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, 2002 Commission File Number 0-1989
SENECA FOODS CORPORATION
(Exact name of registrant as specified in its charter)
New York 16-0733425
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3736 South Main Street, Marion, New York 14505
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code (315) 926-8100
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
None None
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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)
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.
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, 2002 was approximately $78,483,000.
Common shares outstanding as of June 1, 2002 were Class A: 3,823,115, Class B:
2,764,005.
Documents Incorporated by Reference:
(1) Proxy Statement to be issued prior to June 30, 2002 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, 2002 (the "2002 Annual Report") applicable to Part II, Items 5-8 and
Part IV, Item 14 of Form 10-K.
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT - FISCAL 2002
SENECA FOODS CORPORATION
PART I. Pages
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Item 1. Business 1-3
Item 2. Properties 3
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of Security Holders 4
PART II.
Item 5. Market for 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 7A. Quantitative and Qualitative Disclosures about Market Risk 5
Item 8. Financial Statements and Supplementary Data 5
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 5
PART III.
Item 10. Directors and Executive Officers of the Registrant 7
Item 11. Executive Compensation 7
Item 12. Security Ownership of Certain Beneficial Owners and Management 7
Item 13. Certain Relationships and Related Transactions 7
PART IV.
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K 7-10
SIGNATURES 11-12
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PART I
Item 1
Business
General Development of Business
SENECA FOODS CORPORATION (the "Company") was organized in 1949 and incorporated under the laws of the State of New York. In the spring of 1995, the Company initiated a 20-year Alliance Agreement with The Pillsbury Company, which created the Company's most significant business relationship. Under the Alliance Agreement, the Company has packed canned and frozen vegetables carrying Pillsbury's Green Giant brand name. These Green Giant vegetables have been produced in vegetable plants, which the Company acquired from Pillsbury and, to a lesser extent, in the Company's other vegetable plants, which also produce vegetables under the Libby's brand name, which is licensed to the Company, and other brand names owned by the Company or its customers.
Since the onset of the Alliance Agreement, vegetable production has been the Company's dominant line of business. In fiscal 1999, the Company sold its fruit juice business and its applesauce and industrial flavors business. As a result of these fiscal 1999 divestitures, the Company's only non-vegetable food products are a line of fruit products.
Financial Information about Industry Segments
The Company's business activities are conducted in food and non-food operations. The food operation constitutes 98% of total sales, of which approximately 97% is vegetable processing and 3% is fruit processing. The non-food operation is an air charter service, which represents 2% of the Company's total sales.
Narrative Description of Business
Principal Products and Markets
Food Processing
The principal products of this segment include canned vegetable, frozen vegetable and fruit products. The products are sold to retail and institutional markets. The Company has divided the United States into four major marketing sections: Eastern, Southern, Northwestern, and Southwestern. Food processing operations are primarily supported by plant locations in New York, Wisconsin, Washington, Idaho, and Minnesota.
The following table summarizes net sales by major product category for the years ended March 31, 2002, 2001, and 2000:
Classes of similar products/services: 2002 2001 2000
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(In thousands)
Net Sales:
Green Giant vegetables $ 258,412 $ 290,346 $ 263,279
Canned vegetables 333,048 326,224 291,436
Frozen vegetables 25,165 22,052 27,889
Fruit and chip products 19,982 20,092 21,075
Flight operations 5,588 5,905 5,105
Other 8,880 9,681 12,294
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$ 651,075 $ 674,300 $ 621,078
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Other
Seneca Flight Operations provides air charter service primarily to industries in upstate New York.
Source and Availability of Raw Material
Food Processing
The Company's food processing plants are located in major vegetable and fruit producing states. Fruits and vegetables are primarily obtained through contracts with growers. 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. The 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. During the past year approximately 9% of the Company's processed foods were packed for retail customers under the Company branded labels of Libby's(R), Blue Boy(R), Aunt Nellie's Farm Kitchen(R), and Seneca(R). About 14% of the processed foods were packed for institutional food distributors and 36% of processed foods were retail packed under the private label of customers. The remaining 41% 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 substantially reduce the Company's sales and profitability unless the Company were to enter into a new substantial supply relationship with Pillsbury or another major vegetable marketer. 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 Libby's canned vegetable products, which rate among the top five national brands. The information under the heading Results of Operations in Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2002 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 waste disposal sites owned and operated by others. The Company believes that any reasonably anticipated liabilities will not exceed $137,000 in the aggregate.
Environmental Litigation
The Company is a defendant in a suit entitled State of Wisconsin vs. Seneca Foods Corporation, et. al., commenced July 30, 2001, in the Rock County (Wisconsin) Circuit Court. In the suit, the Wisconsin Department of Justice seeks civil penalties against the Company. The State alleges that the Company stored and/or disposed of two different types of materials at a Wisconsin facility in violation of applicable laws. The Company has cooperated with Wisconsin authorities to remove the materials and complete remediation activities but is contesting the State's efforts to recover a monetary penalty. The first subject matter of the suit involved events, which occurred approximately 19 years ago, and there was no addition of materials in subsequent years. The second subject matter of the suit involved two events between 1995 and 1999. All material at issue in the action has been removed and properly disposed of. If civil penalties are imposed, by judgment or settlement, the Company would incur a liability, although the ultimate amount of the liability that might be incurred is uncertain. The Company's reported net earnings for fiscal 2002 reflects an estimated charge with respect to this matter, which may be less or more than the ultimate charge, in which case an appropriate adjustment will be made in subsequent financial periods. The Company does not anticipate that future compliance will require significant changes in its production and packing operations.
