XNAS:SENEA Seneca Foods Corp Class A Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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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 June 30, 2012
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  þ No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes  þ 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.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨  Accelerated filer  þ Non-accelerated filer  ¨ Smaller reporting company  ¨

Indicate by check mark whether the Company is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨  No   þ

The number of shares outstanding of each of the issuer's classes of common stock at the latest practical date are:

Class
Shares Outstanding at July 20, 2012
Common Stock Class A, $.25 Par
9,581,266
Common Stock Class B, $.25 Par
2,098,642

 
 

 

 
Seneca Foods Corporation
 
 
 
 
Quarterly Report on Form 10-Q
 
 
 
 
Table of Contents
 
 
 
 
 
 
 
 
 
 
 
Page
 
 
 
 
 
 
PART 1
 FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
  Item 1
Financial Statements:
 
 
 
 
 
 
 
 
 
    1  
 
 
       
 
       
 
  June 30, 2012 and July 2, 2011
    2  
 
 
       
 
    2  
 
  June 30, 2012 and July 2, 2011
       
 
 
       
 
       
 
  June 30, 2012 and July 2, 2011
    3  
 
 
       
 
       
 
  June 30, 2012
    4  
 
 
       
 
    5  
 
 
       
  Item 2
       
 
  and Results of Operations
    10  
 
 
       
  Item 3
    16  
 
 
       
  Item 4
    17  
 
 
       
PART II
       
 
 
       
  Item 1A
    18  
 
 
       
  Item 2
    18  
 
 
       
  Item 3
    18  
 
 
       
  Item 5
    18  
 
 
       
  Item 6
    18  
 
 
       
 
    20  

 
 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(In Thousands, Except Per Share Data)
 
 
 
 
   
 
   
 
 
 
 
Unaudited
   
Unaudited
   
 
 
 
 
June 30,
   
July 2,
   
March 31,
 
 
 
2012
   
2011
   
2012
 
ASSETS
 
 
   
 
   
 
 
 
 
 
   
 
   
 
 
Current Assets:
 
 
   
 
   
 
 
Cash and Cash Equivalents
  $ 12,174     $ 8,738     $ 9,420  
Accounts Receivable, Net
    55,909       60,739       77,105  
Loan Receivable (Note 2)
    -       -       10,000  
Inventories (Note 3):
                       
  Finished Goods
    305,856       262,413       307,912  
  Work in Process
    7,556       10,749       16,083  
  Raw Materials and Supplies
    144,956       158,700       108,438  
    Total Inventories
    458,368       431,862       432,433  
Deferred Income Tax Asset, Net
    8,606       7,492       8,637  
Refundable Income Taxes
    -       7,715       316  
Other Current Assets
    5,238       17,217       5,339  
  Total Current Assets
    540,295       533,763       543,250  
Property, Plant and Equipment, Net
    196,767       188,150       192,825  
Deferred Income Tax Asset, Net
    34       -       403  
Other Assets
    1,463       297       1,558  
    Total Assets
  $ 738,559     $ 722,210     $ 738,036  
LIABILITIES AND STOCKHOLDERS' EQUITY
                       
                         
Current Liabilities:
                       
  Accounts Payable
  $ 103,559     $ 81,610     $ 61,074  
  Accrued Payroll
    6,617       6,233       7,793  
  Accrued Vacation
    10,597       10,408       10,506  
  Other Accrued Expenses
    23,604       24,605       31,459  
  Income Taxes Payable
    3,529       -       -  
  Current Portion of Long-Term Debt (Note 4)
    7,479       11,988       7,336  
Total Current Liabilities
    155,385       134,844       118,168  
Long-Term Debt, Less Current Portion (Note 4)
    180,804       198,528       226,873  
Deferred Income Taxes, Net
    -       5,619       -  
Other Long-Term Liabilities
    39,937       37,401       38,322  
  Total Liabilities
    376,126       376,392       383,363  
Commitments
                       
Stockholders' Equity:
                       
  Preferred Stock
    6,268       6,325       6,268  
  Common Stock, $.25 Par Value Per Share
    2,941       2,937       2,938  
  Additional Paid-in Capital
    92,187       91,984       92,139  
  Treasury Stock, at cost
    (1,880 )     (257 )     (1,435 )
  Accumulated Other Comprehensive Loss
    (23,344 )     (14,033 )     (23,319 )
  Retained Earnings
    286,261       258,862       278,082  
    Total Stockholders' Equity
    362,433       345,818       354,673  
    Total Liabilities and Stockholders’ Equity
  $ 738,559     $ 722,210     $ 738,036  
 
