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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D. C. 20549

 

Form 10-Q

 

     QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarter Ended September 26, 2020

 

      TRANSITION REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

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

 

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 every Interactive Data File required to be submitted 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 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" and an emerging growth company in Rule 12b-2 of the Exchange Act:

 

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 ☐

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each ClassTrading Symbol 

Name of Exchange on

Which Registered

Common Stock Class A, $.25 ParSENEANASDAQ Global Market
Common Stock Class B, $.25 ParSENEBNASDAQ Global Market

 

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 30, 2020

Common Stock Class A, $.25 Par

7,361,439

Common Stock Class B, $.25 Par

1,718,002

 

 

 
 

Seneca Foods Corporation

Quarterly Report on Form 10-Q

Table of Contents

 

     
   

Page

     

PART 1

FINANCIAL INFORMATION

 
     

 Item 1

Financial Statements:

 
     
 

Condensed Consolidated Balance Sheets-September 26, 2020, September 28, 2019 and March 31, 2020

   1

     
 

Condensed Consolidated Statements of Net Earnings-Three and Six Months Ended September 26, 2020 and September 28, 2019

2
     
 

Condensed Consolidated Statements of Comprehensive Income-Three and Six Months Ended September 26, 2020 and September 28, 2019

2
     
 

Condensed Consolidated Statements of Cash Flows-Six Months Ended September 26, 2020 and September 28, 2019

3
     
 

Condensed Consolidated Statements of Stockholders' Equity-Three and Six Months Ended September 26, 2020 and September 28, 2019

4
     
 

Notes to Condensed Consolidated Financial Statements

   5

     

 Item 2 

Management's Discussion and Analysis of Financial Condition and Results of Operations

15
     

 Item 3 

Quantitative and Qualitative Disclosures about Market Risk

   22

     

 Item 4 

Controls and Procedures

   23

     

PART II

OTHER INFORMATION

 
     

 Item 1

Legal Proceedings

   24

     

 Item 1A

Risk Factors

 24

     

 Item 2 

Unregistered Sales of Equity Securities and Use of Proceeds

   24

     

 Item 3

Defaults Upon Senior Securities

   24

     

 Item 4

Mine Safety Disclosures

   24

     

 Item 5

Other Information

   24

     

 Item 6 

Exhibits

   25

     

SIGNATURES

 

   26

 

 

 

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Per Share Data)

 

  

Unaudited

  

Unaudited

     
  

September 26,
2020

  

September 28,
2019

  

 

March 31,
2020
 

ASSETS

            
             

Current Assets:

            

Cash and Cash Equivalents

 $14,813  $17,640  $10,702 

Accounts Receivable, Net

  128,242   116,035   109,802 

Contracts Receivable

  6,551   7,334   7,610 

Current Assets Held For Sale

  11,917   -   - 

Current Assets Held For Sale-Discontinued Operations

  157   98   182 

Inventories

  550,704   575,183   411,631 

Refundable Income Taxes

  -   -   4,350 

Other Current Assets

  2,139   7,614   7,323 

Total Current Assets

  714,523   723,904   551,600 

Property, Plant and Equipment, Net

  240,474   204,746   228,489 

Right-of-Use Assets Operating, Net

  51,241   76,178   60,663 

Right-of-Use Assets Financing, Net

  32,165   33,640   33,617 

Deferred Income Taxes, Net

  8,474   3,190   7,872 

Noncurrent Assets Held For Sale-Discontinued Operations

  1,085   1,143   1,026 

Other Assets

  18,844   2,882   26,042 

Total Assets

 $1,066,806  $1,045,683  $909,309 
             

LIABILITIES AND STOCKHOLDERS' EQUITY

            
             

Current Liabilities:

            

Accounts Payable

 $230,130  $195,676  $71,194 

Deferred Revenue

  7,745   9,547   7,758 

Accrued Vacation

  12,340   11,786   11,876 

Accrued Payroll

  16,866   11,622   11,864 

Other Accrued Expenses

  25,021   21,343   17,808 

Income Taxes Payable

  419   1,095   - 

Current Liabilities Held For Sale-Discontinued Operations

  -   3,649   880 

Current Portion of Operating Lease Obligations

  18,476   25,776   21,550 

Current Portion of Financing Lease Obligations

  6,497   6,137   6,224 

Current Portion of Long-Term Debt

  63,111   -   500 

Total Current Liabilities

  380,605   286,631   149,654 

Long-Term Debt, Less Current Portion

  109,069   243,978   217,081 

Operating Lease Obligations, Less Current Portion

  33,464   52,992   42,760 

Financing Lease Obligations, Less Current Portion

  21,900   26,773   24,366 

Pension Liabilities

  85,001   18,661   75,742 

Other Long-Term Liabilities

  4,715   3,986   5,342 

Total Liabilities

  634,754   633,021   514,945 

Commitments and Contingencies

               

Stockholders' Equity:

            