Employment
Food processing - Full time 1,995
- Seasonal 306
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2,301
Other 82
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2,383
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The Company has four collective bargaining agreements with three union locals covering approximately 539 of its full time employees. The terms of these agreements result in wages and benefits, which are substantially the same for comparable positions for the Company's non-union employees. Three collective bargaining agreements expire in calendar 2003. The remaining agreement expires in calendar 2004.
Foreign Operations
Export sales for the Company are a relatively small portion (about 3%) of the food processing sales.
Item 2
Properties
The Company has seven food processing, packaging, and warehousing facilities located in New York State that provide approximately 1,588,000 square feet of food packaging, freezing and freezer storage, and warehouse storage space. These facilities process and package 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.
Six facilities in Minnesota, two facilities in Washington, one facility in Idaho, and six facilities in Wisconsin provide approximately 5,708,000 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's air charter division has a 42,000 square foot facility, which is owned by the Company.
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.
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 its financial position, results of operations or cash flows. See Environmental Litigation for further legal discussion.
Item 4
Submission of Matters to a Vote of 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 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 2002 Annual Report, "Shareholder Information and Quarterly Results", which is incorporated by reference.
Item 6
Selected Financial Data
Refer to the information in the 2002 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 2002 Annual Report, "Management's Discussion and Analysis of Financial Condition and Results of Operations", which is incorporated by reference.
Item 7A
Quantitative and Qualitative Disclosures about Market Risk
Refer to the information in the 2002 Annual Report, "Quantitative and Qualitative Disclosures about Market Risk", which is incorporated by reference.
Item 8
Financial Statements and Supplementary Data
Refer to the information in the 2002 Annual Report, "Consolidated Financial Statements and Notes thereto including Independent Auditors' Report", which is incorporated by reference.
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Seneca Foods Corporation
Marion, New York
We have audited the consolidated financial statements of Seneca Foods Corporation and subsidiaries as of March 31, 2002 and 2001, and for each of the three years in the period ended March 31, 2002, and have issued our report thereon dated May 24, 2002; such consolidated financial statements and report are included in your 2002 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 DELOITTE & TOUCHE LLP Rochester, New York May 24, 2002 |
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, Financial Statements, and Supplemental Schedules
1. Financial Statements - the following consolidated financial statements of the Registrant, included in the Annual Report for the year ended March 31, 2002, are incorporated by reference in Item 8:
Consolidated Statements of Net Earnings - Years ended March 31, 2002, 2001 and 2000
Consolidated Balance Sheets - March 31, 2002 and 2001
Consolidated Statements of Cash Flows - Years ended March 31, 2002, 2001 and 2000
Consolidated Statements of Stockholders' Equity - Years ended March 31, 2002, 2001 and 2000
Notes to Consolidated Financial Statements - Years ended March 31, 2002, 2001 and 2000
Independent Auditors' Report
Pages
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2. Supplemental Schedule:
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Schedule II -- Valuation and Qualifying Accounts 9
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:
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No. 3 - Articles of Incorporation and By-Laws - Incorporated by reference to the Company's Form 10-Q/A
filed August, 1995; as amended by the amendments filed with the Company's Form 10-K filed June 1996,
as amended by the Company's definitive proxy statement filed July, 1998.
No. 4 - Articles defining the rights of security holders - Incorporated by reference to the Company's
Form 10-Q/A filed August, 1995 as amended by amendments filed with the Company's Form 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 Form 10-Q filed January 1995 as amended by Exhibit No.
4 of the Company's Form 10-K filed June, 1997, amended by Exhibit 4 of the Company's Form 10-Q
and Form 10-Q/A filed November, 1997, as amended by amendments filed with the Company's
definitive proxy statement filed July, 1998. 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 Form 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 amended by the Company's Form 8-K dated June
11, 2002. Filed herewith is an Indemnification Agreement dated January 31, 2002.
No. 13 - The material contained in the 2002 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", "Quantitative and Qualitative Disclosures about Market Risk", and
"Shareholder Information and Quarterly Results".
No. 21 - List of Subsidiaries 10
No. 23 - Consents of Experts and Counsel 10
B. Reports on Form 8-K
None.
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Schedule II
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Balance at Charged/ Charged to Deductions Balance
Beginning (Credited) other from at end
of period to income accounts reserve of period
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Year-ended March 31, 2002:
Allowance for doubtful accounts $ 632 $ 190 $ --- $ 217 (a) $ 605
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Year-ended March 31, 2001:
Allowance for doubtful accounts $ 469 $ 188 $ -- $ 25 (a) $ 632
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Year-ended March 31, 2000:
Allowance for doubtful accounts $ 487 $ (5) $ -- $ 13 (a) $ 469
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(a) Accounts written off, net of recoveries.