                       
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
 
 
 
June 30,
   
July 2,
 
 
 
2012
   
2011
 
 
 
 
   
 
 
Net Sales
  $ 231,051     $ 257,836  
 
               
Costs and Expenses:
               
  Cost of Product Sold
    201,976       251,980  
  Selling and Administrative
    14,828       16,104  
  Plant Restructuring
    -       54  
  Other Operating Income
    (18 )     (151 )
  Total Costs and Expenses
    216,786       267,987  
      Operating Income (Loss)
    14,265       (10,151 )
Interest Expense, Net
    1,478       1,786  
Earnings (Loss) Before Income Taxes
    12,787       (11,937 )
 
               
Income Taxes Expense (Benefit)
    4,596       (3,962 )
Net  Earnings (Loss)
  $ 8,191     $ (7,975 )
 
               
  Earnings (Loss) Applicable to Common Stock
  $ 7,907     $ (7,708 )
 
               
  Basic Earnings (Loss) per Common Share (Note 9)
  $ 0.68     $ (0.66 )
 
               
  Diluted Earnings (Loss) per Common Share (Note 9)
  $ 0.67     $ (0.66 )
 
               
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
 
 
 
June 30,
   
July 2,
 
 
 
2012
   
2011
 
 
 
 
   
 
 
Comprehensive income (loss):
 
 
   
 
 
  Net earnings (loss)
  $ 8,191     $ (7,975 )
  Change in pension and post retirement benefits (net of tax)
    (25 )     (52 )
    Total
  $ 8,166     $ (8,027 )
 
               
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)
 
 
 
Three Months Ended
 
 
 
June 30, 2012
   
July 2, 2011
 
Cash Flows from Operating Activities:
 
 
   
 
 
  Net Earnings (Loss)
  $ 8,191     $ (7,975 )
  Adjustments to Reconcile Net Earnings (Loss) to
               
    Net Cash Provided by Operations:
               
      Depreciation & Amortization
    5,689       5,574  
      Gain on the Sale of Assets
    (18 )     (151 )
      Deferred Income Tax Expense
    416       2,606  
      Changes in Operating Assets and Liabilities:
               
        Accounts Receivable
    21,196       17,797  
        Inventories
    (25,935 )     23,374  
        Other Current Assets
    10,101       (7,107 )
        Income Taxes
    3,845       (8,204 )
        Accounts Payable, Accrued Expenses
               
            and Other Liabilities
    35,095       5,489  
  Net Cash Provided by Operations
    58,580       31,403  
Cash Flows from Investing Activities:
               
  Additions to Property, Plant and Equipment
    (9,530 )     (5,571 )
  Proceeds from the Sale of Assets
    18       151  
  Net Cash Used in Investing Activities
    (9,512 )     (5,420 )
Cash Flow from Financing Activities:
               
  Long-Term Borrowing
    30,680       61,477  
  Payments on Long-Term Debt
    (76,606 )     (83,580 )
  Other
    69       108  
  Purchase of Treasury Stock
    (445 )     -  
  Dividends
    (12 )     (12 )
  Net Cash Used in Financing Activities
    (46,314 )     (22,007 )
 
               
Net Increase in Cash and Cash Equivalents
    2,754       3,976  
Cash and Cash Equivalents, Beginning of the Period
    9,420       4,762  
Cash and Cash Equivalents, End of the Period
  $ 12,174     $ 8,738  
 
               
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 

3

 
 

 

SENECA FOODS CORPORATION AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENT STOCKHOLDERS' EQUITY
 
(Unaudited)
 
(In Thousands)
 
 
 
 
   
 
   
 
   
 
   
 
   
 
 
 
 
 
   
 
   
Additional
   
 
   
Accumulated Other
   
 
 
 
 
Preferred
   
Common
   
Paid-In
   
Treasury
   
Comprehensive
   
Retained
 
 
 
Stock
   
Stock
   
Capital
   
Stock
   
Loss
   
Earnings
 
 
 
 
   
 
   
 
   
 
   
 
   
 
 
Balance March 31, 2012
  $ 6,268     $ 2,938     $ 92,139     $ (1,435 )   $ (23,319 )   $ 278,082  
  Net earnings
    -       -       -       -       -       8,191  
  Cash dividends
                                               
    on preferred stock
    -       -       -       -       -       (12 )
  Equity incentive program
    -       2       19       -       -       -  
  Stock issued for profit sharing plan (Note 5)
    -       1       29       -       -       -  
  Purchase treasury stock (Note 5)
    -       -       -       (445 )     -       -  
  Change in pension and post retirement
                                               
    benefits adjustment (net of tax $16)
    -       -       -       -       (25 )     -  
Balance June 30, 2012
  $ 6,268     $ 2,941     $ 92,187     $ (1,880 )   $ (23,344 )   $ 286,261  
 
                                               
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)
June 30, 2012




 
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 June 30, 2012 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, 2012 balance sheet was derived from the audited consolidated financial statements.  Certain previously reported amounts for the period ended July 2, 2011 have been reclassified to conform to the current period classification.
 
