For
the Quarter Ended June 30, 2007
|
Commission
File Number 0-01989
|
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)
|
Class
|
Shares
Outstanding at July 31, 2007
|
Common
Stock Class A, $.25 Par
|
4,815,284
|
Common
Stock Class B, $.25 Par
|
2,760,905
|
PART
I ITEM 1 FINANCIAL INFORMATION
|
||||||||
SENECA
FOODS CORPORATION AND SUBSIDIARIES
|
||||||||
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
||||||||
(In
Thousands, Except Per Share Data)
|
||||||||
Unaudited
|
||||||||
June
30, 2007
|
March
31, 2007
|
|||||||
ASSETS
|
||||||||
Current
Assets:
|
||||||||
Cash
and Cash Equivalents
|
$ |
5,869
|
$ |
8,552
|
||||
Accounts
Receivable, Net
|
49,383
|
55,500
|
||||||
Inventories:
|
||||||||
Finished
Goods
|
248,339
|
286,866
|
||||||
Work
in Process
|
16,916
|
21,635
|
||||||
Raw
Materials
|
98,886
|
71,986
|
||||||
364,141
|
380,487
|
|||||||
Off-Season
Reserve (Note 3)
|
47,671
|
-
|
||||||
Deferred
Income Tax Asset, Net
|
6,371
|
6,260
|
||||||
Other
Current Assets
|
901
|
640
|
||||||
Total
Current Assets
|
474,336
|
451,439
|
||||||
Property,
Plant and Equipment, Net
|
180,349
|
172,235
|
||||||
Other
Assets
|
2,888
|
3,041
|
||||||
Total
Assets
|
$ |
657,573
|
$ |
626,715
|
||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
Liabilities:
|
||||||||
Accounts
Payable
|
$ |
85,425
|
$ |
58,615
|
||||
Accrued
Expenses
|
40,764
|
38,980
|
||||||
Accrued
Vacation
|
8,972
|
8,999
|
||||||
Income
Taxes Payable
|
5,324
|
357
|
||||||
Current
Portion of Long-Term Debt and Capital
|
||||||||
Lease
Obligations
|
10,033
|
10,033
|
||||||
Total
Current Liabilities
|
150,518
|
116,984
|
||||||
Long-Term
Debt, Less Current Portion
|
205,710
|
210,395
|
||||||
Deferred
Income Taxes
|
177
|
4,120
|
||||||
Other
Long-Term Liabilities
|
22,014
|
21,645
|
||||||
Total
Liabilities
|
378,419
|
353,144
|
||||||
Commitments
|
||||||||
10%
Preferred Stock, Series A, Voting, Cumulative,
|
||||||||
Convertible,
$.025 Par Value Per Share
|
102
|
102
|
||||||
10%
Preferred Stock, Series B, Voting, Cumulative,
|
||||||||
Convertible,
$.025 Par Value Per Share
|
100
|
100
|
||||||
6%
Preferred Stock, Voting, Cumulative, $.25 Par Value
|
50
|
50
|
||||||
Convertible,
Participating Preferred Stock, $12.00
|
||||||||
Stated
Value Per Share
|
35,679
|
35,691
|
||||||
Convertible,
Participating Preferred Stock, $15.50
|
||||||||
Stated
Value Per Share
|
8,667
|
8,676
|
||||||
Convertible,
Participating Preferred Stock, $24.39
|
||||||||
Stated
Value Per Share
|
25,000
|
25,000
|
||||||
Common
Stock $.25 Par Value Per Share
|
3,075
|
3,075
|
||||||
Paid
in Capital
|
28,298
|
28,277
|
||||||
Accumulated
Other Comprehensive Income
|
(1,275 | ) | (1,253 | ) | ||||
Retained
Earnings
|
179,458
|
173,853
|
||||||
Stockholders'
Equity
|
279,154
|
273,571
|
||||||
Total
Liabilities and Stockholders’ Equity
|
$ |
657,573
|
$ |
626,715
|
||||
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
|
SENECA
FOODS CORPORATION AND SUBSIDIARIES
|