Preferred Stock

  681   703   681 

Common Stock, $.25 Par Value Per Share

  3,041   3,040   3,041 

Additional Paid-in Capital

  98,436   98,313   98,384 

Treasury Stock, at Cost

  (89,482)  (84,320)  (88,319)

Accumulated Other Comprehensive Loss

  (79,220)  (18,285)  (79,220)

Retained Earnings

  498,596   413,211   459,797 

Total Stockholders' Equity

  432,052   412,662   394,364 

Total Liabilities and Stockholders’ Equity

 $1,066,806  $1,045,683  $909,309 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

1

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF NET EARNINGS

(Unaudited)

(In Thousands, Except Per Share Data)

 

   

Three Months Ended

   

Six Months Ended

 
   

September 26, 2020

   

September 28, 2019

   

September 26, 2020

   

September 28, 2019

 
                                 

Net Sales

  $ 390,294     $ 370,002     $ 678,459     $ 634,927  
                                 

Costs and Expenses:

                               

Cost of Product Sold

    341,351       345,947       580,954       591,698  

Selling, General and Administrative

    19,453       17,692       37,598       33,950  

Plant Restructuring Charge

    24       1,146       287       5,952  

Other Operating Loss/(Income)

    1,780       (2,174 )     1,635       (7,001 )

Total Costs and Expenses

    362,608       362,611       620,474       624,599  

Operating Income

    27,686       7,391       57,985       10,328  

Loss From Equity Investment

    804       -       1,480       -  

Other Loss/(Income)

    1,760       (1,804 )     2,691       (3,607 )

Interest Expense, Net

    1,404       3,141       3,055       6,493  

Earnings Before Income Taxes

    23,718       6,054       50,759       7,442  

Income Taxes

    5,613       1,419       11,948       1,704  

Net Earnings

  $ 18,105     $ 4,635     $ 38,811     $ 5,738  
                                 
                                 

Basic Earnings per Common Share

  $ 1.98     $ 0.50     $ 4.24     $ 0.61  

Diluted Earnings per Common Share:

  $ 1.97     $ 0.49     $ 4.21     $ 0.61  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In Thousands)

 

   

Three Months Ended

   

Six Months Ended

 
   

September 26, 2020

   

September 28, 2019

   

September 26, 2020

   

September 28, 2019

 
                                 

Comprehensive income:

                               

Net earnings

  $ 18,105     $ 4,635     $ 38,811     $ 5,738  

Total

  $ 18,105     $ 4,635     $ 38,811     $ 5,738  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

2

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Thousands)

 

   

Six Months Ended

 
   

September 26,

2020

   

September 28,

2019

 

Cash Flows from Operating Activities:

               

Net Earnings

  $ 38,811     $ 5,738  
                 

Adjustments to Reconcile Net Earnings to Net Cash Provided by Operations:

               

Depreciation & Amortization

    16,050       14,698  

Gain on the Sale of Assets

    (246 )     (7,036 )

Provision for Restructuring and Impairment

    287       5,682  

Loss From Equity Investment

    1,480       -  

Deferred Income Tax Benefit

    (602 )     (773 )

Changes in Operating Assets and Liabilities:

               

Accounts Receivable

    (17,381 )     (39,247 )

Inventories

    (139,073 )     (73,499 )

Other Current Assets

    5,098       (4,539 )

Income Taxes

    4,769       2,989  

Accounts Payable, Accrued Expenses and Other

    177,812       142,467  

Net Cash Provided by Operations

    87,005       46,480  

Cash Flows from Investing Activities:

               

Additions to Property, Plant and Equipment

    (27,321 )     (16,472 )

Proceeds from the Sale of Assets

    1,025       10,429  

Net Cash Used In Investing Activities

    (26,296 )     (6,043 )

Cash Flows from Financing Activities:

               

Long-Term Borrowing

    248,848       226,902  

Payments on Long-Term Debt

    (294,249 )     (248,902 )

Other Assets

    (6,950 )     (433 )

Payments on Financing Leases

    (3,072 )     (3,252 )

Purchase of Treasury Stock

    (1,163 )     (8,580 )

Dividends

    (12 )     (12 )

Net Cash Used In Financing Activities

    (56,598 )     (34,277 )

Net Increase in Cash and Cash Equivalents

    4,111       6,160  

Cash and Cash Equivalents, Beginning of the Period

    10,702       11,480  

Cash and Cash Equivalents, End of the Period

  $ 14,813     $ 17,640  
                 

Supplemental Disclosures of Cash Flow Information:

               

Noncash Transactions:

               

Property, Plant and Equipment Purchased Under Lease Obligations

  $ 3,681     $ 7,045  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

 

(Unaudited)

 

(In Thousands)

 

 

                                   

Accumulated

         
                   

Additional

           

Other

         
   

Preferred

   

Common

   

Paid-In

   

Treasury

   

Comprehensive

   

Retained

 
   

Stock

   

Stock

   

Capital

   

Stock

   

Loss

   

Earnings

 

First Quarter FY 2021:

                                               

