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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 December 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 code315/926-8100  

 

Not Applicable

Former name, former address and former fiscal year,

if changed since last report

 

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

    Name of Exchange on 
Title of Each Class Trading Symbol Which Registered 
Common Stock Class A, $.25 Par SENEA  NASDAQ Global Market 
Common Stock Class B, $.25 Par SENEB NASDAQ Global Market 

 

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 “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

 

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 ☐

 

Indicate by check mark whether the Company is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes 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 January 22, 2021

 

Common Stock Class A, $.25 Par

 

7,350,186

 

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-December 26, 2020, December 28, 2019 and  March 31, 2020

  1
     
 

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

2

     
 

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

2

     
 

Condensed Consolidated Statements of Cash Flows-Nine Months Ended  December 26, 2020 and December 28, 2019

3

     
 

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

4

     
 

Notes to Condensed Consolidated Financial Statements

6

     
 Item 2 

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

18

     

 Item 3 

Quantitative and Qualitative Disclosures about Market Risk

26

     

 Item 4 

Controls and Procedures

27

     

PART II

OTHER INFORMATION

 
     

 Item 1

Legal Proceedings

28

     

 Item 1A

Risk Factors

28

     

 Item 2 

Unregistered Sales of Equity Securities and Use of Proceeds

28

     

 Item 3

Defaults Upon Senior Securities

28

     

 Item 4

Mine Safety Disclosures

28

     

 Item 5

Other Information

28

     

 Item 6 

Exhibits

28

     

SIGNATURES

 

30

 

 

 

 

 SENECA FOODS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Per Share Data)

 

  

Unaudited

  

Unaudited

     
  

December 26,

2020

  

December 28,

2019

  

March 31,

2020

 

ASSETS

            
             

Current Assets:

            

Cash and Cash Equivalents

 $14,149  $13,858  $10,702 

Accounts Receivable, Net

  95,439   79,040   109,802 

Contracts Receivable

  1,207   7,620   7,610 

Current Assets Held For Sale

  11,375   -   - 

Current Assets Held For Sale-Discontinued Operations

  263   98   182 

Inventories

  410,927   493,065   411,631 

Refundable Income Taxes

  -   -   4,350 

Other Current Assets

  2,418   6,272   7,323 

Total Current Assets

  535,778   599,953   551,600 

Property, Plant and Equipment, Net

  225,500   219,311   228,489 

Right-of-Use Assets Operating, Net

  47,183   67,915   60,663 

Right-of-Use Assets Financing, Net

  31,331   34,784   33,617 

Deferred Income Taxes, Net

  -   -   7,872 

Noncurrent Assets Held For Sale-Discontinued Operations

  822   1,054   1,026 

Other Assets

  17,927   9,643   26,042 

Total Assets

 $858,541  $932,660  $909,309 
             

LIABILITIES AND STOCKHOLDERS' EQUITY

            
             

Current Liabilities:

            

Accounts Payable

 $98,840  $84,295  $71,194 

Deferred Revenue

  7,548   12,105   7,758 

Accrued Vacation

  11,023   11,898   11,876 

Accrued Payroll

  9,992   6,157   11,864 

Other Accrued Expenses

  26,957   19,903   17,808 

Income Taxes Payable

  4,274   4,869   - 

Current Liabilities Held For Sale-Discontinued Operations

  -   2,744   880 

Current Portion of Operating Lease Obligations

  18,327   24,430   21,550 

Current Portion of Financing Lease Obligations

  6,608   6,584   6,224 

Current Portion of Long-Term Debt

  4,500   -   500 

Total Current Liabilities

  188,069   172,985   149,654 

Long-Term Debt, Less Current Portion

  94,077   225,337   217,081 

Operating Lease Obligations, Less Current Portion

  30,436   47,965   42,760 

Financing Lease Obligations, Less Current Portion

  20,546   27,007   24,366 

Pension Liabilities

  12,641   19,463   75,742 

Deferred Income Taxes, Net

  4,999   866   - 

Other Long-Term Liabilities

  4,240   3,852   5,342 

Total Liabilities

  355,008   497,475   514,945 

Commitments and Contingencies

               

Stockholders' Equity:

            

Preferred Stock

  678   703   681 

Common Stock, $.25 Par Value Per Share

  3,041   3,040   3,041 

Additional Paid-in Capital

  98,462   98,338   98,384 

Treasury Stock, at Cost

  (90,473)  (87,194)  (88,319)