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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 6, 2002
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Jeffrey L. Van Riper
Controller and Secretary
(Principal Accounting Officer)
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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
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/s/Arthur S. Wolcott Chairman and Director June 6, 2002
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Arthur S. Wolcott
/s/Kraig H. Kayser President, Chief Executive Officer, June 6, 2002
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Kraig H. Kayser and Director
/s/Philip G. Paras Chief Financial Officer June 6, 2002
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Philip G. Paras
/s/Jeffrey L. Van Riper Controller and Secretary June 6, 2002
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Jeffrey L. Van Riper (Principal Accounting Officer)
/s/Arthur H. Baer Director June 6, 2002
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Arthur H. Baer
/s/Andrew M. Boas Director June 6, 2002
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Andrew M. Boas
/s/Robert T. Brady Director June 6, 2002
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Robert T. Brady
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Continued
Signature Title Date /s/Douglas F. Brush Director June 6, 2002 ------------------- Douglas F. Brush /s/Edward O. Gaylord Director June 17, 2002 -------------------- Edward O. Gaylord /s/G. Brymer Humphreys Director June 6, 2002 ---------------------- G. Brymer Humphreys /s/Susan W. Stuart Director June 6, 2002 ------------------ Susan W. Stuart |
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT is made as of January 31, 2002 by and between Seneca Foods Corporation, a New York corporation (the "Corporation"), and Name ("Indemnitee").
INTRODUCTION
The Corporation wishes Indemnitee to serve as a Director of the Corporation and Indemnitee is willing to serve in such position with the indemnification and other rights provided hereby.
In recent years, litigation seeking to impose liability on directors and officers of publicly-held corporations has become more frequent. Such litigation is extremely expensive to defend. In many cases, defense costs exceed the financial means of individual defendants. Further, the possibility of liability for extremely large sums is a deterrent to persons accepting positions of responsibility with a public corporation and making business decisions which are in the best interest of the Corporation and its stockholders.
Indemnitee is deeply concerned regarding this situation, as well as the adequacy of the indemnification available under the Corporation's Certificate of Incorporation, as amended, and Bylaws, as amended.
NOW, THEREFORE, to induce Indemnitee to serve the Corporation and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE ONE
INTERPRETIVE RULES; DEFINITIONS
Section 1.1. General Interpretive Rules.
For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, (i) terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular, and the use of the masculine gender herein shall be deemed to include the feminine gender; (ii) references herein to "Sections" without reference to a document are to designated Sections of this Agreement; (iii) "including" means "including but not limited to"; and (iv) "herein," "hereof," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular provision.
Section 1.2. Definitions.
In this Agreement:
Agreement means this Indemnification Agreement as executed by the parties hereto as of the date first written above or, if amended, as amended.
Board means the Board of Directors of the Corporation.
Derivative Proceeding means a Proceeding brought by or in the right of the Corporation.
Entity means a corporation, business, partnership, joint venture, trust, employee benefit plan or other enterprise.
Fine means any fine, penalty or, with respect to an employee benefit plan, any excise tax or penalty assessed with respect thereto.
Litigation Costs means costs, charges and reasonable expenses, including attorneys' fees, actually and necessarily incurred in the investigation, defense or prosecution of or other involvement in any Proceeding and any appeal therefrom, and the costs of appeal, attachment and similar bonds.
Losses means the total amount which Indemnitee becomes legally obligated to pay in connection with any Proceeding, including judgments, Fines, amounts paid in settlement and Litigation Costs.
Proceeding means any threatened, pending or completed action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative (whether external or internal to the Corporation), and whether formal or informal.
ARTICLE TWO
INDEMNIFICATION
Section 2.1. Proceedings by Third Parties.
The Corporation shall indemnify Indemnitee if Indemnitee, his or her testator or intestate, was or is a party, or is threatened to be made a party, to any Proceeding (other than a Derivative Proceeding) or is otherwise involved in a proceeding by reason of the fact that he or she is or was a director or officer of the Corporation, or is or was serving another Entity in any capacity at the request of the Corporation, against Losses in connection with such Proceeding if he or she acted in good faith, without fraudulent intent and for a purpose which he or she reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.
Section 2.2. Derivative Proceedings.
(a) Except as provided in Section 2.2(b), the Corporation shall indemnify Indemnitee if he or she was or is a party, or is threatened to be made a party, to or is otherwise involved in any Derivative Proceeding to procure a judgment in its favor by reason of the fact that Indemnitee, his or her testator or intestate, is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another Entity, against amounts paid in settlement and Litigation Costs in connection with the defense or settlement of such Proceeding if he or she acted in good faith, without fraudulent intent and for a purpose which he or she reasonably believed to be in or not opposed to the best interests of the Corporation.
(b) No indemnification under Section 2.2(a) shall be made in respect of:
(i) a threatened action or a pending action which is settled or otherwise disposed of; or
(ii) any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Corporation,
unless and only to the extent that a court of competent jurisdiction or the court in which such Proceeding was brought shall determine upon application that, in view of all relevant circumstances, Indemnitee is fairly and reasonably entitled to indemnification for such portion of the settlement amount and Litigation Costs which a court of competent jurisdiction or other such court shall deem proper.
