UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark one)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number
Seneca Foods Corporation
(Exact name of Registrant as specified in its charter)
| | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | |
| (Address of principal executive offices) | (Zip code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Exchange on Which Registered |
| | | |
| | | |
Indicate by check mark whether the Registrant: (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 Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☐ | Non-accelerated filer ☐ | Smaller reporting company | Emerging growth company |
If an emerging growth company, indicate by checkmark if the Registrant 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 Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares outstanding of each of the Registrant’s classes of common stock as of January 26, 2024, are as follows:
| Class | Shares Outstanding |
| Common Stock Class A, $0.25 Par | |
| Common Stock Class B, $0.25 Par | |
Quarterly Report on Form 10-Q
Table of Contents
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
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|
| |||||||||||
| December 30, | December 31, | March 31, | ||||||||||
| Assets | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||
| Restricted cash | ||||||||||||
| Accounts receivable, net of allowance for credit losses of $, $ and $, respectively | ||||||||||||
| Inventories | ||||||||||||
| Refundable income taxes | ||||||||||||
| Other current assets | ||||||||||||
| Total current assets | ||||||||||||
| Property, plant and equipment, net | ||||||||||||
| Right-of-use assets operating, net | ||||||||||||
| Right-of-use assets financing, net | ||||||||||||
| Pension assets | ||||||||||||
| Other assets | ||||||||||||
| Total assets | $ | $ | $ | |||||||||
| Liabilities and Stockholders' Equity | ||||||||||||
| Current liabilities: | ||||||||||||
| Accounts payable | $ | $ | $ | |||||||||
| Deferred revenue | ||||||||||||
| Accrued vacation | ||||||||||||
| Accrued payroll | ||||||||||||
| Other accrued expenses | ||||||||||||
| Income taxes payable | ||||||||||||
| Current portion of long-term debt and lease obligations | ||||||||||||
| Total current liabilities | ||||||||||||
| Long-term debt, less current portion | ||||||||||||
| Operating lease obligations, less current portion | ||||||||||||
| Financing lease obligations, less current portion | ||||||||||||
| Deferred income tax liability, net | ||||||||||||
| Other liabilities | ||||||||||||
| Total liabilities | ||||||||||||
| Commitments and contingencies | ||||||||||||
| Stockholders' equity: | ||||||||||||
| Preferred stock | ||||||||||||
| Common stock, $ par value per share | ||||||||||||
| Additional paid-in capital | ||||||||||||
| Treasury stock, at cost | ( | ) | ( | ) | ( | ) | ||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||
| Retained earnings | ||||||||||||
| Total stockholders' equity | ||||||||||||
| Total liabilities and stockholders’ equity | $ | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF NET EARNINGS
(In thousands, except per share data)
(Unaudited)
| Three Months Ended |
Nine Months Ended | |||||||||||||||
| December 30, |
December 31, |
December 30, |
December 31, |
|||||||||||||
| Net sales |
$ | $ | $ | $ | ||||||||||||
| Costs and expenses: |
||||||||||||||||
| Cost of product sold |
||||||||||||||||
| Selling, general and administrative |
||||||||||||||||
| Plant restructuring |
( |
) | ||||||||||||||
| Other operating expense (income), net |
( |
) | ( |
) | ||||||||||||
| Total costs and expenses |
||||||||||||||||
| Operating income |
||||||||||||||||
| Other income and expenses: |
||||||||||||||||
| Other non-operating income |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Interest expense, net |
||||||||||||||||
| Earnings before income taxes |
||||||||||||||||
| Income taxes |
||||||||||||||||
| Net earnings |
$ | $ | $ | $ | ||||||||||||
| Earnings per share: |
||||||||||||||||
| Basic |
$ | $ | $ | $ | ||||||||||||
| Diluted |
$ | $ | $ | $ | ||||||||||||
| Weighted average common shares outstanding: |
||||||||||||||||
| Basic |
||||||||||||||||
| Diluted |
||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| December 30, |
December 31, |
December 30, |
December 31, |
|||||||||||||
| Comprehensive income: |
||||||||||||||||
| Net earnings |
$ | $ | $ | $ | ||||||||||||
| Total |
$ | $ | $ | $ | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine Months Ended | ||||||||
| December 30, | December 31, | |||||||
| Cash flows from operating activities: | ||||||||
| Net earnings | $ | $ | ||||||
| Adjustments to reconcile net earnings to net cash from operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| LIFO charge | ||||||||
| Gain on the sale of assets | ( | ) | ( | ) | ||||
| Deferred income taxes | ( | ) | ||||||
| Stock-based compensation expense | ||||||||
| Pension expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Inventories | ( | ) | ( | ) | ||||
| Other current assets | ( | ) | ||||||
| Income taxes | ||||||||
| Accounts payable | ||||||||
| Accrued expenses and other | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Additions to property, plant and equipment | ( | ) | ( | ) | ||||
| Proceeds from the sale of assets | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Borrowings under revolving credit facility | ||||||||
| Repayments under revolving credit facility | ( | ) | ( | ) | ||||
| Borrowings under term loans | ||||||||
| Principal payments on term loans | ( | ) | ( | ) | ||||
| Payments on financing leases | ( | ) | ( | ) | ||||
| Purchase of treasury stock | ( | ) | ( | ) | ||||
| Dividends | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash, cash equivalents and restricted cash | ||||||||
| Cash, cash equivalents and restricted cash, beginning of the period | ||||||||
| Cash, cash equivalents and restricted cash, end of the period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for: | ||||||||
| Interest, net of capitalized interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Noncash transactions: | ||||||||
| Right-of-use assets obtained in exchange for lease obligations | $ | $ | ||||||
| Right-of-use assets derecognized upon early lease termination | $ | $ | ||||||
| Assets acquired from exercise of finance lease purchase options, net of accumulated depreciation | $ | $ | ||||||
| Property, plant and equipment purchased on account | $ | $ | ||||||
| Sale of property, plant and equipment in exchange for note receivable | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||
| Preferred | Common | Paid-In | Treasury | Comprehensive | Retained | |||||||||||||||||||
| Stock | Stock | Capital | Stock | Loss | Earnings | |||||||||||||||||||
| First Quarter FY 2024: | ||||||||||||||||||||||||
| Balances, March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| Net earnings | ||||||||||||||||||||||||
| Cash dividends declared on preferred stock | ( | ) | ||||||||||||||||||||||
| Issue stock for bonus program | ||||||||||||||||||||||||
| Equity incentive program | ||||||||||||||||||||||||
| Purchase treasury stock | ( | ) | ||||||||||||||||||||||
| Balances, July 1, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| Second Quarter FY 2024: | ||||||||||||||||||||||||
| Net earnings | ||||||||||||||||||||||||
| Equity incentive program | ||||||||||||||||||||||||
| Purchase treasury stock | ( | ) | ||||||||||||||||||||||
| Balances, September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| Third Quarter FY 2024: | ||||||||||||||||||||||||
| Net earnings | ||||||||||||||||||||||||
| Cash dividends declared on preferred stock | ( | ) | ||||||||||||||||||||||
| Equity incentive program | ||||||||||||||||||||||||
| Purchase treasury stock | ( | ) | ||||||||||||||||||||||
| Balances, December 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| First Quarter FY 2023: | ||||||||||||||||||||||||
| Balances, March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| Net earnings | ||||||||||||||||||||||||
| Cash dividends declared on preferred stock | ( | ) | ||||||||||||||||||||||
| Issue stock for bonus program | ||||||||||||||||||||||||
| Equity incentive program | ||||||||||||||||||||||||
