<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year-ended March 31, 1998 Commission File Number 0-1989
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 Identification No.)
incorporation or organization)
1162 Pittsford-Victor Road, Pittsford, New York 14534
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (716) 385-9500
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock Class A, $.25 Par
Common Stock Class B, $.25 Par
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained herein, and
will not be contained, to best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to the Form 10-K. X
Check mark indicates whether registrant has (1) 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 registrant was required to
file such reports), and (2) has been subject to the filing requirements for at
least the past 90 days.
Yes _____ No X
The aggregate market value of the Registrant's voting securities held by
non-affiliates based on the closing sales price per market reports by the
National Market System on June 1, 1998 was approximately $96,606,000.
Common shares outstanding as of June 1, 1998 were Class A: 3,143,125,
Class B: 2,796,555.
Documents Incorporated by Reference:
(1) Proxy Statement to be issued prior to June 30, 1998 in connection with the
registrant's annual meeting of stockholders (the "Proxy Statement")
applicable to Part III, Items 10-13 of Form 10-K.
(2) Portions of the Annual Report to shareholders for fiscal year ended March
31, 1998 (the "1998 Annual Report") applicable to Part II, Items 5-8 and
Part IV, Item 14 of Form 10-K.
<PAGE>
<TABLE>
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT - FISCAL 1998
SENECA FOODS CORPORATION
<CAPTION>
PART I. Pages
<S> <C> <C> <C>
Item 1. Business 1-3
Item 2. Properties 3
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of Equity Security Holders 4
PART II.
Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters 4
Item 6. Selected Financial Data 4
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations 4
Item 8. Financial Statements and Supplementary Data 4
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure 4
PART III.
Item 10. Directors and Executive Officers of the Registrant 6
Item 11. Executive Compensation 6
Item 12. Security Ownership of Certain Beneficial Owners and Management 6
Item 13. Certain Relationships and Related Transactions 6
PART IV.
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K 6-9
SIGNATURES 10-11
</TABLE>
<PAGE>
3
PART I
Item 1
Business
General Development of Business
SENECA FOODS CORPORATION (herein referred to as the "Company") was organized in
1949 and incorporated under the laws of the State of New York. Seneca Foods
Corporation purchased six Green Giant(R) vegetable plants from The Pillsbury
Company effective February 1, 1995, resulting in vegetable products becoming
nearly 80% of Seneca's overall business. Consequently during 1995, Seneca
changed its fiscal year-end from July 31 to March 31 to avoid overlapping pack
seasons between fiscal years. Therefore, Fiscal 1995 was an eight-month
transition period.
Financial Information About Industry Segments
The Company's business activities are conducted in food and non-food segments.
The food segment is food processing. The non-food segment is an air charter
service. The air charter service represents 1% of the Company's business and
therefore the financial information related to segments is not material.
Narrative Description of Business
Principal Products and Markets
Food Processing
The principal products of this segment include grape products, apple products,
and vegetables. The products are canned, bottled, and frozen and are sold to
retail and institutional markets. The Company has divided the United States into
four major marketing sections: Eastern, Southern, Northwestern, and
Southwestern. Plant locations in New York, Michigan, North Carolina, and
Washington provide ready access to the domestic sources of grapes and apples
necessary to support marketing efforts in their respective sections of the
country. Vegetable operations are primarily supported by plant locations in New
York, Wisconsin, Washington, Idaho, and Minnesota. In addition, the Company
operated a mushroom canning facility in Pennsylvania.
The following summarizes net sales by major category for the years ended March
31, 1998, 1997, and 1996:
1998 1997 1996
-------------------------------------------------
(In thousands)
Vegetable $544,646 $562,265 $330,654
Apple 68,108 93,047 87,585
Grape 18,303 19,605 19,159
Other 69,123 52,017 66,453
------------------------------------------------
Total $700,180 $726,934 $503,851
=================================================
Other
Seneca Flight Operations provides air charter service primarily to industries in
upstate New York.
<PAGE>
Source and Availability of Raw Material
Food Processing
The Company's food processing plants are located in major vegetable, grape, and
apple producing states. Fruits and vegetables are primarily obtained through
contracts with growers. Apple concentrate is purchased domestically and abroad
to supplement raw fruit purchased under contract. The Company's sources of
supply are considered equal or superior to its competition for all of its food
products.
Seasonal Business
Food Processing
While individual fruits and vegetables have seasonal cycles of peak production
and sales, the different cycles are usually offsetting to some extent. The
supply of commodities, current pricing, and expected new crop quantity and
quality affect the timing of the Company's sales and earnings. An Off Season
Allowance is established during the year to minimize the effect of seasonal
production on earnings. Off Season Allowance is zero at fiscal year-end.
Backlog
Food Processing
In the food processing business the end of year sales order backlog is not
considered meaningful. Traditionally, larger customers provide tentative
bookings for their expected purchases for the upcoming season. These bookings
are further developed as data on the expected size of the related national
harvests becomes available. In general these bookings serve as a yardstick,
rather than as a firm commitment, since actual harvest results can vary notably
from early estimates. In actual practice, the Company has substantially all of
its expected seasonal production identified to potential sales outlets before
the seasonal production is completed.
Competition and Customers
Food Processing
Competition in the food business is substantial with imaginative brand
registration, quality service, and pricing being the major determinants in the
Company's relative market position. Except for the Seneca apple and grape
products and Libby's vegetable products data mentioned below, no reliable
statistics are available to establish the exact market position of the Company's
own food products. During the past year approximately 19% of the Company's
processed foods were packed for retail customers under the Company branded
labels of Libby's(R), TreeSweet(R), Blue Boy(R), Aunt Nellie's Farm Kitchen(R),
and Seneca(R). About 11% of the processed foods were packed for institutional
food distributors and 30% of processed foods were retail packed under the
private label of customers. The remaining 40% is sold under the Alliance
Agreement with Pillsbury (see note 13 of Item 8, Financial Statements and
Supplementary Data). Termination of the Alliance Agreement would have a material
adverse effect on the Company taken as a whole. The customers represent a full
cross section of the retail, institutional, distributor, and industrial markets
and the Company does not consider itself dependent on any single sales source
other than sales attributable to the Alliance Agreement.
The principal branded products are Seneca Frozen Apple Juice Concentrate, rated
the number one seller nationally, Seneca Frozen Natural Grape Juice Concentrate,
Seneca applesauce, and Libby's canned vegetable products which rate among the
top five national brands. The information under the heading Liquidity and
Capital Resources in Management's Discussion and Analysis of Financial Condition
and Results of Operations in the 1998 Annual Report is incorporated by
reference.
Environmental Protection
Environmental protection is an area that has been worked on most diligently at
each food processing facility. In all locations the Company has cooperated with
federal, state, and local environmental protection authorities in developing and
maintaining suitable antipollution facilities. In general, pollution control
facilities are equal to or somewhat superior to those of our competitors and are
within environmental protection standards. The Company does not expect any
material capital expenditures to comply with environmental regulations in the
near future. The Company is a potentially responsible party with respect to two
sites but the Company does not believe the aggregate liability is material.
Employment
Food processing - Full time 2,534
- Seasonal 420
---------
2,954
Other 108
---------
3,062
=========
Foreign Operations
Export sales for the Company are a relatively small portion (about 5%) of the
food processing sales.
Item 2
Properties
The Company has eleven food processing, packaging, and warehousing facilities
located in New York State that provide approximately 2,054,000 square feet of
food packaging, freezing and freezer storage, and warehouse storage space. These
facilities process and package fruit and vegetable products. The Company is a
lessee under a number of operating and capital leases for equipment and real
property used for processing and warehousing.
Five other processing, packaging, and warehousing facilities are located in the
states of North Carolina (223,000 square feet), and in Washington (three
locations totaling 292,000 square feet). Processing operations in North Carolina
are primarily devoted to apple juice products; in Washington, grape juice, apple
juice, apple chips, and sauce.
