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 July 3, 1999 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.) 1162 Pittsford-Victor Road, Pittsford, New York 14534 (Address of principal executive offices) (Zip Code) Company'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 Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 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, 1999 ----------------------------------------- Common Stock Class A, $.25 Par 3,730,907 Common Stock Class B, $.25 Par 2,767,657
<TABLE> PART I FINANCIAL INFORMATION SENECA FOODS CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (In Thousands of Dollars) <CAPTION> 7/3/99 3/31/99 ------ ------- <S> <C> <C> ASSETS Current Assets: Cash and Short-term Investments $ 3,196 $ 31,003 Accounts Receivable, Net 30,739 35,717 Inventories: Finished Goods 117,767 107,127 Work in Process 6,617 11,143 Raw Materials 55,840 34,364 ------- ------- 180,224 152,634 Off-Season Reserve (Note 3) 27,097 - Deferred Tax Asset (Net) 3,276 3,276 Refundable Income Taxes 50 - Other Current Assets 783 911 -------------- --------------- Total Current Assets 245,365 223,541 Property, Plant and Equipment, Net 176,038 178,658 Other Assets 2,873 2,671 -------------- --------------- $424,276 $404,870 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable $ 49,401 $ 27,034 Accrued Expenses 18,401 20,952 Income Taxes - 309 Current Portion of Long-Term Debt and Capital Lease Obligations 7,725 7,811 --------------- --------------- Total Current Liabilities 75,527 56,106 Long-Term Debt 179,491 179,533 Capital Lease Obligations 7,890 8,371 Deferred Income Taxes 6,945 6,870 Other Long-Term Liabilities 9,680 9,402 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 44,955 46,363 Common Stock 2,834 2,748 Paid in Capital 11,264 9,940 Accumulated Other Comprehensive Income 1,008 877 Retained Earnings 84,612 84,590 --------------- --------------- Stockholders' Equity 144,743 144,588 --------------- --------------- $424,276 $404,870 ======== ======== <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 ------------------ 7/3/99 6/27/98 ------ ------- <S> <C> <C> Net Sales $ 87,735 $ 67,466 Other Income 965 - ------------------ ----------------- 88,700 67,466 Costs and Expenses: Cost of Product Sold 79,204 59,892 Selling, General, and Administrative 5,340 4,015 Interest Expense 4,102 5,721 ------------------ ----------------- Total Costs and Expenses 88,646 69,628 ------------------ ----------------- Earnings (Loss) From Continuing Operations Before Income Taxes 54 (2,162) Income Taxes 19 (742) ------------------ ----------------- Earnings (Loss) from Continuing Operations 35 (1,420) Loss from Discontinued Operations Net of Income Taxes - (1,263) ------------------ ------------------ Net Earnings (Loss) $ 35 $ (2,683) ================= ================ Basic: Earnings (Loss) From Continuing Operations Per Common Share .00 (.24) ================== ================ Loss From Discontinued Operations Per Common Share .00 (.21) ================== ================ Earnings (Loss) Per Common Share .00 (.45) ================== ================ Diluted: Earnings (Loss) From Continuing Operations Per Common Share .00 (.24) ================== ================ Loss From Discontinued Operations Per Common Share .00 (.21) ================== ================ Earnings (Loss) Per Common Share .00 (.45) ================== ================ <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 ------------------ 7/3/99 6/27/98 ------ ------- <S> <C> <C> Cash Flows From Operating Activities: Net Earnings (Loss) $ 35 $ (2,683) Adjustments to Reconcile Net Earnings (Loss) to Net Cash Used by Operating Activities: Depreciation and Amortization 5,697 7,252 Deferred Income Taxes - (1,305) Gain on Sale of Assets (965) - Changes in Working Capital: Accounts Receivable 4,978 7,948 Inventories (27,590) (36,709) Off-Season Reserve (27,097) (26,112) Other Current Assets 128 486 Income Taxes (359) 1,025 Accounts Payable and Accrued Expenses 20,094 32,527 ------------------ ----------------- Net Cash Used by Operations (25,079) (17,571) ------------------ ----------------- Cash Flows From Investing Activities: Additions to Property, Plant, and Equipment (4,105) (3,146) Disposals 194 113 Proceed from the Sale of Assets 1,800 - ------------------ ----------------- Net Cash Used in Investing Activities (2,111) (3,033) ------------------ ----------------- Cash Flows From Financing Activities: Notes Payable - 19,842 Other 4 (128) Payments and Current Portion of Long-Term Debt and Capital Lease Obligations (609) (71) Dividends (12) - ------------------ ----------------- Net Cash (Used in) Provided by Financing Activities (617) 19,643 ------------------ ----------------- Net Decrease in Cash and Short- Term Investments (27,807) (961) Cash and Short-Term Investments, Beginning of Period 31,003 4,077 ------------------ ----------------- Cash and Short-Term Investments, End of Period $ 3,196 $ 3,116 ================== ================== <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 July 3, 1999 