Balance March 31, 2020

  $ 681     $ 3,041     $ 98,384     $ (88,319 )   $ (79,220 )   $ 459,797  

Net earnings

    -       -       -       -       -       20,706  

Cash dividends declared on preferred stock

    -       -       -       -       -       (12 )

Equity incentive program

    -       -       28       -       -       -  

Balance June 27, 2020

  $ 681     $ 3,041     $ 98,412     $ (88,319 )   $ (79,220 )   $ 480,491  

Second Quarter FY 2021:

                                               

Net earnings

    -       -       -       -       -       18,105  

Equity incentive program

    -       -       24       -       -       -  

Purchase treasury stock

    -       -       -       (1,163 )     -       -  

Balance September 26, 2020

  $ 681     $ 3,041     $ 98,436     $ (89,482 )   $ (79,220 )   $ 498,596  
                                                 

First Quarter FY 2020:

                                               

Balance March 31, 2019

  $ 707     $ 3,039     $ 98,260     $ (75,740 )   $ (18,285 )   $ 409,504  

Net earnings

    -       -       -       -       -       1,103  

Cash dividends declared

                                               

on preferred stock

    -       -       -       -       -       (12 )

Equity incentive program

    -       -       25       -       -       -  

Purchase treasury stock

    -       -       -       (2,744 )     -       -  

Operating lease impairment adjustment upon the adoption of ASU 2016-02 "Leases" (net of tax)

    -       -       -       -       -       (2,019 )

Balance June 29, 2019

  $ 707     $ 3,039     $ 98,285     $ (78,484 )   $ (18,285 )   $ 408,576  

Second Quarter FY 2020:

                                               

Net earnings

                                  4,635  

Equity incentive program

    -       -       25       -       -       -  

Preferred stock conversion

    (4 )     1       3       -       -       -  

Purchase treasury stock

    -       -       -       (5,836 )     -       -  

Balance September 28, 2019

  $ 703     $ 3,040     $ 98,313     $ (84,320 )   $ (18,285 )   $ 413,211  

 

   

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 26, 2020

    200,000       1,400,000       35,355       500       20,000,000       10,000,000  

Shares outstanding:

                                               

September 26, 2020

    200,000       807,240       35,355       500       7,374,239       1,718,002  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

September 26, 2020

 

 

1.

Unaudited Condensed Consolidated Financial Statements

 

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 26, 2020 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, 2020 balance sheet was derived from the audited consolidated financial statements.

 

The results of operations for the three and six month periods ended September 26, 2020 are not necessarily indicative of the results to be expected for the full year.


For the six months ended September 26, 2020 and September 28, 2019 the Company sold certain finished goods inventory for cash on a bill and hold basis. The terms of the bill and hold agreement(s) provide that title to the specified inventory is transferred to the customer(s) prior to shipment and the Company has the right to payment (prior to physical delivery) which results in recorded revenue as determined under the revenue recognition standard.

 

The accounting policies followed by the Company are set forth in Note 1 to the Company's Consolidated Financial Statements in the Company’s 2020 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 2020 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. In addition, the Company has adjusted its prior quarter cash flow statement to properly reflect lease payments made on operating leases under Accounting Standards Codification (“ASC”) 842 - Leases. This adjustment reduced net cash provided by operations and reduced net cash used in financing activities.

 

 

2.

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. During the second quarter of fiscal 2019, the Company ceased use of the Modesto facility. 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 ASC 210-05—Discontinued Operations. The business we exited is part of the Fruit and Vegetable segment.

 

5

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

September 26, 2020

 

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 Balance Sheets (in thousands):

 

  

September 26,

  

September 28,

  

March 31,

 
  

2020

  

2019

  

2020

 

Other Current Assets

  157   98   182 
             

Current Assets Held For Sale-Discontinued Operations

 $157  $98  $182 
             

Other Assets

  1,085   1,143   1,026 

Noncurrent Assets Held For Sale-Discontinued Operations

 $1,085  $1,143  $1,026 
             

Accounts Payable and Accrued Expenses

 $-  $3,649  $880 

Current Liabilities Held For Sale-Discontinued Operations

 $-  $3,649  $880 

 

 

3.

Assets Held For Sale

 

As of September 26, 2020, the Company has certain non-operating units in the Midwest that met the criteria to be classified 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):

 

   

September 26,

 
   

2020

 

Property, Plant and Equipment (net)

  $ 11,917  

Current Assets Held For Sale

  $ 11,917  

 

 

4.

Revenue Recognition

 

In the following table, revenue is disaggregated by product category groups (in millions):

 

  

Three Months Ended

  

Six Months Ended

 
  

September

26, 2020

  

September
28, 2019

  

September
26, 2020

  

September
28, 2019

 

Canned Vegetables

 $302.3  $272.8  $523.3  $460.1 

Frozen

  31.0   41.0   49.0   59.1 

Fruit Products

  23.9   26.9   42.7   49.5 

Chip Products

  3.1   3.1   5.4   6.0 

Prepared Foods

  24.2   23.6   48.4   53.5 

Other

  5.8   2.6   9.7   6.7 
  $390.3  $370.0  $678.5  $634.9 

 

6

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

September 26, 2020

 

 

5.