Section 2.3. No Presumptions Based on Manner Proceeding is Terminated.
The termination of any Proceeding by judgment, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not in itself create a presumption (i) that Indemnitee did not act in good faith, without fraudulent intent and for a purpose which he or she reasonably believed to be in or not opposed to the best interests of the Corporation or (ii) with respect to any criminal action or proceeding, that Indemnitee had reasonable cause to believe that his or her conduct was unlawful.
Section 2.4. Indemnification Against Expenses of Successful Party.
Notwithstanding any other provision hereof, to the extent that Indemnitee has been successful, on the merits or otherwise, including the dismissal of an action without prejudice, in defense of any Proceeding, or in defense of any claim, issue or matter therein, the Corporation promptly shall pay for or reimburse Indemnitee's Litigation Costs incurred in connection therewith.
Section 2.5. Advances of Litigation Costs.
At the request of Indemnitee, Litigation Costs incurred by him in any Proceeding shall be paid by the Corporation in advance of the final disposition of such matter with the undertaking of Indemnitee, which hereby is given, that if it shall be ultimately determined that Indemnitee was not entitled to be indemnified, or was not entitled to be fully indemnified, Indemnitee shall repay to the Corporation the amount, or appropriate portion thereof, so advanced. Such payment by the Corporation shall be made promptly (but in any event within 30 days) after its receipt of Indemnitee's request therefor.
Section 2.6. Determination of Right to Indemnification; Procedure Upon Application.
(a) Where Indemnitee has been successful on the merits or otherwise in any Proceeding or Derivative Proceeding, Indemnification under Sections 2.1 and 2.2 shall be made promptly, and in any event within 90 days of Indemnitee's written request therefor.
(b) The Corporation may choose to indemnify a director or officer who is not entitled to such mandatory indemnification if a determination is made, in the manner provided below, that Indemnitee acted in good faith, without fraudulent intent and for a purpose that he or she believed to be in or not opposed to the best interests of the Corporation or, with respect to any criminal proceeding, that Indemnitee had no reasonable cause to believe that his or her conduct was unlawful. The determination to be made by the Corporation under this Section 2.6(b) shall be based on the facts known at the time and shall be made:
(i) by the Board, acting by a quorum consisting only of directors who are not parties to the Proceeding ("disinterested directors"); or
(ii) if a quorum consisting of disinterested directors is not obtainable, or even if obtainable, a quorum of disinterested directors so directs:
(A) by the Board upon the written opinion of independent counsel; or
(B) by the shareholders of the Corporation.
(c) The right to indemnification under Section 2.6(a) shall be enforceable by Indemnitee in any court of competent jurisdiction. Indemnitee's Litigation Costs incurred in connection with successfully establishing his or her right to indemnification, in whole or in part, in any such proceeding also shall be indemnified by the Corporation.
Section 2.7. Exclusions.
(a) The Corporation shall not be liable to make any payment hereunder (whether in the nature of indemnification or contribution) to the extent payment is actually made to Indemnitee under a valid, enforceable and collectible insurance policy (the "Insurance Policy"). If Indemnitee is required to pay any amount that the Corporation is obligated to pay hereunder
except for the exclusion in this subsection, before payment is reasonably expected to be made under the Insurance Policy, the Corporation shall promptly advance the amount Indemnitee is required to pay for which the Corporation is liable hereunder. Any advance by the Corporation shall be made with the undertaking of Indemnitee, which hereby is given, that he or she shall immediately pay over to the Corporation, from the funds Indemnitee later receives under the Insurance Policy, an amount equal to the amount which the Corporation advanced pursuant to this subsection.
(b) The Corporation shall not be liable hereunder for amounts paid in settlement of a Proceeding effected without its written consent, which consent may not be unreasonably withheld. Without intending to limit the circumstances in which it would be unreasonable for the Corporation to withhold its consent to a settlement, the parties agree that it would be unreasonable for the Corporation to withhold its consent (i) to a settlement in an amount that did not exceed, in the judgment of the Board, the estimated amount of Litigation Costs of Indemnitee to litigate the Proceeding to conclusion or (ii) with respect to a Proceeding other than a Derivative Proceeding, to any settlement proposed by Indemnitee unless a determination is made by the Corporation, in the manner provided in Section 2.6(b), that Indemnitee acted in bad faith and/or with fraudulent intent for a purpose that he or she did not believe to be in or not opposed to the best interests of the Corporation or, with respect to any criminal proceeding, that Indemnitee believed or had reasonable cause to believe that his or her conduct was unlawful. Clause (i) of this Section 2.7(b) is not intended to eliminate the requirement that Indemnitee satisfy the applicable standards of conduct in Sections 2.1 and 2.2 (determined as provided in Section 2.6).
(c) The Corporation shall not be liable hereunder for any Fine imposed by law which the Corporation is prohibited by applicable law from paying as indemnity or otherwise.
Section 2.8. Contribution.