||||||||
CONDENSED
CONSOLIDATED STATEMENTS OF NET EARNINGS
|
||||||||
(Unaudited)
|
||||||||
(In
Thousands, Except Per Share Data)
|
||||||||
Three
Months Ended
|
||||||||
June
30, 2007
|
July
1, 2006
|
|||||||
Net
Sales
|
$ |
189,442
|
$ |
148,341
|
||||
Costs
and Expenses:
|
||||||||
Cost
of Product Sold
|
162,892
|
127,482
|
||||||
Selling
and Administrative
|
14,131
|
11,979
|
||||||
Plant
Restructuring
|
86
|
-
|
||||||
Other
Operating Income
|
(173 | ) | (688 | ) | ||||
Total
Costs and Expenses
|
176,936
|
138,773
|
||||||
Operating
Income
|
12,506
|
9,568
|
||||||
Interest
Expense
|
4,024
|
3,628
|
||||||
Earnings
Before Income Taxes
|
8,482
|
5,940
|
||||||
Income
Taxes
|
3,088
|
2,281
|
||||||
Net
Earnings
|
$ |
5,394
|
$ |
3,659
|
||||
Earnings
Applicable to Common Stock
|
$ |
3,359
|
$ |
2,244
|
||||
Basic
Earnings per Common Share
|
$ |
0.44
|
$ |
0.33
|
||||
Diluted
Earnings per Common Share
|
$ |
0.44
|
$ |
0.33
|
SENECA
FOODS CORPORATION AND SUBSIDIARIES
|
||||||||
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||
(Unaudited)
|
||||||||
(In
Thousands)
|
||||||||
Three
Months Ended
|
||||||||
June
30, 2007
|
July
1, 2006
|
|||||||
Cash
Flows from Operating Activities:
|
||||||||
Net
Earnings
|
$ |
5,394
|
$ |
3,659
|
||||
Adjustments
to Reconcile Net Earnings to
|
||||||||
Net
Cash Provided by Operations:
|
||||||||
Depreciation
& Amortization
|
5,497
|
5,390
|
||||||
Gain
on the Sale of Assets
|
(121 | ) | (688 | ) | ||||
Deferred
Tax Benefit
|
(3,831 | ) | (536 | ) | ||||
Changes
in Working Capital (excluding effects of
|
||||||||
business
combination):
|
||||||||
Accounts
Receivable
|
6,117
|
5,949
|
||||||
Inventories
|
16,346
|
6,051
|
||||||
Off-Season
Reserve
|
(47,671 | ) | (42,013 | ) | ||||
Other
Current Assets
|
(261 | ) | (590 | ) | ||||
Income
Taxes
|
4,967
|
(3,237 | ) | |||||
Accounts
Payable, Accrued Expenses
|
||||||||
and
Other Liabilities
|
28,184
|
26,891
|
||||||
Net
Cash Provided by Operations
|
14,621
|
876
|
||||||
Cash
Flows from Investing Activities:
|
||||||||
Additions
to Property, Plant and Equipment
|
(12,857 | ) | (3,408 | ) | ||||
Proceeds
from the Sale of Assets
|
121
|
685
|
||||||
Net
Cash Used in Investing Activities
|
(12,736 | ) | (2,723 | ) | ||||
Cash
Flow from Financing Activities:
|
||||||||
Payments
on Notes Payable
|
-
|
(40,936 | ) | |||||
Borrowing
on Notes Payable
|
-
|
39,390
|
||||||
Long-Term
Borrowing
|
45,248
|
43
|
||||||
Payments
on Long-Term Debt and Capital Lease Obligations
|
(49,933 | ) | (1,577 | ) | ||||
Other
|
129
|
547
|
||||||
Dividends
Paid
|
(12 | ) | (12 | ) | ||||
Net
Cash Used in Financing Activities
|
(4,568 | ) | (2,545 | ) | ||||
Net
Decrease in Cash and Cash Equivalents
|
(2,683 | ) | (4,392 | ) | ||||
Cash
and Cash Equivalents, Beginning of the Period
|
8,552
|
6,046
|
||||||
Cash
and Cash Equivalents, End of the Period
|
$ |
5,869
|
$ |
1,654
|
||||
Supplemental
information of non-cash investing and financing activities:
None.