Inventories


First-In, First-Out (“FIFO”) based inventory costs exceeded LIFO based inventory costs by $144,655,000 as of the end of the second quarter of fiscal 2021 as compared to $165,221,000 as of the end of the second quarter of fiscal 2020. The change in the LIFO Reserve for the three months ended September 26, 2020 was an increase of $2,528,000 as compared to an increase of $704,000 for the three months ended September 28, 2019.

 

The change in the LIFO Reserve for the six months ended September 26, 2020 was an increase of $388,000 as compared to an increase of $3,880,000 for the six months ended September 28, 2019. This current year-to-date increase reflects the projected impact of higher costs expected in fiscal 2021 versus fiscal 2020. The following table shows inventory by category and the related LIFO balance (in thousands):

 

   

September 26, 2020

   

September 28, 2019

   

March 31, 2020

 
                         
                         

Finished products

  $ 536,015     $ 547,116       351,251  

In process

    26,514       27,190       31,173  

Raw materials and supplies

    132,830       166,098       173,474  
      695,359       740,404       555,898  

Less excess of FIFO cost over LIFO cost

    144,655       165,221       144,267  

Total inventories

  $ 550,704     $ 575,183     $ 411,631  

 

 

6.

Leases

 

The Company determines if an arrangement is a lease at inception of the agreement. Operating leases are included in right-of-use operating assets, and current and noncurrent operating lease obligations in the Company’s Condensed Consolidated Balance Sheets. Lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. If the lease does not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The right-of-use operating lease assets also include in its calculation any prepaid lease payments made and excludes any lease incentives received from the arrangement. The Company’s lease terms may include options to extend or terminate the lease, and the impact of these options are included in the lease liability and lease asset calculations when the exercise of the option is at the Company’s sole discretion and it is reasonably certain that the Company will exercise that option. The Company will not separate lease and nonlease components for its leases when it is impractical to separate the two, such as leases with variable payment arrangements. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

 

The Company has operating leases for land, machinery and equipment. The Company also has finance leases for machinery and equipment. The commencement date used for the calculation of the lease obligation is the latter of the commencement date of the new standard ( April 1, 2019) or the lease start date. Certain of the leases have options to extend the life of the lease, which are included in the liability calculation when the option is at the sole discretion of the Company and it is reasonably certain that the Company will exercise the option. In addition, the Company has certain leases that have variable payments based solely on output or usage of the leased asset. These variable operating lease assets are excluded from the Company’s balance sheet presentation and expensed as incurred. Leases with an initial term of 12 months or less are not material.

 

7

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

September 26, 2020

 

Upon adoption of Accounting Standards Update (“ASU”) No. 2016-02, the Company determined its right-of-use assets related to the operating leases for its plant equipment in Sunnyside, Washington were partially impaired and therefore were reduced with a corresponding charge to retained earnings of $2,019,000 (which is net of tax). The estimated lives of these assets were shortened due to the planned closure of the facility after the year’s pack.

 

Lease expense for lease payments is recognized on a straight-line basis over the lease term. The components of lease expense were as follows (dollar amounts in thousands):

 

  

Three Months Ended

  

Six Months Ended

 
  

September 26, 2020

  

September 28, 2019

  

September 26, 2020

  

September 28, 2019

 
                 

Lease cost:

                
                 

Amortization of right of use asset

 $1,145  $1,040  $2,331  $2,107 

Interest on lease liabilities

  278   344   572   712 

Finance lease cost

  1,423   1,384   2,903   2,819 

Operating lease cost

  6,239   7,789   12,646   15,689 

Total lease cost

 $7,662  $9,173  $15,549  $18,508 
                 

Cash paid for amounts included in the measurement of lease liabilities

                

Operating cash flows from finance leases

         $572  $712 

Operating cash flows from operating leases

          15,211   18,390 

Financing cash flows from finance leases

          3,072   3,252 
          $18,855  $22,354 
                 

Right-of-use assets obtained in exchange for new finance lease liabilities

         $1,122  $1,471 

Right-of-use assets obtained in exchange for new operating lease liabilities

         $2,559  $5,574 

Weighted-average lease term (years):

                

Financing leases

          4.9   5.6 

Operating leases

          3.6   3.9 

Weighted-average discount rate (percentage):

                

Financing leases

          4.1   4.2 

Operating leases

          4.4   4.6 

 

8

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

September 26, 2020

 

Undiscounted future lease payments under non-cancelable operating leases and financial leases, along with a reconciliation of undiscounted cash flows to operating and financing lease liabilities, respectively, as of September 26, 2020 (in thousands) were as follows:

 

Years ending March 31:

  

Operating

  

Financing

 

Balance of 2021

  $8,623  $3,744 

2022

   19,230   7,488 

2023

   13,738   7,488 

2024

   6,820   5,961 

2025

   3,260   2,607 
2026-2032   4,598   4,120 

Total minimum payment required

  $56,269  $31,408 

Less interest

   4,329   3,011 

Present value of minimum lease payments

   51,940   28,397 

Amount due within one year

   18,476   6,497 

Long-term lease obligations

  $33,464  $21,900 

 

 

7.