Five facilities in Minnesota, one facility in Michigan, one facility in
Washington, one facility in Idaho, one facility in Kentucky, and seven
facilities in Wisconsin provide approximately 5,459,000 square feet of food
packaging, freezing and freezer storage, and warehouse storage space. These
facilities process and package various vegetable and fruit products. The
facilities are owned by the Company.
The Company owns one food distribution facility in Massachusetts totaling
approximately 59,000 square feet which is leased out to another company through
2004. Sublease income of $271,000 was received on this facility during the
period. In addition the air charter division has a 14,000 square foot facility.
All of the properties are well maintained and equipped with modern machinery.
All locations, although highly utilized, have the ability to expand as sales
requirements justify. Because of the seasonal production cycles the exact extent
of utilization is difficult to measure. In certain circumstances the theoretical
full efficiency levels are being reached; however, expansion of the number of
production days or hours could increase the output by up to 20% for a season.
Certain of the Company's facilities are mortgaged to financial institutions to
secure long-term debt and capital lease obligations. See Notes 4 and 5 of Item
8, Financial Statements and Supplementary Data, for additional information about
the Company's long-term debt and lease commitments.
<PAGE>
Item 3
Legal Proceedings
In the ordinary course of its business, the Company is made a party to certain
legal proceedings seeking monetary damages. The Company does not believe that an
adverse decision in any of these proceedings would have a material adverse
impact on the Company.
Item 4
Submission of Matters to a Vote of Equity Security Holders
No matters were submitted to vote of shareholders during the last quarter of the
fiscal period covered by this report.
PART II
Item 5
Market for the Registrant's Common Stock and Related Security Holder Matters
Each class of preferred stock receives preference as to dividend payment and
declaration over any common stock. In addition, refer to the information in the
1998 Annual Report, "Shareholder Information and Quarterly Results", which is
incorporated by reference.
Item 6
Selected Financial Data
Refer to the information in the 1998 Annual Report, "Five Year Selected
Financial Data", which is incorporated by reference.
Item 7
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Refer to the information in the 1998 Annual Report, "Management's Discussion and
Analysis of Financial Condition and Results of Operations", which is
incorporated by reference.
Item 8
Financial Statements and Supplementary Data
Refer to the information in the 1998 Annual Report, "Consolidated Financial
Statements and Notes thereto including Independent Auditors' Report", which is
incorporated by reference.
Item 9
Changes in and Disagreements on Accounting and Financial Disclosure
None.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Seneca Foods Corporation
Pittsford, New York
We have audited the consolidated financial statements of Seneca Foods
Corporation and subsidiaries as of March 31, 1998 and 1997, and for each of the
three years in the period ended March 31, 1998, and have issued our report
thereon dated May 22, 1998 (June 12, 1998 as to Note 4); such consolidated
financial statements and report are included in your 1998 Annual Report to
Shareholders and are incorporated herein by reference. Our audits also included
the consolidated financial statement schedule of Seneca Foods Corporation,
listed in Item 14 (A)(2). This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/Deloitte & Touche LLP
Rochester, New York
May 22, 1998 (June 12, 1998 as to Note 4)
<PAGE>
PART III
Item 10
Directors and Executive Officers of the Registrant
Item 11
Executive Compensation
Item 12
Security Ownership of Certain Beneficial Owners and Management
Item 13
Certain Relationships and Related Transactions
Information required by Items 10 through 13 will be filed separately with the
Commission, pursuant to Regulation 14A, in a definitive proxy statement
involving the election of directors which is incorporated herein by reference.
PART IV
Item 14
Exhibits, Financial Statement Schedules, and Reports on Form 8-K
A. Exhibits and Financial Statement Schedules
1. Financial Statement Schedules - the following consolidated financial
statements of the Registrant, included in the Annual Report for the
year ended March 31, 1998, are incorporated by reference in Item 8:
Consolidated Statements of Net Earnings - March 31, 1998, 1997 and
1996
Consolidated Balance Sheets - March 31, 1998 and 1997
Consolidated Statements of Cash Flows - March 31, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity - March 31, 1998,
1997 and 1996
Notes to Consolidated Financial Statements - March 31, 1998, 1997
and 1996
Independent Auditors' Report
<PAGE>
Pages
2. Supplemental Schedule:
Schedule II -- Valuation and Qualifying Accounts 8
Other schedules have not been filed because the conditions requiring the filing
do not exist or the required information is included in the consolidated
financial statements, including the notes thereto.
3. Exhibits:
No. 3 - Articles of Incorporation and By-Laws - Incorporated by reference
to the Company's 10-Q/A filed August, 1995 as amended by the Company's
10-K filed June 1996.
No. 4 - Articles defining the rights of security holders - Incorporated by
reference to the Company's 10-Q/A filed August, 1995 as amended by the
Company's 10-K filed June 1996. Instrument defining the rights
of any holder of Long-Term Debt - Incorporated by reference to Exhibit
99 to the Company's 10-Q filed January 1995 as amended by Exhibit No.
4 of the Company's 10-K filed June, 1997, amended by Exhibit 4 of the
Company's 10-Q and 10-Q/A filed November, 1997. The Company will
furnish, upon request to the SEC, a copy of any instrument defining the
rights of any holder of Long-Term Debt.
No.10 - Material Contracts - Incorporated by reference to the Company's 8-K
dated February 24, 1995 for the First Amended and Restated Alliance
Agreement and the First Amended and Restated Asset Purchase Agreement both
with The Pillsbury Company.
No. 13 - The material contained in the 1998 Annual Report to Shareholders under
the following headings: "Five Year Selected Financial Data", "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
"Consolidated Financial Statements and Notes thereto including Independent
Auditors' Report", and "Shareholder Information and Quarterly Results".
No. 21 - List of Subsidiaries 9
No. 23 - Consents of Experts and Counsel 9
No. 27 - Financial Data Schedules
B. Reports on Form 8-K
None.
<PAGE>
<TABLE>
Schedule II
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<CAPTION>
Balance at Charged to Deductions Balance
beginning Charged to other from at end
of period income accounts reserve of period
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year-ended March 31, 1998:
Allowance for doubtful accounts $ 200 $ 140 $ -- $ 133 (a) $ 207
===================================================================
Year-ended March 31, 1997:
Allowance for doubtful accounts $ 165 $ 72 $ -- $ 37 (a) $ 200
===================================================================
Year-ended March 31, 1996:
Allowance for doubtful accounts $ 227 $ 52 $ -- $ 114 (a) $ 165
===================================================================
<FN>
(a) Accounts written off, not of recoveries.