| Purchase treasury stock | ( | ) | ||||||||||||||||||||||
| Balances, July 2, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| Second Quarter FY 2023: | ||||||||||||||||||||||||
| Net earnings | ||||||||||||||||||||||||
| Equity incentive program | ||||||||||||||||||||||||
| Preferred stock conversion | ( | ) | ||||||||||||||||||||||
| Purchase treasury stock | ( | ) | ||||||||||||||||||||||
| Balances, October 1, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| Third Quarter FY 2023: | ||||||||||||||||||||||||
| Net earnings | ||||||||||||||||||||||||
| Cash dividends declared on preferred stock | ( | ) | ||||||||||||||||||||||
| Equity incentive program | ||||||||||||||||||||||||
| Preferred stock conversion | ( | ) | ||||||||||||||||||||||
| Purchase treasury stock | ( | ) | ||||||||||||||||||||||
| Balances, December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| 6% Voting |
10% Voting |
|||||||||||||||||||
| Cumulative |
Cumulative |
Participating |
Class A |
Class B |
||||||||||||||||
| Callable |
Convertible |
Convertible |
Common |
Common |
||||||||||||||||
| Par $0.25 |
Par $0.025 |
Par $0.025 |
Par $0.25 |
Par $0.25 |
||||||||||||||||
| Shares authorized and designated: |
||||||||||||||||||||
| December 30, 2023 |
||||||||||||||||||||
| Shares outstanding: |
||||||||||||||||||||
| December 30, 2023 |
||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 1. | Basis of Preparation and Presentation |
Seneca Foods Corporation (the “Company”) is a leading provider of packaged fruits and vegetables with
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
The unaudited condensed consolidated financial statements included herein have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial statements. While these statements reflect all adjustments (consisting of items of a normal recurring nature) that are, in the opinion of management, necessary for a fair presentation of the results of the interim period, they do not include all of the information and footnotes required by United States generally accepted accounting principles (“U.S. GAAP”) for complete financial statement presentation. The condensed consolidated financial statements should be read in conjunction with the financial statement disclosures in the Company’s Annual Report on Form 10-K/A (Amendment No. 1) for the fiscal year ended March 31, 2023.
Due to the seasonal nature of the business, quarterly operating results and cash flows are not necessarily indicative of the results that may be expected for other interim periods or the full year. All references to years are fiscal years ended or ending March 31 unless otherwise indicated. Certain percentage tables may not foot due to rounding.
The preparation of financial statements in accordance with U.S. GAAP requires management to make certain estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors that management believes to be reasonable under the circumstances, including the current economic environment. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Actual results could differ materially from those estimates.
The Company uses the same accounting policies in preparing quarterly and annual financial statements. A summary of significant accounting policies followed by the Company are set forth in Note 1 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K/A (Amendment No. 1) for the fiscal year ended March 31, 2023.
Reclassifications—Certain prior year amounts have been reclassified for consistency with the current year presentation within the condensed consolidated financial statements. There was no impact to any totals or subtotals previously reported on the condensed consolidated financial statements as a result of the reclassifications. In addition, the Company’s condensed consolidated balance sheet as of December 31, 2022 has been adjusted to reflect the beginning balance of certain items in accordance with the restated March 31, 2022 consolidated balance sheet shown on the Company’s Annual Report on Form 10-K/A (Amendment No. 1) that was filed with SEC on July 31, 2023.
Recently Issued Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”) related to income tax disclosures. The amendments in this update are intended to enhance the transparency and decision usefulness of income tax disclosures primarily through changes to the rate reconciliation and income taxes paid information. This update is effective for annual periods beginning after December 15, 2024, though early adoption is permitted. The Company plans to adopt this pronouncement for its fiscal year beginning April 1, 2025, and is in the process of analyzing the impact on its consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”) to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This update is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. Early adoption is permitted. The Company plans to adopt this pronouncement for its fiscal year beginning April 1, 2024, and is in the process of analyzing the impact on its consolidated financial statements.
All other newly issued accounting pronouncements not yet effective have been deemed either not applicable or were related to technical amendments or codification.
| 2. | Revenue Recognition |
Revenue recognition is completed for most customers at a point in time when product control is transferred to the customer. In general, control transfers to the customer when the product is shipped or delivered to the customer based upon applicable shipping terms, as the customer can direct the use and obtain substantially all of the remaining benefits from the asset at this point in time. The Company does sell certain finished goods inventory for cash on a bill and hold basis. The terms of the bill and hold agreement provide that title to the specified inventory is transferred to the customer 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.
In the following table, revenue is disaggregated by product category groups (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| December 30, | December 31, | December 30, | December 31, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Canned vegetables | $ | $ | $ | $ | ||||||||||||
| Frozen vegetables | ||||||||||||||||
| Fruit products | ||||||||||||||||
| Snack products | ||||||||||||||||
| Other | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
As a result of certain contracts with customers, the Company has contract asset balances of $
| 3. | Earnings per Common Share |
Earnings per share for the three and nine months ended December 30, 2023 and December 31, 2022 are as follows (in thousands, except per share amounts):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| December 30, | December 31, | December 30, | December 31, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Basic | ||||||||||||||||
| Net earnings | $ | $ | $ | $ | ||||||||||||
| Deduct preferred stock dividends paid | ||||||||||||||||
| Undistributed net earnings | ||||||||||||||||
| Earnings attributable to participating preferred shareholders | ||||||||||||||||
| Earnings attributable to common shareholders | $ | $ | $ | $ | ||||||||||||
| Weighted average common shares outstanding | ||||||||||||||||
| Basic earnings per common share | $ | $ | $ | $ | ||||||||||||
| Diluted | ||||||||||||||||
| Earnings attributable to common shareholders | $ | $ | $ | $ | ||||||||||||
| Add dividends on convertible preferred stock | ||||||||||||||||
| Earnings attributable to common stock on a diluted basis | $ | $ | $ | $ | ||||||||||||
| Weighted average common shares outstanding-basic | ||||||||||||||||
| Additional shares issued related to the equity compensation plan | ||||||||||||||||
| Additional shares to be issued under full conversion of preferred stock | ||||||||||||||||
| Total shares for diluted | ||||||||||||||||
| Diluted earnings per common share | $ | $ | $ | $ | ||||||||||||
| 4. | Inventories |
The Company uses the last-in, first-out (“LIFO”) method of valuing inventory. An actual valuation of inventory under the LIFO method is made at the end of each fiscal year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels, production pack yields, sales and the expected rate of inflation or deflation for the year. The interim LIFO calculations are subject to adjustment in the final year-end LIFO inventory valuation.