 
The results of operations for the period ended June 30, 2012 are not necessarily indicative of the results to be expected for the full year.
 
 
During the three months ended June 30, 2012, the Company sold $2,599,000 of Green Giant finished goods inventory to General Mills Operations, LLC (“GMOL”) for cash, on a bill and hold basis, as compared to $4,310,000 for the three months ended July 2, 2011.  Under the terms of the bill and hold agreement, title to the specified inventory transferred to GMOL.  The Company believes it has met the criteria required for bill and hold treatment.

 
The accounting policies followed by the Company are set forth in Note 1 to the Company's Consolidated Financial Statements in the Company’s 2012 Annual Report on Form 10-K.  In addition, the following accounting policy has changed this fiscal year based on adopting ASU No. 2011-04, “Fair Value Measurements and Disclosures”:

 
Fair Value of Financial Instruments--The fair values of cash and cash equivalents, accounts receivable, short-term debt (classified as Level 2 in the fair value hierarchy) and accounts payable approximate cost because of the immediate and short-term maturity of these financial instruments.  See note 10 Fair Value of Financial Instruments, for a discussion of the fair value of long-term debt.

 
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 2012 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.

2.
During the quarter ended October 1, 2011, the Company acquired $10.0 million of the lending commitments (the "Loan Commitment") made by various lenders under the Third Amended and Restated Credit Agreement dated July 29, 2011 by and among the Borrower. ("Borrower"), Bank of America, N.A. as administrative agent and letter of credit issuer, and various other lenders (the "Borrower Credit Facility"), and thus became a co-lender under the Borrower Credit Facility.  Upon the closing of such transaction, the Company advanced a total of $10.0 million to fund (i) the Company's then current portion of total advances made to the Borrower under the Credit Agreement and (ii) the balance of the Company's $10.0 million Loan Commitment. The Company acquired the Loan Commitment in connection with negotiations between the Company and the Borrower concerning the Company's possible acquisition of the Borrower through a merger transaction.  The Company and the Borrower are no longer pursuing such potential acquisition..  All of Borrower' obligations under the Borrower Credit Facility, including those owing to the Company, were due to mature on March 30, 2012.  In April 2012, the Company received a partial repayment or $3.7 million.  In June 2012, the Company received the remaining $6.3 million due plus interest accrued and the Company has no further obligations with respect to the Loan Commitment.

5
 

 
3.
First-In, First-Out (“FIFO”) based inventory costs exceeded Last-In, First-Out (LIFO) based inventory costs by $138.5 million as of the end of the first quarter of fiscal 2013 as compared to $96.4 million as of the end of the first quarter of fiscal 2012.  The LIFO Reserve increased by $1,262,000 in the first three months of fiscal 2013 compared to $6,527,000 in the first three months of fiscal 2012.  This reflects the projected impact of decreased inflationary cost increases expected in fiscal 2013 versus fiscal 2012.

4.
The Company completed the closing of a new five year revolving credit facility (“Revolver”) on July 20, 2011.  Maximum borrowings under the Revolver total $250,000,000 from April through July and $350,000,000 from August through March.  The Revolver balance as of June 30, 2012 was $100,000,000 and is included in Long-Term Debt in the accompanying Condensed Consolidated Balance Sheet due to its five year term. 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 quarter of fiscal 2013 compared to the first quarter of fiscal 2012 was attributable to improved operating results partially offset by additional seasonal working capital needs.
 