Revolving Credit Facility

 

The Company entered into a five-year revolving credit facility (“Revolver”) on July 5, 2016. Maximum borrowings under the Revolver total $300,000,000 from April through July and $400,000,000 from August through March. The Revolver balance as of September 26, 2020 was $62,611,000 and is included in Current Portion of Long-Term Debt in the accompanying Condensed Consolidated Balance Sheet since the Revolver matures on July 5, 2021. The Company utilizes its Revolver for general corporate purposes, including seasonal working capital needs, to pay debt principal and interest obligations, and to fund capital expenditures and acquisitions. Seasonal working capital needs are affected by the growing cycles of the vegetables and fruits the Company processes. The majority of vegetable and fruit inventories are produced during the months of June through November and are then sold over the following year. Payment terms for vegetable and fruit produce are generally three months but can vary from a few days to seven months. Accordingly, the Company’s need to draw on the Revolver may fluctuate significantly throughout the year.

 

The decrease in average amount of Revolver borrowings during the first six months of fiscal 2021 compared to the first six months of fiscal 2020 was attributable to strong earnings during the first six months of fiscal 2021.

 

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 for fiscal 2021 and fiscal 2020 (dollar amounts in thousands):

 

  

Second Quarter

  

Year-to-Date

 
  

2021

  

2020

  

2021

  

2020

 

Reported end of period:

                

Outstanding borrowings

 $62,611  $133,338  $62,611  $133,338 

Weighted average interest rate

  1.75

%

  3.64

%

  1.75

%

  3.64

%

Reported during the period:

                

Maximum amount of borrowings

 $68,078  $151,477  $107,967  $151,477 

Average outstanding borrowings

 $48,733  $131,551  $51,593  $132,836 

Weighted average interest rate

  1.75

%

  3.81

%

  1.98

%

  3.90

%

 

9

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

September 26, 2020

 

 

8.

Stockholders’ Equity


During the six-month period ended September 26, 2020, the Company repurchased $1,163,000 of its Class A Common Stock and none of its Class B Common Stock as Treasury Stock. As of September 26, 2020, there are 3,070,692 shares or $89,482,000 of repurchased stock. These shares are not considered outstanding.

 

 

9.

Retirement Plans


The net periodic benefit cost for the Company’s pension plan consisted of (In thousands):

 

  

Three Months Ended

  

Six Months Ended

 
  

September 26,
2020

  

September 28,
2019

  

September 26,
2020

  

September 28,
2019

 
                 

Service Cost Including Administration

 $3,259  $2,288  $6,519  $4,572 

Interest Cost

  2,302   2,296   4,605   4,593 

Expected Return on Plan Assets

  (3,510)  (3,958)  (7,021)  (7,913)

Amortization of Prior Service Cost

  23   30   46   60 

Amortization of Net Loss

  2,531   -   5,060   - 

Net Periodic Benefit Cost

 $4,605  $656  $9,209  $1,312 

 

There was no contribution to the pension plan in the six month periods ended September 26, 2020 or September 28, 2019.

 

 

10.

Plant Restructuring

 

The following table summarizes the rollforward of restructuring charges and related asset impairment charges recorded and the accruals established (In thousands):

 

  

Restructuring Payable

 
  

Severance

  

Other Costs

  

Total

 
             

Balance March 31, 2020

 $202  $-  $202 

First quarter charge

  219   44   263 

Second quarter charge

  8   16   24 

Cash payments/write offs

  (399)  (60)  (459)

Balance September 26, 2020

 $30  $-  $30 

 

  

Severance

  

Other Costs

  

Total

 
             

Balance March 31, 2019

 $225  $1  $226 

First quarter charge

  586   4,220   4,806 

Second quarter charge

  386   760   1,146 

Cash payments/write offs

  (836)  (4,981)  (5,817)

Balance September 28, 2019

 $361  $-  $361 

 

10

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

September 26, 2020

 

During the quarter ended September 26, 2020, the Company recorded a restructuring charge of $24,000 related to closed plants. During the quarter ended June 27, 2020, the Company recorded a restructuring charge of $263,000 related to the closing of plants in the Northwest, of which $219,000 was related

to severance and $44,000 was for lease impairments.

 

During the quarter ended September 28, 2019 the Company recorded a restructuring charge of $1,146,000 related to the closing of plants in the Midwest and Northwest of which $2,230,000 was for accelerated amortization of right-of-use operating lease assets, $405,000 was mostly related to equipment moves and $386,000 was related to severance. The Company also recorded a credit of $1,875,000 for the reduced lease liability of previously impaired leases. During the quarter ended June 29, 2019, the Company recorded a restructuring charge of $4,806,000 related to the closing of plants in the Midwest and Northwest of which $2,245,000 was for accelerated amortization of right-of-use operating lease assets, $1,975,000 was mostly related to equipment moves and $586,000 was related to severance.

