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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark one)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
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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
(Exact name of Registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class |
Trading Symbol |
Name of Exchange on Which Registered |
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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 ☐
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 October 25, 2024 are as follows:
|
Class |
Shares Outstanding |
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Common Stock Class A, $0.25 Par |
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Common Stock Class B, $0.25 Par |
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Quarterly Report on Form 10-Q
Table of Contents
|
CONDENSED CONSOLIDATED BALANCE SHEETS |
|
(In thousands) |
(Unaudited)
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September 28,
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September 30,
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March 31,
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||||||||||
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Assets |
||||||||||||
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Current assets: |
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Cash and cash equivalents |
$ |
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$ |
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$ |
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Restricted cash |
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Accounts receivable, net of allowance for credit losses of $
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|||||||||
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Inventories |
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|||||||||
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Refundable income taxes |
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|||||||||
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Other current assets |
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|||||||||
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Total current assets |
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|||||||||
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Property, plant and equipment, net |
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Right-of-use assets operating, net |
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|||||||||
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Right-of-use assets financing, net |
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|||||||||
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Pension assets |
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Other assets |
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Total assets |
$ |
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$ |
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$ |
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Liabilities and Stockholders' Equity |
||||||||||||
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Current liabilities: |
||||||||||||
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Accounts payable |
$ |
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$ |
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$ |
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Note payable |
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Deferred revenue |
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Accrued vacation |
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Accrued payroll |
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Income taxes payable |
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Other accrued expenses |
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Current portion of long-term debt, finance and lease obligations |
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Total current liabilities |
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Long-term debt |
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Operating lease obligations |
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Financing lease obligations |
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| Finance obligation |
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Deferred income tax liability, net |
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Other liabilities |
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Total liabilities |
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Commitments and contingencies |
||||||||||||
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Stockholders' equity: |
||||||||||||
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Preferred stock |
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Common stock |
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Additional paid-in capital |
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|||||||||
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Treasury stock, at cost |
(
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) |
(
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) |
(
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) | ||||||
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Accumulated other comprehensive loss |
(
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) |
(
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) |
(
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Retained earnings |
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|||||||||
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Total stockholders' equity |
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Total liabilities and stockholders’ equity |
$ |
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$ |
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$ |
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||||||
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
|
CONDENSED CONSOLIDATED STATEMENTS OF NET EARNINGS |
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(In thousands, except per share data) |
|
(Unaudited) |
|
Three Months Ended |
Six Months Ended |
|||||||||||||||
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September 28,
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September 30,
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September 28,
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September 30,
|
|||||||||||||
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Net sales |
$ |
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$ |
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$ |
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$ |
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Costs and expenses: |
||||||||||||||||
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Cost of products sold |
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Selling, general, and administrative expense |
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Plant restructuring |
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Other operating income, net |
(
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(
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(
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(
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Total costs and expenses |
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Operating income |
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Other income and expenses: |
||||||||||||||||
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Other non-operating income |
(
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) |
(
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) |
(
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) |
(
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) | ||||||||
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Interest expense, net |
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||||||||||||
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Earnings before income taxes |
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Income taxes |
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Net earnings |
$ |
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$ |
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$ |
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$ |
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Earnings per share: |
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Basic |
$ |
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$ |
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$ |
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$ |
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||||||||
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Diluted |
$ |
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$ |
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$ |
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$ |
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Weighted average common shares outstanding: |