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 first quarters of fiscal 2013 and fiscal 2012:
 

6

 
 

 
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2012



 
 
First Quarter
 
 
 
2013
   
2012
 
 
 
(In thousands)
 
Reported end of period:
 
 
   
 
 
  Outstanding borrowings
  $ 100,000     $ 115,460  
  Weighted average interest rate
    1.49 %     1.19 %
Reported during the period:
               
  Maximum amount of borrowings
  $ 144,328     $ 136,021  
  Average outstanding borrowings
  $ 111,481     $ 116,980  
  Weighted average interest rate
    1.58 %     1.23 %

5.
During the three-month period ended June 30, 2012, the Company repurchased 17,695 shares or $445,000 of its Class A Common Stock as Treasury Stock.  As of June 30, 2012, 82,528 shares or $1,880,000 of stock have been repurchased under the Company's share repurchase program.  These shares are not considered outstanding.  During the three month period ended June 30, 2012, there were 1,330 shares, or $29,000 of Class B Common Stock issued in lieu of cash compensation under the Company’s Profit Sharing Bonus Plan.


6.
The net periodic benefit cost for the Company’s pension plan consisted of:

 
 
Three Months Ended
 
 
 
June 30,
   
July 2,
 
(In thousands)
 
2012
   
2011
 
Service  Cost
  $ 2,221     $ 1,502  
Interest Cost
    1,764       1,705  
Expected Return on Plan Assets
    (2,291 )     (1,957 )
Amortization of Actuarial Loss
    338       374  
Amortization of Transition Asset
    (57 )     (69 )
  Net Periodic Benefit Cost
  $ 1,975     $ 1,555  

No contributions were required or made in the three month periods ended June 30, 2012 and July 2, 2011.
 

7.
During the three months ended June 30, 2012, the Company sold unused fixed assets which resulted in a gain of $18,000 as compared to a gain of $151,000 during the three months ended July 2, 2011.  This gain is included in other operating income in the Unaudited Condensed Consolidated Statements of Net Earnings.

 
8.
Recently Issued Accounting Standards –In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards ("IFRS"),” (“ASU 2011-04”) which results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between accounting principles generally accepted in the United States (“GAAP”) and IFRS. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011.  This standard did not have a material impact on the Company's financial statements or results of operations.
 


7

 
 

 
SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2012


9.
Earnings per share for the Quarters Ended June 30, 2012 and July 2, 2011 are as follows:


 
 
F I R S T Q U A R T E R
 
 
 
Fiscal
   
Fiscal
 
(Thousands except per share amounts)
 
2013
   
2012
 
 
 
 
 
Basic
 
 
   
 
 
 
 
 
   
 
 
Net Earnings (loss)
  $ 8,191     $ (7,975 )
Deduct preferred stock dividends paid
    6       6  
 
               
Undistributed earnings (loss)
    8,185       (7,981 )
Earnings (loss) attributable to participating preferred
    278       (273 )
 
               
Earnings (loss)  attributable to common shareholders
  $ 7,907     $ (7,708 )
 
               
Weighted average common shares outstanding
    11,687       11,736  
 
               
Basic earnings (loss)  per common share
  $ 0.68     $ (0.66 )
 
               
Diluted
               
 
               
Earnings (loss) attributable to common shareholders
  $ 7,907     $ (7,708 )
Add dividends on convertible preferred stock
    5       5  
 
               
Earnings (loss)  attributable to common stock on a diluted basis
  $ 7,912     $ (7,703 )
 
               
Weighted average common shares outstanding-basic
    11,687       11,736  
 
               
Additional shares issued related to the equity compensation plan
    5       5  
 
               
Additional shares to be issued under full conversion of preferred stock
    67       67  
 
               
Total shares for diluted
    11,759       11,808  
 
               
Diluted earnings (loss) per common share
  $ 0.67     $ (0.66 )

10.
As required by Accounting Standards Codification ("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 $188,283,000 and an estimated fair value of $185,469,000 as of June 30, 2012.  As of March 31, 2012, the carrying amount was $234,209,000 and the estimated fair value was $231,416,000.  The fair values of all the other financial instruments approximate their carrying value due to their short-term nature.


8
 

 
11.
In June 2010, the Company received a Notice of Violation of the California Safe Drinking Water and Toxic Enforcement Act of 1986, commonly known as Proposition 65, from the Environmental Law Foundation ("ELF").  This notice was made to the California Attorney General and various other government officials, and to 49 companies including Seneca Foods Corporation whom ELF alleges manufactured, distributed or sold packaged peaches, pears, fruit cocktail and fruit juice that contain lead without providing a clear and reasonable warning to consumers.  Under California law, proper notice must be made to the State and involved firms at least 60 days before any suit under Proposition 65 may be filed by private litigants like ELF.  That 60-day period has expired and to date neither the California Attorney General nor any appropriate district attorney or city attorney has initiated an action against the Company.  However, private litigant ELF filed an action against the Company and 27 other named companies on September 28, 2011, in Superior Court of Alameda County, California, alleging violations of Proposition 65 and seeking various measures of relief, including injunctive and declaratory relief and civil penalties.  The Company, along with the other named companies, is vigorously defending itself from such claim and has filed a responsive answer.  The discovery process is ongoing and the litigation is proceeding in accordance with court schedules.  As this matter is still at a very early stage, we are not able to predict the probability of the outcome or estimate of loss, if any, related to this matter.  Additionally, in the ordinary course of its business, the Company is made party to certain legal proceedings seeking monetary damages, including proceedings invoking product liability claims, either directly or through indemnification obligations, and we are not able to predict the probability of the outcome or estimate of loss, if any, related to any such matter.