Accumulated Other Comprehensive Loss

  (79,220)  (18,285)  (79,220)

Retained Earnings

  571,045   438,583   459,797 

Total Stockholders' Equity

  503,533   435,185   394,364 

Total Liabilities and Stockholders’ Equity

 $858,541  $932,660  $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

   

Nine Months Ended

 
   

December 26,

2020

   

December 28,

2019

   

December 26,

2020

   

December 28,

2019

 
                                 

Net Sales

  $ 484,392     $ 392,971     $ 1,162,851     $ 1,027,898  
                                 

Costs and Expenses:

                               

Cost of Product Sold

    406,688       340,694       987,642       932,392  

Selling, General and Administrative

    22,613       19,986       60,211       53,936  

Plant Restructuring (Credit)/Charge

    (118 )     793       169       6,745  

Other Operating Income

    (35,351 )     (1,617 )     (33,716 )     (8,618 )

Total Costs and Expenses

    393,832       359,856       1,014,306       984,455  

Operating Income

    90,560       33,115       148,545       43,443  

(Income)/Loss From Equity Investment

    (728 )     -       752       -  

Other (Income)/Loss

    (234 )     (1,656 )     2,457       (5,263 )

Interest Expense, Net

    1,531       2,690       4,586       9,183  

Earnings From Continuing Operations Before Income Taxes

    89,991       32,081       140,750       39,523  

Income Taxes From Continuing Operations

    17,531       7,653       29,479       9,357  

Earnings From Continuing Operations

  $ 72,460     $ 24,428     $ 111,271     $ 30,166  

Earnings From Discontinued Operations (net of income taxes)

    -       955       -       955  

Net Earnings

  $ 72,460     $ 25,383     $ 111,271     $ 31,121  
                                 

Basic Earnings per Common Share

                               

Continuing Operations

  $ 7.96     $ 2.65     $ 12.18     $ 3.23  

Discontinued Operations

  $ -     $ 0.10     $ -     $ 0.10  

Net Basic Earnings per Common Share

  $ 7.96     $ 2.75     $ 12.18     $ 3.33  
                                 

Diluted Earnings per Common Share:

                               

Continuing Operations

  $ 7.90     $ 2.63     $ 12.09     $ 3.20  

Discontinued Operations

  $ -     $ 0.10     $ -     $ 0.10  

Net Diluted Earnings per Common Share

  $ 7.90     $ 2.73     $ 12.09     $ 3.31  

 

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In Thousands)

 

   

Three Months Ended

   

Nine Months Ended

 
   

December 26,

2020

   

December 28,

2019

   

December 26,

2020

   

December 28,

2019

 
                                 

Comprehensive income:

                               

Net earnings

  $ 72,460     $ 25,383     $ 111,271     $ 31,121  

Total

  $ 72,460     $ 25,383     $ 111,271     $ 31,121  

 

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)

 

   

Nine Months Ended

 
   

December 26,

2020

   

December 28,

2019

 

Cash Flows from Operating Activities:

               

Net Earnings From Continuing Operations

  $ 111,271     $ 30,166  

Net Earnings From Discontinued Operations (Net of Tax)

    -       955  
                 

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

               

Depreciation & Amortization

    24,302       22,644  

Gain on the Sale of Assets

    (35,976 )     (9,049 )

Provision for Restructuring and Impairment

    169       5,573  

Loss From Equity Investment

    752       -  

Deferred Income Tax Benefit

    12,871       3,283  

Changes in Operating Assets and Liabilities:

               

Accounts Receivable

    20,766       (2,538 )

Inventories

    704       8,619  

Other Current Assets

    4,658       (3,197 )

Income Taxes

    8,624       6,763  

Accounts Payable, Accrued Expenses and Other

    (45,051 )     26,805  

Net Cash Provided by Operations

    103,090       90,024  

Cash Flows from Investing Activities:

               

Additions to Property, Plant and Equipment

    (40,167 )     (47,681 )

Proceeds from the Sale of Assets

    72,782       22,175  

Net Cash Provided By/(Used In) Investing Activities

    32,615       (25,506 )

Cash Flows from Financing Activities:

               