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 July 3, 1999 and results of operations for the three month periods ended July 3, 1999 and June 27, 1998. All significant intercompany transactions and accounts have been eliminated in consolidation. The March 31, 1999 balance sheet was derived from audited financial statements. The results of operations for the three month periods ended July 3, 1999 and June 27, 1998 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 1999 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 Company's 1999 Annual Report and 10-K. 2. Basic earnings per share are calculated on the basis of Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" which the Company adopted in the fourth quarter of 1998. The additional shares and dividends were not considered in the diluted calculation for the prior year since diluting a loss is not allowed under SFAS No. 128. 3. Off-Season Reserve is the excess of absorbed expenses over incurred expenses to date. 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. 4. 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 July 3 and June 28, 1999 1998 ---- ---- Net Earnings (Loss) $35 $(2,683) Other Comprehensive Earnings, Net of Tax: Net Unrealized Gain Change on Moog, Inc. Stock 131 (125) ------------------- Comprehensive Earnings (Loss) $166 $(2,808) ===================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION RESULTS OF OPERATIONS July 3, 1999 Results of Operations: Sales: Sales reflect an increase of 30.0% for the first three months versus 1998. The higher sales, in large part, are due to higher canned vegetables quantities sold under the Company's Non-Alliance business. Non-Alliance vegetable sales quantities were up 17.8%. Costs and Expenses: The following table shows costs and expenses as a percentage of sales: Three Months Ended 7/3/99 6/27/98 ------ ------- Cost of Product Sold 90.2% 88.8% Selling 4.7 4.4 Administrative 1.4 1.5 Interest Expense 4.7 8.5 ------------------------ 101.0% 103.2% ========================= Lower interest expense percentage in 1999 is as a result of the $50 million equity sale last year and the divestiture of the juice and sauce businesses also during last year. Income Taxes: The effective tax rate used in fiscal 1999 is 36% and 1998 is 32%. Year 2000: The Registrant has initiated a Year 2000 Compliance Project to ensure that business processes, equipment and systems will operate up to, over and following the change of the century. Software failures due to processing errors potentially arising from calculations using the Year 2000 are a known risk. The total cost of the Project, above and beyond normal software upgrades, is not expected to exceed $750,000, of which approximately $500,000 has been incurred to date. The Project includes the following phases: assessment of the problem, correction/replacement of systems, testing, vendor assessment and development of a contingency plan. The identification of all equipment with date sensitive operating controls (including embedded systems) has been completed. An inventory of our systems assets has also been completed. As expected, all critical systems were replaced or modified to be compliant by June 30, 1999, with testing to be completed by September 30, 1999. The Registrant has begun evaluating the potential impact of Year 2000 problems in the event that our external vendors are not adequately prepared. If necessary, the Registrant will secure an alternate supply for the required products and/or services. The Registrant has developed a contingency plan for Year 2000 issues.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS July 3, 1999 The Company's reasonable worst case scenario might involve not being able to buy cans from our normal suppliers. Some of the Company's can requirements are produced within the Company and the balance are purchased from two major suppliers. If a computer or embedded processor failure at one of these suppliers caused them not to be able produce cans, the Company would need to find alternate sources of supply. In addition, all of our plants are in the northern part of the United States and some of the Company's warehouses are only heated by natural gas. Therefore, when the Year 2000 issues first materialize in January, if there is an issue with the supply of natural gas, the Company could incur losses of canned vegetables due to freezing, unless the Company can find alternative sources of heat or other storage space with heat. Many of our plants have boilers that can use different fuels, so this is less of an issue. The Company does not believe the purchase of fresh vegetables for canning and freezing is a major risk since much of the equipment used in this process does not have Year 2000 issues. The Company believes the most reasonably likely worst case scenario is there could be some localized, temporary disruptions to portions of business activities such as shipping, information systems, warehousing, and agricultural production rather than systemic or long-term problems affecting its business operations as a whole. Change in Fiscal Year: In 