 

 

11.

Other Operating Income and Expense

 

During the six months ended September 26, 2020 the Company recorded a loss of $532,000 on the disposal of equipment from a sold Northwest plant and a gain on the sale of unused fixed assets of $71,000. The Company also recorded a charge of $1,174,000 for a supplemental early retirement plan. During the six months ended September 28, 2019 the Company recorded a gain on the partial sale of a plant in the Midwest of $3,742,000. The Company also recorded a gain of on the sale of unused fixed assets of $3,259,000. These items are included in other operating income in the Unaudited Condensed Consolidated Statements of Net Earnings.

 

 

12.

Recently Issued Accounting Standards

 

In August 2018, the FASB issued ASU No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which modifies the disclosure requirements for defined benefit pension plans and other postretirement plans. ASU 2018-14 is effective for annual periods beginning after December 15, 2020, with early adoption permitted. The amendments in this ASU should be applied on a retrospective basis to all periods presented. We are currently evaluating the effect that ASU 2018-14 will have on our condensed consolidated financial statements and related disclosures.

 

In December 2019, the FASB issued ASU No. 2019-12 to simplify the accounting for income taxes by removing certain exceptions to the general principles and simplify areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enacted tax laws or rate changes. The new standard will be effective for the Company in the first quarter of fiscal year 2022. We are currently evaluating the effect that the new standard will have on the Company’s financial position, results of operations and related disclosures.

 

11

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

September 26, 2020

 

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which was subsequently amended in November 2018 through ASU No. 2018-19, "Codification Improvements to Topic 326, Financial Instruments – Credit Losses." ASU No. 2016-13 will require entities to estimate lifetime expected credit losses for trade and other receivables along with other financial instruments which will result in earlier recognition of credit losses. Further, the new credit loss model will affect how entities in all industries estimate their allowance for losses for receivables that are current with respect to their payment terms. In November 2019, the FASB issued ASU No. 2019-10, which, among other things, deferred the application of the new guidance on credit losses for smaller reporting companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This guidance will be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., a modified-retrospective approach). Under the above-mentioned deferral, the Company expects to adopt ASU No. 2016-03, and the related ASU No. 2018-19 amendments, beginning as of April 1, 2023 and is in the process of assessing the impact, if any, that this new guidance is expected to have on the Company’s results of operations, financial condition and/or financial statement disclosures.

 

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 September 26, 2020.

 

12

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

September 26, 2020

 

 

13.

Earnings per Common Share

 

Earnings per share for the quarters and year-to-date periods ended September 26, 2020 and September 28, 2019 are as follows:

 

   

Q U A R T E R

   

Y E A R T O D A T E

 

(Thousands, except per share amounts)

 

Fiscal 2021

   

Fiscal 2020

   

Fiscal 2021

   

Fiscal 2020

 
                                 

Basic

                               
                                 

Net Earnings

  $ 18,105     $ 4,635     $ 38,811     $ 5,738  

Deduct preferred stock dividends paid

    6       6       12       12  
                                 

Undistributed earnings

    18,099       4,629       38,799       5,726  

Earnings attributable to participating preferred

    71       19       152       23  
                                 

Earnings attributable to common shareholders

  $ 18,028     $ 4,610     $ 38,647     $ 5,703  
                                 

Weighted average common shares outstanding

    9,095       9,267       9,106       9,372  
                                 

Basic earnings per common share

  $ 1.98     $ 0.50     $ 4.24     $ 0.61  
                                 

Diluted

                               
                                 

Earnings from attributable to common shareholders

  $ 18,028     $ 4,610     $ 38,647     $ 5,703  

Add dividends on convertible preferred stock

    5       5       10       10  
                                 

Earnings attributable to common stock on a diluted basis

  $ 18,033     $ 4,615     $ 38,657     $ 5,713  
                                 

Weighted average common shares outstanding-basic

    9,095       9,267       9,106       9,372  

Additional shares issued related to the equity compensation plan

    2       2       2       2  

Additional shares to be issued under full conversion of preferred stock

    67       67       67       67  
                                 

Total shares for diluted

    9,164       9,336       9,175       9,441  
                                 

Diluted earnings per common share

  $ 1.97     $ 0.49     $ 4.21     $ 0.61  

 

 

14.

Fair Value of Financial Instruments

 

As required by 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 $172,180,000 and an estimated fair value of $172,997,000 as of September 26, 2020. Long-term debt, including current portion had a carrying amount of $243,978,000 and an estimated fair value of $243,903,000 as of September 28, 2019. As of March 31, 2020, the carrying amount was $217,581,000 and the estimated fair value was $217,559,000. The fair values of all the other financial instruments approximate their carrying value due to their short-term nature.