9

 
 

 

 
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
 
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 2012



 
Seneca Foods Corporation (the “Company”) is a leading low cost producer and distributor of high quality processed fruits and vegetables.  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 Farm Kitchen®, Stokely’s®, Read® Taste of the West®, Cimarron® and Tendersweet®.  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 80 countries and federal, state and local governments for school and other food programs.  In addition, the Company packs Green Giant®, Le Sueur® and other brands of canned vegetables as well as select Green Giant® frozen vegetables for General Mills Operations, LLC (“GMOL”) under a long-term Alliance Agreement.

The Company’s raw product is harvested mainly between June through November. The Company experienced unfavorable growing conditions this summer reflecting a combination of high temperatures and uneven moisture.  These difficult growing conditions unfavorably impacted crop yields and plant recovery rates which resulted in unfavorable manufacturing variances.

Results of Operations:

Sales:

First fiscal quarter 2013 results include net sales of $231.0 million, which represents a 10.4% decrease, or $26.8 million, from the first quarter of fiscal 2012.  The decrease in sales is attributable to a sales volume decrease of $57.3 million, partially offset by higher selling prices/sales mix of $30.5 million. Part of the sales reduction can be attributed to the fact that last year we were selling off excess inventories while in the current year inventories are more in balance.  The decrease in sales is primarily from a $13.3 million decrease in Canned Vegetable sales, a $8.2 million decrease in Frozen sales, a $5.8 million decrease in Canned Fruit sales and a $0.5 million decrease in Snack sales, partially offset by a $0.5 million increase in GMOL sales.

The following table presents sales by product category:


 
 
Three Months Ended
 
 
 
June 30,
   
July 2,
 
(In millions)
 
2012
   
2011
 
Canned Vegetables
  $ 150.7     $ 164.0  
GMOL*
    5.9       5.4  
Frozen
    20.7       28.9  
Fruit Products
    45.9       51.7  
Snack
    2.9       3.4  
Other
    4.9       4.4  
 
  $ 231.0     $ 257.8  
 
               
*GMOL includes frozen vegetable sales exclusively for GMOL.
         

10
 

 
Operating Income:

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

 
 
Three Months Ended
 
 
 
June 30,
   
July 2,
 
 
 
2012
   
2011
 
  Gross Margin
    12.6 %     2.3 %
 
               
  Selling
    3.3 %     3.6 %
  Administrative
    3.1 %     2.7 %
  Other Operating Income (Loss)
    - %     (0.1 ) %
 
               
  Operating Income (Loss)
    6.2 %     (3.9 ) %
 
               
  Interest Expense, Net
    0.6 %     0.7 %
 
               

For the three month period ended June 30, 2012, gross margin increased from the prior year quarter from 2.3% to 12.6% due primarily to higher net selling prices (after considering promotions) compared to the prior year, lower unit costs in the current year than the prior year and a lower LIFO charge in the current year as compared to the prior year.  The LIFO charge for the first quarter ended June 30, 2012 was $1,262,000 as compared to $6,527,000 for the first quarter ended July 2, 2011 and reflects the impact on the quarter of decreased inflationary cost increases expected in fiscal 2013, compared to fiscal 2012.  On an after-tax basis, LIFO decreased the net earnings by $820,000 for the quarter ended June 30, 2012 and decreased net earnings by $4,243,000 for the quarter ended July 2, 2011, based on the statutory federal income tax rate.

For the three month period ended June 30, 2012, selling costs as a percentage of sales decreased from 3.6% to 3.3% as a result of lower selling expenses due to a different mix of sales versus the prior period.

For the three month period ended June 30, 2012, administrative expense as a percentage of sales increased from 2.7% to 3.1% due primarily to the fixed nature of those expenses and the lower sales in the current period.
 
 
During the three months ended June 30, 2012, the Company sold unused fixed assets which resulted in a gain of $18,000 as compared to a gain of $151,000 during the three months ended July 2, 2011.  These gains are included in other operating income in the Condensed Consolidated Statements of Net Earnings.