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Basic |
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Diluted |
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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 |
Six Months Ended |
|||||||||||||||
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September 28,
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September 30,
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September 28,
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September 30,
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|||||||||||||
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Comprehensive income: |
||||||||||||||||
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Net earnings |
$ |
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$ |
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$ |
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$ |
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Total |
$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
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(In thousands) |
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(Unaudited) |
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Six Months Ended |
||||||||
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September 28,
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September 30,
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|||||||
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Cash flows from operating activities: |
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Net earnings |
$ |
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$ |
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Adjustments to reconcile net earnings to net cash from operating activities: |
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Depreciation and amortization |
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Non-cash lease expense |
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||||||
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LIFO charge |
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||||||
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Deferred income tax expense |
(
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) |
(
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) | ||||
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Gain on the sale of assets |
(
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) |
(
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) | ||||
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Stock-based compensation expense |
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||||||
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Pension expense |
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||||||
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Changes in operating assets and liabilities: |
||||||||
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Accounts receivable |
(
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) |
(
|
) | ||||
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Inventories |
(
|
) |
(
|
) | ||||
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Other assets |
(
|
) |
|
|||||
|
Accounts payable |
|
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||||||
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Accrued expenses and other |
|
|
||||||
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Income taxes |
(
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) |
|
|||||
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Net cash provided by (used in) operating activities |
|
(
|
) | |||||
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Cash flows from investing activities: |
||||||||
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Additions to property, plant and equipment |
(
|
) |
(
|
) | ||||
|
Proceeds from the sale of assets |
|
|
||||||
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Increase in non-current deposits |
(
|
) |
|
|||||
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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, finance obligation and note payable |
|
|
||||||
|
Payments on term loans |
(
|
) |
(
|
) | ||||
|
Payments on financing leases |
(
|
) |
(
|
) | ||||
|
Purchase of treasury stock |
(
|
) |
(
|
) | ||||
|
Dividends |
(
|
) |
(
|
) | ||||
|
Net cash (used in) provided by financing activities |
(
|
) |
|
|||||
|
Net increase (decrease) 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 |
$ |
|
$ |
|
||||
|
Cash paid for income taxes, net |
$ |
|
$ |
|
||||
|
Non-cash transactions: |
||||||||
|
Reduction of note payable and non-current deposits associated with finance obligation |
$ |
|
$ |
|
||||
|
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 |
$ |
|
$ |
|
||||
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
|
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY |
|
(In thousands, except per share data) |
|
(Unaudited) |
|
Accumulated |
||||||||||||||||||||||||||||
|
Additional |
Other |
|||||||||||||||||||||||||||
|
Preferred |
Common |
Paid-In |
Treasury |
Comprehensive |
Retained |
|||||||||||||||||||||||
|
Stock |
Stock |
Capital |
Stock |
Loss |
Earnings |
Total |
||||||||||||||||||||||
|
First Quarter FY 2024: |
||||||||||||||||||||||||||||
|
Balance, March 31, 2023 |
$ |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
|
||||||||||||
|
Net earnings |
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Cash dividends declared on preferred stock |
|
|
|
|
|
(
|
) |
(
|
) | |||||||||||||||||||
|
Stock issued for profit sharing plan |
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Equity incentive program |
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Purchase treasury stock |
|
|
|
(
|
) |
|
|
(
|
) | |||||||||||||||||||
|
Balance, July 1, 2023 |
$ |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
|
||||||||||||
|
Second Quarter FY 2024: |
||||||||||||||||||||||||||||
|
Net earnings |
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Equity incentive program |
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Purchase treasury stock |
|
|
|
(
|
) |
|
|
(
|
) | |||||||||||||||||||
|
Balance, September 30, 2023 |
$ |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
|
||||||||||||
|
First Quarter FY 2025: |
||||||||||||||||||||||||||||
|
Balance, March 31, 2024 |
$ |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
|
||||||||||||
|
Net earnings |
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Cash dividends declared on preferred stock |
|
|
|
|
|
(
|
) |
(
|
) | |||||||||||||||||||
|
Stock issued for profit sharing plan |
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Equity incentive program |
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Purchase treasury stock |
|
|
|
(
|
) |
|
|
(
|
) | |||||||||||||||||||
|
Balance, June 29, 2024 |
$ |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
|
||||||||||||
|
Second Quarter FY 2025: |
||||||||||||||||||||||||||||
|
Net earnings |
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Equity incentive program |
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Purchase treasury stock |
|
|
|
(
|
) |
|
|
(
|
) | |||||||||||||||||||
|
Balance, September 28, 2024 |
$ |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
(
|
) | $ |
|
$ |
|
||||||||||||
|
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: |
||||||||||||||||||||
|
September 28, 2024 |
|
|
|
|
|
|||||||||||||||
|
Shares outstanding: |
||||||||||||||||||||
|
September 28, 2024 |
|
|
|
|
|
|||||||||||||||
|
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 generally accepted accounting principles in the United States (“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 for the fiscal year ended March 31, 2024.
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.
In certain circumstances, the preparation of financial statements in conformity with GAAP requires management to use judgment to make certain estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of net sales 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 may differ from these 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 for the fiscal year ended March 31, 2024.
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. Beginning in fiscal year 2024, the restricted cash line item was separately presented on the condensed consolidated balance sheets.
Cash, Cash Equivalents and Restricted Cash — The following table reconciles cash, cash equivalents and restricted cash as reported on the condensed consolidated balance sheets to the total amounts shown in the Company’s condensed consolidated statements of cash flows (in thousands):
|
As of: |
||||||||||||
|
September 28, |
September 30, |
March 31, |
||||||||||
|
2024 |
2023 |
2024 |
||||||||||
|
Cash and cash equivalents |
$ |
|
$ |
|
$ |
|
||||||
|
Restricted cash |
|
$ |
|
|
||||||||
|
Total cash, cash equivalents and restricted cash |
$ |
|
$ |
|
$ |
|
||||||
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 will adopt this pronouncement when it becomes effective for the fiscal year ending March 31, 2025 annual reporting 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(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.