As of December 30, 2023, December 31, 2022, and March 31, 2023, first-in, first-out (“FIFO”) based inventory costs exceeded LIFO based inventory costs, resulting in a LIFO reserve of $
The following table shows inventory by category and the related LIFO reserve (in thousands):
| As of: | ||||||||||||
| December 30, | December 31, | March 31, | ||||||||||
| 2023 | 2022 | 2023 | ||||||||||
| Finished products | $ | $ | ||||||||||
| In process | ||||||||||||
| Raw materials and supplies | ||||||||||||
| Less excess of FIFO cost over LIFO cost | ||||||||||||
| Total inventories | $ | $ | $ | |||||||||
| 5. | Property, Plant and Equipment |
Property, plant and equipment is comprised of the following (in thousands):
| As of: | ||||||||||||
| December 30, | December 31, | March 31, | ||||||||||
| 2023 | 2022 | 2023 | ||||||||||
| Land and land improvements | $ | $ | $ | |||||||||
| Buildings and improvements | ||||||||||||
| Machinery and equipment | ||||||||||||
| Office furniture, vehicles and computer software | ||||||||||||
| Construction in progress | ||||||||||||
| Property, plant and equipment, cost | ||||||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ( | ) | ||||||
| Property, plant and equipment, net | $ | $ | $ | |||||||||
Depreciation expense totaled $
| 6. | Long-Term Debt |
Long-term debt is comprised of the following (in thousands):
| As of: | ||||||||||||
| December 30, | December 31, | March 31, | ||||||||||
| 2023 | 2022 | 2023 | ||||||||||
| Revolving credit facility | $ | $ | $ | |||||||||
| Term loans | ||||||||||||
| Term Loan A-1 | ||||||||||||
| Outstanding principal | ||||||||||||
| Unamortized debt issuance costs | ( | ) | ( | ) | ( | ) | ||||||
| Term Loan A-1, net | ||||||||||||
| Term Loan A-2 | ||||||||||||
| Outstanding principal | ||||||||||||
| Unamortized debt issuance costs | ( | ) | ( | ) | ||||||||
| Term Loan A-2, net | ||||||||||||
| Other | ||||||||||||
| Total long-term debt | ||||||||||||
| Less current portion | ||||||||||||
| Long-term debt, less current portion | $ | $ | $ | |||||||||
Revolving Credit Facility
On March 24, 2021, the Company entered into a Fourth Amended and Restated Loan and Security Agreement that provides for a senior revolving credit facility of up to $
Seasonal working capital needs are affected by the growing cycles of the vegetables the Company packages. The majority of vegetable inventories are produced during the months of June through November and are then sold over the following year. Payment terms for vegetable produce are generally months but can vary from a few days to months. Accordingly, the Company’s need to draw on the Revolver may fluctuate significantly throughout the year.
On September 14, 2022, the Company entered into a First Amendment to the Fourth Amended and Restated Loan and Security Agreement (the “Revolver Amendment”) which amended several provisions to replace LIBOR with SOFR plus a spread adjustment as the interest rate benchmark on the Revolver. The transition to SOFR did not materially impact the interest rates applied to the Company’s borrowings. No other material changes were made to the terms of the Company’s Revolver as a result of the Revolver Amendment.
The following table illustrates certain quantitative data for Revolver borrowings during fiscal year 2024 and fiscal year 2023 (in thousands):
| As of: | ||||||||||||
| December 30, | December 31, | March 31, | ||||||||||
| 2023 | 2022 | 2023 | ||||||||||
| Outstanding borrowings | $ | $ | $ | |||||||||
| Weighted average interest rate | % | % | % | |||||||||
| Three Months Ended: | Nine Months Ended: | |||||||||||||||
| December 30, | December 31, | December 30, | December 31, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Maximum amount of borrowings | $ | $ | $ | $ | ||||||||||||
| Average outstanding borrowings | $ | $ | $ | $ | ||||||||||||
| Weighted average interest rate | % | % | % | % | ||||||||||||
Term Loans
On May 28, 2020, the Company entered into an Amended and Restated Loan and Guaranty Agreement with Farm Credit East, ACA that provides for a $
On January 20, 2023, the Company entered into a Second Amended and Restated Loan and Guaranty Agreement with Farm Credit East, ACA (the “Agreement”) which governs two term loans, as summarized below:
Term Loan A-1: The Agreement continues certain aspects of the existing $
Term Loan A-2: The Agreement adds an additional term loan in the amount of $
On May 23, 2023, the Agreement was amended by the Second Amended and Restated Loan and Guaranty Agreement Amendment which amends, restates and replaces in its entirety Term Loan A-2 (the “Amendment”). The Amendment provides a single advance term facility in the principal amount of $
The Amendment contains restrictive covenants usual and customary for loans of its type, in addition to financial covenants including minimum EBITDA and minimum tangible net worth. In connection with Amended Term Loan A-2, the Company incurred $
As of December 30, 2023, the Company was in compliance with all covenants for its revolving credit facility and term loan agreements.
| 7. | Leases |
The Company determines whether an arrangement is a lease at inception of the agreement. Presently, the Company leases land, machinery and equipment under various operating and financing leases.
Right-of-Use (“ROU”) assets represent the Company’s right to use the underlying assets for the lease term, and lease obligations represent the net present value of the Company’s obligation to make payments arising from these leases. ROU assets and lease obligations are recognized at commencement date based on the present value of lease payments over the lease term using the implicit lease interest rate or, when unknown, an incremental borrowing rate based on the information available at commencement date or April 1, 2019 for leases that commenced prior to that date.
Lease terms may include options to extend or terminate the lease, and the impact of these options are included in the calculation of the ROU asset and lease obligation only 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 non-lease components for its leases when it is impractical to separate the two. In addition, the Company may have 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, or short-term leases, are not recorded on the accompanying condensed consolidated balance sheets.
ROU assets and lease obligations for the Company’s operating and financing leases are disclosed separately in the Company’s condensed consolidated balance sheets. The components of lease cost were as follows (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| December 30, | December 31, | December 30, | December 31, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Lease cost: | ||||||||||||||||
| Amortization of ROU assets | $ | $ | $ | $ | ||||||||||||
| Interest on lease liabilities | ||||||||||||||||
| Finance lease cost | ||||||||||||||||
| Operating lease cost | ||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from finance leases | $ | $ | ||||||
| Operating cash flows from operating leases | ||||||||
| Financing cash flows from finance leases | ||||||||
| $ | $ | |||||||
| Right-of-use assets obtained in exchange for new finance lease liabilities | $ | $ | ||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | $ | ||||||
| Weighted-average lease term (years): | ||||||||
| Financing leases | ||||||||
| Operating leases | ||||||||
| Weighted-average discount rate (percentage): | ||||||||
| Financing leases | % | % | ||||||
| Operating leases | % | % |
Undiscounted future lease payments under non-cancelable operating and financing leases, along with a reconciliation of undiscounted cash flows to operating and financing lease obligations, respectively, as of December 30, 2023 were as follows (in thousands):
| Years ending March 31: | Operating | Financing | |||||||
| Balance of 2024 | $ | $ | |||||||
| 2025 | |||||||||
| 2026 | |||||||||
| 2027 | |||||||||
| 2028 | |||||||||
| 2029-2034 | |||||||||
| Total minimum payment required | $ | $ | |||||||
| Less interest | |||||||||
| Present value of minimum lease payments | |||||||||
| Amount due within one year | |||||||||
| Long-term lease obligations | $ | $ | |||||||
| 8. | Income Taxes |
The Company’s effective tax rate was
| 9. | Retirement Plans |
The net periodic benefit (income) cost for the Company’s pension plan consisted of (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| December 30, | December 31, | December 30, | December 31, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Service cost including administration | $ | $ | $ | $ | ||||||||||||
| Interest cost | ||||||||||||||||
| Expected return on plan assets | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of prior service cost | ||||||||||||||||
| Amortization of net loss | ( | ) | ||||||||||||||
| Net periodic benefit (income) cost | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
There were
| 10. | Stockholders’ Equity |
During the nine months ended December 30, 2023, the Company repurchased
| 11. | Fair Value of Financial Instruments |
Cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued expenses are reflected in the condensed consolidated balance sheets at carrying value, which approximates fair value due to the short-term maturity of these instruments.