</FN>
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SENECA FOODS CORPORATION
By /s/ Jeffrey L. Van Riper June 12, 1998
Jeffrey L. Van Riper
Controller and Secretary
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
Signature Title Date
/s/Arthur S. Wolcott Chairman and Director June 12, 1998
- --------------------
Arthur S. Wolcott
/s/Kraig H. Kayser President, Chief Executive Officer, June 12, 1998
- ------------------
Kraig H. Kayser and Director
/s/Philip G. Paras Vice President, Finance June 12, 1998
- ------------------
Philip G. Paras
/s/Jeffrey L. Van Riper Controller and Secretary June 12, 1998
- -----------------------
Jeffrey L. Van Riper (Principal Accounting Officer)
/s/Robert T. Brady Director June 12, 1998
- ------------------
Robert T. Brady
/s/David L. Call Director June 12, 1998
- ----------------
David L. Call
<PAGE>
Continued
Signature Title Date
/s/Edward O. Gaylord Director June 12, 1998
- --------------------
Edward O. Gaylord
/s/G. Brymer Humphreys Director June 12, 1998
- ----------------------
G. Brymer Humphreys
/s/Susan W. Stuart Director June 12, 1998
- ------------------
Susan W. Stuart
Exhibit 13
<TABLE>
Five Year Selected Financial Data
Summary of Operations and Financial Condition
(In thousands of dollars, except per share data)
<CAPTION>
(Eight Months)
Years ended March 31, and July 31, 1998 1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C> <C>
Net sales $ 703,220 $ 730,135 $ 507,988 $ 234,073 $ 290,185 $ 257,402
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Operating earnings (before Corporate
interest and administrative expense) $ 22,372 $ 44,165 $ 16,418 $ 11,380 18,251 $ 10,029
Earnings(loss) from continuing
operations before extraordinary item and
cumulative effect of accounting change (5,144) 7,531 (10,147) 1,321 5,274 1,293
Earnings from discontinued operations -- -- -- -- 90 965
Gain on sale of discontinued operations -- -- -- -- 2,273 --
Earnings (loss) before extraordinary item and
cumulative effect of accounting change (5,144) 7,531 (10,147) 1,321 7,637 2,258
Extraordinary loss -- -- -- -- (606) --
Cumulative effect of accounting change -- -- -- -- 2,006 --
Net earnings (loss) (5,144) 7,531 (10,147) 1,321 9,037 2,258
---------------------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) from continuing
operations per common share $ (.87) $ 1.27 $ (1.81) $ .23 $ .91 $ .21
Basic earnings (loss) per common share before
extraordinary item and cumulative
effect of accounting change (.87) 1.27 (1.81) .23 1.31 .36
Basic net earnings (loss) per common share (.87) 1.27 (1.81) .23 1.55 .36
---------------------------------------------------------------------------------------------------------------------------------
Working capital $ 112,299 $ 132,351 $ 111,301 $ 138,030 $ 67,591 $ 90,706
Inventories 194,044 158,197 229,759 138,113 98,202 88,181
Net property, plant, and equipment 218,408 207,439 222,720 179,718 78,216 74,089
Total assets 474,926 416,023 523,859 385,502 204,899 208,733
Long-term debt and capital lease
obligations 227,858 224,128 226,574 221,480 51,476 72,556
Stockholders' equity 89,125 93,736 90,939 90,821 88,620 84,698
---------------------------------------------------------------------------------------------------------------------------------
Additions to property, plant and equipment $ 15,693 $ 11,650 $ 67,897 $ 26,966 $ 9,384 $ 1,723
Interest expense, net 26,780 28,827 28,157 6,296 6,046 5,834
---------------------------------------------------------------------------------------------------------------------------------
Net earnings/average equity (5.6)% 8.2% (11.2)% 1.5% 10.4% 2.7%
Continuing earnings before taxes/sales (1.2)% 1.6% (3.0)% 0.9% 2.8% 0.2%
Net earnings/ sales (0.7)% 1.0% (2.0)% 0.6% 3.1% 0.9%
Long-term debt/equity 256 % 239% 249 % 244% 58% 86%
Current ratio 1.8:1 2.8:1 1.6:1 3.3:1 2.3:1 3.4:1
---------------------------------------------------------------------------------------------------------------------------------
Common stockholder's equity per share $ 14.99 $ 15.77 $ 15.30 $ 16.23 $ 15.83 $ 13.79
Class A National Market System
closing price range 18 3/4-15 3/4 18 3/4-14 3/4 20-15 -- -- --
Class B National Market System
closing price range 18 1/2-15 1/2 19-14 1/2 22-16 17 3/4-10 1/2 11 3/8-7 3/4 8 3/16-7 3/8
Common cash dividends declared per share -- -- -- -- -- --
Price earnings ratio NM 13.7x NM 74.5x 6.9x 21.5x
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<FN>
1995 represents eight months ended March 31 due to a change in the Company's fiscal year end. 1994 and 1993 ended July 31.
NM - not meaningful.
</FN>
</TABLE>
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Liquidity and Capital Resources
Because of the food processing segment, the Company's yearly business cycle
shows large inventory growth during the summer and fall harvest period. The
inventory peaks in the early winter and drops to its minimum level immediately
prior to the next pack season. These peaks are financed through seasonal
borrowings whose high and low points essentially correspond with the changes in
inventory, or by a reduction in short-term investments. Accordingly, inventory
management is key to liquidity.
During May 1996 the Company sold its investment in Moog Inc. Class A Common
Stock back to Moog. This sale generated cash proceeds of $12.9 million and a
pre-tax gain of $7.5 million. During August 1996 the Company sold its Clifton
Park, New York facility for cash resulting in net cash proceeds of $4.6 million
and a gain of $1.6 million before income tax expense. The Company had leased
this facility to a third party.
During September 1995 the Company entered into a sale and leaseback transaction
whereby three of its wastewater facilities in New York State were sold to the
Wayne County Water and Sewer Authority for net proceeds of $9.3 million.
During 1995 the Company acquired certain assets of the Green Giant Division of
The Pillsbury Company. Under an Alliance Agreement concurrently executed in 1995
by the Company, Pillsbury and Grand Metropolitan Incorporated, Pillsbury
continues to be responsible for all of the sales, marketing and customer service
functions for the Green Giant brand, while the Company will handle vegetable
processing and canning operations. Pillsbury continues to own all the trademark
rights to the Green Giant brand and its proprietary seed varieties. The assets
acquired included certain raw material and supplies inventory and six
manufacturing facilities located in the Midwestern and Northwestern United
States. The purchase price of $86.1 million was funded by a subordinated note
issued by the Company for $73.0 million and the balance was funded out of
working capital. This subordinated note decreased $6.0 million in 1996 as a
result of an agreement reached with Pillsbury to convert that amount to the
Company's Class A Common Stock. Such conversion was completed in March 1996. The
subordinated note increased by $7.6 million in 1997 due to the addition of
capital projects that Pillsbury has completed and green bean processing
equipment acquired from Pillsbury, which was transferred to the Company.
In conjunction with this acquisition, the Company entered into a revolving
credit facility for up to $150.0 million (now $130.0 million) from a syndicate
of eleven (now eight) banks. In addition, the Company issued two new senior debt
notes. The first was a $75.0 million unsecured note issued to The Prudential
Insurance Company of America, with repayment due beginning in March 1998, a
final maturity date of February 2005, and an interest rate of 10.78% (see
Long-Term Debt, note 4). The second was a $50.0 million unsecured note issued to
John Hancock Mutual Life Insurance Company, with repayment due beginning in
March 2001, a final maturity of January 2009, and an interest rate of 10.81%.
The proceeds of these two notes were used to finance or replenish working
capital for the following: 1) capital expenditures of $50.0 million related to
the Alliance Agreement with Pillsbury; 2) repayment of two notes due an
insurance company, one repaid in July 1994 for $13.8 million, the other repaid
when the new debt was issued for $26.6 million; 3) three small acquisitions made
over the previous fifteen months totaling $15.6 million; and 4) the balance,
$19.0 million, for capital expenditures made over the previous three years.
As mentioned above, during 1995 the Company entered into an unsecured revolving
credit agreement for up to $150.0 million (now $130.0 million). Previously, the
Company maintained uncommitted lines of credit. Credit lines provide for
interest rate options based on Prime, Eurodollar, or Money Market. There were
$62.3 million of borrowings outstanding under these lines at the end of 1998,
$18.0 million at the end of 1997, and $113.0 million at the end of 1996.
The decrease in cash and short-term investments of $22.5 million over the three
year period ended in 1998 was primarily due to Aunt Nellie's Farm Kitchens and
Curtice Burns acquisitions of $53.7 million, the debt repayments totaling $14.9
million; capital additions of $15.7 million, $11.7 million, and $67.9 million,
in 1998, 1997, and 1996, respectively. This was partially offset by the proceeds
of the new long-term debt issues totaling $25.7 million; proceeds from the sale
of Moog Inc. stock of $12.9 million; proceeds from the disposal of assets
totaling $13.5 million; and net earnings (before depreciation effect which is
non-cash).
In 1998 accounts receivable increased by $12.2 million to $48.6 million. This
was due in part to Non-Alliance sales being $87.7 million higher fueled by the
two acquisitions (see below).
