senea20211002b

senea20211002b_10q.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

Form 10-Q

(Mark one)

☑

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

OF 1934 OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended October 2, 2021

☐

TRANSITION REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 0-01989

Seneca Foods Corporation

(Exact name of Registrant 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)

Registrant’s telephone number, including area code (315) 926-8100

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

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

Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the Company is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer ☐	Accelerated filer ☑	Non-accelerated filer ☐	Smaller reporting company ☑

Emerging growth company ☐

If an emerging growth company, indicate by checkmark if the Company has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act ☐

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

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

Class	Shares Outstanding at November 1, 2021
Common Stock Class A, $.25 Par	6,969,860
Common Stock Class B, $.25 Par	1,705,938

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Seneca Foods Corporation

Quarterly Report on Form 10-Q

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		Page

PART 1	FINANCIAL INFORMATION

Item 1	Financial Statements:

	Condensed Consolidated Balance Sheets as of October 2, 2021, September 26, 2020 and March 31, 2021	1

	Condensed Consolidated Statements of Net Earnings for the Three and Six Months Ended October 2, 2021 and September 26, 2020	2

	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended October 2, 2021 and September 26, 2020	2

	Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended October 2, 2021 and September 26, 2020	3

	Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended October 2, 2021 and September 26, 2020	4

	Notes to Condensed Consolidated Financial Statements	5

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	12

Item 3	Quantitative and Qualitative Disclosures about Market Risk	19

Item 4	Controls and Procedures	20

PART II	OTHER INFORMATION

Item 1	Legal Proceedings	21

Item 1A	Risk Factors	21

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	21

Item 3	Defaults Upon Senior Securities	21

Item 4	Mine Safety Disclosures	21

Item 5	Other Information	21

Item 6	Exhibits	22

SIGNATURES		23

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SENECA FOODS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Per Share Data)

	Unaudited			Unaudited
	October 2, 2021			September 26, 2020			March 31, 2021
Assets

Current assets:
Cash and cash equivalents	$	11,260		$	14,813		$	59,837
Accounts receivable, net		135,338			128,242			92,221
Contracts receivable		655			6,551			911
Current assets held for sale		7,427			11,917			8,656
Inventories		608,179			550,704			343,144
Refundable income taxes		15,558			-			8,385
Other current assets		4,850			2,296			3,145
Total current assets		783,267			714,523			516,299
Property, plant and equipment, net		260,165			240,474			248,583
Right-of-use assets operating, net		42,827			51,241			42,193
Right-of-use assets financing, net		37,301			32,165			30,611
Pension assets		62,482			-			62,851
Deferred income tax asset, net		-			8,474			-
Other assets		2,384			19,929			8,811
Total assets	$	1,188,426		$	1,066,806		$	909,348

Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable	$	268,908		$	230,130		$	74,089
Deferred revenue		12,010			7,745			4,287
Accrued vacation		12,153			12,340			11,660
Accrued payroll		19,085			16,866			15,366
Other accrued expenses		31,890			25,021			24,403
Income taxes payable		-			419			-
Current portion of operating lease obligations		15,837			18,476			17,047
Current portion of financing lease obligations		8,273			6,497			6,778
Current portion of long-term debt		4,000			63,111			4,500
Total current liabilities		372,156			380,605			158,130
Long-term debt, less current portion		142,779			109,069			94,085
Operating lease obligations, less current portion		26,953			33,464			27,769
Financing lease obligations, less current portion		23,509			21,900			19,232
Pension liabilities		-			85,001			-
Deferred income tax liability, net		30,512			-			28,306
Other long-term liabilities		6,178			4,715			4,011
Total liabilities		602,087			634,754			331,533
Commitments and contingencies
Stockholders' equity:
Preferred stock		662			681			663
Common stock, $.25 par value per share		3,041			3,041			3,041
Additional paid-in capital		98,558			98,436			98,502
Treasury stock, at cost		(108,507	)		(89,482	)		(91,198	)
Accumulated other comprehensive loss		(19,067	)		(79,220	)		(19,067	)
Retained earnings		611,652			498,596			585,874
Total stockholders' equity		586,339			432,052			577,815
Total liabilities and stockholders’ equity	$	1,188,426		$	1,066,806		$	909,348

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

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SENECA FOODS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF NET EARNINGS
(Unaudited)
(In Thousands, Except Per Share Data)