In the following table, revenue is disaggregated by product category groups (in thousands):
|
Three Months Ended |
Six Months Ended |
|||||||||||||||
|
September 28, |
September 30, |
September 28, |
September 30, |
|||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
Canned vegetables |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Frozen vegetables |
|
|
|
|
||||||||||||
|
Fruit products |
|
|
|
|
||||||||||||
|
Snack products |
|
|
|
|
||||||||||||
|
Other |
|
|
|
|
||||||||||||
|
Total |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
As a result of certain contracts with customers, the Company has contract asset balances of $
The deferred revenue activity is shown in the following table (in thousands):
|
Six Months Ended |
||||||||
|
September 28, |
September 30, |
|||||||
|
2024 |
2023 |
|||||||
|
Beginning balance |
$ |
|
$ |
|
||||
|
Deferral of revenue |
|
|
||||||
|
Recognition of unearned revenue |
(
|
) |
(
|
) | ||||
|
Ending balance |
$ |
|
$ |
|
||||
|
3. |
Earnings per Common Share |
Earnings per share for the three and six months ended September 28, 2024 and September 30, 2023 are as follows (in thousands, except per share amounts):
|
Three Months Ended |
Six Months Ended |
|||||||||||||||
|
September 28, |
September 30, |
September 28, |
September 30, |
|||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
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 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 as it believes this method allows for better matching of current production cost to current revenue. 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 September 28, 2024, September 30, 2023, and March 31, 2024, first-in, first-out (“FIFO”) based inventory costs exceeded LIFO based inventory costs, resulting in a LIFO reserve of $
The inventories by category and the impact of using the LIFO method are shown in the following table (in thousands):
|
As of: |
||||||||||||
|
September 28, |
September 30, |
March 31, |
||||||||||
|
2024 |
2023 |
2024 |
||||||||||
|
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: |
||||||||||||
|
September 28, |
September 30, |
March 31, |
||||||||||
|
2024 |
2023 |
2024 |
||||||||||
|
Land and land improvements |
$ |
|
$ |
|
$ |
|
||||||
|
Buildings and improvements |
|
|
|
|||||||||
|
Machinery and equipment |
|
|
|
|||||||||
|
Office equipment, 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. |
Debt |
Note Payable and Finance Obligation
— During fiscal year 2024, the Company entered into an unsecured note payable with an individual lender for an interim financing arrangement associated with deposits paid to vendors for the installation of a new can manufacturing line located at one of the Company’s plant facilities. The note payable had a variable interest rate based upon the Secured Overnight Financing Rate (“
”) plus
Subsequent to the final installation of the can manufacturing line in September 2024, the Company took title and recorded an addition to property, plant and equipment of $
Future minimum payments under the finance obligation noted above as of September 28, 2024 are as follows (in thousands):
| Years ending March 31: | |||
| Balance of 2025 | $ |
|
|
| 2026 |
|
||
| 2027 |
|
||
| 2028 |
|
||
| 2029 |
|
||
| 2030 and thereafter |
|
||
| Total minimum payments required |
|
||
| Less interest |
|
||
| Total finance obligation |
|
||
| Amount due within one year |
|
||
| Finance obligation, less current portion | $ |
|
As of September 28, 2024, the finance obligation had a remaining term of
Long-term debt is comprised of the following (in thousands):
|
As of: |
||||||||||||
|
September 28, |
September 30, |
March 31, |
||||||||||
|
2024 |
2023 |
2024 |
||||||||||
|
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 $
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 the London Interbank Offered Rate (“LIBOR”) with the 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.
On May 5, 2023, the Company entered into a Second Amendment to the Fourth Amended and Restated Loan and Security Agreement (the “2023 Revolver Amendment”) which updated certain provisions relating to permitted indebtedness. No other material changes were made as a result of the 2023 Revolver Amendment.
On March 8, 2024, the Company entered into a Third Amendment to the Fourth Amended and Restated Loan and Security Agreement (the “2024 Revolver Amendment”) which increased the seasonal borrowing amount for the period from April through July by $
Maximum borrowing availability under the Revolver totals $
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 months but may vary and range from approximately to months. Accordingly, the Company’s need to draw on the Revolver may fluctuate significantly throughout the year.
The following table summarizes certain quantitative data for Revolver borrowings during fiscal year 2025 and fiscal year 2024 (in thousands):
|
As of: |
||||||||||||
|
September 28, |
September 30, |
March 31, |
||||||||||
|
2024 |
2023 |
2024 |
||||||||||
|
Outstanding borrowings |
$ |
|
$ |
|
$ |
|
||||||
|
Interest rate |
|
% |
|
% |
|
% | ||||||
|
Three Months Ended |
Six Months Ended |
|||||||||||||||
|
September 28, |
September 30, |
September 28, |
September 30, |
|||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
Maximum amount of borrowings drawn during the period |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
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 $
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 for Term Loan A-1 and Term Loan A-2 (collectively, the “Term Loans”) contains restrictive covenants usual and customary for loans of its type, in addition to financial covenants including minimum EBITDA and minimum tangible net worth which apply to both Terms Loans described above. In connection with the Amended Term Loan A-2, the Company incurred $
As of September 28, 2024, the Company was in compliance with all covenants for its revolving credit facility and term loan agreements.
Standby Letters of Credit
— The Company has standby letters of credit for certain insurance-related requirements. The majority of the Company’s standby letters of credit are automatically renewed annually, unless the issuer gives cancellation notice in advance. On September 28, 2024, the Company had $
|
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. ROU assets and lease obligations for the Company’s operating and financing leases are disclosed separately in the Company’s condensed consolidated balance sheets.
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 condensed consolidated 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 and are expensed as incurred.