On a quarterly basis, the Company estimates the fair values for financial instruments that are recorded at carrying value on the condensed consolidated balance sheets. 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. The fair value and carrying value of the Company’s long-term debt are as follows (in thousands):
| As of: | ||||||||||||
| December 30, | December 31, | March 31, | ||||||||||
| 2023 | 2022 | 2023 | ||||||||||
| Carrying value | $ | $ | $ | |||||||||
| Fair value | $ | $ | $ | |||||||||
| 12. | Restructuring |
The following table summarizes the rollforward of restructuring charges recorded and the accruals established (in thousands):
| Restructuring Payable | ||||||||||||
| Severance | Other Costs | Total | ||||||||||
| Balance March 31, 2023 | $ | $ | $ | |||||||||
| First quarter charge | ( | ) | ||||||||||
| Second quarter charge | ||||||||||||
| Third quarter charge | ( | ) | ( | ) | ||||||||
| Cash payments/write offs | ( | ) | ( | ) | ( | ) | ||||||
| Balance December 30, 2023 | $ | $ | $ | |||||||||
| Severance | Other Costs | Total | ||||||||||
| Balance March 31, 2022 | $ | $ | $ | |||||||||
| First quarter charge | ||||||||||||
| Second quarter charge | ||||||||||||
| Third quarter charge | ||||||||||||
| Cash payments/write offs | ( | ) | ( | ) | ||||||||
| Balance December 31, 2022 | $ | $ | $ | |||||||||
The restructuring charges pertain to the vegetable reportable segment. During the three and nine months ended December 30, 2023, respectively, the Company incurred restructuring charges primarily due to plants that were closed in previous periods. During the three and nine months ended December 31, 2022, respectively, the Company incurred restructuring charges primarily associated with ceasing production of green beans at a plant in the Northeast. The charges were comprised of severance costs and a write down of production equipment that was sold during the subsequent twelve months.
| 13. | Legal Proceedings and Other Contingencies |
In the ordinary course of its business, the Company is made a party to certain legal proceedings seeking monetary damages, including proceedings involving product liability claims, workers’ compensation along with other employee claims, tort and other general liability claims, for which it carries insurance, as well as patent infringement and related litigation. The Company is in a highly regulated industry and is also periodically involved in government actions for regulatory violations and other matters surrounding the manufacturing of its products, including, but not limited to, environmental, employee, and product safety issues. While it is not feasible to predict or determine the ultimate outcome of these matters, the Company does not believe that an adverse decision in any of these legal proceedings would have a material adverse impact on its financial position, results of operations, or cash flows.
| 14. | Asset Acquisition |
On November 8, 2023, the Company executed an Asset Purchase Agreement and associated License Agreement with B&G Foods, Inc., (the “Seller”) to acquire certain assets from the Seller relating to its Green Giant® shelf-stable vegetable product line (the “transaction”). The acquired assets include inventory and an associated license which allows the Company to manufacture, market, distribute, and sell Green Giant® shelf-stable vegetable products within the United States in perpetuity. The preliminary purchase price was approximately $
The transaction was accounted for as an asset acquisition in accordance with Accounting Standards Codification (“ASC”) 805-50, Business Combinations – Related Issues, because substantially all of the fair value of the gross assets acquired were concentrated in a singular asset, the acquired inventory, which was recorded at a value of $
| 15. | Segment Information |
The Company conducts its business almost entirely in food packaging with reportable segments: vegetable and fruit/snack. The reportable segments reflect how the Company's Chief Executive Officer, who is the Chief Operating Decision Maker (“CODM”), allocates resources and evaluates performance, and how the Company's internal management financial reporting is structured. The Company's CODM evaluates the performance of these reportable segments with a focus on earnings (loss) before income taxes as the measure of segment profit or loss.
The other category consists of the Company's non-food operations including revenue derived from the sale of cans, ends, seed, outside revenue from the Company's trucking and aircraft operations, and certain corporate items. These ancillary activities do not qualify as an operating segment and are not eligible for aggregation with one of the identified operating segments; therefore they are combined and presented within the “other” category.
During the Company’s fiscal year 2024 reassessment, the Company updated how its existing operating segments (vegetable, fruit, snack) are reported. A primary factor of the reassessment was the Company's vegetable operations which have become a larger strategic focus of the Company, as evidenced by the recent asset acquisition described in Note 14 to the Condensed Consolidated Financial Statements. Fruit was previously reported with vegetable. The fruit and snack segments are now managed together as one reportable segment, leaving vegetable as its own reportable segment. The update reflects the products offered within the segments and the manner in which the business is currently managed. The prior year amounts within the segment disclosure information have been recast to conform to the current year presentation.
Segment information is provided on a FIFO basis which is consistent with how financial information is prepared internally and provided to the CODM. The LIFO impact on earnings (loss) before income taxes and total assets is shown separately for purposes of reconciling to the U.S. GAAP financial statement measure shown on the condensed consolidated statements of net earnings and condensed consolidated balance sheets.
The following table summarizes certain financial data for the Company’s reportable segments (in thousands):
| Three Months Ended December 30, 2023 | ||||||||||||||||||||
| Fruit and | LIFO | |||||||||||||||||||
| Vegetable | Snack | Other | Impact | Total | ||||||||||||||||
| Net sales | $ | $ | $ | $ | $ | |||||||||||||||
| Earnings (loss) before income taxes | ( | ) | ( | ) | ||||||||||||||||
| Total assets | ( | ) | ||||||||||||||||||
| Three Months Ended December 31, 2022 | ||||||||||||||||||||
| Fruit and | LIFO | |||||||||||||||||||
| Vegetable | Snack | Other | Impact | Total | ||||||||||||||||
| Net sales | $ | $ | $ | $ | $ | |||||||||||||||
| Earnings (loss) before income taxes | ( | ) | ||||||||||||||||||
| Total assets | ( | ) | ||||||||||||||||||
| Nine Months Ended December 30, 2023 | ||||||||||||||||||||
| Fruit and | LIFO | |||||||||||||||||||
| Vegetable | Snack | Other | Impact | Total | ||||||||||||||||
| Net sales | $ | $ | $ | $ | $ | |||||||||||||||
| Earnings (loss) before income taxes | ( | ) | ||||||||||||||||||
| Total assets | ( | ) | ||||||||||||||||||
| Nine Months Ended December 31, 2022 | ||||||||||||||||||||
| Fruit and | LIFO | |||||||||||||||||||
| Vegetable | Snack | Other | Impact | Total | ||||||||||||||||
| Net sales | $ | $ | $ | $ | $ | |||||||||||||||
| Earnings (loss) before income taxes | ( | ) | ( | ) | ||||||||||||||||
| Total assets | ( | ) | ||||||||||||||||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Seneca Foods Corporation is a leading provider of packaged fruits and vegetables, with facilities located throughout the United States. Our product offerings include canned, frozen and jarred produce and snack chips that are sold under private label as well as national and regional brands that the Company owns or licenses, including Seneca®, Libby’s®, Green Giant®, Aunt Nellie’s®, Cherryman®, Green Valley® and READ®. Canned fruits and vegetables are sold nationwide by major grocery outlets, including supermarkets, mass merchandisers, limited assortment stores, club stores and dollar stores. We also sell products to foodservice distributors, restaurant chains, industrial markets, other food processors, export customers in approximately 60 countries and federal, state and local governments for school and other food programs. Additionally, the Company packs canned and frozen vegetables under contract packing agreements.