Long-Term Borrowing

    468,181       401,053  

Payments on Long-Term Debt

    (587,185 )     (439,803 )

Other Assets

    (6,407 )     (7,125 )

Payments on Financing Leases

    (4,681 )     (4,799 )

Purchase of Treasury Stock

    (2,154 )     (11,454 )

Dividends

    (12 )     (12 )

Net Cash Used In Financing Activities

    (132,258 )     (62,140 )
                 

Net Increase in Cash and Cash Equivalents

    3,447       2,378  

Cash and Cash Equivalents, Beginning of the Period

    10,702       11,480  

Cash and Cash Equivalents, End of the Period

  $ 14,149     $ 13,858  
                 

Supplemental Disclosures of Cash Flow Information:

               

Noncash Transactions:

               

Property, Plant and Equipment Purchased Under Lease Obligations

  $ 5,214     $ 9,782  

 

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  

Third Quarter FY 2021:

                                               

Net earnings

    -       -       -       -       -       72,460  

Cash dividends declared on preferred stock

    -       -       -       -       -       (11 )

Equity incentive program

    -       -       23       -       -       -  

Preferred stock conversion

    (3 )     -       3       -       -       -  

Purchase treasury stock

    -       -       -       (991 )     -       -  

Balance December 26, 2020

  $ 678     $ 3,041     $ 98,462     $ (90,473 )   $ (79,220 )   $ 571,045  
                                                 

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  

Third Quarter FY 2020:

                                               

Net earnings

    -       -       -       -       -       25,383  

Cash dividends declared on preferred stock

    -       -       -       -       -       (11 )

Equity incentive program

    -       -       25       -       -       -  

Purchase treasury stock

    -       -       -       (2,874 )     -       -  

Balance December 28, 2019

  $ 703     $ 3,040     $ 98,338     $ (87,194 )   $ (18,285 )   $ 438,583  

 

4

 

  

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:

                        

December 26, 2020

  200,000   1,400,000   35,105   500   20,000,000   10,000,000 

Shares outstanding:

                        

December 26, 2020

  200,000   807,240   35,105   500   7,350,186   1,718,002 

 

5

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 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 December 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 nine month periods ended December 26, 2020 are not necessarily indicative of the results to be expected for the full year.


For the nine months ended December 26, 2020 and December 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.

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 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):

 

  

December 26,

  

December 28,

  

March 31,

 
  

2020

  

2019

  

2020

 

Other Current Assets

  263   98   182 
             

Current Assets Held For Sale-Discontinued Operations

 $263  $98  $182 
             

Other Assets

  822   1,054   1,026 
             

Noncurrent Assets Held For Sale-Discontinued Operations

 $822  $1,054  $1,026 
             

Accounts Payable and Accrued Expenses

 $-  $2,744  $880 
             

Current Liabilities Held For Sale-Discontinued Operations

 $-  $2,744  $880 

 

The operating results of the discontinued operations that are reflected in the Unaudited Condensed Consolidated Statements of Net Earnings from discontinued operations are as follows (in thousands):

 

  

Three Months Ended

  

Nine Months Ended

 
  

December 26,

  

December 28

  

December 26,

  

December 28

 
  

2020

  

2019

  

2020

  

2019

 
                 

Net Sales

 $-  $-  $-  $- 
                 

Cost of Product Sold

  -   57   -   57 

Plant Restructuring Credit (a)

  -   (902)  -   (902)

Earnings From Discontinuned Operations Before Income Taxes

  -   (845)  -   (845)

Gain on the Sale of Assets Before Income Taxes

  -   (430)  -   (430)

Income Tax Expense

  -   320   -   320 

Net Earnings From Discontinued Operations, Net of Tax

 $-  $(955) $-  $(955)

 

(a) Includes $902,000 credit for pension termination in the three and nine month periods of prior year, respectively.

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 26, 2020

 

 

3.           Assets Held For Sale     

 

As of December 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):

 

   

December 26,

 
   

2020

 

Property, Plant and Equipment (net)

  $ 11,375  

Current Assets Held For Sale

  $ 11,375  

 

 

4.           Revenue Recognition

 

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

 

  

Three Months Ended

  

Nine Months Ended

 
  

December 26,

2020

  

December 28,

2019

  

December 26,

2020

  

December 28,

2019

 

Canned Vegetables

 $394.5  $297.3  $917.8  $757.4 

Frozen

  27.3   30.6   76.3   89.7 

Fruit Products

  30.7   32.2   73.4   81.8 

Chip Products

  2.8   2.9   8.2   8.9 

Prepared Foods

  23.5   25.5   71.9   78.9 

Other

  5.6   4.5   15.3   11.2 
  $484.4  $393.0  $1,162.9  $1,027.9 

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 26, 2020

 

 

5.