|
||||||||
None.
|
2.
|
The
Company adopted the provisions of FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes – an Interpretation of FASB
Statement No. 109” (“FIN 48”), on April 1, 2007. FIN 48 clarifies the
accounting for uncertainty in income taxes by prescribing a minimum
recognition threshold for a tax position taken or expected to be
taken in
a tax return that is required to be met before being recognized
in the
financial statements. FIN 48 also provides guidance on derecognition,
measurement, classification, interest and penalties, accounting
in interim
periods, disclosure and transition. The cumulative effect of adopting
FIN
48 of $223,000 was recorded as an increase to Retained earnings.
The total
amount of unrecognized tax benefits as of the date of adoption
was
$4,175,000. The change in the FIN 48 liability in the first
fiscal quarter of 2008 is not
significant.
|
|
Included
in the balance at adoption are $2,954,000 of tax positions that
are highly
certain but for which there is uncertainty about the timing. Because
of
the impact of deferred tax accounting, other than interest and
penalties,
the disallowance of these positions would not affect the annual
effective
tax rate but would accelerate the payment of cash to the tax authority
to
an earlier period.
|
|
The
Company recognizes interest and penalties accrued on unrecognized
tax
benefits as well as interest received from favorable settlements
within
income tax expense. As of the date of adoption, the Company had
$450,000
of interest and penalties accrued associated with unrecognized
tax
benefits.
|
|
The
Company files income tax returns in the U.S. federal jurisdiction
and
various states. The Company is no longer
subject to U.S. federal income tax examinations by tax authorities
for
years before 2004.
|
3.
|
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, which essentially represent a contra-inventory account,
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. Other than at the end of the first and fourth fiscal
quarter of each year, absorbed expenses exceed incurred expenses
due to
timing of production.
|
4.
|
During
the first fiscal quarter of 2007, the Company entered into a Natural
Gas
Hedge in the form of a swap transaction where the Company purchased,
on a
forward basis, 50% of its requirements for natural gas during the
June 1,
2006 to December 31, 2006 time frame at $7.00 per
decatherm. The Company realized a $43,000 loss on this hedge
during the first fiscal quarter of 2007 and marked the remaining
hedge to
market resulting in a Net Unrealized Loss on this hedge of $78,000
which
was recorded as an Accumulated Other Comprehensive Loss on the
Balance
Sheet. No hedging transactions remain open as of June 30,
2007.
|
5.
|
With
the closure of a Washington facility in the fall of 2004, the Company’s
labeling and warehousing requirements at its Oregon location were
dramatically reduced. During the quarter ended October 1, 2005,
the Company announced the phase out of the labeling operation within
the
leased distribution facility in Oregon which resulted in a restructuring
charge of $1,461,000. During the quarter ended July 1, 2006,
the Company recorded an additional restructuring charge of $290,000
which
represented a planned further reduction in utilization of the
facility. The total restructuring charge of $1,751,000
consisted of a provision for future lease payments of $1,306,000,
a cash
severance charge of $368,000, and a non-cash impairment charge
of
$77,000. The Company intends to use a portion of the facility
for warehousing and will attempt to sublease the remaining unutilized
portion of the facility until the February 2008 expiration of the
lease. During the quarter ended June 30, 2007, the Company
moved out of the facility and recorded an $86,000 charge as a result,
which is included under Plant Restructuring in the Unaudited Condensed
Consolidated Statements of Net
Earnings.
|
6.
|
On
November 20, 2006, the Company issued a mortgage payable to GE
Commercial
Finance Business Property Corporation for $23.8 million with an
interest
rate of 6.98% and a term of 15 years. The proceeds were used to
pay down
debt associated with the acquisition of Signature Fruit Company,
LLC. This mortgage is secured by a portion of property in
Modesto, California acquired via the Signature Fruit Company, LLC
acquisition.