Business Trends
We purchase raw materials, including raw produce, steel, ingredients and packaging materials from growers, commodity processors, steel producers and packaging suppliers. Raw materials and other input costs, such as labor, fuel, utilities and transportation, are subject to fluctuations in price attributable to a number of factors. Fluctuations in commodity prices can lead to retail price volatility and can influence consumer and trade buying patterns. The cost of raw materials, fuel, labor, distribution and other costs related to our operations can increase from time to time significantly and unexpectedly.
We continue to experience material cost inflation for many of our raw materials and other input costs attributable to a number of factors, including but not limited to, supply chain disruptions (including raw material shortages), labor shortages, the conflict between Russia and Ukraine, and the conflict in Israel and Gaza. While we have no direct exposure to these conflicts, we have experienced increased costs for transportation, energy and raw materials due in part to their negative impact on the global economy. We attempt to manage cost inflation risks by locking in prices through short-term supply contracts, advance grower purchase agreements, and by implementing cost saving measures. We also attempt to offset rising input costs by raising sales prices to our customers. However, increases in the prices we charge our customers may lag behind rising input costs. Competitive pressures also may limit our ability to quickly raise prices in response to rising costs. To the extent we are unable to avoid or offset any present or future cost increases our operating results could be materially adversely affected.
Results of Operations
Net Sales:
The following table presents net sales by product category (in thousands):
| Three Months Ended | Nine Months Ended |
|||||||||||||||
| December 30, |
December 31, |
December 30, |
December 31, |
|||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Canned vegetables |
$ | 372,690 | $ | 392,942 | $ | 952,226 | $ | 976,026 | ||||||||
| Frozen vegetables |
27,454 | 33,754 | 92,039 | 93,560 | ||||||||||||
| Fruit products |
32,022 | 33,371 | 71,561 | 75,674 | ||||||||||||
| Snack products |
3,463 | 3,360 | 10,817 | 10,035 | ||||||||||||
| Other |
8,852 | 9,827 | 23,977 | 22,994 | ||||||||||||
| $ | 444,481 | $ | 473,254 | $ | 1,150,620 | $ | 1,178,289 | |||||||||
Three Months Ended December 30, 2023 and December 31, 2022
Net sales totaled $444.5 million for the three months ended December 30, 2023 as compared with $473.3 million for the three months ended December 31, 2022. The overall net sales decrease of $28.8 million, or 6.1%, was predominantly due to lower sales volumes having an unfavorable impact of $50.9 million to net sales, partially offset by $22.1 million of favorability due to higher selling prices and a favorable mix impact, as compared to the prior year three-month interim period.
Net sales for canned vegetables, frozen vegetables, and fruit products decreased $20.3 million, $6.3 million and $1.3 million, respectively, over the prior year quarter driven by lower volume. Higher pricing in each of these categories, which was necessitated by the material cost increases that the Company is experiencing, partially offset the unfavorable impact to net sales that was generated by the lower volume. Net sales in the snack products category remained relatively consistent quarter over quarter with a $0.1 million increase. The remaining net sales decrease of $1.0 million was contributed by non-food packaging sales related to the sale of cans and ends, and outside revenue from trucking and aircraft operations.
Nine Months Ended December 30, 2023 and December 31, 2022
Net sales totaled $1,150.6 million for the nine months ended December 30, 2023 as compared with $1,178.3 million for the nine months ended December 31, 2022. The overall net sales decrease of $27.7 million, or 2.4%, was predominantly due to lower sales volumes having an unfavorable impact of $105.6 million to net sales, partially offset by higher selling prices and favorable mix, contributing favorability of $77.9 million, as compared to the prior year nine-month interim period.
Net sales for canned vegetables, frozen vegetables, and fruit products decreased $23.8 million, $1.5 million and $4.1 million, respectively, over the prior year nine-month interim period as increased pricing did not offset lower sales volume for these categories. Net sales in the snack products category remained relatively consistent year-over-year with a $0.8 million increase. The remaining net sales increase of $1.0 million as compared to the prior year nine-month period was contributed by non-food packaging sales related to the sale of cans and ends, and outside revenue from trucking and aircraft operations.
Operating and Non-Operating Income:
The following table presents components of operating and non-operating income as a percentage of net sales (percentages shown as absolute values):
| Three Months Ended |
Nine Months Ended | |||||||||||||||
| December 30, |
December 31, |
December 30, |
December 31, |
|||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Gross margin |
12.2 | % | 11.4 | % | 14.6 | % | 10.0 | % | ||||||||
| Selling, general, and administrative expense |
5.2 | % | 4.6 | % | 5.5 | % | 5.1 | % | ||||||||
| Other operating income, net |
0.1 | % | 0.0 | % | 0.1 | % | 0.2 | % | ||||||||
| Operating income |
6.9 | % | 6.3 | % | 9.1 | % | 4.9 | % | ||||||||
| Other non-operating income |
0.4 | % | 0.4 | % | 0.4 | % | 0.4 | % | ||||||||
| Interest expense, net |
2.1 | % | 0.9 | % | 2.0 | % | 0.7 | % | ||||||||
| Income taxes |
1.2 | % | 1.4 | % | 1.8 | % | 1.1 | % | ||||||||
Three Months Ended December 30, 2023 and December 31, 2022
Gross margin: Gross margin for the three months ended December 30, 2023 was 12.2% as compared with 11.4% for the three months ended December 31, 2022. The increase in gross margin for the three months ended December 30, 2023 was due primarily to the Company incurring a decrease in the LIFO charge for the current quarter as compared to the prior year quarter. The Company’s LIFO charge for the three months ended December 30, 2023 was $12.0 million as compared to a LIFO charge of $30.9 million for the three months ended December 31, 2022.
Selling, General, and Administrative: Selling, general, and administrative costs as a percentage of net sales for the three months ended December 30, 2023, were 5.2% as compared with 4.6% for the prior year quarter. The increase in selling, general, and administrative costs as a percentage of net sales was largely driven by the decrease in net sales and the fixed nature of certain other expenses. Also, there were routine increases to other expenses within the category, such as cost of living wage adjustments.
Other Operating Expense (Income), net: The Company had net other operating expense of $0.4 million during the three months ended December 30, 2023, which was driven by $0.6 million of transition service fees incurred in connection with the asset acquisition. Refer to Note 14 of the Notes to Condensed Consolidated Statements contained herein for further details of that transaction. During the three months ended December 31, 2022, the Company had net other operating expense of $0.2 million, which was driven primarily by a write down of idle production equipment to estimated selling price, less commission, as the assets met the criteria to be classified as held for sale at December 31, 2022. The write down was partially offset by a gain on the sale of an aircraft.
Restructuring: During the three months ended December 30, 2023, the Company incurred restructuring charges primarily related to plants that were closed in previous periods. During the three months ended December 31, 2022, the Company ceased production of green beans at a plant in the Northeast. As a result, the Company incurred severance costs and a write down of production equipment that was sold during the subsequent twelve months.
Other Non-Operating Income: Other non-operating income totaled $1.8 million and $2.0 million for the three months ended December 30, 2023, and December 31, 2022, respectively, and is comprised of the non-service related pension amounts that are actuarially determined.