	Three Months Ended					Six Months Ended
	October 2, 2021			September 26, 2020		October 2, 2021			September 26, 2020

Net sales	$	372,256		$	390,294	$	607,298		$	678,459

Costs and expenses:
Cost of product sold		329,528			341,351		530,947			580,954
Selling, general and administrative		19,136			19,453		36,410			37,598
Plant restructuring charge		47			24		113			287
Other operating loss		1,726			1,780		282			1,635
Total costs and expenses		350,437			362,608		567,752			620,474
Operating income		21,819			27,686		39,546			57,985
Loss from equity investment		7,619			804		7,775			1,480
Other (income)/loss		(2,375	)		1,760		(4,751	)		2,691
Interest expense, net		1,336			1,404		2,678			3,055
Earnings before income taxes		15,239			23,718		33,844			50,759
Income taxes		3,585			5,613		8,054			11,948
Net earnings	$	11,654		$	18,105	$	25,790		$	38,811


Basic earnings per common share	$	1.32		$	1.98	$	2.88		$	4.24
Diluted earnings per common share:	$	1.31		$	1.97	$	2.86		$	4.21

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

SENECA FOODS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In Thousands)

	Three Months Ended				Six Months Ended
	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020

Comprehensive income:
Net earnings	$	11,654	$	18,105	$	25,790	$	38,811
Total	$	11,654	$	18,105	$	25,790	$	38,811

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

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SENECA FOODS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Thousands)

	Six Months Ended
	October 2, 2021			September 26, 2020
Cash flows from operating activities:
Net earnings	$	25,790		$	38,811
Adjustments to reconcile net earnings to net cash (used in)/provided by operations:
Depreciation & amortization		17,691			16,050
Gain on the sale of assets		(1,911	)		(246	)
Provision for restructuring		113			287
Loss from equity investment		7,775			1,480
Deferred income taxes		2,206			(602	)
Changes in operating assets and liabilities:
Accounts receivable		(42,861	)		(17,381	)
Inventories		(265,035	)		(139,073	)
Other current assets		(1,800	)		5,098
Income taxes		(7,173	)		4,769
Accounts payable, accrued expenses and other		215,238			177,812
Net cash (used in)/provided by operations		(49,967	)		87,005
Cash flows from investing activities:
Additions to property, plant and equipment		(28,234	)		(27,321	)
Proceeds from the sale of assets		4,649			1,025
Net cash used in investing activities		(23,585	)		(26,296	)
Cash flows from financing activities:
Long-term borrowing		116,008			248,848
Payments on long-term debt		(67,314	)		(294,249	)
Other assets		(2,639	)		(6,950	)
Payments on financing leases		(3,759	)		(3,072	)
Purchase of treasury stock		(17,309	)		(1,163	)
Dividends		(12	)		(12	)
Net cash provided by/(used in) financing activities		24,975			(56,598	)

Net (decrease) increase in cash and cash equivalents		(48,577	)		4,111
Cash and cash equivalents, beginning of the period		59,837			10,702
Cash and cash equivalents, end of the period	$	11,260		$	14,813

Supplemental disclosures of cash flow information:
Noncash transactions:
Property, plant and equipment purchased under lease obligations	$	18,766		$	3,681
Property, plant and equipment purchased on account	$	1,523		$	1,145

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

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SENECA FOODS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(Unaudited)

(In Thousands)

											Accumulated
						Additional					Other
	Preferred			Common		Paid-In		Treasury			Comprehensive			Retained
	Stock			Stock		Capital		Stock			Loss			Earnings
First Quarter FY 2022:
Balances, March 31, 2021	$	663		$	3,041	$	98,502	$	(91,198	)	$	(19,067	)	$	585,874
Net earnings		-			-		-		-			-			14,136
Cash dividends declared on preferred stock		-			-		-		-			-			(12	)
Equity incentive program		-			-		25		-			-			-
Purchase treasury stock		-			-		-		(4,552	)		-			-
Balances, July 3, 2021	$	663		$	3,041	$	98,527	$	(95,750	)	$	(19,067	)	$	599,998
Second Quarter FY 2022:
Net earnings		-			-		-		-			-			11,654
Equity incentive program		-			-		30		-			-			-
Preferred stock conversion		(1	)				1		-			-			-
Purchase treasury stock		-			-		-		(12,757	)		-			-
Balances, October 2, 2021	$	662		$	3,041	$	98,558	$	(108,507	)	$	(19,067	)	$	611,652