Inventories

First-In, First-Out (“FIFO”) based inventory costs exceeded LIFO based inventory costs by $139,999,000 as of the end of the third quarter of fiscal 2021 as compared to $153,884,000 as of the end of the third quarter of fiscal 2020. The change in the LIFO Reserve for the three months ended December 26, 2020 was a decrease of $4,656,000 as compared to a decrease of $11,337,000 for the three months ended December 28, 2019.

 

The change in the LIFO Reserve for the nine months ended December 26, 2020 was a decrease of $4,268,000 as compared to a decrease of $7,457,000 for the nine months ended December 28, 2019. This current year-to-date decrease reflects the impact of lower inventory levels as a result of increased sales volumes and lower than planned pack quantities for certain commodities. The following table shows inventory by category and the related LIFO balance (in thousands):

 

   

December 26,

2020

   

December 28,

2019

   

March 31,

2020

 
                         
                         

Finished products

  $ 421,987     $ 465,306       351,251  

In process

    38,552       34,685       31,173  

Raw materials and supplies

    90,387       146,958       173,474  
      550,926       646,949       555,898  

Less excess of FIFO cost over LIFO cost

    139,999       153,884       144,267  

Total inventories

  $ 410,927     $ 493,065     $ 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.

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 26, 2020

 

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.

 

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 (in thousands):

 

  

Three Months Ended

  

Nine Months Ended

 
  

December 26,

2020

  

December 28,

2019

  

December 26,

2020

  

December 28,

2019

 
                 

Lease cost:

                
                 

Amortization of right of use asset

 $1,200  $1,084  $3,531  $3,191 

Interest on lease liabilities

  271   321   843   1,033 

Finance lease cost

  1,471   1,405   4,374   4,224 

Operating lease cost

  5,832   7,545   18,478   23,234 

Total lease cost

 $7,303  $8,950  $22,852  $27,458 
                 

Cash paid for amounts included in the measurement of lease liabilities

                

Operating cash flows from finance leases

         $843  $1,033 

Operating cash flows from operating leases

          19,833   24,531 

Financing cash flows from finance leases

          4,681   4,799 
          $25,357  $30,363 
                 

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

         $1,489  $3,697 

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

         $3,725  $6,085 

Weighted-average lease term (years):

                

Financing leases

          4.7   5.4 

Operating leases

          3.5   3.9 

Weighted-average discount rate (percentage):

                

Financing leases

          4.1   4.2 

Operating leases

          4.4   4.6 

 

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 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 December 26, 2020 were as follows (in thousands):

 

Years ending March 31:

  

Operating

  

Financing

 

Balance of 2021

  $4,106  $1,886 

2022

   19,398   7,544 

2023

   13,926   7,544 

2024

   7,006   6,016 

2025

   3,485   2,662 
2026-2032   4,720   4,266 

Total minimum payment required

  $52,641  $29,918 

Less interest

   3,878   2,764 

Present value of minimum lease payments

   48,763   27,154 

Amount due within one year

   18,327   6,608 

Long-term lease obligations

  $30,436  $20,546 

 

 
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 December 26, 2020 was $0. 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 nine months of fiscal 2021 compared to the first nine months of fiscal 2020 was attributable to strong earnings during the first nine months of fiscal 2021.

 

General terms of the Revolver include payment of interest at LIBOR plus a defined spread.

 

1

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 26, 2020

 

The following table documents the quantitative data for Revolver borrowings during the third quarter and year-to-date for fiscal 2021 and fiscal 2020 (in thousands):

 

  

Third Quarter

  

Year-to-Date

 
  

2021

  

2020

  

2021

  

2020

 

Reported end of period:

                

Outstanding borrowings

 $-  $114,689  $-  $114,689 

Weighted average interest rate

  -

%

  3.27

%

  -

%

  3.27

%

Reported during the period:

                

Maximum amount of borrowings

 $81,052  $137,418  $107,967  $151,477 

Average outstanding borrowings

 $32,099  $115,626  $45,022  $127,078 

Weighted average interest rate

  1.87

%

  3.40

%

  2.92

%

  3.75

%

 

 

8.