Interest Expense, net: Interest expense as a percentage of net sales was 2.1% for the three months ended December 30, 2023, as compared to 0.9% for the three months ended December 31, 2022. Interest expense increased from $4.3 million in the prior year quarter to $9.4 million for the current quarter as a result of higher interest rates and increased long-term debt levels.
Nine Months Ended December 30, 2023 and December 31, 2022
Gross margin: Gross margin for the nine months ended December 30, 2023 was 14.6% as compared with 10.0% for the nine months ended December 31, 2022. The increase in gross margin for the nine months ended December 30, 2023 was due primarily to the Company incurring a decrease to the LIFO charge for the current nine-month interim period as compared the prior year nine-month interim period. The Company’s LIFO charge for the nine months ended December 30, 2023 was $19.6 million as compared to a LIFO charge of $79.3 million for the nine months ended December 31, 2022.
Selling, General, and Administrative: Selling, general, and administrative costs as a percentage of net sales for the nine months ended December 30, 2023, were 5.5% as compared with 5.1% for the prior year nine-month interim period. The increase in selling, general, and administrative costs as a percentage of net sales was primarily due to net sales decreasing slightly year over year and the fixed nature of certain other expenses within the category. There were also routine increases to labor costs due to annual cost of living wage adjustments which impacted the current nine-month period.
Other Operating Income, net: The Company had net other operating income of $1.2 million during the nine months ended December 30, 2023, which was driven primarily by $1.8 million from the sale of non-operational assets in the Pacific Northwest, offset by $0.6 million of transition service fees during the nine-month period. During the nine months ended December 31, 2022, the Company had net other operating income of $2.4 million, which was driven primarily by a gain on the sale of the Company’s western trucking fleet amongst other fixed assets and a true-up of the supplemental early retirement plan accrual, partially offset by the aforementioned write down of idle production equipment.
Restructuring: During the nine months ended December 30, 2023, the Company incurred restructuring charges primarily due to equipment moves from plants that were closed in the previous fiscal year. During the nine months ended December 31, 2022, the Company incurred restructuring charges primarily associated with ceasing production of green beans at a plant in the Northeast. The charges were comprised of severance costs and a write down of production equipment that was sold during the subsequent twelve months.
Other Non-Operating Income: Other non-operating income totaled $4.5 million and $5.1 million for the nine months ended December 30, 2023, and December 31, 2022, respectively, and is comprised of the non-service related pension amounts that are actuarially determined.
Interest Expense, net: Interest expense as a percentage of net sales was 2.0% for the nine months ended December 30, 2023, as compared to 0.7% for the nine months ended December 31, 2022. Interest expense increased from $8.0 million in the prior year nine-month interim period to $23.1 million for the current nine-month interim period as a result of higher interest rates and increased long-term debt levels.
Income Taxes:
The Company’s effective tax rate was 23.8% and 23.5% for the nine months ended December 30, 2023 and December 31, 2022, respectively. The effective tax rate increased in the current nine-month interim period primarily due to state rate changes having an unfavorable impact on the effective rate which increased the rate by 0.3%.
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):
| December 30, |
December 31, |
March 31, |
March 31, |
|||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Working capital: |
||||||||||||||||
| Balance |
$ | 854,246 | $ | 642,162 | $ | 637,851 | $ | 377,531 | ||||||||
| Change in quarter |
$ | 129,552 | $ | 87,494 | ||||||||||||
| Current portion of long-term debt and lease obligations |
$ | 30,582 | $ | 21,344 | $ | 25,792 | $ | 26,020 | ||||||||
| Long-term debt, less current portion |
$ | 611,349 | $ | 399,948 | $ | 432,695 | $ | 109,624 | ||||||||
| Operating lease obligations, less current portion |
$ | 13,617 | $ | 17,219 | $ | 16,675 | $ | 22,533 | ||||||||
| Financing lease obligations, less current portion |
$ | 13,102 | $ | 17,382 | $ | 17,293 | $ | 19,942 | ||||||||
| Total stockholders' equity per equivalent common share (1) |
$ | 82.50 | $ | 75.85 | $ | 71.95 | $ | 68.66 | ||||||||
| Stockholders' equity per common share |
$ | 83.33 | $ | 76.52 | $ | 72.61 | $ | 69.41 | ||||||||
| Current ratio |
4.81 | 3.62 | 5.08 | 3.18 | ||||||||||||
Note (1): 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 12 of the Notes to Consolidated Financial Statements of the Company’s 2023 Annual Report on Form 10-K/A (Amendment No. 1) for conversion details.
Material Cash Requirements: The Company’s primary liquidity requirements include debt service, capital expenditures, and working capital needs. The Company may also seek strategic acquisitions to leverage existing capabilities and further build upon its existing business. Liquidity requirements are funded primarily through cash generated from operations and external sources of financing, including the revolving credit facility. The Company believes that its operations along with existing liquidity sources will satisfy its cash requirements for at least the next twelve months. The Company has borrowed funds and continues to believe that it has the ability to do so at reasonable interest rates, however additional borrowings would result in increased interest expense. The Company does not have any off-balance sheet financing arrangements.
Summary of Cash Flows: The following table presents a summary of the Company’s cash flows from operating, investing, and financing activities (in thousands):
| Nine Months Ended | ||||||||
| December 30, |
December 31, 2022 |
|||||||
| Cash used in operating activities |
$ | (128,126 | ) | $ | (189,480 | ) | ||
| Cash used in investing activities |
(23,856 | ) | (51,496 | ) | ||||
| Cash provided by financing activities |
154,145 | 242,588 | ||||||
| Increase in cash, cash equivalents and restricted cash |
2,163 | 1,612 | ||||||
| Cash, cash equivalents and restricted cash, beginning of period |
12,256 | 10,904 | ||||||
| Cash, cash equivalents and restricted cash, end of period |
$ | 14,419 | $ | 12,516 | ||||
Net Cash Used in Operating Activities: For the nine months ended December 30, 2023, cash used in operating activities was $128.1 million, which consisted of a use of cash of $249.4 million by operating assets and liabilities partially offset by net earnings of $65.6 million, adjusted by non-cash charges of $55.7 million. The non-cash charges were largely driven by $38.1 million of depreciation and amortization and $19.6 million LIFO charge. The change in operating assets and liabilities was due to inventories being a principal use of cash as the nine-month period covered the primary seasonal pack harvest month. The increase in inventories was also impacted by finished goods acquired in the asset acquisition, refer to Note 14 of the Notes to Condensed Consolidated Statements contained herein for further details of that transaction.
For the nine months ended December 31, 2022, cash used in operating activities was $189.5 million, which consisted of a use of cash of $351.3 million by operating assets and liabilities partially offset by net earnings of $42.3 million, adjusted by non-cash charges of $119.5 million. The non-cash charges were largely driven by $39.7 million of depreciation and amortization and $79.3 million LIFO charge. The change in operating assets and liabilities was largely due to inventories being a use of cash driven by the material cost inflation to various production inputs. The increase in inventories was partially offset by an associated increase in accounts payable.
The cash requirements of the business fluctuate significantly throughout the year to coincide with the seasonal growing cycles of vegetables. The majority of the inventories are produced during the packing months, from June through November, and are then sold over the following year. Cash flow from operating activities is one of the Company’s main sources of liquidity.
Net Cash Used in Investing Activities: Net cash used in investing activities was $23.8 million for the nine months ended December 30, 2023, and consisted of cash used for capital expenditures of $31.8 million partially offset by proceeds from the sale of assets totaling $8.0 million.