Interest expense, as a percentage of sales, decreased from 0.7% for the quarter ended July 2, 2011 to 0.6% for the quarter ended June 30, 2012. This decrease was due to a lower average seasonal borrowings in the current year period compared to the prior year and decreased long-term debt attributable to scheduled debt payments.

Income Taxes:

The effective tax rate was 35.9% and 33.2% for the three month periods ended June 30, 2012 and July 2, 2011, respectively.   Of the 2.7 percentage point increase in the effective tax rate for this period, the major contributors to this increase are the following items, 1) with higher pre-tax earnings in the current year, certain state rates which have graduated tax rates result in a higher rate of income taxes, and 2) the manufacturers deduction is a lower percentage of current year earnings than the prior year.  These items were partially offset by the reversal of certain tax reserves related to Research and Experimentation Credit.

11
 

 
Earnings per Share:

Basic earnings (loss) per share were $0.68 and $(0.66) for the three months ended June 30, 2012 and July 2, 2011, respectively.  Diluted earnings (loss) per share were $0.67 and $(0.66) for the three months ended June 30, 2012 and July 2, 2011, respectively.  For details of the calculation of these amounts, refer to footnote 9 of the Notes to Condensed Consolidated Financial Statements.


Liquidity and Capital Resources:

The financial condition of the Company is summarized in the following table and explanatory review:

 
 
June 30,
   
July 2,
   
March 31,
   
March 31,
 
(In thousands except ratios)
 
2012
   
2011
   
2012
   
2011
 
 
 
 
   
 
   
 
   
 
 
Working capital:
 
 
   
 
   
 
   
 
 
  Balance
  $ 384,910     $ 398,919     $ 425,082     $ 294,712  
  Change during quarter
    (40,172 )     104,207                  
Long-term debt, less current portion
    180,804       198,528       226,873       90,060  
Total stockholders' equity per equivalent
                               
      common share (see Note)
    29.81       28.30       29.14       28.96  
Stockholders' equity per common share
    30.49       28.93       29.81       29.61  
Current ratio
    3.48       3.96       4.60       2.13  

Note: Equivalent common shares are either common shares or, for convertible preferred shares, the number of common shares that the preferred shares are convertible into.  See Note 8 of the Notes to Consolidated Financial Statements of the Company’s 2012 Annual Report on Form 10-K for conversion details.

As shown in the Condensed Consolidated Statements of Cash Flows, net cash provided by operating activities was $58.6 million in the first three months of fiscal 2013, compared to $31.4 million in the first three months of fiscal 2012.  The $27.2 million increase in cash provided is primarily attributable to a $29.6 million increase in cash provided by accounts payable, accrued expenses and other liabilities, a $17.2 million increase in cash provided by other current assets, increased net earnings of $16.2 million as previously discussed, $12.0 million decrease in cash used for income taxes, a $3.4 million increase in cash provided by accounts receivable partially offset by a $25.9 million increase in inventory in the first three months of fiscal 2013 as compared to $23.4 million decrease in inventory in the first three months of fiscal 2012.

As compared to July 2, 2011, inventory increased $26.5 million to $458.4 million at June 30, 2012.  The components of the inventory increase reflect a $43.4 million increase in finished goods, a $3.2 million decrease in work in process and a $13.7 million decrease in raw materials and supplies.  The finished goods increase reflects higher inventory quantities attributable to decreased sales volume as compared to the prior year due in part to the timing of the fiscal year 2013 versus fiscal year 2012 pack.  The raw materials and supplies decrease is primarily due to a decrease in cans and raw steel quantities compared to the prior year.  FIFO based inventory costs exceeded LIFO based inventory costs by $138.5 million as of the end of the first quarter of 2013 as compared to $96.4 million as of the end of the first quarter of 2012.

12
 

 
Cash used in investing activities was $9.5 million in the first three months of fiscal 2013 compared to $5.4 million in the first three months of fiscal 2012.  Additions to property, plant and equipment were $9.5 million in the first three months of fiscal 2013 as compared to $5.6 million in first three months of fiscal 2012.

Cash used in financing activities was $46.0 million in the first three months of fiscal 2013, which included borrowings of $30.7 million and the repayment of $76.6 million of long-term debt, principally consisting of borrowing and repayment on the revolving credit facility (“Revolver”).  Other than borrowings under the Revolver, there was no new long-term debt during the first three months of fiscal 2013.  During the three months ended June 30, 2012, the Company repurchased $0.4 million of its Class A Common Stock as treasury stock.