In order to provide for just and equitable contribution in circumstances in which the indemnification provided for herein is held by a court of competent jurisdiction to be unavailable to Indemnitee in whole or part, the parties agree that, in such event, the Corporation shall contribute to the payment of Indemnitee's Losses in an amount that is just and equitable in the circumstances, taking into account, among other things, contributions by other directors, and of the Corporation pursuant to Indemnification Agreements or otherwise. The Corporation and Indemnitee agree that, in the absence of personal enrichment of Indemnitee, or acts of bad faith, intentional fraud or dishonesty or criminal conduct on the part of Indemnitee, it would not be just and equitable for Indemnitee to contribute to the payment of Losses arising out of a Proceeding in an amount greater than: (i) in a case where Indemnitee is a director of the Corporation or any of its subsidiaries but not an officer of either, the amount of fees paid to Indemnitee for serving as a director during the 12 months preceding the commencement of such Proceeding; or (ii) in a case where Indemnitee is a director of the Corporation or any of its subsidiaries and is an officer of either, the amount set forth in clause (i) plus 5% of the aggregate cash compensation paid to Indemnitee for serving as such officer(s) during the 12 months preceding the commencement of such Proceeding; or (iii) in a case where Indemnitee is only an officer of the Corporation or any of its subsidiaries, 5% of the aggregate cash compensation paid to Indemnitee for serving as such officer(s) during the 12 months preceding the commencement of such Proceeding. The Corporation shall contribute to the payment of Losses covered hereby to the extent not payable by Indemnitee pursuant to the contribution provisions set forth in the preceding sentence.
Section 2.9. Notice to Corporation; Cooperation.
(a) Indemnitee shall give the Corporation notice, as soon as practicable, of any claim made against him for which indemnification will be or could be sought hereunder.
(b) Indemnitee shall give the Corporation such cooperation and information as it may reasonably require in connection with any claim by Indemnitee hereunder.
Section 2.10. Other Rights and Remedies.
The rights provided hereby shall not be deemed exclusive of any other right to which Indemnitee may be entitled under any statute, applicable provision of the Corporation's Certificate of Incorporation or Bylaws, agreement, vote of stockholders or of disinterested directors, or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue after Indemnitee ceases to serve the Corporation in the position identified in the Introduction hereof.
Section 2.11. Serving at the Corporation's Request.
References in Article Two to "serving at the request of the Corporation" include service with respect to any employee benefit plan, its participants, or beneficiaries. Any action taken or omitted by a person with respect to an employee benefit plan in the performance of such person's duties for a purpose reasonably believed by such person to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is "not opposed to the best interests of the Corporation" as referred to in Article Two.
Section 2.12. Proceedings Initiated by Indemnitee.
The Corporation shall indemnify Indemnitee if he or she was or is a party, or had taken steps to become a party, to any Proceeding initiated by Indemnitee by reason of or arising out of the fact that he or she is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another Entity, against Litigation Costs in connection with the Proceeding to the fullest extent permitted by the New York Business Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment) only if the Proceeding (or part thereof) had been authorized by the Corporation in the manner provided in Section 2.6(b). Section 2.13. Release by Indemnitee.
The parties recognize that, pursuant to this Agreement, Indemnitee may receive the benefits of indemnification payments (paid to Indemnitee or paid to others for the benefit of Indemnitee). The Corporation is entitled to the cooperation and assistance of the Indemnitee in obtaining or directing payments by an insurer or insurers (collectively, "Insurer") issuing a directors' and officers' liability insurance policy (i) from which the Company is seeking total or partial recovery for indemnification payments which the Corporation has made to or on behalf of the Indemnitee or (ii) from which the Indemnitee or others on behalf of the Indemnitee are receiving indemnification payments. Without limiting the generality of the preceding sentence, the ways in which the Indemnitee shall assist the Corporation shall include the following:
After all Losses of the Indemnitee indemnifiable under this Agreement with respect to any particular Proceeding against the Indemnitee shall have been paid, the Indemnitee, at the request of the Corporation, shall execute and deliver to the Corporation a written confirmation of that fact.
Concurrently with the effectiveness of this Section 2.13, Indemnitee shall execute, acknowledge before a notary public, and deliver to the Corporation a Power of Attorney in the form attached hereto as Exhibit 2.13 specifically authorizing each of certain designated officers of the Corporation as attorneys-in-fact for Indemnitee to execute, acknowledge and deliver Indemnitee's written release to the Insurer with respect to the Losses arising from a particular Proceeding for which Indemnitee has been fully indemnified; and, if requested by the Corporation, Indemnitee shall execute, acknowledge before a notary public, and deliver to the Insurer Indemnitee's written release with respect to the Losses arising from a particular Proceeding for which Indemnitee has been fully indemnified.
If Indemnitee were to revoke the Power of Attorney or refuse to provide the Corporation with the written confirmation to which it is entitled under the provisions of this Section 2.13, the Corporation shall have no further indemnification obligations hereunder with respect to any then-pending or future Proceeding; but nothing contained herein shall nullify any right conferred upon Indemnitee by Section 723(a) of the New York Business Corporation Law, as amended, or any successor provision in the New York statutes. In any event, Indemnitee hereby releases the Corporation from liability to Indemnitee hereunder with respect to any specific claim for which Indemnitee has been fully indemnified hereunder, regardless whether Indemnitee executes a separate release.