In 1998 inventories increased $35.8 million over 1997. This was largely due to
the acquisitions made during the year (see below). In 1997 inventories declined
by $71.6 million due to the sales increase on Alliance sales.
In 1998 capital expenditures were $15.7 million as compared to $11.7 million in
1997. In 1998 certain juice production lines were converted to PET (plastic
bottles) totaling $3.2 million at plants in the south and midwest. The 1997
capital expenditures are down substantially from 1996. The largest project was
the green bean expansion in Cumberland related to the Alliance where $4.4
million was spent in 1997. The 1996 capital expenditures of $67.9 million are
substantially due to a major capital expansion relating to the Alliance,
integrated six of Pillsbury's Green Giant vegetable processing plants and
significantly increased the Company's own production capabilities to accommodate
the production of four Pillsbury plants that were concurrently closed. This
capital expansion was originally expected to be $50.0 million, but to meet our
ambitious goals, an additional $25.0 million was spent on this project,
primarily in our New York State operations in order to meet operational needs of
the Alliance.
In 1998 the Company completed two acquisitions. The first acquisition was Aunt
Nellie's Farm Kitchens, which produces, markets, and sells fruit and vegetable
products from their plants in the midwest, for approximately $24.3 million. The
second acquisition was the Curtice Burns canned branded and private label
vegetable business for approximately $29.4 million (see Acquisitions, note 10).
Results of Operations
Net sales for 1998 were $703.2 million, which includes $277.1 million sold under
the Alliance with Pillsbury. Net sales for 1997 were $730.1 million, which
includes $391.7 million sold under the Alliance with Pillsbury. Net sales for
1996 were $508.0 million, which includes $168.0 million of sales to Pillsbury
under the Alliance. In 1998 Non-Alliance sales increase by $87.7 million. In
1997 Non-Alliance sales decreased by $1.6 million. If 1996 net sales are
compared with the last full year sales (1994), the increase for the two year
period is 22.7% excluding the effect of the Alliance. In 1998 vegetable unit
sales increased due to the two acquisitions and the high pack levels of the last
two years. Also in 1998 juice dollar sales declined $12.8 million or 7.8%. In
1997 vegetable unit sales increased due to getting higher packs than the prior
year. In 1997 vegetable unit prices increased for part of the year but declined
later in the year due to excess inventories. In 1996 vegetable unit sales were
lower due to a less than budget pack. Unit vegetable selling prices dropped in
1996, while apple pricing rose due to the worldwide shortage of processing
apples.
The 1997 results include a $7.5 million gain on the sale of Moog Inc. Class A
Common Stock back to Moog and a gain on the sale of a Clifton Park, New York
warehouse of $1.6 million. The 1996 results include a non-recurring charge of
$15.1 million, before income tax benefit, due to a combination of start-up costs
related to the Pillsbury Alliance and severe drought conditions in New York
State throughout the entire summer. The Company undertook an ambitious capital
expenditure program related to the Pillsbury Alliance. In the relatively short
time between the February 1995 closing of the Pillsbury Alliance and the
beginning of the 1995 vegetable pack, 37 separate major capital projects needed
to be completed. There were some unforeseen problems related to a few of these
projects, mostly in the New York plants. Some of the used equipment transferred
from the closed plants had operating difficulties and were not always easily
repaired, thus causing downtime. Therefore, plant throughput and yields were
poor at some plants resulting in unfavorable manufacturing variances. The
problems were magnified when the drought and the hot weather conditions forced
the uneven timing of maturities of vegetables.
In 1998 earnings decreased for the following reasons: 1) lower selling prices on
vegetables due to an ongoing industry oversupply due in part to the second
consecutive above budget pack, 2) apple product price declines were greater than
apple product cost declines, and 3) a decline in the consumption of frozen
concentrates put further pressure on pricing. In 1997 earnings increased for the
following reasons: 1) the Moog gain of $7.5 million detailed above, 2) higher
vegetable selling prices for part of the year, and 3) greater sales under the
Alliance agreement produced additional earnings. In 1996 earnings decreased for
the following reasons: 1) the $15.1 million non-recurring charge detailed above,
2) higher apple cost of product sold due to a world-wide shortage of processing
apples, and 3) lower selling prices on vegetables due to an ongoing industry
oversupply.
In 1996, the Company changed its inventory valuation method from the lower of
cost; last-in, first-out; or market to the lower of cost; first-in, first-out;
or market. The major reason for the change is the Alliance inventories are on
the first-in, first-out method which represent the majority of the Company's
inventory dollars. The change has been applied retroactively by restating the
financial statements of prior years.
In general, inflation played a relatively small role in the operating results
and cash flows of 1998, 1997, and 1996 since the Company depreciates its fixed
assets under accelerated depreciation methods for tax purposes.
New Accounting Pronouncements
Three new accounting standards were issued during the past year that the Company
must comply with beginning in 1999. They are 1) SFAS No. 130, "Reporting
Comprehensive Income", 2) SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", and 3) SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." These standards
expand or modify current disclosures and, accordingly, will have no impact on
the Company's reported financial position, results of operations and cash flows
(see Summary of Significant Accounting Policies, note 1).
<PAGE>
Year 2000
The Company recognizes the need to ensure its operations will not be adversely
impacted by Year 2000 software failures. Software failures due to processing
errors potentially arising from calculations using the Year 2000 date are a
known risk. The Company is in the process of replacing some systems, which are
known not to be Year 2000 compliant, and updating others to be Year 2000
compliant. The Company is addressing the computing environment along with any
other systems in the operating facilities, which may also not be Year 2000
compliant. The Company is using internal resources to make systems Year 2000
compliant as much as possible only using external resources for specialized
equipment, which is mostly at our plants. The total cost of compliance, above
and beyond normal software upgrades, is not expected to exceed $750,000.