The components of lease cost were as follows (in thousands):
|
Three Months Ended |
Six Months Ended |
|||||||||||||||
|
September 28, |
September 30, |
September 28, |
September 30, |
|||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
Lease cost: |
||||||||||||||||
|
Amortization of right-of-use assets |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Interest on lease obligations |
|
|
|
|
||||||||||||
|
Finance lease cost |
|
|
|
|
||||||||||||
|
Operating lease cost |
|
|
|
|
||||||||||||
|
Short-term lease cost |
|
|
|
|
||||||||||||
|
Total lease cost |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Cash paid for amounts included in the measurement of lease obligations: |
||||||||||||||||
|
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 obligations |
$ |
|
$ |
|
||||||||||||
|
Right-of-use assets obtained in exchange for new operating lease obligations |
$ |
|
$ |
|
||||||||||||
|
Right-of-use assets derecognized upon early termination of finance leases |
$ |
|
$ |
|
||||||||||||
|
Right-of-use assets derecognized upon early termination of operating leases |
$ |
|
$ |
|
||||||||||||
|
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 September 28, 2024 were as follows (in thousands):
|
Years ending March 31: |
Operating |
Financing |
||||||
|
Balance of 2025 |
$ |
|
$ |
|
||||
|
2026 |
|
|
||||||
|
2027 |
|
|
||||||
|
2028 |
|
|
||||||
|
2029 |
|
|
||||||
| 2030 and thereafter |
|
|
||||||
|
Total minimum payments 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 cost for the Company’s pension plan consisted of (in thousands):
|
Three Months Ended |
Six Months Ended |
|||||||||||||||
|
September 28, |
September 30, |
September 28, |
September 30, |
|||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
Service cost including administrative expenses |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Interest cost |
|
|
|
|
||||||||||||
|
Expected return on plan assets |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
|
Amortization of net loss |
|
|
|
|
||||||||||||
|
Amortization of prior service cost |
|
|
|
|
||||||||||||
|
Net periodic benefit cost |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
There were pension contributions made during the six months ended September 28, 2024 and September 30, 2023.
|
10. |
Stockholders ’ Equity |
During the six months ended September 28, 2024, 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: |
||||||||||||
|
September 28, |
September 30, |
March 31, |
||||||||||
|
2024 |
2023 |
2024 |
||||||||||
|
Carrying value |
$ |
|
$ |
|
$ |
|
||||||
|
Fair value |
$ |
|
$ |
|
$ |
|
||||||
|
12. |
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 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.
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 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 September 28, 2024 |
||||||||||||||||||||||||
|
Fruit and |
Subtotal |
LIFO |
||||||||||||||||||||||
|
Vegetable |
Snack |
Other |
(FIFO basis) |
Impact |
Total |
|||||||||||||||||||
|
Net sales |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||
|
Earnings (loss) before income taxes |
|
|
|
|
(
|
) |
|
|||||||||||||||||
|
Total assets |
|
|
|
|
(
|
) |
|
|||||||||||||||||
|
Three Months Ended September 30, 2023 |
||||||||||||||||||||||||
|
Fruit and |
Subtotal |
LIFO |
||||||||||||||||||||||
|
Vegetable |
Snack |
Other |
(FIFO basis) |
Impact |
Total |
|||||||||||||||||||
|
Net sales |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||
|
Earnings (loss) before income taxes |
|
|
|
|
(
|
) |
|
|||||||||||||||||
|
Total assets |
|
|
|
|
(
|
) |
|
|||||||||||||||||
|
Six Months Ended September 28, 2024 |
||||||||||||||||||||||||
|
Fruit and |
Subtotal |
LIFO |
||||||||||||||||||||||
|
Vegetable |
Snack |
Other |
(FIFO basis) |
Impact |
Total |
|||||||||||||||||||
|
Net sales |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||
|
Earnings (loss) before income taxes |
|
|
|
|
(
|
) |
|
|||||||||||||||||
|
Total assets |
|
|
|
|
(
|
) |
|
|||||||||||||||||
|
Six Months Ended September 30, 2023 |
||||||||||||||||||||||||
|
Fruit and |
Subtotal |
LIFO |
||||||||||||||||||||||
|
Vegetable |
Snack |
Other |
(FIFO basis) |
Impact |
Total |
|||||||||||||||||||
|
Net sales |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||
|
Earnings (loss) before income taxes |
|
|
|
|
(
|
) |
|
|||||||||||||||||
|
Total assets |
|
|
|
|
(
|
) |
|
|||||||||||||||||
|
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 impact on its financial position, results of operations, or cash flows.
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®. Our products 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 55 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 experienced material cost increases to various production inputs during the last several years due to a number of factors, including but not limited to, supply chain disruptions, steel supply and pricing, raw material shortages, labor shortages, and the conflicts between Russia and Ukraine. While we have no direct exposure to this foreign conflict, it had a negative impact on the global economy which increased certain of our input costs. While certain of the factors mentioned above have started to ease and stabilize during the current six-month interim period, our costs remain elevated as compared to historical levels.