1995, the Company changed its fiscal year from July 31 to March 31. As a result of the Company's acquisition of six vegetable processing plants from The Pillsbury Company at that time, vegetable processing became the Company's principal business. The primary reason for the fiscal year change was that a March 31 year ending more closely matches the vegetable processing cycle. This change made our Off-Season Reserve calculation more reliable since with a July fiscal year, we needed to project absorption for the pea and green bean packs which could vary dramatically based on the growing conditions (the weathers effect, for instance). With the current March fiscal year, most production is completed well before year end (usually by November) whereas with a July fiscal year the vegetable production cycle began before and ended after the fiscal year end. Projecting future fixed costs is much more reliable than projecting future harvests and production. Financial Condition: The financial condition of the Company is summarized in the following table and explanatory review (In Thousands): For the Quarter For the Year Ended June Ended March ---------- ----------- 1999 1998 1999 1998 ---- ---- ---- ---- Working Capital Balance $169,838 $113,259 $167,435 $112,299 Quarter Change 2,403 960 - - Notes Payable - 82,112 - 62,270 Long-Term Debt 187,381 227,798 187,904 227,858 Current Ratio 3.25:1 1.59:1 3.98:1 1.79:1 The change in the Working Capital for the June 1999 quarter from the June 1998 quarter is largely due to higher earnings in the current year quarter than the prior year quarter ($35,000 as compared to a loss of $2,683,000 last year). MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION RESULTS OF OPERATIONS July 3, 1999 The equity sale of $50 million and the divestiture of the Juice and Applesauce businesses for $57 million, both completed last year, dramatically reduced our short-term borrowing needs. See Consolidated Condensed Statements of Cash Flows for further details. Quantitative and Qualitative Disclosures about Market Risk: As a result of its operating and financing activities, the Company is exposed to certain market risks including changes in commodity pricing and fluctuations in interest rates. Commodity pricing exposure includes weather phenomena and their effect on industry volumes, prices, product quality, and costs. The Company manages its exposure to commodity price risk primarily through its regular operating activities. The Company has not used derivative financial instruments. The Company has not utilized financial instruments for trading or other speculative purposes. Interest Rate Risk: As a result of its regular financing requirements, the Company's operating results are exposed to fluctuations in interest rates, which it manages primarily through its regular financing activities. Although the Company does not have any short-term debt as of July 3, 1999, it uses bank lines of credit with variable interest rates to finance seasonal working capital requirements. The Company maintains investments in cash equivalents ($1.8 million as of July 3, 1999) and does have investments in a modest amount of marketable securities. Long-term debt represents secured and unsecured notes and debentures and certain notes payable to insurance companies used to finance long-term investments such as business acquisitions. Long-term debt bears interest at fixed and variable rates. The following table provides information about the Company's financial instruments that are sensitive to changes in interest rates. The table presents principal cash flows and sinking fund requirements and related weighted-average interest rates by expected maturity date. Weighted-average interest rates on variable-rate debt are based on current rates as of July 3, 1999:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION RESULTS OF OPERATIONS July 3, 1999 <TABLE> Interest Rate Sensitivity of Long-Term Debt and Short-Term Investments July 3, 1999 (In Thousands) <CAPTION> EXPECTED MATURITY DATE Total / Weighted 2000 2001 2002 2003 2004 Thereafter Average ---- ---- ---- ---- ---- ---------- -------- <S> <C> <C> <C> <C> <C> <C> <C> Fixed-rate debt: Principal cash flows $7,683 $7,743 $18,123 $21,137 $21,156 $96,634 $172,476 Average interest rate 9.35% 9.36% 9.32% 9.20% 9.01% 8.23% 8.93% Variable-rate debt: Principal cash flows $ -- $ -- $ -- $ -- $ -- $22,630 $ 22,630 Average interest rate 5.62% 5.62% 5.62% 5.62% 5.62% 5.62% 5.62% Short-term investments: Balance $ 1,759 Average interest rate 4.72% </TABLE>
PART II - OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities None. Item 3. Defaults on Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K A. Exhibits 11 (11) Computation of earnings per share (filed herewith) 27 (27) Financial Data Schedules (filed herewith) Reports on Form 8-K - None during the quarter.
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 17, 1999 Kraig H. Kayser President and Chief Executive Officer /s/Jeffrey L. Van Riper ----------------------- August 17, 1999 Jeffrey L. Van Riper Controller and Chief Accounting Officer