<PAGE>
<TABLE>
Consolidated Statements of Net Earnings
Seneca Foods Corporation and Subsidiaries
(In thousands of dollars, except share amounts)
<CAPTION>
Years ended March 31, 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Net sales $ 703,220 $ 730,135 $ 507,988
Other income -- 8,308 4,271
--------------------------------------------------
703,220 738,443 512,259
- -------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of product sold 649,841 669,261 452,584
Selling, general, and administrative expense 35,056 28,609 31,640
Interest expense, net of interest income of $109, $185, and
$180, respectively 26,780 28,827 28,157
Non-recurring charge -- -- 15,078
--------------------------------------------------
711,677 726,697 527,459
- ----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (8,457) 11,746 (15,200)
Income taxes (3,313) 4,215 (5,053)
-------------------------------------------------
Net earnings (loss) $ (5,144) $ 7,531 $ (10,147)
==========================================================================================================================
Basic earnings (loss) per common share $ (.87) $ 1.27 $ (1.81)
==========================================================================================================================
Diluted earnings (loss) per common share $ (.87) $ 1.25 $ (1.81)
==========================================================================================================================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Consolidated Balance Sheets
Seneca Foods Corporation and Subsidiaries
(In thousands)
<CAPTION>
March 31, 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Current Assets:
Cash and short-term investments $ 4,077 $ 1,584
Accounts receivable, less allowance for doubtful accounts
of $207 and $200, respectively 48,647 36,477
Inventories:
Finished products 118,067 90,414
In process 25,440 25,357
Raw materials and supplies 50,537 42,426
Refundable income taxes 1,576 --
Deferred tax asset 3,870 6,156
Prepaid expenses 1,680 4,432
--------------------------------------
Total Current Assets 253,894 206,846
- ------------------------------------------------------------------------------------------------------------------------------------
Other Assets 2,624 1,738
- ------------------------------------------------------------------------------------------------------------------------------------
Property, Plant, and Equipment:
Land 6,117 5,449
Building 99,708 88,959
Equipment 287,899 261,444
--------------------------------------
393,724 355,852
Less accumulated depreciation and amortization 175,316 148,413
--------------------------------------
Net Property, Plant, and Equipment 218,408 207,439
====================================================================================================================================
Total Assets $ 474,926 $ 416,023
====================================================================================================================================
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable $ 62,270 $ 18,000
Accounts payable 46,540 24,435
Accrued expenses 21,210 21,996
Current portion of long-term debt and capital lease obligations 11,575 9,465
Income taxes -- 599
---------------------------------------
Total Current Liabilities 141,595 74,495
Long-Term Debt 219,023 214,848
Capital Lease Obligations 8,835 9,280
Deferred Gain and Other Liabilities 8,750 7,867
Deferred Income Taxes 7,598 15,797
Commitments (Note 5) -- --
--------------------------------------
Total Liabilities 385,801 322,287
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stock 70 70
Common stock 2,666 2,666
--------------------------------------
Total Capital Stock 2,736 2,736
Additional paid-in capital 5,913 5,913
Net unrealized gain on available-for-sale securities 1,026 435
Retained earnings 79,450 84,652
--------------------------------------
Total Stockholders' Equity 89,125 93,736
====================================================================================================================================
Total Liabilities and Stockholders' Equity $ 474,926 $ 416,023
====================================================================================================================================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
Seneca Foods Corporation and Subsidiaries
(In thousands)
<CAPTION>
Years ended March 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (5,144) $ 7,531 $ (10,147)
Adjustments to reconcile net earnings (loss) to
net cash provided (used) by operations:
Depreciation and amortization 28,849 26,338 23,563
Deferred income taxes (6,231) (1,868) (2,215)
Gain on the sale of assets -- (8,308) (4,271)
Changes in operating assets and liabilities:
Accounts receivable (8,083) 14,641 (18,517)
Inventories (7,154) 71,562 (91,646)
Prepaid expenses 2,907 (3,391) (240)
Accounts payable, accrued expenses and other liabilities 18,679 (23,327) 21,376
Income taxes (2,175) 6,653 (3,985)
-------------------------------------------------
Net cash provided by (used in) operations 21,648 89,831 (86,082)
-------------------------------------------------
Cash flows from investing activities:
Acquisitions (53,672) -- --
Additions to property, plant, and equipment (15,693) (11,650) (67,897)
Disposals of property, plant, and equipment 135 699 876
Proceeds from sale of common stock of Moog Inc. -- 12,863 --
Proceeds from the sale of assets -- 4,643 8,904
-------------------------------------------------
Net cash provided by (used in) investing activities (69,230) 6,555 (58,117)
Cash flows from financing activities:
Net (payments) borrowings on notes payable 44,270 (95,000) 113,000
Proceeds from issuance of long-term debt and
sale and leaseback 15,106 1,343 9,258
Payments of long-term debt and capital lease obligations (9,266) (2,572) (3,068)
Dividends paid (58) -- (12)
Other assets 23 130 (220)
-------------------------------------------------
Net cash provided by (used in) financing activities 50,075 (96,099) 118,958
Net increase (decrease) in cash and short-term investments 2,493 287 (25,241)
Cash and short-term investments, beginning of year 1,584 1,297 26,538
-------------------------------------------------
Cash and short-term investments, end of year $ 4,077 $ 1,584 $ 1,297
===============================================================================================================================
<FN>
Supplemental disclosures of cash flow information: Cash paid (received) during
the year for:
Interest $ 28,042 $ 28,751 $ 26,480
Income taxes 5,092 (570) 1,147
Supplemental information of noncash investing and financing activities:
In 1997 an additional $7,558 was added to the secured nonrecourse subordinated
note in conjunction with the acquisition of additional
assets. In 1996 the Company reached an agreement with Pillsbury to convert
$6,000 of its subordinated note into the Company's Class A Common Stock.
See notes to consolidated financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Stockholders' Equity
Seneca Foods Corporation and Subsidiaries
(In thousands, except share amounts)
<CAPTION>
Preferred Stock
-------------------------------
6% Class A 10%
Cumulative Par Cumulative Par Net Unrealized
Value $.25 Value $.025 Class A Class B Additional Gain (Loss) on
Callable at Par Convertible Common Stock Common Stock Paid-In Available-For- Retained
Voting Voting Par Value $.25 Par Value $.25 Capital Sale Securities Earnings
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares authorized 200,000 1,400,000 10,000,000 10,000,000
- ----------------------------------------------------------------------------------------
Shares issued and outstanding:
- ----------------------------------------------------------------------------------------
March 31, 1996 200,000 807,240 3,143,125 2,796,555
========================================================================================
March 31, 1997 200,000 807,240 3,143,125 2,796,555
========================================================================================
March 31, 1998 200,000 807,240 3,143,125 2,796,555
========================================================================================
Balance March 31, 1995 $50 $20 $ -- $1,880 $ -- $ 892 $ 87,979
Net loss -- -- -- -- -- -- (10,147)
Cash dividends paid
on preferred stock -- -- -- -- -- -- (12)
Debt to equity conversion -- -- 87 -- 5,913 -- --
Stock split in the form of
a dividend -- -- 699 -- -- -- (699)
Net unrealized gain change -- -- -- -- -- 4,277 --
- ----------------------------------------------------------------------------------------------------------------------------------
Balance March 31, 1996 50 20 786 1,880 5,913 5,169 77,121
Net earnings -- -- -- -- -- -- 7,531
Net unrealized gain change -- -- -- -- -- (4,734) --
- ----------------------------------------------------------------------------------------------------------------------------------
Balance March 31, 1997 50 20 786 1,880 5,913 435 84,652
Net loss -- -- -- -- -- -- (5,144)
Cash dividends paid
on preferred stock -- -- -- -- -- -- (58)
Net unrealized gain change -- -- -- -- -- 591 --
- ----------------------------------------------------------------------------------------------------------------------------------
Balance March 31, 1998 $50 $20 $786 $ 1,880 $5,913 $1,026 $ 79,450
==================================================================================================================================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Seneca Foods Corporation and Subsidiaries
1. Summary of Significant Accounting Policies
Nature of Operations - The Company conducts its business almost entirely in food
processing, operating 32 plants and warehouses in eight states. The Company
markets branded and private label processed foods to retail customers and
institutional food distributors.
Principles of Consolidation - The consolidated financial statements include the
accounts for the parent Company and all of its wholly-owned subsidiaries after
elimination of intercompany transactions, profits, and balances.
Revenue Recognition - Sales and related cost of product sold are recognized
primarily upon shipment of products. When customers, under the terms of specific
orders, request that the Company invoice goods and hold the goods for future
shipment, the Company recognizes revenue when legal title to the finished goods
inventory passes to the purchaser. Generally the Company receives cash from the
purchaser when legal title passes.
Concentration of Credit Risk - Financial instruments that potentially subject
the Company to credit risk consist of trade receivables and interest-bearing
investments. With the exception of the relationship with Pillsbury, wholesale
and retail food distributors comprise a significant portion of the trade
receivables; collateral is not required. The risk associated with the
concentration is limited due to the large number of wholesalers and retailers
and their geographic dispersion. The Company places substantially all its
interest-bearing investments with financial institutions and monitors credit
exposure.
Cash and Short-Term Investments - The Company considers all highly liquid
instruments purchased with a maturity of three months or less as short-term
investments.
Inventories - Inventories are stated at lower of cost; first-in, first-out
(FIFO); or market.
Income Taxes - The provision for income taxes includes federal, foreign, and
state income taxes currently payable and those deferred because of temporary
differences between the financial statement and tax bases of assets and
liabilities.
<PAGE>
Notes to Consolidated Financial Statements (continued)
Earnings per Common Share - Basic earnings per share are calculated on the basis
of Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share," which the Company adopted in the fourth quarter of 1998. Earnings per
common share amounts of all prior years have been restated. The additional
shares and dividends were not considered in the diluted calculation below since
diluting a loss is not allowed under SFAS No. 128.