ARTICLE THREE
MISCELLANEOUS
Section 3.1. Binding Effect.
This Agreement shall be binding upon all successors and assigns of the Corporation (including any transferee of all or substantially all of its assets and any successor by merger or operation of law) and shall inure to the benefit of the heirs, personal representatives and estate of Indemnitee.
Section 3.2. Savings Clause.
If all or any portion of any section hereof is held invalid or unenforceable on any ground by any court of competent jurisdiction, the Corporation nevertheless shall indemnify Indemnitee for his or her Losses to the full extent permitted by any applicable portion hereof that has not been held invalid or unenforceable or by any other applicable law.
Section 3.3. Governing Law.
The validity, construction, enforcement and interpretation of this Agreement shall be governed by the internal law (and not the law of conflicts) of the State of New York.
Section 3.4. Effect of Headings.
The Introduction and Article and Section headings herein are for convenience only and shall not affect the construction hereof.
Section 3.5. Notices.
(a) Any notice, request or other communication hereunder to or on the Corporation or Indemnitee shall be in writing and delivered or sent by postage prepaid first-class mail, as follows: (i) if to the Corporation, addressed to Seneca Foods Corporation, 3736 South Main Street, Marion, New York 14505, "Attention: President;" and (ii) if to Indemnitee, addressed to him at the address shown on the signature page hereof.
(b) Either address referred to in the preceding subsection may be changed from time to time and shall be the most recent such address furnished in writing by the party whose address has changed to the other party in the manner specified in the preceding subsection.
Section 3.6. Counterparts.
This Agreement may be executed in any number of counterparts. Each counterpart of an agreement so executed shall be deemed an original, but all such counterparts shall together constitute but one and the same instrument. In making proof of this Agreement, it shall not be necessary to produce or account for more than one counterpart.
Section 3.7. Complete Agreement.
This Agreement represents the full and complete understanding of the parties with respect to the subject matter hereof and supersedes in its entirety any prior agreement, oral or otherwise, regarding the indemnification of the Indemnitee.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first written above.
SENECA FOODS CORPORATION
By: /s/Kraig H. Kayser
------------------------------
Its: Kraig H. Kayser, President and
Chief Executive Officer
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Address:
Note: All outside directors have signed this agreement which are Arthur H. Baer, Andrew M. Boas, Robert T. Brady, Douglas F. Brush, Edward O. Gaylord, G. Brymer Humphreys and Susan W. Stuart.
Five Year Selected Financial Data
Summary of Operations and Financial Condition
(In thousands of dollars, except per share data)
Years ended March 31, 2002 2001 2000 1999 1998
-------------------------------------------------------------------------------------------------------------------
Net sales $651,075 $ 674,300 $ 621,078 $ 588,049 $ 572,039
-------------------------------------------------------------------------------------------------------------------
Operating earnings (before Corporate
interest and administrative expense) $ 23,188 $ 23,879 $ 27,335 $ 27,138 $ 22,732
Earnings (loss) from continuing
operations before extraordinary item and
cumulative effect of accounting change 1,140 813 4,320 1,420 (3,181)
Loss from discontinued operations - - - (6,791) (1,963)
Gain on sale of discontinued operations - - - 11,756 -
Earnings (loss) before extraordinary item and
cumulative effect of accounting change 1,140 813 4,320 6,385 (5,144)
Extraordinary loss - - - (1,222) -
Net earnings (loss) 1,140 813 4,320 5,163 (5,144)
------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) from continuing
operations per common share $ .17 $ .12 $ .66 $ .23 $ (.54)
Basic earnings (loss) per common share before
extraordinary item and cumulative
effect of accounting change .17 .12 .66 1.05 (.87)
Basic earnings (loss) per common share .17 .12 .66 .85 (.87)
------------------------------------------------------------------------------------------------------------------
Working capital $ 163,606 $ 163,367 $ 168,972 $ 167,435 $ 112,299
Inventories 181,835 229,170 203,173 152,634 194,044
Net property, plant, and equipment 155,189 167,450 179,146 178,658 218,408
Total assets 403,576 444,233 438,540 404,870 474,926
Long-term debt and capital lease
obligations 156,100 171,346 189,968 187,904 227,858
Stockholders' equity 151,123 149,759 148,999 144,588 89,125
------------------------------------------------------------------------------------------------------------------
Additions to property, plant, and equipment $ 13,423 $ 15,395 $ 19,875 $ 9,494 $ 15,693
Interest expense, net 17,441 18,662 16,147 21,594 23,913
-----------------------------------------------------------------------------------------------------------------
Net earnings/average equity 0.9% 0.7% 3.6% 4.4% (5.6)%
Continuing earnings before taxes/sales 0.3% 0.2% 1.1% 0.3% (0.9)%
Net earnings/sales 0.2% 0.1% 0.7% 0.9% (0.9)%
Long-term debt/equity 103% 114% 127% 130% 256%
Current ratio 3.0:1 2.5:1 3.1:1 4.0:1 1.8:1
-----------------------------------------------------------------------------------------------------------------
Stockholders' equity per common share $ 16.46 $ 16.26 $ 16.16 $ 15.65 $ 14.99
Class A National Market System
closing price range 14 3/4-11 1/2 15 1/4-11 15 1/2-10 1/4 17 1/8-10 18 3/4-15 3/4
Class B National Market System
closing price range 14 7/9-12 14 7/8-10 3/4 14 3/4-10 16 3/4-10 3/8 18 1/2-15 1/2
Common cash dividends declared per share - - - - -
Price earnings ratio 84.3 110.2 17.1 13.1 NM
-----------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
NM - not meaningful.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
Because the Company is primarily engaged in vegetable processing, the Company's yearly business cycle shows large inventory growth during the summer and fall harvest period. The inventory peaks in the early fall and drops to its minimum level immediately prior to the next pack season (pack refers to canning and freezing of vegetables and certain fruits with each commodity at a certain time during the year which can vary based on weather conditions among other factors). 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 November 1999, the Company acquired certain assets of the Midwest private label canned vegetable business from Agrilink Foods, Inc., for approximately $48.0 million. The Company purchased one plant and inventories of the business. The annual sales of this business are approximately $73.0 million. The purchase price was partially funded by a subordinated note for $5.0 million while the balance was paid in cash.