Stockholders’ Equity

 

During the nine-month period ended December 26, 2020, the Company repurchased $2,154,000 of its Class A Common Stock and none of its Class B Common Stock as Treasury Stock. As of December 26, 2020, there are 3,097,292 shares or $90,473,000 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 (dollar amounts in thousands):

 

  

Three Months Ended

  

Nine Months Ended

 
  

December 26,

2020

  

December 28,

2019

  

December 26,

2020

  

December 28,

2019

 
                 

Service Cost Including Administration

 $923  $2,283  $7,442  $6,848 

Interest Cost

  2,302   2,316   6,907   6,947 

Expected Return on Plan Assets

  (4,814)  (3,957)  (11,835)  (11,870)

Amortization of Prior Service Cost

  22   30   68   90 

Amortization of Net Loss

  2,257   29   7,317   87 

Net Periodic Benefit Cost

 $690  $701  $9,899  $2,102 

 

On December 14, 2020, the Company made a pension contribution of $73,000,000 to offset declines in plan assets as of the last measurement date of March 31, 2020 that was due to a COVID-19 induced deterioration in market conditions and avoid variable rate PBGC premiums. There were no contributions made in the nine month period ended December 28, 2019.

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 26, 2020

 

 

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 
Third quarter credit  -   (118)   (118) 

Cash payments/write offs

  (429)  58   (371)

Balance December 26, 2020

 $-  $-  $- 

 

  

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 
Third quarter charge  28   765   793 

Cash payments/write offs

  (1,145)  (5,746)  (6,891)

Balance December 28, 2019

 $80  $-  $80 

 

 

During the nine months ended December 26, 2020, the Company recorded a restructuring charge of $169,000 related to closed plants, of which $227,000 was related to severance and $44,000 was for lease impairments partially offset by a $102,000 credit of a former grower payment.

 

During the nine months ended December 28, 2019, the Company recorded a restructuring charge of $6,745,000 related to the closing of plants in the Midwest and Northwest of which $5,266,000 was for accelerated amortization of right-of-use operating lease assets, $2,354,000 was mostly related to equipment moves and $1,000,000 was related to severance. The Company also recorded a credit of $1,875,000 for the reduced lease liability of previously impaired leases.

 

 

11.

Other Operating Income and Expense


On December 18, 2020, the Company completed the sale of its prepared foods business to an unaffiliated buyer who was not a previous customer. The Company recorded a gain on the sale of the prepared food business of $35,660,000. Additionally during the nine months ended December 26, 2020, the Company recorded a loss of $405,000 on the disposal of equipment from a sold Northwest plant and a loss on the sale of unused fixed assets of $365,000. The Company also recorded a charge of $1,174,000 for a supplemental early retirement plan. During the nine months ended December 28, 2019 the Company recorded a gain on the partial sale of a plant in the Midwest of $3,742,000 and a gain on the partial sale of a plant in the Northwest of $1,737,000. The Company also recorded a gain on the sale of unused fixed assets of $3,139,000.

 

These items are included in Other Operating Income in the Unaudited Condensed Consolidated Statements of Net Earnings.

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 26, 2020

 

 

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.

 

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.

 

In May 2020, the SEC issued a final rule that amends the financial statement requirements for acquisitions and dispositions of businesses. The amendments primarily relate to disclosures required by Rule 3-05 and Article 11 of Regulation S-X. Among other things, the final rule modifies the tests provided in Rule 1-02(w) of Regulation S-X used to determine whether a subsidiary or an acquired or disposed business is significant. The amendments take effect January 1, 2021. The Company has elected not to early adopt the provisions of the final rule, and therefore the final rule becomes effective January 1, 2021 and will not impact the Company’s financial statement disclosures unless we acquire or dispose of a business subsequent to the effective date. 

 

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 December 26, 2020.

 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 26, 2020

 

 

13.         Earnings per Common Share From Continuing Operations

Earnings per share for the quarters and year-to-date periods ended December 26, 2020 and December 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

                
                 

Earnings from continuing operations

 $72,460  $24,428  $111,271  $30,166 

Deduct preferred stock dividends paid

  6   6