First Quarter FY 2021:
Balances, March 31, 2020	$	681		$	3,041	$	98,384	$	(88,319	)	$	(79,220	)	$	459,797
Net earnings		-			-		-		-			-			20,706
Cash dividends declared on preferred stock		-			-		-		-			-			(12	)
Equity incentive program		-			-		28		-			-			-
Balances, June 27, 2020	$	681		$	3,041	$	98,412	$	(88,319	)	$	(79,220	)	$	480,491
Second Quarter FY 2021:
Net earnings		-			-		-		-			-			18,105
Equity incentive program		-			-		24		-			-			-
Purchase treasury stock		-			-		-		(1,163	)		-			-
Balances, September 26, 2020	$	681		$	3,041	$	98,436	$	(89,482	)	$	(79,220	)	$	498,596

Preferred Stock

Common Stock

6% Voting

10% Voting

2003 Series

Cumulative

Participating

Class A

Class B

Callable

Convertible

Common

Par $0.25

Par $0.025

Par $0.25

Shares authorized and designated:

October 2, 2021

200,000

1,400,000

33,756

500

20,000,000

10,000,000

Shares outstanding:

October 2, 2021

200,000

807,240

33,756

500

7,014,873

1,705,938

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

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SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
October 2, 2021

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 October 2, 2021 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, 2021 balance sheet was derived from the audited consolidated financial statements.

The results of operations for the three and six month periods ended October 2, 2021 are not necessarily indicative of the results to be expected for the full year.

For the six months ended October 2, 2021 and September 26, 2020, the Company sold certain finished goods inventory for cash on a bill and hold basis. The terms of the bill and hold agreement(s) provide that title to the specified inventory is transferred to the customer(s) prior to shipment and the Company has the right to payment (prior to physical delivery) which results in recorded revenue as determined under the revenue recognition standard.

Additionally, the Company assesses the potential for an other-than-temporary impairment of its equity method investment when impairment indicators are identified. The Company considers all available information, including the recoverability of the investment, the earnings and near-term prospects of the investment, factors related to the industry, amongst others relevant information. If an investment is considered to be impaired and the decline in value is other than temporary, an impairment charge is recorded. During fiscal 2021, the Company recorded an other-than-temporary impairment charge of $9.7 million to its equity method investment representing the difference between the carrying value of the Company’s investment and its proportionate share of the investment’s fair value. During fiscal 2022, the Company recorded an impairment charge of $6.3 million to reduce the carrying value of the investment to $0, as the value of the investment was determined to not be recoverable. The charges were included in “Loss from equity investment” in the Company’s Condensed Consolidated Statements of Net Earnings.

The accounting policies followed by the Company are set forth in Note 1 to the Company's Consolidated Financial Statements in the Company’s 2021 Annual Report on Form 10-K.

Other footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes included in the Company's 2021 Annual Report on Form 10-K.

All references to years are fiscal years ended or ending March 31 unless otherwise indicated. Certain percentage tables may not foot due to rounding.

Reclassifications—Certain previously reported amounts have been reclassified to conform to the current period classification.

2.	Assets Held For Sale

The Company classifies its assets as held for sale at the time management commits to a plan to sell the asset, the asset is actively marketed and available for immediate sale, and the sale is expected to be completed within one year. Due to market conditions, certain assets may be classified as held for sale for more than one year as the Company continues to actively market the assets. The Company has certain non-operating assets in the Midwest that meet the criteria to be classified as held for sale and are recorded at the lower of carrying value or fair value less costs to sell. The following table presents information related to the major classes of assets that were classified as held for sale in our Condensed Consolidated Balance Sheets (in thousands):

	October 2,		September 26,		March 31,
	2021		2020		2021
Property, plant and equipment (net)	$	7,427	$	11,917	$	8,656
Current assets held for sale	$	7,427	$	11,917	$	8,656

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SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
October 2, 2021

3.	Revenue Recognition

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

	Three Months Ended				Six Months Ended
	October 2,		September 26,		October 2,		September 26,
	2021		2020		2021		2020
Canned vegetables	$	299,588	$	302,291	$	487,532	$	523,309
Frozen vegetables		40,850		31,023		63,434		48,856
Fruit products		22,286		23,953		38,159		42,814
Snack products		3,685		3,052		7,097		5,416
Prepared foods		-		24,146		-		48,370
Other		5,847		5,829		11,076		9,694
	$	372,256	$	390,294	$	607,298	$	678,459

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 October 2, 2021 and September 26, 2020, first-in, first-out (“FIFO”) based inventory costs exceeded LIFO based inventory costs, resulting in a LIFO reserve of $140.3 million and $144.7 million, respectively. The Company recorded an increase to cost of products sold of $8.8 million and $2.5 million for the three months ended October 2, 2021 and September 26, 2020, respectively, and an increase to cost of products sold of $11.6 million and $0.4 million for the six months ended October 2, 2021 and September 26, 2020, respectively, to state inventories at LIFO.

