seneca Foods Corporation (Exact name of registrant as specified in its charter) New York 16-0733425 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 1162 Pittsford-Victor Road, Pittsford, New York 14534 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 716/385-9500 Not Applicable Former name, former address and former fiscal year, if changed since last report Check mark indicates whether registrant (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 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 October 31, 1997 Common Stock Class A, $.25 Par 3,143,125 Common Stock Class B, $.25 Par 2,796,555
<TABLE> PART I FINANCIAL INFORMATION SENECA FOODS CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (In Thousands of Dollars) <CAPTION> 9/27/97 3/31/97 ------- ------- ASSETS <S> <C> <C> Current Assets: Cash and Short-term Investments $ 3,248 $ 1,584 Accounts Receivable, Net 62,645 36,477 Inventories: Finished Goods 319,760 75,898 Work in Process 27,860 35,373 Raw Materials 39,525 46,926 ------- ------- 387,145 158,197 Off-Season Reserve (Note 3) (48,180) - Deferred Tax Asset (Net) 6,156 6,156 Refundable Income Taxes 1,237 - Other Current Assets 2,298 4,432 -------------- --------------- Total Current Assets 414,549 206,846 Property, Plant and Equipment, Net 227,098 207,439 Other Assets 2,621 1,738 -------------- --------------- $644,268 $416,023 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes Payable $ 53,545 $ 18,000 Accounts Payable 178,989 24,435 Accrued Expenses 48,290 25,615 Income Taxes - 599 Current Portion of Long-Term Debt and Capital Lease Obligations 9,484 9,465 --------------- --------------- Total Current Liabilities 290,308 78,114 Long-Term Debt 229,874 214,848 Capital Lease Obligations 9,237 9,280 Deferred Income Taxes 16,080 15,797 Deferred Gain 4,125 4,248 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 Common Stock 2,666 2,666 Paid in Capital 5,913 5,913 Net Unrealized Gain on Available-For-Sale Securities 964 435 Retained Earnings 85,031 84,652 --------------- --------------- Stockholders' Equity 94,644 93,736 --------------- --------------- $644,268 $416,023 =============== =============== <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 9/27/97 9/28/96 ------- ------- <S> <C> <C> Net Sales $ 208,990 $ 159,521 Other Income (See Notes) - 1,640 ------------------ ----------------- 208,990 161,161 Costs and Expenses: Cost of Product Sold 193,871 143,194 Selling, General, and Administrative 7,936 6,669 Interest Expense 6,890 7,246 ------------------ ----------------- Total Costs and Expenses 208,697 157,109 ------------------ ----------------- Earnings Before Income Taxes 293 4,052 Income Taxes 106 1,342 ------------------ ----------------- Net Earnings $ 187 $ 2,710 ================== ================= Net Earnings Applicable to Common Stock 187 2,704 Weighted Average Common Shares Outstanding 5,939,680 5,939,680 Primary and Fully Diluted Earnings Per Share of Common Stock (Exhibit II): Net Earnings $ .03 $ .46 ================== =============== <FN> The accompanying notes are an integral part of these consolidated condensed financial statements. </FN> </TABLE>
<TABLE> SENECA FOODS CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited) (In Thousands, except Share Data) <CAPTION> Six Months Ended 9/27/97 9/28/96 ------- ------- <S> <C> <C> Net Sales $ 314,068 $ 283,215 Other Income (See Notes) - 9,141 ------------------ ----------------- 314,068 292,356 Costs and Expenses: Cost of Product Sold 284,252 252,600 Selling, General, and Administrative 15,865 13,253 Interest Expense 13,359 14,727 ------------------ ----------------- Total Costs and Expenses 313,476 280,580 ------------------ ----------------- Earnings Before Income Taxes 592 11,776 Income Taxes 213 4,239 ------------------ ----------------- Net Earnings $ 379 $ 7,537 ================== ================= Net Earnings Applicable to Common Stock 379 7,525 Weighted Average Common Shares Outstanding 5,939,680 5,939,680 Primary and Fully Diluted Earnings Per Share of Common Stock (Exhibit II): Net Earnings $ 0.06 $ 1.27 ================== =============== <FN> The accompanying notes are an integral part of these consolidated condensed financial statements. </FN> </TABLE>
<TABLE> SENECA FOODS CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands) <CAPTION> Six Months Ended 9/27/97 9/28/96 ------- ------- <S> <C> <C> Cash Flows From Operating Activities: Net Earnings $ 379 $ 7,537 Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities: Depreciation and Amortization 14,330 12,701 Deferred Income Taxes 1 523 Gain on the Sale - (9,141) Changes in Working Capital: Accounts Receivable (22,081) (4,264) Inventories (200,255) (185,128) Off-Season Reserve 48,180 54,189 Other Current Assets 2,289 476 Income Taxes (1,836) 4,054 Accounts Payable and Accrued Expenses 173,583 102,774 ------------------ ----------------- Net Cash Provided (Used) by Operations 14,590 (16,279) ------------------ ----------------- Cash Flows From Investing Activities: Acquisitions (53,672) - Proceeds from the Sale of Assets - 15,511 Additions to Property, Plant, and Equipment (9,729) (9,245) ------------------ ----------------- Net Cash Provided (Used) in Investing Activities (63,401) 6,266 ------------------ ----------------- Cash Flows From