We attempt to manage costs 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 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 |
Six Months Ended |
|||||||||||||||
|
September 28, |
September 30, |
September 28, |
September 30, |
|||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
Canned vegetables |
$ | 351,268 | $ | 328,586 | $ | 605,017 | $ | 579,536 | ||||||||
|
Frozen vegetables |
39,086 | 43,046 | 64,420 | 64,585 | ||||||||||||
|
Fruit products |
22,315 | 22,801 | 41,156 | 39,539 | ||||||||||||
|
Snack products |
4,038 | 4,256 | 6,903 | 7,354 | ||||||||||||
|
Other |
8,758 | 8,786 | 12,696 | 15,125 | ||||||||||||
|
Total |
$ | 425,465 | $ | 407,475 | $ | 730,192 | $ | 706,139 | ||||||||
Three Months Ended September 28, 2024 and September 30, 2023
Net sales totaled $425.5 million for the three months ended September 28, 2024 as compared with $407.5 million for the three months ended September 30, 2023. The overall net sales increase of $18.0 million, or 4.4%, was due to higher sales volumes contributing favorability of $8.5 million, coupled with product mix and increased selling prices which had a favorable impact of $9.5 million as compared to the prior year three-month interim period.
Net sales of canned vegetables and frozen vegetables increased by a combined $18.7 million over the prior year quarter. The categories were impacted by overall higher demand, complemented by increased pricing and favorable product mix. Net sales in the fruit products and snack products categories remained relatively consistent with the prior year quarter with a nominal combined $0.7 million decrease. Net sales attributable to the other category also remained flat as compared to the prior year quarter for seed, cans and ends, and outside revenue from aircraft operations, which are ancillary to the Company’s main operations.
Six Months Ended September 28, 2024 and September 30, 2023
Net sales totaled $730.2 million for the six months ended September 28, 2024 as compared with $706.1 million for the six months ended September 30, 2023. The overall net sales increase of $24.1 million, or 3.4%, was due to higher sales volumes contributing favorability of $20.0 million, coupled with product mix and increased selling prices which had a favorable impact of $4.1 million as compared to the prior year six-month interim period.
Net sales of canned vegetables increased $25.4 million over the prior year six-month interim period primarily driven by increased demand, combined with favorability from product mix and increased pricing for this category. Net sales of frozen vegetables remained flat as compared to the prior year six-month period. Fruit products increased over the prior year six-month interim period by $1.6 million, primarily due to increased pricing. Net sales in the snack products category remained relatively consistent year-over-year with a slight decrease of $0.5 million. The remaining net sales decrease of $2.4 million, driven by lower demand as compared to the prior year six-month period, was contributed by non-food packaging sales related to the sale of seed, cans and ends, and outside revenue from aircraft operations, which are ancillary to the Company’s main operations.
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 |
Six Months Ended |
|||||||||||||||
|
September 28, |
September 30, |
September 28, |
September 30, |
|||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
Gross margin |
10.1 | % | 14.3 | % | 11.7 | % | 16.1 | % | ||||||||
|
Selling, general, and administrative expense |
4.2 | % | 5.2 | % | 4.9 | % | 5.8 | % | ||||||||
|
Restructuring |
0.0 | % | 0.0 | % | 0.1 | % | 0.0 | % | ||||||||
|
Other operating income, net |
0.0 | % | 0.3 | % | 0.1 | % | 0.2 | % | ||||||||
|
Operating income |
5.8 | % | 9.4 | % | 6.9 | % | 10.5 | % | ||||||||
|
Other non-operating income |
0.3 | % | 0.3 | % | 0.4 | % | 0.4 | % | ||||||||
|
Interest expense, net |
2.1 | % | 1.8 | % | 2.7 | % | 1.9 | % | ||||||||
|
Income taxes |
0.9 | % | 1.9 | % | 1.0 | % | 2.1 | % | ||||||||
Three Months Ended September 28, 2024 and September 30, 2023
Gross Margin : Gross margin for the three months ended September 28, 2024 was 10.1% as compared to 14.3% for the three months ended September 30, 2023. The decrease in gross margin for the three months ended September 28, 2024 was mainly due to continued elevated costs. Refer to the section above for additional discussion regarding business trends. The Company’s LIFO charge for the three months ended September 28, 2024 was $15.0 million as compared to a LIFO charge of $9.3 million for the three months ended September 30, 2023. The LIFO charge amounts have the impact of increasing cost of products sold.
Selling, General, and Administrative : Selling, general and administrative expense for the three months ended September 28, 2024 decreased $3.0 million from the three months ended September 30, 2023. Selling, general, and administrative expense as a percentage of net sales for the three months ended September 28, 2024, was 4.2% as compared with 5.2% for the prior year quarter. The decrease in selling, general, and administrative expense as a percentage of net sales was mainly due to the increase in net sales and the fixed nature of certain expenses.
Restructuring : The Company incurred minimal restructuring charges during the three months ended September 28, 2024, attributable to equipment moves for the Northeast trucking fleet which ceased operations in the previous fiscal year. During the three months ended September 30, 2023, the Company incurred restructuring charges primarily due to equipment moves from ceasing production of green beans at a plant in the Northeast in the previous fiscal year.