Available borrowings on the Revolver total $250,000,000 from April through July and $350,000,000 from August through March with a maturity date of July 20, 2016.    The interest rate on the Revolver is based on LIBOR plus an applicable margin based on excess availability and the Company's fixed charge coverage ratio.  As of June 30, 2012, the interest rate was approximately 1.49% on a balance of $100.0 million.  At July 20, 2012, the interest rate on the Revolver was 1.50% on a balance of $108.0 million.  We believe that cash flows from operations, availability under our Revolver and other financing sources will provide adequate funds for our working capital needs, planned capital expenditures, and debt obligations for at least the next 12 months.

The Company’s credit facilities contain standard representations and warranties, events of default, and certain affirmative and negative covenants, including various financial covenants.  At June 30, 2012, the Company was in compliance with all such financial covenants.

New Accounting Standards

Refer to footnote 8 of the Notes to Condensed Consolidated Financial Statements.

Seasonality

The Company's revenues are typically higher in the second and third fiscal quarters. This is due in part because the Company sells, on a bill and hold basis, Green Giant canned and frozen vegetables to GMOL at the end of each pack cycle, which typically occurs during these quarters.  GMOL buys the product from the Company at cost plus a specified fee for each equivalent case.  See the Critical Accounting Policies section below for further details.  The Company’s non-Green Giant sales also exhibit seasonality with the third fiscal quarter generating the highest retail sales due to holidays that occur during that quarter.

Forward-Looking Information

The information contained in this report contains, or may contain, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements appear in a number of places in this report and include statements regarding the intent, belief or current expectations of the Company or its officers (including statements preceded by, followed by or that include the words “believes,” “expects,” “anticipates” or similar expressions) with respect to various matters, including (i) the Company’s anticipated needs for, and the availability of, cash, (ii) the Company’s liquidity and financing plans, (iii) the Company’s ability to successfully integrate acquisitions into its operations, (iv) trends affecting the Company’s financial condition or results of operations, including anticipated sales price levels and anticipated expense levels, in particular higher production, fuel and transportation costs, (v) the Company’s plans for expansion of its business (including through acquisitions) and cost savings, and (vi) the impact of competition.

13
 

 
Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements.  Investors are cautioned not to place undue reliance on such statements, which speak only as of the date the statements were made.  Among the factors that could cause actual results to differ materially are:

·  
general economic and business conditions;
·  
cost and availability of commodities and other raw materials such as vegetables, steel and packaging materials;
·  
transportation costs;
·  
climate and weather affecting growing conditions and crop yields;
·  
the availability of financing;
·  
leverage and the Company’s ability to service and reduce its debt;
·  
foreign currency exchange and interest rate fluctuations;
·  
effectiveness of the Company’s marketing and trade promotion programs;
·  
changing consumer preferences;
·  
competition;
·  
product liability claims;
·  
the loss of significant customers or a substantial reduction in orders from these customers;
·  
changes in, or the failure or inability to comply with, U.S., foreign and local governmental regulations, including environmental and health and safety regulations; and
·  
other risks detailed from time to time in the reports filed by the Company with the SEC.

Except for ongoing obligations to disclose material information as required by the federal securities laws, the Company does not undertake any obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of the filing of this report or to reflect the occurrence of unanticipated events.

Critical Accounting Policies

In the three months ended June 30, 2012, the Company sold $2,599,000 of Green Giant finished goods inventory to General Mills Operations, LLC (“GMOL”) for cash, on a bill and hold basis, as compared to $4,310,000  for the three months ended July 2, 2011.  Under the terms of the bill and hold agreement, title to the specified inventory transferred to GMOL.  The Company believes it has met the criteria required for bill and hold treatment.

The seasonal nature of the Company's food processing business results in a timing difference between expenses (primarily overhead expenses) incurred and absorbed into product cost.  These “off-season” variances are accounted for in an inventory account and are included in inventories on the Condensed Consolidated Balance Sheets. Depending upon the time of year, the off-season account reflects the excess of absorbed expenses over incurred expenses to date, resulting in a credit balance, or the excess of incurred expenses over absorbed expenses to date, resulting in a debit balance.  Other than at the end of the first and fourth fiscal quarter of each year, absorbed expenses exceed incurred expenses due to timing of production.  All off-season balances are zero at fiscal year end.