Financing Activities: Notes Payable 35,545 8,780 Long-Term Borrowing 15,106 1,745 Payments and Current Portion of Long-Term Debt and Capital Lease Obligations (104) (836) Other (72) 56 Dividends - - ------------------ ----------------- Net Cash Provided in Financing Activities 50,475 9,745 ------------------ ----------------- Net Increase (Decrease) in Cash and Short- Term Investments 1,664 (268) Cash and Short-Term Investments, Beginning of Period 1,584 1,297 ------------------ ----------------- Cash and Short-Term Investments, End of Period $ 3,248 $ 1,029 ================== ================== <FN> 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 September 27, 1997 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 Registrant as of September 27, 1997 and March 31, 1997 and results of operations for the three and six month periods ended September 27, 1997 and September 28, 1996. All significant intercompany transactions and accounts have been eliminated in consolidation. The March 31, 1997 balance sheet was derived from audited financial statements. The results of operations for the three and six month periods ended September 27, 1997 and September 28, 1996 are not necessarily indicative of the results to be expected for the full year. The accounting policies followed by the Registrant are set forth in the Notes to the Registrant's financial statements in the 1997 Seneca Foods Corporation Annual Report and 10-K. Other footnote disclosures normally included in 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 Registrant's March 31, 1997 financial report. 2. Primary earnings per share are based on the weighted average number of common shares outstanding, as the effect of common stock equivalents is immaterial. The difference between primary and fully diluted earnings per share is immaterial. 3. Off-Season Reserve is the excess of absorbed expenses over incurred expenses to date. The seasonal nature of the Registrant'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. 4. On April 18, 1997 the Registrant acquired certain assets of the Aunt Nellie's Farm Kitchens from the Pillsbury Company, an indirect subsidiary of Grand Metropolitan plc, for approximately $24 million (referred to as "Aunt Nellie's"). Aunt Nellie's produces, markets, and sells fruit and vegetable products from plants in the Midwest. Its 1996 sales were approximately $59 million. The Registrant purchased the plants, inventories, accounts receivable, and trademarks of the business. Aunt Nellie's includes facilities located in Clyman, Wisconsin; Covington, Kentucky; and Buckley, Michigan. This acquisition was funded primarily out of working capital.
SENECA FOODS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS September 27, 1997 5. On May 5, 1997 the Registrant acquired certain assets of the Curtice Burns Foods, Inc. ("Curtice Burns"), a wholly owned subsidiary of Pro-Fac Cooperative, Inc., used in the canned vegetable business of Curtice Burns. The purchase price was approximately $29 million. The 1996 sales of the acquired assets were approximately $37 million. The Registrant purchased two plants, inventories, and trademarks of the business. Assets purchased include a warehouse located in LeRoy, New York and a processing plant located in Leicester, New York. In conjunction with the acquisition, the Registrant and Curtice Burns entered into a long-term strategic alliance, combining their New York agricultural departments into one organization, now managed by Curtice Burns. This acquisition was funded primarily out of working capital. A $15 million long-term debt financing to fund the long-term assets of this acquisition and the Aunt Nellie's acquisition described above was completed in September 1997. The debt requires principal payments of $3 million beginning September 2000 and carries an interest rate of 9.17%. 6. The following summary, prepared on a pro forma basis, combines the consolidated results of operations as if Aunt Nellie's and Curtice Burns were acquired at the beginning of the periods presented: Six Months Six Months 9/27/97 9/28/96 Net Sales $320,985 $346,996 Net Earnings 371 5,549 Net Earnings per Share .06 .93 7. During the first quarter of the prior year, the Registrant sold its investment in Moog, Inc. Class A Common Stock back to Moog. This resulted in a Pre-Tax gain of $7,501,000. 8. The Financial Accounting Standards Board recently issued Statement of Financial Accounting Standards (SFAS) No. 130 on "Reporting Comprehensive Income and SFAS No. 131 on "Disclosures about Segments of Enterprise and Related Information." SFAS No. 130 changes the reporting of certain items currently reported in the common stock equity section of the balance sheet and is not expected to have a material effect on the Registrant's financial statements. This standard is effective for fiscal years beginning after December 15, 1997. SFAS No. 131 requires that public companies report certain information about operating segments in their interim financial statements. It also establishes related disclosures about products and services, geographic areas, and major customers. The Registrant is currently evaluating what impact this standard will have on its disclosures. This standard is effective for fiscal years beginning after December 15, 1997.