A reconciliation of basic earnings per share with diluted earnings per share
follows:
<TABLE>
<CAPTION>
Years ended March 31 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Basic
Net earnings (loss) $ (5,144) $ 7,531 $ (10,147)
Deduct preferred stock dividends paid 58 -- 12
---------------------------------------
Basic net earnings (loss) $ (5,202) $ 7,531 $ (10,159)
===========================================================================================================
Weighted average common shares outstanding 5,940 5,940 5,622
===========================================================================================================
Basic earnings (loss) per share $ (.87) $ 1.27 $ (1.81)
===========================================================================================================
Diluted
Basic net earnings (loss) $ (5,202) $ 7,531 $ (10,159)
Add dividends on convertible preferred stock -- -- --
---------------------------------------
Net earnings applicable to common stock on a
diluted basis $ (5,202) $ 7,531 $ (10,159)
===========================================================================================================
Shares used in calculating basic earnings per
share above 5,940 5,940 5,622
Additional shares to be issued under full
conversion of preferred stock -- 68 --
---------------------------------------
Total shares for diluted 5,940 6,008 5,622
===========================================================================================================
Diluted earnings (loss) per share $ (.87) $ 1.25 $ (1.81)
===========================================================================================================
</TABLE>
Depreciation - Property, plant, and equipment is stated at cost or, in the case
of capital leases, the present value of future lease payments. For financial
reporting, the Company provides for depreciation and capital lease amortization
on the straight-line method at rates based upon the estimated useful lives of
the various assets. Impairment losses are recognized when the carrying value of
an asset exceeds its fair value. The Company regularly assesses all of its
long-lived assets for impairment and determined that no impairment loss need be
recognized in 1998 and 1997.
Use of Estimates in the Preparation of Financial Statements - The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements, as well as the related
revenues and expenses during the reporting period. Actual amounts could differ
from those estimated.
New Accounting Pronouncements: In June 1997, the Financial Accounting Standards
Board issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." In
February 1998, SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" was issued. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components. SFAS No. 131
establishes standards for reporting information about operating segments and
related disclosures about products and services, geographic areas and major
customers. SFAS No. 132 revises current disclosure requirements for employers'
pensions and other retiree benefits. These standards are effective for the
Company during 1999. These standards expand or modify current disclosures and,
accordingly, will have no impact on the Company's reported financial position,
results of operations and cash flows. The Company is assessing the impact of
these standards.
Reclassifications - Certain previously reported amounts have been reclassified
to conform to the current period classification.
<PAGE>
Notes to Consolidated Financial Statements (continued)
2. Common Stock of Moog Inc.
Other assets includes the Company's investment in the Class B Common Stock of
Moog Inc., which is carried at fair value. There was a realized gain on the sale
of Class A Common Stocks of Moog Inc. of $7,501,000 before income taxes in 1997.
There were no realized gains or losses in 1998 and 1996, and gross unrealized
holding gains were $1,604,000, $695,000 and $7,832,000, at March 31, 1998, 1997
and 1996, respectively.
<PAGE>
Notes to Consolidated Financial Statements (continued)
3. Lines of Credit
The Company obtains required short-term funds through bank borrowings. At March
31, 1998, the Company had $3,835,963 outstanding for letters of credit and an
unsecured revolving line of credit totaling $130,000,000. The line is renewable
in 1999 and provides for loans of varying maturities at rate options based on
Prime, Eurodollar, or Money Market. This unsecured revolving line of credit
provides for various financial covenants. The Company was not in compliance with
certain of these financial covenants at March 31, 1998 and is in the process of
obtaining waivers from the lending institutions.
As of March 31, 1998 and 1997, the amounts borrowed under the revolving line of
credit were $62,270,000 and $18,000,000, respectively. The weighted average
interest rate on the amounts borrowed during these periods were 7.88% and 7.94%,
respectively.
<PAGE>
Notes to Consolidated Financial Statements (continued)
4. Long-Term Debt
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Note payable to insurance company, 10.78%, due through 2005 $ 69,000 $ 75,000
Secured nonrecourse subordinated promissory note, 8.00%, due through 2009 71,583 74,583
Note payable to insurance company, 10.81%, due through 2009 50,000 50,000
Note payable to insurance company, 9.17%, due through 2004 10,000 --
Note payable to bank, 9.17%, due through 2004 5,000 --
Industrial Revenue Development Bonds, variable rate, due through 2028 22,630 22,630
Other 1,944 1,738
-------------- -----------
230,157 223,951
Less current portion 11,134 9,103
-------------- -----------
$ 219,023 $214,848
============== ===========
</TABLE>
Certain debt agreements provide various financial covenants including a
provision that the Company may pay dividends on any class of stock only from
consolidated net earnings available for distribution. There were no earnings
available for distribution as of March 31, 1998. The Company was not in
compliance with certain of these financial covenants relating to a portion of
its Long-Term Debt at March 31, 1998. On June 16, 1998, the Company obtained
unconditional waivers from the lending institutions. In addition, the lending
institutions have amended, or in one instance, agreed to amend certain financial
covenants for 1999 based on the Company's projections, which, if achieved, will
permit the Company to be in compliance.
The Company has four Industrial Revenue Bonds ("IRB's") totaling $22,630,000
which are backed by direct pay letters of credit.
Debt repayment requirements for the next five fiscal years are:
(In thousands)
1999 $11,134
2000 15,773
2001 18,781
2002 20,750
2003 23,746
<PAGE>
Notes to Consolidated Financial Statements (continued)
5. Leases
The Company leases a portion of its equipment and buildings. Capitalized leases
consist primarily of industrial development agency financing instruments and
limited obligation special revenue bonds which bear interest rates from 3.55% to
6.75%. Other leases include non-cancelable operating leases expiring at various
dates through 2007.
During 1996, the Company entered into a sale and leaseback transaction whereby
three of its wastewater facilities in New York State were sold for $9,258,000
and leased back under a 20-year lease agreement. This transaction produced a
gain of $4,178,000, which was deferred and is being amortized over the 20-year
lease period.
Leased assets under capital leases consist of the following:
1998 1997
------------------------------------------------------------------------------
(In thousands)
Land $ 160 $ 160
Buildings 1,792 1,792
Equipment 10,359 10,385
----------------------------------
12,311 12,337
Less accumulated amortization 4,510 3,519
==================================
$ 7,801 $ 8,818
===============================================================================
The following is a schedule by year of minimum payments due under leases as of
March 31, 1998:
Operating Capital
---------------------------------------------------------------------------
(In thousands)
Years ending March 31:
1999 $ 4,490 $ 841
2000 3,466 843
2001 2,901 843
2002 1,863 842
2003 1,406 844
2004-2014 3,017 8,803
-----------------------------
Total minimum payment required $17,143 $ 13,016
==========================================================
Less interest 3,740
--------------
Present value of minimum lease payments 9,276
Amount due within one year 441
--------------
Long-term capital lease obligations $ 8,835
===========================================================================
Aggregate rental expense in 1998, 1997, and 1996 was $10,057,000, $7,881,000,
and $7,076,000, respectively.
<PAGE>
Notes to Consolidated Financial Statements (continued)
6. Income Taxes
The Company files a consolidated income tax return. The provision for income
taxes includes the following:
1998 1997 1996
----------------------------------------
(In thousands)
Current:
Federal $ (485) $3,438 $(3,282)
State 170 116 762
----------------------------------------
(315) 3,554 (2,520)
----------------------------------------
Deferred:
Federal (2,509) 465 (1,961)
State (489) 196 (572)
---------------------------------------
(2,998) 661 (2,533)
---------------------------------------
Total income taxes $(3,313) $4,215 $(5,053)
==================================================================
At March 31, 1998, the Company has Alternative Minimum Tax Credits in the amount
of $5,658,000 to offset future years' regular tax expense, and Research and
Development Credits carryforwards in the amount of $298,000, expiring as
follows:
Year Credit
---- ------
2007 $125,000
2008 36,000
2009 50,000
2010 31,000
2011 51,000
2012 5,000
----------
$298,000
==========
The Company has a Federal regular tax net operating loss carryforward of
$6,939,000, expiring March 31, 2013, which is available to offset future taxable
income. State net operating loss carryforwards of approximately $21,000,000,
expiring March 31, 1999, through March 31, 2013, are available to offset future
state tax expense.