 

13

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

September 26, 2020

 

 

15.

Income Taxes

 

The effective tax rate for continuing operations was 23.5% and 22.9% for the six month periods ended September 26, 2020 and September 28, 2019, respectively. The change in tax rate resulting from federal credits and incentives is a 1.6 percentage point increase.  The dollar amount of the federal credits and incentives did not change significantly from 2020 to 2021.  The increase is the result of an increase in projected pre-tax income from 2020 to 2021.  This increase resulted in the federal credits and incentives having a smaller impact on the tax rate in 2021. This increase was partially offset by a 0.8 percentage point decrease resulting from interest received from the federal refund for the NOL carryback claim filed as a result of the CARES Act as well as the reversal of interest and penalties on the interest expense limitation uncertain tax benefits  as a result of the final regulations issued.

 

14

 

 

ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OPERATIONS

September 26, 2020

 

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® and READ®. 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. The Company packs canned vegetables as well as frozen vegetables under contract packing agreements. In addition, Seneca provides contract packing services mostly through its wholly owned subsidiary Truitt Bros., Inc.

 

The Company’s raw product is harvested mainly between June through November.

 

Impact of the COVID-19 Pandemic:

 

The continued spread of COVID-19 throughout the United States and the international community has had, and will continue to have, an impact on financial markets, economic conditions, and portions of our business and industry.

 

We have increased safety protocols at all of our facilities and we continue to monitor the latest public health and government guidance related to COVID-19. To date, there has been minimal disruption in our supply chain network, including the supply of fruits and vegetables, packaging or other sourced materials. We also continue to work closely with our customers and have implemented measures to allocate order volumes to ensure a consistent supply across our retail partners during this period of high demand.

 

We continued to experience an increase in orders during the quarter ended September 26, 2020 in response to the increased consumer demand for our products related to pantry loading and increased at-home consumption. The continued increase in consumer demand may slow in the coming months as consumer purchasing behavior may change as a result of the length and severity of the pandemic, duration of physical distancing requirements, stay-at-home orders, and the macroeconomic environment. We will continue to evaluate the nature and extent to which COVID-19 will impact our business, consolidated results of operations, financial condition, and liquidity.

 

Results of Operations:

 

Sales:

 

Net sales were $390,294,000 for the three months ended September 26, 2020 as compared with $370,002,000 for the three months ended September 28, 2019. The net sales increase of $20,292,000, or 5.5%, was due to a sales volume increase of $7,676,000 and by higher selling prices/sales mix of $12,616,000. The increase in sales is primarily from a $29,398,000 increase in Canned Vegetable sales, a $509,000 increase in Prepared Food sales, and a $3,248,000 increase in Other sales partially offset by a $9,905,000 decrease in Frozen sales and a $2,923,000 decrease in Fruit sales.

 

15

 

ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OPERATIONS

September 26, 2020

 

Net sales were $678,459,000 for the six months ended September 26, 2020 as compared with $634,927,000 for the six months ended September 28, 2019. The net sales increase of $43,532,000, or 6.9%, was due to a sales volume increase of $5,470,000 and by higher selling prices/sales mix of $38,062,000. The increase in sales is primarily from a $63,183,000 increase in Canned Vegetable sales and a $2,983,000 increase in Other sales, partially offset by a $10,145,000 decrease in Frozen sales, a $6,829,000 decrease in Fruit sales, and a $5,081,000 decrease in Prepared Food sales.

 

The following table presents net sales by product category (in millions):

 

   

Three Months Ended

   

Six Months Ended

 
   

September
26, 2020

   

September
28, 2019

   

September
26, 2020

   

September
28, 2019

 

Canned Vegetables

  $ 302.3     $ 272.8     $ 523.3     $ 460.1  

Frozen

    31.0       41.0       49.0       59.1  

Fruit Products

    23.9       26.9       42.7       49.5  

Chip Products

    3.1       3.1       5.4       6.0  

Prepared Foods

    24.2       23.6       48.4       53.5  

Other

    5.8       2.6       9.7       6.7  
    $ 390.3     $ 370.0     $ 678.5     $ 634.9  
                                 

 

Operating Income:

The following table presents components of operating income as a percentage of net sales:

 

   

Three Months Ended

   

Six Months Ended

 
   

September 26,
2020

   

September 28,
2019

   

September 26,
2020

   

September 28,
2019

 

Gross Margin

    12.5 %     6.5 %     14.4 %     6.8 %
                                 

Selling

    1.8 %     2.3 %     2.2 %     2.5 %

Administrative

    3.2 %     2.4 %     3.3 %     2.8 %

Plant Restructuring

    0.0 %     0.3 %     0.0 %     0.9 %

Other Operating Loss/(Income)

    0.5 %     -0.6 %     0.2 %     -1.1 %
                                 

Operating Income

    7.1 %     2.0 %     8.5 %     1.6 %
                                 

Interest Expense, Net

    0.4 %     0.8 %     0.5 %     1.0 %

 

Gross margin for the three months ended September 26, 2020 was 12.5% as compared with 6.5% for the three months ended September 28, 2019. The increase in gross margin for the three months ended September 26, 2020 was due primarily to higher prices partially offset by an unfavorable LIFO adjustment. The Company’s LIFO charge for the three months ended September 26, 2020 was $2,528,000 as compared to a charge of $704,000 for the three months ended September 28, 2019. This reflects the impact of higher cost increases expected to be incurred in fiscal 2021 as compared to fiscal 2020. On an after-tax basis, LIFO decreased net earnings by $1,896,000 for the three months ended September 26, 2020 and decreased net earnings by $528,000 for the three months ended September 28, 2019, based on the historical statutory federal income tax rate.