|
7.
|
In
September 2006, the FASB issued Statement of Accounting Standards
(“SFAS”)
No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans an amendment of FASB Statements No. 87, 88,
106, and
132(R)”. This standard requires employers to recognize the underfunded
or
overfunded status of a defined benefit postretirement plan as an
asset or
liability in its statement of financial position and to recognize
changes
in the funded status in the year in which the changes occur through
accumulated other comprehensive income, which is a component of
stockholders’ equity. Additionally, SFAS No. 158 requires employers to
measure the funded status of a plan as of the date of its year-end
statement of financial position, which is consistent with the Company’s
present measurement date. The actual change recorded in fourth
fiscal
quarter of 2007 was a $1,253,000 after-tax decrease to accumulated
other
comprehensive income, which resulted in a reduction to stockholders’
equity. SFAS No. 158 did not change the amount of actuarially determined
expense that is recorded in the consolidated statement of income.
The new
reporting requirements and related new footnote disclosure rules
of SFAS
No. 158 were effective for fiscal years ending after December 15,
2006.
|
8.
|
During
the three month period ended June 30, 2007, there were 1,600 shares
or
$21,000 of Participating Convertible Preferred Stock converted
to Class A
Common Stock. During the three month period ended July 1, 2006,
there were no conversions of Participating Convertible Preferred
Stock to
Class A Common Stock.
|
9.
|
For
the three months ended June 30, 2007, comprehensive income totaled
$5,372,000, including a $22,000 Net Unrealized Loss on Securities
classified as available-for-sale, which are purchased solely for
the
Company’s 401(k) match. Comprehensive income equaled Net
Earnings for the three months ended July 1,
2006.
|
10.
|
The
only changes in Stockholders’ Equity accounts for the three months period
ended June 30, 2007, other than the Accumulated Other Comprehensive
Income
described above, is an increase of $5,394,000 for Net Earnings,
an
increase of $223,000 related to implementing FIN 48 as described
above and
a reduction of $12,000 for preferred cash
dividends.
|
11.
|
The
net periodic benefit cost for pension plans consist
of:
|
Three
Months Ended
|
||||||||
June
30, 2007
|
July
1, 2006
|
|||||||
Service Cost
|
$ |
1,111
|
$ |
1,059
|
||||
Interest
Cost
|
1,202
|
1,117
|
||||||
Expected
Return on Plan Assets
|
(1,654 | ) | (1,458 | ) | ||||
Amortization
of Transition Asset
|
(69 | ) | (69 | ) | ||||
Net
Periodic Benefit Cost
|
$ |
590
|
$ |
649
|
12.
|
The
following table summarizes the restructuring and related asset
impairment
charges recorded and the accruals
established:
|
Long-Lived
|
||||||||||||||||
Severance
|
Asset
Charges
|
Other
Costs
|
Total
|
|||||||||||||
Total
expected
|
||||||||||||||||
restructuring
charge
|
$ |
1,248
|
$ |
5,304
|
$ |
3,758
|
$ |
10,310
|
||||||||
Balance
March 31, 2007
|
$ |
84
|
$ |
267
|
$ |
2,329
|
$ |
2,680
|
||||||||
First
quarter charge
|
86
|
86
|
||||||||||||||
Cash
payments
|
(319 | ) | (319 | ) | ||||||||||||
Balance
June 30, 2007
|
$ |
84
|
$ |
267
|
$ |
2,096
|
$ |
2,447
|
||||||||
Total
costs incurred
|
||||||||||||||||
to
date
|
$ |
1,164
|
$ |
5,037
|
$ |
1,662
|
$ |
7,863
|
13.