As of March 31, 2002, the Company maintained a committed revolving line of credit of $20 million and uncommitted lines of credit totaling $76 million. The Company had no short-term borrowings as of the end of 2002, $24.5 million of short-term borrowings as of the end of 2001, and no short-term bank borrowings throughout fiscal 2000. The Company believes that the credit facilities will be sufficient, with its other resources, for its anticipated working capital requirements in 2003.
The Company has three major long-term debt instruments: 1) a $36.0 million note payable to The Prudential Insurance Company of America, with an interest rate of 10.78%, which is due through 2005; 2) a $57.5 million secured nonrecourse note payable to The Pillsbury Company, with an interest rate of 8%, which is due through 2009; and 3) a $37.5 million note payable to John Hancock Life Insurance Company, with an interest rate of 10.81%, which is due through 2009.
The Company issued long-term debt totaling $8.1 million during 2002. The largest instrument was a $3.2 million Industrial Development Bond issued to finance the expansion of the Yakima, Washington plant. Also, a $1.5 million mortgage was issued to finance the purchase of a warehouse in Mayville, Wisconsin.
In 2000, the Company issued an Industrial Revenue Development Bond for $6.0 million to finance production equipment in the Midwest. The Other Assets category includes none, $1.3 million, and $5.3 million as of the fiscal years ended 2002, 2001 and 2000, respectively, of yet unspent proceeds of this debt issue.
The decrease in cash and short-term investments of $6.0 million over the three year period ended in 2002 was primarily due to the Agrilink acquisition of $43.5 million; long-term debt repayments totaling $35.8 million; and capital additions of $13.4 million, $15.4 million, and $19.9 million, in 2002, 2001, and 2000, respectively. This was partially offset by: the proceeds of new long-term debt totaling $14.1 million; proceeds of the sale of assets totaling $4.5 million; and net earnings (before depreciation effect, which is non-cash). In 2002, accounts receivable increased by $500 thousand to $32.0 million. In 2001, accounts receivable decreased by $200 thousand to $31.5 million. In 2000, accounts receivable decreased by $4.0 million.
In 2002, inventories decreased by $47.3 million, primarily reflecting a strategic decision by the Company to reduce its canned vegetable production during the 2001 harvest season following the inventory buildup in the prior year. In 2001, inventories increased by $26.0 million mainly due to a temporary disruption in retail canned vegetable sales patterns resulting from the Year 2000 stock-up phenomenon in the prior year. In 2000, inventories increased by $50.5 million mainly due to the acquisition of the Midwest private label canned vegetable business described above.
In 2002, capital expenditures were $13.4 million versus $15.4 million in 2001 and $19.9 million in 2000. The largest project in 2002 was the expansion of production capacity in the Snack Chip plant in Yakima, Washington of $4.2 million (of which $300 thousand was spent in 2001), while the largest project in 2001 was an automatic corn cutter project in Minnesota, which totaled $3.3 million and was financed with the Industrial Revenue Development Bond discussed above. In 2000, certain expenditures of approximately $5.0 million were made to accommodate the additional volume acquired from Agrilink (since only one of three plants was purchased). Another major capital initiative in 2000 involved increasing production capacity in the Northwest. -
Results of Operations
The Company has an Alliance Agreement with The Pillsbury Company, 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. In October 2001, General Mills, Inc. acquired Pillsbury from Diageo PLC. The Alliance Agreement has a remaining term of thirteen years.
Net sales for 2002 were $651.1 million, which includes $258.4 million sold under the Alliance with Pillsbury. Net sales for 2001 were$674.3 million, which includes $290.3 million sold under the Alliance with Pillsbury. Net sales for 2000 were $621.1 million, which includes $263.3 million sold under the Alliance with Pillsbury. In 2002, Non-Alliance sales increased from $384.0 million to $392.7 million primarily reflecting growth in private label and international canned retail vegetable volume together with an improved retail canned vegetable selling price environment. These increases were partially offset by lower volume in food service canned vegetables. In 2001, Non-Alliance sales increased from $357.8 million to $384.0 million reflecting a full year of sales from the Agrilink acquisition partly offset by lower selling prices. In 2000, Non-Alliance sales increased from $298.1 million to $357.8 million reflecting the Agrilink acquisition, distribution gains in the vegetable non-branded area, and higher selling prices. This increase was partially offset by a reduction in Alliance sales reflecting a planned smaller pack than the previous year.