Other Operating Income, net : The Company had net other operating income of $0.1 million during the three months ended September 28, 2024, which was driven primarily by the sale of a small portion of land in the Midwest. During the three months ended September 30, 2023, the Company had net other operating income of $1.3 million, which was driven primarily by the sale of non-operational assets in the Pacific Northwest.
Non-Operating Income (Expense):
Other Non-Operating Income : Other non-operating income totaled $1.4 million and $1.3 million for the three months ended September 28, 2024, and September 30, 2023, 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 September 28, 2024, as compared to 1.8% for the three months ended September 30, 2023. Interest expense increased from $7.2 million in the prior year quarter to $9.0 million for the current quarter as a result of higher interest rates and increased borrowings under the Company’s revolving credit facility as compared to the prior year quarter.
Six Months Ended September 28, 2024 and September 30, 2023
Gross Margin : Gross margin for the six months ended September 28, 2024 was 11.7% as compared to 16.1% for the six months ended September 30, 2023. The decrease in gross margin for the six months ended September 28, 2024 was mainly due to continued elevated costs. Refer to the section above for additional discussion regarding business trends. The Company’s LIFO charge for the six months ended September 28, 2024 was $12.1 million as compared to a LIFO charge of $7.6 million for the six months ended September 30, 2023. The LIFO charge amounts have the impact of increasing cost of products sold.
Selling, General, and Administrative : Selling, general and administrative expense for the six months ended September 28, 2024 decreased $5.3 million from the six months ended September 30, 2023. Selling, general, and administrative expense as a percentage of net sales for the six months ended September 28, 2024, was 4.9% as compared with 5.8% for the prior year six-month interim period. The decrease in selling, general, and administrative expense as a percentage of net sales was mainly due to the increase in net sales and the fixed nature of certain expenses.
Restructuring : The Company incurred minimal restructuring charges during the six months ended September 28, 2024, attributable to equipment moves for the Northeast trucking fleet which ceased operations in the previous fiscal year. During the six months ended September 30, 2023, the Company incurred restructuring charges primarily due to equipment moves from ceasing production of green beans at a plant in the Northeast in the previous fiscal year.
Other Operating Income, net : The Company had net other operating income of $0.5 million during the six months ended September 28, 2024, which was driven primarily by the sale of a small portion of land in the Midwest. During the six months ended September 30, 2023, the Company had net other operating income of $1.5 million, which was driven primarily by the sale of non-operational assets in the Pacific Northwest.
Non-Operating Income (Expense):
Other Non-Operating Income : Other non-operating income totaled $2.8 million and $2.7 million for the six months ended September 28, 2024, and September 30, 2023, 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 2.7% for the six months ended September 28, 2024, as compared to 1.9% for the six months ended September 30, 2023. Interest expense increased from $13.8 million in the prior year six-month interim period to $19.4 million for the current six-month interim period as a result of higher interest rates and increased borrowings under the Company’s revolving credit facility as compared to the prior year. Additionally, the six months ended September 30, 2023 did not have Term Loan A-2 outstanding for the entire period which contributed to a lower interest expense amount for that prior year interim period.
Income Taxes:
The Company’s effective tax rate was 22.7% and 23.8% for the six months ended September 28, 2024 and September 30, 2023, respectively. The effective tax rate decreased in the current six-month period as compared to the prior year six-month period driven by the impact of federal credits which reduced the effective rate by 1.1% and interest received on a federal income tax refund which reduced the effective tax rate by 0.4%. These decreases were partially offset by the impact of state rate changes driven by apportionment which increased the effective rate by 0.4%.
Liquidity and Capital Resources
The financial condition of the Company is summarized in the following table and explanatory review (dollar amounts in thousands, except per share data):
|
September 28, |
September 30, |
March 31, |
March 31, |
|||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
Working capital: |
||||||||||||||||
|
Balance |
$ | 669,978 | $ | 724,694 | $ | 815,980 | $ | 637,851 | ||||||||
|
Change in quarter |
$ | (36,194 | ) | $ | 86,958 | |||||||||||
|
Current portion of long-term debt, finance and lease obligations |
$ | 107,891 | $ | 31,583 | $ | 30,090 | $ | 25,792 | ||||||||
|
Long-term debt |
$ | 406,612 | $ | 492,685 | $ | 585,786 | $ | 432,695 | ||||||||
|
Operating lease obligations |
$ | 6,660 | $ | 13,995 | $ | 13,758 | $ | 16,675 | ||||||||
|
Financing lease obligations |
$ | 9,973 | $ | 14,202 | $ | 12,259 | $ | 17,293 | ||||||||
| Finance obligation | $ | 18,830 | $ | - | $ | - | $ | - | ||||||||
|
Total stockholders' equity per equivalent common share (1) |
$ | 85.98 | $ | 79.55 | $ | 81.69 | $ | 71.95 | ||||||||
|
Stockholders' equity per common share |
$ | 86.87 | $ | 80.34 | $ | 82.51 | $ | 72.61 | ||||||||
|
Current ratio |
2.64 | 2.67 | 6.40 | 5.08 | ||||||||||||
|
(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 11 of the Notes to Consolidated Financial Statements of the Company’s 2024 Annual Report on Form 10-K 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.