The following table shows inventory by category and the related LIFO reserve (in thousands):

	October 2,		September 26,		March 31,
	2021		2020		2021
Finished products	$	629,503	$	536,015	$	317,654
In process		17,810		26,514		25,175
Raw materials and supplies		101,177		132,830		128,987
		748,490		695,359		471,816
Less excess of FIFO cost over LIFO cost		140,311		144,655		128,672
Total inventories	$	608,179	$	550,704	$	343,144

5.	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, or 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.

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SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
October 2, 2021

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 nonlease components for its leases when it is impractical to separate the two. In addition, the Company has certain leases that have variable payments based solely on output or usage of the leased asset. These variable operating lease assets are excluded from the Company’s balance sheet presentation and expensed as incurred. Leases with an initial term of 12 months or less, 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				Six Months Ended
	October 2,		September 26,		October 2,		September 26,
	2021		2020		2021		2020
Lease cost:
Amortization of right of use asset	$	1,546	$	1,145	$	2,841	$	2,331
Interest on lease liabilities		279		278		536		572
Finance lease cost		1,825		1,423		3,377		2,903
Operating lease cost		4,960		6,239		9,960		12,646
Total lease cost	$	6,785	$	7,662	$	13,337	$	15,549

Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases					$	536	$	572
Operating cash flows from operating leases						12,248		15,211
Financing cash flows from finance leases						3,759		3,072
					$	16,543	$	18,855

Right-of-use assets obtained in exchange for new finance lease liabilities					$	9,531	$	1,122
Right-of-use assets obtained in exchange for new operating lease liabilities					$	9,235	$	2,559
Weighted-average lease term (years):
Financing leases						4.8		4.9
Operating leases						4.2		3.6
Weighted-average discount rate (percentage):
Financing leases						3.4		4.1
Operating leases						4.2		4.4

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 October 2, 2021 were as follows (in thousands):

Years ending March 31:	Operating		Financing
Balance of 2022	$	6,914	$	4,610
2023		15,446		9,220
2024		8,937		7,651
2025		5,110		4,268
2026		2,898		3,179
2027-2033		7,524		5,575
Total minimum payment required	$	46,829	$	34,503
Less interest		4,039		2,721
Present value of minimum lease payments		42,790		31,782
Amount due within one year		15,837		8,273
Long-term lease obligations	$	26,953	$	23,509

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SENECA FOODS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
October 2, 2021

6.	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 $400.0 million that is seasonally adjusted (the “Revolver”). Maximum borrowings under the Revolver total $300.0 million from April through July and $400.0 million from August through March. The Revolver balance is included in Long-Term Debt in the accompanying Condensed Consolidated Balance Sheet due to the Revolver’s March 24, 2026 maturity. In order to maintain availability of funds under the facility, the Company pays a commitment fee on the unused portion of the Revolver. The Revolver is secured by substantially all of the Company’s accounts receivable and inventories and contains borrowing base requirements as well as a financial covenant, if certain circumstances apply. 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 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 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.

General terms of the Revolver include payment of interest at LIBOR plus a defined spread. The following table illustrates certain quantitative data for Revolver borrowings during fiscal 2022 and fiscal 2021 (in thousands):

	As of:
	October 2,			September 26,
	2021			2020
Outstanding borrowings	$	51,679		$	62,611
Interest rate		1.33	%		1.75	%

	Three Months Ended					Six Months Ended
	October 2,			September 26,		October 2,		September 26,
	2021			2020		2021		2020
Maximum amount of borrowings	$	51,679		$	68,078	$	51,679	$	107,967
Average outstanding borrowings	$	11,206		$	48,733	$	5,989	$	51,593
Weighted average interest rate		1.29	%		1.75

SEC Form 10-Q filed by Seneca Foods Corp.