14
 

 
Trade promotions are an important component of the sales and marketing of the Company’s branded products, and are critical to the support of the business. Trade promotion costs, which are recorded as a reduction of net sales, include amounts paid to encourage retailers to offer temporary price reductions for the sale of our products to consumers, amounts paid to obtain favorable display positions in retailers’ stores, and amounts paid to retailers for shelf space in retail stores. Accruals for trade promotions are recorded primarily at the time of sale of product to the retailer based on expected levels of performance. Settlement of these liabilities typically occurs in subsequent periods primarily through an authorized process for deductions taken by a retailer from amounts otherwise due to us. As a result, the ultimate cost of a trade promotion program is dependent on the relative success of the events and the actions and level of deductions taken by retailers for amounts they consider due to them. Final determination of the permissible deductions may take extended periods of time.

15

 
 

 

ITEM 3 Quantitative and Qualitative Disclosures About Market Risk

In the ordinary course of business, the Company is exposed to various market risk factors, including changes in general economic conditions, competition and raw material pricing and availability.  In addition, the Company is exposed to fluctuations in interest rates, primarily related to its revolving credit facility.  To manage interest rate risk, the Company uses both fixed and variable interest rate debt.  There have been no material changes to the Company’s exposure to market risk since March 31, 2012.

16

 
 

 

ITEM 4 Controls and Procedures

The Company maintains a system of internal and disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported on a timely basis. The Company’s Board of Directors, operating through its Audit Committee, which is composed entirely of independent outside directors, provides oversight to the financial reporting process.

An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended) as of the end of the period covered by this report.  Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of June 30, 2012, our disclosure controls and procedures were effective.  The Company continues to examine, refine and formalize its disclosure controls and procedures and to monitor ongoing developments in this area.

There have been no changes during the period covered by this report to the Company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

17

 
 

 
PART II - OTHER INFORMATION

Item 1.                       Legal Proceedings

None.

Item 1A.                       Risk Factors

There have been no material changes to the risk factors disclosed in the Company’s Form 10-K for the period ended March 31, 2012.

Item 2.
  Unregistered Sales of Equity Securities and Use of Proceeds

 
 
Total Number of
   
Average Price Paid
   
Total Number
 
Maximum Number
 
 
Shares Purchased (1)
   
per Share
   
of Shares
 
(or Approximate
 
 
 
   
 
   
 
   
 
   
Purchased as
 
Dollar Value) or
 
 
 
   
 
   
 
   
 
   
Part of Publicly
 
Shares that May
 
 
 
   
 
   
 
   
 
   
Announced
 
Yet Be Purchased
 
 
Class A
   
Class B
 
Class A
   
Class B
   
Plans or
 
Under the Plans or
Period
 
Common
   
Common
 
Common
   
Common
   
Programs
 
Programs
4/01/12 –
    8,300       -     $ 24.02     $ -       -  
 
4/30/12
                                       
 
5/01/12 –
    -       -     $ -     $ -       -  
 
5/31/12
                                       
 
6/01/12 –
    25,095       -     $ 24.43             $ 17,695  
 
6/30/12
                                       
 
Total
    33,395       -     $ 24.33             $ 17,695  
417,472 

(1)  15,700 shares were purchased in open market transactions by the trustees under the Seneca Foods Corporation Employees' Savings Plan 401(k) Retirement Savings Plan to provide employee matching contributions under the plan.

Item 3.                          Defaults Upon Senior Securities

None.

Item 4.                          Mine Safety Disclosures

None.

Item 5.                          Other Information

None.

Item 6.                          Exhibits

31.1
Certification of Kraig H. Kayser pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2
Certification of Timothy J. Benjamin pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
101
The following materials from Seneca Foods Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, formatted in XBRL (eXtensible Business Reporting Language):  (i) consolidated balance sheets, (ii) consolidated statements of net earnings, (iii) consolidated statements of cash flows, (iv) consolidated statement of stockholders’ equity and (v) the notes to the consolidated financial statements.**

18
 

 
**  Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

19

 
 

 



Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





Seneca Foods Corporation
      (Company)



/s/Kraig H. Kayser                              
August 3, 2012
Kraig H. Kayser
President and
Chief Executive Officer


/s/Timothy J. Benjamin                                           
August 3, 2012
Timothy J. Benjamin
Chief Financial Officer


20

 
 

 

XNAS:SENEA Seneca Foods Corp Class A Quarterly Report 10-Q Filling

Seneca Foods Corp Class A XNAS:SENEA Stock - Get Quarterly Report SEC Filing of Seneca Foods Corp Class A XNAS:SENEA stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

XNAS:SENEA Seneca Foods Corp Class A Quarterly Report 10-Q Filing - 6/30/2012
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