During 1998, the Internal Revenue Service completed an audit of 1994, 1995, and
1996. Audit adjustments related primarily to changes in the timing of deductions
for income tax purposes. There was no material impact on the Company's statement
of net earnings for 1998.
A reconciliation of the expected U.S. statutory rate to the effective rate
follows:
1998 1997 1996
- ----------------------------------------------------------------------------
Computed (expected tax rate) (34.0)% 34.0% (34.0)%
State income taxes (net of
federal tax benefit) (5.0) 1.5 0.8
Other (0.2) 0.4 --
--------------------------------------------
Effective tax rate (39.2)% 35.9% (33.2)%
============================================================================
<PAGE>
Notes to Consolidated Financial Statements (continued)
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of March 31, 1998 and 1997:
1998 1997
- -----------------------------------------------------------------------------
(In thousands)
Deferred tax liabilities:
Basis and depreciation difference $ 20,035 $ 15,916
Inventory valuation 2,172 2,590
Moog investment 577 260
State taxes -- 1,059
-----------------------------------
22,784 19,825
-----------------------------------
Deferred tax assets:
Inventory valuation 2,818 2,974
Future tax credits 6,035 2,357
Net operating loss carry-forwards 3,711 --
Employee benefits 1,775 1,229
Pension 1,805 1,231
Insurance 1,370 703
Deferred gain on sale/leaseback 1,382 1,437
Other 160 253
-----------------------------------
19,056 10,184
-----------------------------------
Net deferred tax liability $ 3,728 $ 9,641
===============================================================================
Net current deferred tax assets of $3,870,000 as of March 31, 1998 and
$6,156,000 as of March 31, 1997 are recognized in the Consolidated Balance
Sheets. Also recognized are net non-current deferred tax liabilities of
$7,598,000 and $15,797,000 at March 31, 1998 and 1997, respectively.
<PAGE>
Notes to Consolidated Financial Statements (continued)
7. Stockholders' Equity
Preferred Stock - The outstanding 10% cumulative, convertible, voting preferred
stock consists of 407,240 Series A shares, convertible at the rate of one common
share of Class A and Class B for every twenty preferred shares, and 400,000
Series B shares, which carry a one for thirty conversion rate. The Series A and
B shares have a $.25 stated value and a $.025 par value. There are 2,600,000
shares authorized of Class A $.025 par value stock which are unissued and
undesignated. In addition there are 30,000 shares of no par stock which are also
unissued and undesignated.
Common Stock - During 1996 an amendment to the Company's Certificate of
Incorporation, which effected a recapitalization of the Company by creating a
second class of common stock (which was distributed to all common shareholders
as a stock split in the form of a dividend), was adopted. This recapitalization
amendment (i) reclassified the existing Common Stock as Class B Common Stock,
(ii) authorized a new class of 10,000,000 shares designated as Class A Common
Stock and (iii) established the express terms of the Class A Common Stock and
the Class B Common Stock. The Class A Common Stock and the Class B Common Stock
have substantially identical rights with respect to any dividends or
distributions of cash or property declared on shares of common stock and rank
equally as to the right to receive proceeds on liquidation or dissolution of the
Company after payment of the Company's indebtedness and liquidation right to the
holders of preferred shares. However, holders of Class B Common Stock retain a
full vote per share whereas the holders of Class A Common Stock have voting
rights of 1/20th of one vote per share on all matters as to which shareholders
of the Company are entitled to vote.
In 1996, the Company reached an agreement with Pillsbury to convert $6,000,000
of its subordinated note into 346,570 shares of the Company's Class A Common
Stock.
Unissued shares of common stock reserved for conversion privileges were 33,695
of Class A and Class B at March 31, 1998 and 1997.
<PAGE>
Notes to Consolidated Financial Statements (continued)
8. Retirement Plan
The Company has a noncontributory defined benefit pension plan covering all
employees who meet certain age entry requirements and work a stated minimum
number of hours per year. Annual contributions are made to the Plan sufficient
to satisfy legal funding requirements.
Pension expense includes the following:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands)
Service cost for benefits earned during the period $ 1,741 $ 1,565 $ 1,336
Interest cost on projected benefit obligation 1,573 1,329 1,210
Actual return on plan assets (6,268) (2,660) (2,372)
Net deferral of actuarial gains 4,272 1,027 860
Amortization of net unrecognized gain at
August 1, 1987 (276) (276) (276)
Amortization of prior service cost 94 94 94
- -------------------------------------------------------------------------------------------------------------
Pension expense $ 1,136 $ 1,079 $ 852
=============================================================================================================
</TABLE>
The following table summarizes the funded status and related amounts that are
recognized in the consolidated balance sheets:
1998 1997
- -----------------------------------------------------------------------------
(In thousands)
Actuarial present value of accumulated benefit obligation:
Vested $ 17,948 $ 13,524
Nonvested 688 823
----------------------------
Total $ 18,636 $14,347
=============================================================================
Plan assets at fair market value, primarily listed
stocks and fixed income securities $ 26,881 $ 21,545
Projected benefit obligation 24,031 19,004
----------------------------
Plan assets in excess of projected
benefit obligation 2,850 2,541
Unrecognized gain at transition (3,819) (4,095)
Unrecognized prior service cost 406 500
Unrecognized net gain (4,192) (2,565)
----------------------------
Accrued pension liability $ (4,755) $ (3,619)
=============================================================================
The projected benefit obligation was determined using an assumed discount rate
of 7.4% (8% in 1997 and 1996) and an assumed long-term salary increase rate of
5%. The assumed long-term rate of return on plan assets was 9.5% (8.5% in 1997
and 1996). The Plan holds the Company's common stock with a fair market value of
$2,658,000.
The Company has an Employees' Savings Plan (401(k)) covering all employees who
meet certain age entry requirements and work a stated minimum number of hours
per year. Participants may make contributions up to the legal limit. The
Company's matching contributions are discretionary. Costs charged to operations
for the Company's matching contributions during 1998 amounted to $811,000 for
the year and in 1997 amounted to $211,000, which represents four months of the
year.
<PAGE>
Notes to Consolidated Financial Statements (continued)
9. Fair Value of Financial Instruments
The carrying amounts and the estimated fair values of the Company's financial
instruments, as determined under SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments," are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
-----------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Long-term debt, including current portion $230,157 $241,405 $223,951 $225,112
Notes payable 62,270 62,270 18,000 18,000
Class B Common Stock of Moog Inc. 2,320 2,320 1,411 1,411
</TABLE>
The estimated fair values were determined as follows:
Long-term debt - The quoted market prices for similar debt or current
rates offered to the Company for debt with the same maturities.
Notes payable - The carrying amount approximates fair value due to the
short-term maturity of these instruments.
Class B Common Stock of Moog Inc. - Based on quoted market prices.
<PAGE>
Notes to Consolidated Financial Statements (continued)
10. Acquisitions
In 1998 the Company completed two acquisitions. The first was the acquisition of
Aunt Nellie's Farm Kitchen from The Pillsbury Company, a subsidiary of Grand
Metropolitan Incorporated, for approximately $24 million. Aunt Nellie's Farm
Kitchen produces, markets, and sells fruit and vegetable products from plants in
the Midwest and its sales were approximately $50 million. The Company purchased
the plants, inventories, accounts receivable, and trademarks of the business.
This acquisition was funded primarily out of working capital.
The second acquisition was the Comstock canned private label vegetable business
from Curtice Burns Foods, a wholly-owned subsidiary of Pro-Fac Cooperative,
along with the Blue Boy branded canned vegetable business. The Company purchased
two New York plants, related inventories, and certain trademarks. The companies
also formed a long-term strategic alliance, combining their New York
agricultural departments into one organization. The sales were approximately $40
million. The purchase price was approximately $29 million, which was funded
primarily out of working capital.