 

16

 

ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OPERATIONS

September 26, 2020

 

Gross margin for the six months ended September 26, 2020 was 14.4% as compared with 6.8% for the six months ended September 28, 2019. The increase in gross margin for the six months ended September 26, 2020 was due primarily to higher prices partially offset by an unfavorable LIFO adjustment. The Company’s LIFO charge for the six months ended September 26, 2020 was $388,000 as compared to a charge of $3,880,000 for the six months ended September 28, 2019, reflecting higher cost increases expected in fiscal 2021 as compared to fiscal 2020. On an after-tax basis, LIFO decreased net earnings by $291,000 for the six months ended September 26, 2020 and decreased net earnings by $2,910,000 for the six months ended September 28, 2019, based on the historical statutory federal income tax rate.

 

Selling costs as a percentage of net sales for the three months ended September 26, 2020 were 1.8% as compared with 2.3% for the prior year quarter, reflecting higher sales and the fixed nature of certain expenses. For the six months ended September 26, 2020, selling costs as a percentage of net sales were 2.2% as compared with 2.5% for the same period of the prior year, which is primarily due to higher sales and the fixed nature of certain expenses.

 

Administrative costs as a percentage of net sales for the three months ended September 26, 2020 were 3.2% as compared with 2.4% for the prior year quarter. For the six month period ended September 26, 2020, administrative costs as a percentage of net sales were 3.3% as compared with 2.8% for the same period of the prior year. The increases in administrative costs for the three and six months ended September 26, 2020 are primarily due to higher employment costs.

 

During the six months ended September 26, 2020 the Company recorded a loss of $532,000 on the disposal of equipment from a sold Northwest plant and a gain on the sale of unused fixed assets of $71,000. The Company also recorded a charge of $1,174,000 for a supplemental early retirement plan. During the six months ended September 28, 2019 the Company recorded a gain on the partial sale of a plant in the Midwest of $3,742,000. The Company also recorded a gain of on the sale of unused fixed assets of $3,259,000. These items are included in other operating income in the Unaudited Condensed Consolidated Statements of Net Earnings.

 

Interest expense as a percentage of net sales for the three months ended September 26, 2020 was 0.4% as compared with 0.8% for the prior year quarter. For the six months ended September 26, 2020, interest expense as a percentage of net sales was 0.5% as compared with 1.0% for the same period of the prior year. During fiscal 2021, overall borrowings and interest rates were lower than the previous year resulting lower interest expense for the three and six months ended September 26, 2020.

 

Income Taxes:

 

The effective tax rate for continuing operations was 23.5% and 22.9% for the six month periods ended September 26, 2020 and September 28, 2019, respectively. The change in tax rate resulting from federal credits and incentives is a 1.6 percentage point increase.  The dollar amount of the federal credits and incentives did not change significantly from 2020 to 2021.  The increase is the result of an increase in projected pre-tax income from 2020 to 2021.  This increase resulted in the federal credits and incentives having a smaller impact on the tax rate in 2021. This increase was partially offset by a 0.8 percentage point decrease resulting from interest received from the federal refund for the NOL carryback claim filed as a result of the CARES Act as well as the reversal of interest and penalties on the interest expense limitation uncertain tax benefits as a result of the final regulations issued.

 

Earnings per Share:

 

Basic earnings per share were $1.98 and $0.50 for the three months ended September 26, 2020 and September 28, 2019, respectively. Diluted earnings per share were $1.97 and $0.49 for the three months ended September 26, 2020 and September 28, 2019, respectively. Basic earnings per share were $4.24 and $0.61 for the six months ended September 26, 2020 and September 28, 2019, respectively. Diluted earnings per share were $4.21 and $0.61 for the six months ended September 26, 2020 and September 28, 2019, respectively. For details of the calculation of these amounts, refer to footnote 13 of the Notes to Condensed Consolidated Financial Statements.

 

17

 

ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OPERATIONS

September 26, 2020

 

Liquidity and Capital Resources:

 

The financial condition of the Company is summarized in the following table and explanatory review (dollar amounts in thousands, except per share data):

 

   

September 26,

   

September 28,

   

March 31,

   

March 31,

 
   

2020

   

2019

   

2020

   

2019

 

Working Capital:

                               

Balance

  $ 333,918     $