During the preceding fiscal years, working capital needs trended higher than previously experienced by the Company in part because of larger annual pack sizes needed to replenish the Company’s post-pandemic inventory levels to meet customer demand, and because of supply chain challenges in the steel industry which impacted can manufacturing operations. To successfully navigate the uncertainty driven by inflation and import tariffs, and a desire to diversify its steel supply, the Company employed a strategic approach during those fiscal years and increased steel coil purchases to better position itself for subsequent years. The Company’s larger seasonal pack sizes driven by favorable growing conditions, coupled with lower sales in an industry that is experiencing negative sales category trends overall, resulted in higher inventory levels for finished goods as of the end of fiscal year 2024. This will have a favorable impact on the availability of products in fiscal year 2025, resulting in a lower planned seasonal pack and the opportunity to normalize working capital trends, specifically surrounding inventory.
During the current fiscal year, the Company has experienced an easing of working capital needs driven by the factors previously mentioned. However, adverse weather conditions during the planting and harvesting seasons have had a notable impact, especially in the upper Midwest where the Company has its primary growing region. Reduced growing conditions and crop yields resulted in a seasonal pack that is lower than originally planned. This in turn has resulted in a higher-cost seasonal pack on a per unit basis as of the six months ended September 28, 2024; however the overall costs from a cash requirements perspective are favorable as compared to the preceding fiscal years.
The Company believes that its operations along with existing liquidity sources will satisfy its cash requirements for at least the next twelve months. This includes the Company’s expectation with respect to Term Loan A-1 that matures on June 1, 2025, that it will maintain or have access to sufficient liquidity to retire or refinance long-term debt at maturity or otherwise, using operating cash flows, access to the capital markets, and access to its revolving credit facility. 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):
|
Six Months Ended |
||||||||
|
September 28, 2024 |
September 30, 2023 |
|||||||
|
Cash provided by (used in) operating activities |
$ | 125,868 | $ | (26,279 | ) | |||
|
Cash used in investing activities |
(19,916 | ) | (18,886 | ) | ||||
|
Cash (used in) provided by financing activities |
(100,738 | ) | 44,990 | |||||
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
5,214 | (175 | ) | |||||
|
Cash, cash equivalents and restricted cash, beginning of period |
11,853 | 12,256 | ||||||
|
Cash, cash equivalents and restricted cash, end of period |
$ | 17,067 | $ | 12,081 | ||||
Net Cash Provided by (Used in) Operating Activities : For the six months ended September 28, 2024, cash provided by operating activities was $125.9 million, which consisted of $66.4 million from changes in operating assets and liabilities, coupled with net earnings of $26.0 million and non-cash charges of $33.5 million. The non-cash charges were driven by $22.0 million of depreciation and amortization, $2.9 million of non-cash lease expense, and a $12.1 million LIFO charge. The change in operating assets and liabilities was largely due to working capital needs as the six-month period covered the primary seasonal pack harvest months. Cash utilized for inventories and higher accounts payable activity were the main drivers, although the use of cash for these items was lower than in the prior year six-month interim period resulting from factors discussed above within the material cash requirements section.
For the six months ended September 30, 2023, cash used in operating activities was $26.3 million, which consisted of net earnings of $47.9 million, adjusted by non-cash charges of $32.2 million, partially offset by operating assets and liabilities using cash of $106.4 million. The non-cash charges were largely driven by $21.8 million of depreciation and amortization, $3.7 million of non-cash lease expense, and a $7.6 million LIFO charge. The change in operating assets and liabilities was due to inventories being a use of cash as the six-month period covered the primary seasonal pack harvest months, in addition to material cost inflation to various production inputs.
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 twelve months. Cash flow from operating activities is one of the Company’s main sources of liquidity, excluding usual seasonal working capital swings.
Net Cash Used in Investing Activities : Net cash used in investing activities was $19.9 million for the six months ended September 28, 2024, and consisted of cash used for capital expenditures of $17.6 million and $2.7 million paid as deposits to vendors for the installation of a new can manufacturing line. Offsetting those amounts, the Company received proceeds from the sale of assets totaling $0.4 million.
Net cash used in investing activities was $18.9 million for the six months ended September 30, 2023, and consisted of cash used for capital expenditures of $26.5 million partially offset by proceeds from the sale of assets totaling $7.6 million.
Net Cash (Used in) Provided by Financing Activities : Net cash used in financing activities was $100.7 million for the six months ended September 28, 2024, driven primarily by a net paydown on the Company’s revolving credit facility of $90.8 million and term loan payments of $9.5 million during the six-month interim period. Offsetting the outflows was a $12.4 million increase in the note payable borrowings associated with the Company’s new can manufacturing line. Additionally, the Company used cash of $10.0 million to purchase treasury stock and made payments of $2.8 million on financing leases.
Net cash provided by financing activities was $45.0 million for the six months ended September 30, 2023, driven primarily by a net paydown on the Company’s revolving credit facility of $45.7 million and term loan payments of $9.5 million. That activity was offset by the Company receiving proceeds of $124.4 million from a new term loan during the six-month interim period. Additionally, the Company used cash of $19.6 million to purchase treasury stock and made payments of $4.6 million on financing leases, which partially offset the increased cash provided.