|
During
the first fiscal quarter of 2008, the Company sold some unused
fixed
assets which resulted is a gain of $173,000. During the first
fiscal quarter of 2007, the Company sold a closed plant in New
York and a
receiving station in Washington which resulted in gains of
$282,000 and $406,000, respectively. These gains and losses are
included in Other Operating (Income) Loss in the Unaudited Condensed
Consolidated Statements of Net
Earnings.
|
14.
|
In
September 2006, the FASB issued FASB Statement No. 157, “Fair
Value Measurements” (“FASB 157”). FASB 157 redefines fair value,
establishes a framework for measuring fair value and expands the
disclosure requirements regarding fair value measurement. FASB
157 is
effective for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. The Company does not
expect
that the adoption of FASB 157 will have a material impact on its
results
of operations or financial position; however, additional disclosures
will
be required under FASB 157.
|
15.
|
In
February 2007, the FASB issued FASB Statement No. 159, “The Fair
Value Option for Financial Assets and Financial Liabilities” (“FASB 159”).
FASB 159 permits entities to choose to measure many financial instruments
and certain other items at fair value that are not currently required
to
be measured at fair value. Unrealized gains and losses on items
for which
the fair value option has been elected are reported in earnings.
FASB 159
does not affect any existing accounting literature that requires
certain
assets and liabilities to be carried at fair value. FASB 159 is
effective
for fiscal years beginning after November 15, 2007. The Company is
currently assessing the potential impact of FASB 159 on our consolidated
financial statements.
|
16.
|
Earnings
per share (In thousands, except per share
data):
|
Quarters
and Year-to-date Periods Ended
|
Q
U
A R T E R
|
|||||||
June
30, 2007 and July 1, 2006
|
2007
|
2006
|
||||||
(In
thousands, except share amounts)
|
||||||||
Basic
|
||||||||
Net
Earnings
|
$ |
5,394
|
$ |
3,659
|
||||
Deduct
preferred stock dividends
|
6
|
6
|
||||||
Undistributed
earnings
|
5,388
|
3,653
|
||||||
Earnings
allocated to participating preferred
|
2,029
|
1,409
|
||||||
Earnings
allocated to common shareholders
|
$ |
3,359
|
$ |
2,244
|
||||
Weighted
average common shares outstanding
|
7,576
|
6,835
|
||||||
Basis
earnings per common share
|
$ |
0.44
|
$ |
0.33
|
||||
Diluted
|
||||||||
Earnings
allocated to common shareholders
|
$ |
3,359
|
$ |
2,244
|
||||
Add
dividends on convertible preferred stock
|
5
|
5
|
||||||
Earnings
applicable to common stock on a diluted basis
|
$ |
3,364
|
$ |
2,249
|
||||
Weighted
average common shares outstanding-basic
|
7,576
|
6,835
|
||||||
Additional
shares to be issued under full conversion of preferred
stock
|
67
|
67
|
||||||
Total
shares for diluted
|
7,643
|
6,902
|
||||||
Diluted
Earnings per common share
|
$ |
0.44
|
$ |
0.33
|
||||
17.
|
On
August 18, 2006, the Company completed its acquisition of 100%
of the
membership interest in Signature Fruit Company, LLC (“Signature”) from
John Hancock Life Insurance Company and John Hancock Variable Life
Insurance Company. The rationale for the acquisition was twofold:
(1) to
broaden the Company’s product offerings into the canned fruit business;
and (2) to take advantage of distribution efficiencies by combining
vegetables and fruits on shipments since the customer base of the
two
companies is similar. The purchase price totaled $47.3 million
plus the
assumption of certain liabilities. This acquisition was financed
with
proceeds from a newly expanded $250.0 million revolving credit
facility,
and $25.0 million of the Company’s Participating Convertible Preferred
Stock. The Preferred Stock is convertible into the Company’s Class A
Common Stock on a one-for-one basis subject to antidilution adjustments.