SENECA FOODS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS September 27, 1997 9. During the second quarter, the Registrant completed a modification to its Revolving Credit Facility. Under this agreement, which has been extended to June 30, 1999, there is a new cleandown provision where the Registrant must reduce its Notes Payable to below $30 million for a 30-day period during each year. In addition, the total available credit reduces from $150 million to $130 million on December 1, 1997. The Registrant expects it will be able to comply with the cleandown provision of the Revolving Credit Facility in the current fiscal year and will have adequate liquidity for its anticipated operations through the balance of this fiscal year.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION RESULTS OF OPERATIONS September 27, 1997 Results of Operations: Sales: Sales reflect an increase of 10.9% for the first six months versus 1996. The sales were higher in spite of lower canned vegetables quantities sold under the Alliance with Pillsbury. Under this Alliance Net Sales were $116,524,000 for six months ended September 1997 versus $135,162,000 for the comparable period in the previous year. Non-Alliance vegetable sales quantities were up 75.8% while juice and fruit sales quantities were down 4.9%. The vegetable sales increase was largely due to the acquisition of the Curtice Burns and Aunt Nellie's canned vegetable businesses described above. Costs and Expenses: The following table shows cost and expenses as a percentage of sales: Three Months Ended Six Months Ended 9/27/97 9/28/96 9/27/97 9/28/96 ------- ------- ------- ------- Cost of Product Sold 92.8% 89.8% 90.5% 89.3% Selling 2.9 3.2 4.0 3.6 Administrative 0.9 1.0 1.1 1.1 Interest Expense 3.3 4.5 4.3 5.2 -------------------------------------------------- 99.9% 98.5% 99.9% 99.2% ================================================== Higher Cost of Product Sold percentages (i.e. lower Gross Margins) reflect, in part, lower selling prices in the canned vegetable business than the prior year. This was partially offset by better margins in the juice and fruit business during the same period. Income Taxes: The effective tax rate used in 1998 and 1997 is 36%.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION RESULTS OF OPERATIONS September 27, 1997 Financial Condition: The financial condition of the Registrant is summarized in the following table and explanatory review (In Thousands): <TABLE> <CAPTION> For the Quarter For the Year Ended September Ended March 1997 1996 1997 1996 ---- ---- ---- ---- <S> <C> <C> <C> <C> Working Capital Balance $124,241 $118,035 $128,732 $108,761 Quarter Change 19,000 10,116 - - Notes Payable 53,545 121,780 18,000 113,000 Long-Term Debt 239,111 233,559 224,128 226,574 Current Ratio 1.43:1 1.39:1 2.65:1 1.57:1 Inventory (Average) Turnover 2.1 1.6 3.5 2.5 </TABLE> The change in the working capital for the quarter from the prior year is largely due to issuance of $15 million of debt related to the two acquisitions in the current year (see footnotes for details). As part of the Alliance with Pillsbury (see 1997 Annual Report for details), Pillsbury takes Green Giant inventory as it needs it or at least by the take-or-pay date (varies by commodity). The Registrant was in compliance with its debt covenants related to short-term and long-term Debt. See Consolidated Statements of Cash Flows for further details. Forward-Looking Statements When used in this discussion, the words, "believes", "anticipates", "expects", and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected, including among other things decreases in the prices of packaged food products or increases in the cost of the Registrant's raw materials (particularly fruit and vegetable produce) resulting from oversupply or undersupply, respectively, reflecting growing conditions in the U.S. and overseas regions from which the Registrant obtains its produce and from other factors affecting food costs and production. These risks insofar as they have affected results of operations in the past three years are discussed under "Management's Discussion and Analysis of Financial Conditions and Results of Operations" in Exhibit No. 13 of the Registrant's Annual Report on Form 10-K for its Fiscal Year Ended March 31, 1997, as filed with the Securities and Exchange Commission. Results of operations in any past period should not be considered indicative of the results to be expected for future periods.
PART II - OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities None. Item 3. Defaults on Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 4 - (4a) Instrument defining the rights of any holder of Long-Term Debt related to the Master Reimbursement Agreement and between SENECA FOODS CORPORATION and GENERAL ELECTRIC CAPITAL CORPORATION dated September 15, 1997 filed herewith. (b) Exhibit 4 - (4b) Instrument defining the rights of any holder of Long-Term Debt related to the Credit Agreement by and among SENECA FOODS CORPORATION, THE BANKS SIGNATORY THERETO AND THE CHASE MANHATTAN BANK AS AGENT as amended and restated as of September 24, 1997 to be filed when available. (c) Exhibit 11 - (11) Computation of earnings per share (d) Exhibit 27 - (27) Financial Data Schedules (e) Reports on Form 8-K - two 8-K's were filed during July 1997, which related to the two acquisitions during this year.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Seneca Foods Corporation (Registrant) /s/Kraig H. Kayser November 7, 1997 Kraig H. Kayser President and Chief Executive Officer /s/Jeffrey L. Van Riper November 7, 1997 Jeffrey L. Van Riper Controller and Chief Accounting Officer