Impact of Seasonality on Financial Position and Results of Operations:
The Company’s production cycle begins with planting in the spring followed by harvesting and packaging during the second and third fiscal quarters with sales spanning over the following twelve months. 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 in mid-to-late 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 during the pack cycle, the majority of which typically occurs in 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 informational 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 the Company’s 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 the 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 are calculated on a FIFO basis which excludes the impact from the application of LIFO. Set forth below is a reconciliation of reported net earnings before income taxes to adjusted net earnings (in thousands):
|
Three Months Ended |
Six Months Ended |
|||||||||||||||
|
September 28, |
September 30, |
September 28, |
September 30, |
|||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
Earnings before income taxes, as reported |
$ | 17,068 | $ | 32,577 | $ | 33,569 | $ | 62,838 | ||||||||
|
LIFO charge |
14,977 | 9,316 | 12,059 | 7,616 | ||||||||||||
|
Adjusted earnings before income taxes |
32,045 | 41,893 | 45,628 | 70,454 | ||||||||||||
|
Income taxes (1) |
7,434 | 10,118 | 10,559 | 16,844 | ||||||||||||
|
Adjusted net earnings |
$ | 24,611 | $ | 31,775 | $ | 35,069 | $ | 53,610 | ||||||||
|
(1) |
For the three months ended September 28, 2024 and September 30, 2023, income taxes on adjusted earnings before taxes were calculated using the income tax provision amounts of $3.8 million and $7.8 million, respectively, and applying the statutory tax rates of 24.5% and 24.9%, respectively, for each of the respective periods to the pre-tax LIFO charge.
For the six months ended September 28, 2024 and September 30, 2023, income taxes on adjusted earnings before taxes were calculated using the income tax provision amounts of $7.6 million and $14.9 million, respectively, and applying the statutory tax rates of 24.5% and 24.9%, respectively, 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, non-cash lease expense, 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 |
Six Months Ended |
|||||||||||||||
|
September 28, |
September 30, |
September 28, |
September 30, |
|||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
Net earnings |
$ | 13,303 | $ | 24,779 | $ | 25,964 | $ | 47,890 | ||||||||
|
Income taxes |
3,765 | 7,798 | 7,605 | 14,948 | ||||||||||||
|
Interest expense, net of interest income |
9,013 | 7,185 | 19,358 | 13,758 | ||||||||||||
|
Depreciation and amortization (1) |
12,516 | 12,822 | 24,962 | 25,425 | ||||||||||||
|
Interest amortization (2) |
(116 | ) | (114 | ) | (231 | ) | (214 | ) | ||||||||
|
EBITDA |
38,481 | 52,470 | 77,658 | 101,807 | ||||||||||||
|
LIFO charge |
14,977 | 9,316 | 12,059 | 7,616 | ||||||||||||
|
FIFO EBITDA |
$ | 53,458 | $ | 61,786 | $ | 89,717 | $ | 109,423 | ||||||||
|
(1) |
Includes non-cash lease expense consistent with financial covenant calculations. |
|
|
(2) |
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 Estimates
A description of the Company's critical accounting estimates is contained in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2024. There were no material changes to the Company's critical accounting policies or estimates during the six months ended September 28, 2024.
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, 2024. 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.
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 September 28, 2024, our disclosure controls and procedures were effective. The Company continues to examine, refine and formalize its disclosure controls and procedures and to monitor ongoing developments in this area.
There have been no changes during the period covered by this report to the Company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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, 2024, 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 Shares Purchased |
Average Price Paid per Share |
Total Number of Shares |
Maximum Number (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 |
||||||||||||||
|
07/01/2024 – |
||||||||||||||||||||
|
07/31/2024 (1) |
10,940 | - | $ | 59.90 | - | - | ||||||||||||||
|
08/01/2024 – |
||||||||||||||||||||
|
08/31/2024 |
17,864 | - | $ | 58.33 | - | 17,864 | ||||||||||||||
|
09/01/2024 – |
||||||||||||||||||||
|
09/30/2024 (2) |
27,313 | - | $ | 60.49 | - | 15,863 | ||||||||||||||
|
Total |
56,117 | - | $ | 59.69 | - | 33,727 | 361,878 | |||||||||||||
|
(1) |
Includes 10,940 shares that were purchased from the Seneca Foods Corporation Employees' Savings Plan to satisfy the cash needs for transfers and payments in connection with the employer stock investment fund under the plan. |
|
(2) |
Includes 11,450 shares that were purchased from the Seneca Foods Corporation Employees' Savings Plan to satisfy the cash needs for transfers and payments in connection with the employer stock investment fund under the plan. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
(c) Trading Plans
During the quarterly period ended September 28, 2024, director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements (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) |
|||
|
November 6, 2024 |
|||
|
By: |
/s/ Michael S. Wolcott |
||
|
Michael S. Wolcott |
|||
|
Chief Financial Officer |
|||
|
(Principal Financial Officer) |
|||
|
November 6, 2024 |