Net cash used in investing activities was $51.5 million for the nine months ended December 31, 2022, and consisted of cash used for capital expenditures of $56.5 million partially offset by proceeds from the sale of assets totaling $5.0 million.
Net Cash Provided by Financing Activities: Net cash provided by financing activities was $154.1 million for the nine months ended December 30, 2023, driven primarily by a net increase in the Company’s debt borrowings of $187.6 million during the nine-month interim period. Additionally, the Company used cash of $27.1 million to purchase treasury stock and $6.4 million to make payments on financing leases, which partially offset the increased cash provided.
Net cash provided by financing activities was $242.6 million for the nine months ended December 31, 2022, driven by a net increase in debt borrowings of $290.3 million. These cash proceeds were partially offset by purchasing treasury stock of $41.2 million and by making payments of $6.5 million on financing leases.
Impact of Seasonality on Financial Position and Results of Operations:
While individual vegetables have seasonal cycles of peak production and sales, the different cycles are somewhat offsetting. Minimal food packaging occurs in the Company's last fiscal quarter ending March 31, which is the optimal time for maintenance, repairs and equipment changes in its packaging plants. The supply of commodities, current pricing, and expected new crop quantity and quality affect the timing and amount of the Company’s sales and earnings. When the seasonal harvesting periods of the Company's major vegetables are newly completed, inventories for these packaged vegetables are at their highest levels. For peas, the peak inventory time is mid-summer and for corn and green beans, the Company's highest volume vegetables, the peak inventory is in mid-autumn. The seasonal nature of the Company’s production cycle results in inventory and accounts payable reaching their lowest point late in the fourth quarter/early in the first quarter prior to the new seasonal pack commencing. As the seasonal pack progresses, these components of working capital both increase until the pack is complete.
The Company’s fruit and vegetable sales exhibit seasonal increases in the third fiscal quarter due to increased retail demand during the holiday seasons. In addition, the Company sells canned and frozen vegetables to a co-pack customer on a bill and hold basis at the end of each pack cycle, which typically occurs during the second and third quarters. The seasonal nature of the Company’s sales, particularly holiday driven retail sales, result in the accounts receivable balance reaching its highest point at the end of the second and third fiscal quarters, while typically being the lowest at the end of the first quarter.
Non-GAAP Financial Measures:
Adjusted net earnings, EBITDA, and FIFO EBITDA are non-GAAP financial measures and are provided for information purposes only. The Company believes these non-GAAP financial measures provide investors with helpful information to evaluate financial performance, perform comparisons from period to period, and to compare results against the Company’s industry peers. A non-GAAP financial measure is defined as a numerical measure of our financial performance that excludes or includes amounts so as to be different from the most directly comparable measure calculated and presented in accordance with GAAP in our condensed consolidated balance sheets and related condensed consolidated statements of net earnings, comprehensive income, stockholders’ equity and cash flows. The Company does not intend for this information to be considered in isolation or as a substitute for other measures prepared in accordance with GAAP.
Adjusted net earnings is calculated on a FIFO basis which excludes the impact from the application of LIFO. Set forth below is a reconciliation of reported earnings before income taxes to adjusted net earnings (in thousands):
| Three Months Ended |
Nine Months Ended | |||||||||||||||
| December 30, 2023 |
December 31, 2022 |
December 30, 2023 |
December 31, 2022 |
|||||||||||||
| Earnings before income taxes, as reported |
$ | 23,199 | $ | 27,557 | $ | 86,037 | $ | 55,282 | ||||||||
| LIFO charge |
12,027 | 30,898 | 19,643 | 79,333 | ||||||||||||
| Adjusted earnings before income taxes |
35,226 | 58,455 | 105,680 | 134,615 | ||||||||||||
| Income taxes (1) |
8,519 | 14,197 | 25,363 | 32,748 | ||||||||||||
| Adjusted net earnings |
$ | 26,707 | $ | 44,258 | $ | 80,317 | $ | 101,867 | ||||||||
| (1) |
For the three months ended December 30, 2023 and December 31, 2022, income taxes on adjusted earnings before taxes were calculated using the income tax provision amounts of $5.5 million and $6.5 million, respectively, and applying the statutory rate of 24.9% for each of the respective periods to the pre-tax LIFO charge.
For the nine months ended December 30, 2023 and December 31, 2022, income taxes on adjusted earnings before taxes were calculated using the income tax provision amounts of $20.5 million and $13.0 million, respectively, and applying the statutory rate of 24.9% for each of the respective periods to the pre-tax LIFO charge. |
The Company believes EBITDA is often a useful measure of a Company’s operating performance because EBITDA excludes charges for depreciation, amortization, and interest expense as well as the Company’s provision for income tax expense. EBITDA is frequently used as one of the bases for comparing businesses in the Company’s industry. FIFO EBITDA also excludes non-cash charges related to the LIFO inventory valuation method. The Company’s revolving credit facility and term loan agreements use FIFO EBITDA in the financial covenants thereunder. Set forth below is a reconciliation of reported net earnings to EBITDA and FIFO EBITDA (in thousands):
| Three Months Ended | Nine Months Ended |
|||||||||||||||
| EBITDA and FIFO EBITDA: |
December 30, 2023 |
December 31, 2022 |
December 30, 2023 |
December 31, 2022 |
||||||||||||
| Net earnings |
$ | 17,675 | $ | 21,054 | $ | 65,565 | $ | 42,288 | ||||||||
| Income tax expense |
5,524 | 6,503 | 20,472 | 12,994 | ||||||||||||
| Interest expense, net of interest income |
9,388 | 4,277 | 23,146 | 8,037 | ||||||||||||
| Depreciation and amortization |
12,645 | 12,980 | 38,070 | 39,721 | ||||||||||||
| Interest amortization (1) |
(113 | ) | (60 | ) | (327 | ) | (181 | ) | ||||||||
| EBITDA |
45,119 | 44,754 | 146,926 | 102,859 | ||||||||||||
| LIFO charge |
12,027 | 30,898 | 19,643 | 79,333 | ||||||||||||
| FIFO EBITDA |
$ | 57,146 | $ | 75,652 | $ | 166,569 | $ | 182,192 | ||||||||
| (1) | Reconciling item needed to exclude debt issuance cost amortization from the amount shown for interest expense. |
New Accounting Standards
Refer to Note 1, “Basis of Preparation and Presentation”, to the Condensed Consolidated Financial Statements contained herein.
Critical Accounting Policies and Estimates
A description of the Company's critical accounting policies and estimates is contained in the Company’s Annual Report on Form 10-K/A (Amendment No. 1) for the fiscal year ended March 31, 2023. There were no material changes to the Company's critical accounting policies or estimates during the three and nine months ended December 30, 2023.