The Preferred Stock was valued at $24.385 per share based on the
market
value of the Class A Common Stock during the 30 day average period
prior
to the acquisition. A dividend of $784,000 was recorded based
on the beneficial conversion of this Preferred Stock for the difference
between the exercise price of $24.385 and the average price when
the
acquisition was announced. The purchase price to acquire
Signature was allocated based on the internally developed fair
value of
the assets and liabilities acquired and are subject to revision
after the
results of the independent valuation of property, plant, and equipment
becomes available. The purchase price of $47.3 million has been
calculated as follows (in
millions):
|
Cash
|
$ |
20.0
|
||
Issuance
of convertible preferred stock
|
25.0
|
|||
Closing
costs
|
2.3
|
|||
Purchase
Price
|
$ |
47.3
|
The
total purchase price of the transaction has been allocated as
follows:
|
||||
Current
assets
|
$ |
131.6
|
||
Property,
plant and equipment
|
26.1
|
|||
Other
assets
|
2.3
|
|||
Current
liabilities
|
(59.2 | ) | ||
Long-term
debt
|
(45.5 | ) | ||
Other
non-current liabilities
|
(8.0 | ) | ||
Total
|
$ |
47.3
|
Cash
|
$ |
20.0
|
||
Issuance
of convertible preferred stock
|
25.0
|
|||
Closing
costs
|
2.3
|
|||
Purchase
Price
|
$ |
47.3
|
The
total purchase price of the transaction has been allocated as
follows:
|
||||
Current
assets
|
$ |
131.6
|
||
Property,
plant and equipment
|
26.1
|
|||
Other
assets
|
2.3
|
|||
Current
liabilities
|
(59.2 | ) | ||
Long-term
debt
|
(45.5 | ) | ||
Other
non-current liabilities
|
(8.0 | ) | ||
Total
|
$ |
47.3
|
Three
Months Ended
|
||||||||
June
30, 2007
|
July
1, 2006
|
|||||||
Canned
Vegetables
|
$ |
131.3
|
$ |
130.1
|
||||
Green
Giant Alliance
|
3.9
|
3.1
|
||||||
Frozen
Vegetables
|
8.2
|
6.6
|
||||||
Fruit
and Chip Products
|
43.1
|
5.2
|
||||||
Other
|
2.9
|
3.3
|
||||||
$ |
189.4
|
$ |
148.3
|
Three
Months Ended
|
||||||||
June
30, 2007
|
July
1, 2006
|
|||||||
Gross
Margin
|
14.0 | % | 14.1 | % | ||||
Selling
|
4.3 | % | 4.9 | % | ||||
Administrative
|
3.1 | % | 3.2 | % | ||||
Other
Operating Income
|
-0.1 | % | -0.5 | % | ||||
Operating
Income
|
6.7 | % | 6.5 | % | ||||
Interest
Expense
|
2.1 | % | 2.4 | % | ||||
June
|
March
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Working
Capital:
|
||||||||||||||||
Balance
|
323,818
|
234,126
|
334,455
|
229,510
|
||||||||||||
Change
in Quarter
|
(10,637 | ) |
4,616
|
-
|
-
|
|||||||||||
Long-Term
Debt
|
205,710
|
141,234
|
210,395
|
142,586
|
||||||||||||
Current
Ratio
|
3.15
|
2.42
|
3.86
|
2.63
|
Item
2.
|
Unregistered Sales of Equity Securities and Use of
Proceeds
|
Period
|
Total
Number of Shares Purchased (1)
|
Average
Price Paid per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans
or
Programs
|
Maximum
Number (or Approximate Dollar Value) or Shares that May Yet Be
Purchased
Under the Plans or Programs
|
||
Class
A Common
|
Class
B Common
|
Class
A Common
|
Class
B Common
|
|||
4/01/07
– 4/30/07
|
1,200
|
-
|
$26.95
|
-
|
N/A
|
N/A
|
5/01/07
– 5/31/07
|
13,122
|
-
|
$29.25
|
-
|
N/A
|
N/A
|
12/01/06
– 12/31/06
|
-
|
-
|
-
|
-
|
N/A
|
N/A
|
Total
|
14,322
|
-
|
$29.06
|
-
|
N/A
|
N/A
|