Both acquisitions were accounted for under the purchase method and, accordingly,
the operating results of the acquired businesses have been included in the
consolidated operating results since the dates of acquisition. The following is
a summary of proforma results as if the acquisitions were made at the beginning
of the periods presented:
1998 1997
- ------------------------------------------------------------------------
(Unaudited)
(In thousands except per share amounts)
Net sales $710,137 $829,870
Net earnings (loss) (5,150) 4,533
Basic earnings (loss) per common share (.88) .76
<PAGE>
Notes to Consolidated Financial Statements (continued)
11. Other Income
Other income in 1997 consisted of the following: 1) a gain on the sale of the
Moog, Inc. common stock of $7,501,000, 2) a gain on the sale of the Clifton
Park, New York warehouse of $1,640,000, and 3) a loss on the sale of Eau Claire,
Michigan plant of $833,000.
Other income in 1996 consisted of the gain on the sale of the Peabody,
Massachusetts warehouse totaling $4,271,000.
12. Non-Recurring Charge
The 1996 operating results include a non-recurring charge of $15,078,000, before
income tax benefit, due to a combination of start-up costs related to the
Pillsbury Alliance and severe drought conditions in New York State throughout
the entire summer. The Company undertook an ambitious capital expenditure
program related to the Pillsbury Alliance. In the relatively short time between
the February 1995 closing of the Pillsbury Alliance and the beginning of the
1995 vegetable pack, 37 separate major capital projects needed to be completed.
There were some unforeseen problems related to a few of these projects, mostly
in the New York plants. Some of the used equipment transferred from the closed
plants had operating difficulties and were not always easily repaired, thus
causing downtime. Throughput and yields were poor at some plants resulting in
unfavorable manufacturing variances. The problems were magnified when the
drought and the hot weather conditions forced the uneven timing of maturities of
vegetables.
13. Sales Information
The Company has an Alliance Agreement with Pillsbury whereby the Company
processes canned and frozen vegetables for Pillsbury under the Green Giant brand
name. Pillsbury continues to be responsible for all of the sales, marketing and
customer service functions for the Green Giant products. During 1998, 1997 and
1996, the Company sold $48,872,000, $205,633,000 and $167,994,000, respectively,
of canned and frozen vegetables to Pillsbury, which represented 7%, 28% and 33%,
respectively, of net sales. Sales of Green Giant vegetables to purchasers
unrelated to Pillsbury in 1998 and 1997 were $228,208,000 and $186,091,000, or
32% and 26% of net sales, respectively. Total net sales in 1998 and 1997 of
Green Giant vegetables were $277,080,000 and $391,724,000, or 40% and 54% of net
sales, respectively.
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders of
Seneca Foods Corporation
Pittsford, New York
We have audited the accompanying consolidated balance sheets of Seneca Foods
Corporation and subsidiaries as of March 31, 1998 and 1997, and the related
consolidated statements of net earnings, stockholders' equity, and cash flows
for each of the three years in the period ended March 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Seneca Foods Corporation and
subsidiaries as of March 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1998 in conformity with generally accepted accounting principles.
/s/Deloitte & Touche LLP
Deloitte & Touche LLP
Rochester, New York
May 22, 1998 (June 16, 1998 as to Note 4)
Forward-Looking Statements
Except for the historical information contained herein, the matters discussed in
this annual report are forward-looking statements as defined in the Private
Securities Litigation Reform Act (PSLRA) of 1995. The Company wishes to take
advantage of the "safe harbor" provisions of the PSLRA by cautioning that
numerous important factors which involve risks and uncertainties, including but
not limited to economic, competitive, governmental and technological factors
affecting the Company's operations, markets, products, services and prices, and
other factors discussed in the Company's filings with the Securities and
Exchange Commission, in the future, could affect the Company's actual results
and could cause its actual consolidated results to differ materially from those
expressed in any forward-looking statement made by, or on behalf of, the
Company.
<PAGE>
Shareholder Information and Quarterly Results
The Company's common stock is traded on The NASDAQ National Stock Market. The
3.1 million of Class A outstanding shares and 2.8 million Class B outstanding
shares are owned by 414 and 411 shareholders of record, respectively. The high
and low prices of the Company's common stock during each quarter of the past two
years are shown below.
Class A: 1998 1997
--------------------------------------------
Quarter High Low High Low
- ----------------------------------------------------------------------
First $18.75 $16.75 $18.00 $14.75
Second 18.50 16.75 17.75 15.75
Third 18.25 16.50 17.00 15.00
Fourth 17.62 15.75 18.75 15.00
Class B: 1998 1997
--------------------------------------------
Quarter High Low High Low
---------------------------------------------------------------------
First $18.50 $16.75 $18.00 $14.50
Second 18.50 16.75 17.75 16.00
Third 18.25 16.50 17.50 15.25
Fourth 17.25 15.50 19.00 15.25
The Company may pay dividends on common stock only from consolidated net
earnings available for distribution, which were none as of March 31, 1998.
Payment of dividends to common stockholders is made at the discretion of the
Company's Board of Directors and depends, among other factors, on earnings,
capital requirements, operating and financial condition of the Company. The
Company has not declared or paid a common dividend in many years.
The following is a summary of the unaudited interim results of operations by
quarter:
<TABLE>
<CAPTION>
First Second Third Fourth
- ------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Year ended March 31, 1998:
Net sales $ 105,078 $ 208,990 $ 275,863 $ 113,289
Gross margin 14,697 15,119 14,220 9,343
Net earnings (loss) 192 187 (1,240) (4,283)
Basic earnings (loss) per common share .03 .03 (.21) (.72)
Diluted earnings (loss) per common share .03 .03 (.21) (.72)
Year ended March 31, 1997:
Net sales $ 123,694 $ 159,521 $ 291,188 $ 155,732
Gross margin 14,288 16,327 15,351 14,908
Net earnings (loss) 4,827 2,710 359 (365)
Basic earnings (loss) per common share .81 .46 .06 (.06)
Diluted earnings (loss) per common share .80 .45 .06 (.06)
</TABLE>
Earnings for the fourth quarter have historically reflected adjustments of
previously estimated raw material costs and production levels. Due to the
dependence on fruit and vegetable yields of the Company's food processing
segment, interim costing must be estimated.
<PAGE>
<PAGE>
Exhibit 21
LIST OF SUBSIDIARIES
The following is a listing of subsidiaries 100% owned by Seneca Foods
Corporation, directly or indirectly:
Name State
Marion Foods, Inc. New York
Seneca Foods International, Ltd. New York
SSP Company, Inc. Massachusetts
<PAGE>
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post-Effective Amendment No. 1
to Registration Statement No. 333-12365 of Seneca Foods Corporation on Form S-8
of our report dated May 22, 1998 (June 12, 1998 as to Note 4), appearing in this
Annual Report on Form 10-K of Seneca Foods Corporation for the year ended March
31, 1998.
/s/Deloitte & Touche LLP
Rochester, New York
June 12, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Commercial and Industrial Companies
Article 5 of Regulation S-X
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 4077
<SECURITIES> 0
<RECEIVABLES> 48854
<ALLOWANCES> 207
<INVENTORY> 194044
<CURRENT-ASSETS> 253894
<PP&E> 393724
<DEPRECIATION> 175316
<TOTAL-ASSETS> 474926
<CURRENT-LIABILITIES> 141595
<BONDS> 227858
0
70
<COMMON> 2666
<OTHER-SE> 96389
<TOTAL-LIABILITY-AND-EQUITY> 474926
<SALES> 703220
<TOTAL-REVENUES> 703220
<CGS> 649841
<TOTAL-COSTS> 649841
<OTHER-EXPENSES> 35056
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26780
<INCOME-PRETAX> (8457)
<INCOME-TAX> (3313)
<INCOME-CONTINUING> (5144)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5144)
<EPS-PRIMARY> (.87)
<EPS-DILUTED> (.87)
</TABLE>