Forward-Looking Information
This Quarterly Report on Form 10-Q contains “forward-looking statements” as that term is used in the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they address future events, developments, and results and do not relate strictly to historical facts. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain the words "will," "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "seeks," "should," "likely," "targets," "may", "can" and variations thereof and similar expressions. Forward-looking statements are subject to known and unknown risks, uncertainties, and other important factors that could cause actual results to differ materially from those expressed. We believe important factors that could cause actual results to differ materially from our expectations include, but are not limited to, the following:
| ● |
the effects of rising costs and availability of raw fruit and vegetables, steel, ingredients, packaging, other raw materials, distribution and labor; |
|
| ● |
crude oil prices and their impact on distribution, packaging and energy costs; |
|
| ● |
an overall labor shortage, ability to retain a sufficient seasonal workforce, lack of skilled labor, labor inflation or increased turnover impacting our ability to recruit and retain employees; |
|
| ● |
climate and weather affecting growing conditions and crop yields; |
|
| ● |
our ability to successfully implement sales price increases and cost saving measures to offset cost increases; |
|
| ● |
the loss of significant customers or a substantial reduction in orders from these customers; |
|
| ● |
effectiveness of our marketing and trade promotion programs; |
|
| ● |
competition, changes in consumer preferences, demand for our products and local economic and market conditions; |
|
| ● |
the impact of a pandemic on our business, suppliers, customers, consumers and employees; |
|
| ● |
unanticipated expenses, including, without limitation, litigation or legal settlement expenses; |
|
| ● |
product liability claims; |
|
| ● |
the anticipated needs for, and the availability of, cash; |
|
| ● |
the availability of financing; |
|
| ● |
leverage and the ability to service and reduce debt; |
|
| ● |
foreign currency exchange and interest rate fluctuations; |
|
| ● |
the risks associated with the expansion of our business; |
|
| ● |
the ability to successfully integrate acquisitions into our operations; |
|
| ● |
our ability to protect information systems against, or effectively respond to, a cybersecurity incident or other disruption; |
|
| ● |
other factors that affect the food industry generally, including: |
| o |
recalls if products become adulterated or misbranded, liability if product consumption causes injury, ingredient disclosure and labeling laws and regulations and the possibility that consumers could lose confidence in the safety and quality of certain food products; |
|
| o |
competitors’ pricing practices and promotional spending levels; |
|
| o |
fluctuations in the level of our customers’ inventories and credit and other business risks related to our customers operating in a challenging economic and competitive environment; and |
|
| o |
the risks associated with third-party suppliers, including the risk that any failure by one or more of our third-party suppliers to comply with food safety or other laws and regulations may disrupt our supply of raw materials or certain finished goods products or injure our reputation; and |
| ● |
changes in, or the failure or inability to comply with, U.S., foreign and local governmental regulations, including health, environmental, and safety regulations. |
Any of these factors, as well as such other factors as discussed in our other periodic filings with the SEC, could cause our actual results to differ materially from our anticipated results. The information provided in this Form 10-Q is based upon the facts and circumstances known as of the date of this report, and any forward-looking statements made by us in this Form 10-Q speak only as of the date on which they are made. Except as required by law, we undertake no obligation to update these forward-looking statements after the date of this Form 10-Q to reflect events or circumstances after such date, or to reflect the occurrence of unanticipated events.
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. There have been no material changes to the Company’s exposure to market risk since March 31, 2023. In addition, the Company is exposed to fluctuations in interest rates, primarily related to its revolving credit facility and Amended Term Loan A-2. To manage interest rate risk, the Company uses both fixed and variable interest rate debt plus fixed interest rate lease obligations.
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.
As reported in the Company’s amended Annual Report on Form 10-K/A for the year ended March 31 2023, subsequent to the year-end audit, the Company’s management identified a material weakness in the Company’s internal control over financial reporting relating to the accounting for valuing inventory using the LIFO method, specifically the review controls in place with respect to a year-end adjustment to the calculation of the LIFO reserve were not effective. An actual valuation of inventory under the LIFO method is made at the end of each fiscal year based on the inventory levels and costs at that time. During the formulaic valuation of actual inventory values at fiscal year-end, incorrect quantities were applied to the calculation which resulted in an understatement of the LIFO reserve as of March 31, 2023 and 2022. In contrast, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels, production pack yields, sales and the expected rate of inflation or deflation for the year. The interim LIFO calculations are subject to adjustment in the final year-end LIFO inventory valuation.
A material weakness relating to the year-end adjustment to the calculation of the LIFO reserve cannot be considered remediated until the applicable remedial controls operate for a sufficient time. Notwithstanding the existence of the above-mentioned material weakness, the Company believes that the consolidated financial statements in this filing fairly present, in all material respects, the Company’s financial position, results of operations and cash flows as of the dates, and for the periods presented, in conformity with U.S. generally accepted accounting principles. Additionally, our management has concluded that the Company’s interim LIFO calculations are not impacted by this material weakness.
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 December 30, 2023, 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.
In response to the previously disclosed material weakness, the Company has identified certain remedial actions to mitigate the material weakness, including the implementation of new controls and the enhancement of existing controls to reconcile the inventory quantities used in the year-end LIFO calculation to the quantities in the Company’s enterprise resource planning system. The Company will also utilize newly developed software, equipped with analytical features allowing for comparison and trend analysis to previous periods, to perform the LIFO calculation. The Company’s management will review and investigate material irregularities identified by this software and document the cause of those irregularities prior to approval of the final LIFO calculation.
Other than the remedial actions noted above, 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.
Refer to Note 13, “Legal Proceedings and Other Contingencies,” to the Condensed Consolidated Financial Statements contained herein.
There have been no material changes to the risk factors disclosed in the Company’s Annual Report Form 10-K for the period ended March 31, 2023 except to the extent factual information disclosed elsewhere in this Form 10-Q relates to such risk factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
| Total Number of |
Average Price |
Maximum Number |
||||
| Shares Purchased |
Paid per Share |
Total Number of Shares |
(or Approximate Dollar Value) |
|||
| Purchased as Part of |
of Shares that May Yet |
|||||
| Class A |
Class B |
Class A |
Class B |
Publicly Announced |
Be Purchased Under the |
|
| Period |
Common |
Common |
Common |
Common |
Plans or Programs |
Plans or Programs |
| 10/1/2023 - |
||||||
| 10/31/2023 (1) |
109,515 |
- |
$ 54.54 |
- |
99,115 |
|
| 11/1/2023 - |
||||||
| 11/30/2023 |
17,192 |
- |
$ 54.23 |
- |
17,192 |
|
| 12/1/2023 - |
||||||
| 12/31/2023 (2) |
11,210 |
- |
$ 51.78 |
- |
0 |
|
| Total |
137,917 |
- |
$ 54.27 |
- |
116,307 |
605,273 |
| (1) |
Includes 10,400 shares that were purchased in open market transactions by the trustees under the Seneca Foods Corporation Employees' Savings Plan to provide employee matching contributions under the plan. |
|
|
|
||
| (2) |
Includes 11,210 shares that were purchased in open market transactions by the trustees under the Seneca Foods Corporation Employees' Savings Plan to provide employee matching contributions under the plan. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
(c) Trading Plans
During the quarterly period ended December 30, 2023, director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (in each case, as defined in Item 408(a) of Regulation S-K).
| Exhibit Number |
Description |
| 31.1 |
Certification of Paul L. Palmby pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2 |
Certification of Michael S. Wolcott pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32 |
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS |
Inline XBRL Instance Document |
| 101.1.SCH |
Inline XBRL Taxonomy Extension Calculation Schema Document |
| 101.2.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.3.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.4.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.5.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 |
Cover page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101) |
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 |
|||
| By: |
/s/ Paul L. Palmby |
||
| Paul L. Palmby |
|||
| President and Chief Executive Officer |
|||
| (Principal Executive Officer) |
|||
| February 8, 2024 |
|||
| By: |
/s/ Michael S. Wolcott |
||
| Michael S. Wolcott |
|||
| Chief Financial Officer |
|||
| (Principal Financial Officer) |
|||
| February 8, 2024 |