In 2001, the Company sold a facility in Othello, Washington, which resulted in a
gain of $1.2 million before income taxes. Also in 2001, the Company sold a
facility in Buckley, Michigan, which resulted in a gain of $0.2 million before
income taxes. In 2000, the Company sold a distribution facility in Chicopee,
Massachusetts, which resulted in a gain of $1.0 million before income taxes. In
2002, earnings increased primarily due to the following reasons: 1) a $1.2
million decrease in interest expense as a result of lower interest rates and
lower average debt balances; and 2) higher selling prices on vegetables,
especially on branded and private label canned retail vegetables, than the
previous year. In 2001, earnings decreased primarily due to the following
reasons: 1) a $2.5 million increase in interest expense as a result of the
higher short-term borrowings in support of an increase in average inventories;
2) lower selling prices on vegetables, especially on private label canned retail
vegetables than the previous year; and 3) an increase in natural gas and fuel
costs of $6.0 million (approximately $3.0 million effect on 2001 results). In
2000, earnings increased due to the following reasons: 1) a $5.4 million
reduction in interest expense as a result of the $49.7 million equity offering
and juice and applesauce divestitures completed in fiscal 1999; 2) better
selling prices on vegetables, especially on private label canned retail and food
service vegetables than the previous year; and 3) additional sales due to the
acquired business described above. These gains were partially offset by a
provision principally to reflect the expected liquidation costs of our
maraschino cherry business, including a plant closure, of $2.0 million,
established in 2000.
A deferred tax valuation allowance as of March 31, 2002, was not deemed necessary due to the fact that there was positive evidence that outweighed the negative evidence that it was more likely than not that these tax assets will be realized. While the Company has suffered a loss in one of the last five fiscal years, the Company does not believe that such a loss should be considered a trend, and that other evidence, including the fact that the Company has never had a net operating loss expire, should be considered in evaluating whether a valuation allowance is necessary.
In general, inflation played a relatively small role in the operating results and cash flows of 2002, 2001, and 2000.
Significant Accounting Policy
During the year ended 2002, the Company sold for cash, $229 million of finished goods inventory to a special purpose entity (SPE), versus $241 million sold to the SPE for the previous year. At the time of the sale of finished goods inventory to the SPE, the finished goods inventory was complete, ready for shipment and segregated from the Company's other finished goods inventory. Further, the Company had performed all of its obligations with respect to the sale of the specified finished goods inventory.
The SPE is not required to be consolidated with the Company's financial statements due, in part, to several reasons:
- The majority owner of the SPE has control of the SPE and is an independent third party who has made a substantial capital contribution in the SPE. In addition, the equity capital of the SPE is always in excess of the minimum guidelines for such an entity.
- The majority owner of the SPE has substantial risks and rewards of ownership of the assets of the SPE. The equity investment of the majority owner is subordinate to any debt holders.
- The SPE activities are not on the exclusive behalf of the Company.
Subsequent to the 2002 year-end, the Company, Pillsbury, General Mills Operations, Inc. and General Mills, Inc. entered into an amendment to the Alliance Agreement pursuant to which certain provisions were modified to (i) assign Pillsbury's rights and obligations under the Alliance Agreement to General Mills Operations, Inc. ("GMOI"), which is an indirect, wholly-owned subsidiary of General Mills, Inc.; (ii) accelerate the timing of the obligation of GMOI to purchase Green Giant inventory from the Company by requiring that such inventory be purchased at the end of each commodity production cycle (e.g. corn, peas, green beans, and asparagus); and (iii) substitute General Mills, Inc. for Diageo PLC as the guarantor of GMOI's obligations under the Alliance Agreement. In connection with the above amendment, the SPE was dissolved.
Recently Issued Accounting Standards
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets. Since the Company does not have goodwill or other intangible assets on its consolidated balance sheet, this Statement is not expected to have an impact on its consolidated financial statements.
In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 is effective in fiscal year 2004. The Company is currently evaluating the impact on its consolidated financial statements of implementing SFAS No. 143.
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment of Long-Lived Assets, which supersedes SFAS No. 121, Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and the accounting provisions of APB No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. SFAS No. 144 is effective in fiscal year 2003. SFAS No. 144 retains many of the provisions of SFAS No. 121, but addresses certain implementation issues associated with the Statement. The Company is currently evaluating the impact on its consolidated financial statements of implementing this Statement.
In 2001, the Emerging Issues Task Force ("EITF") issued EITF No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)," which addresses the recognition, measurement and income statement classification of consideration given by a vendor to a customer (including both a reseller of the vendor's products and an entity that purchases the vendor's products from a reseller). EITF No. 01-09, among other things, requires that certain consideration given by a vendor to a customer be characterized as a reduction of revenue when recognized in the vendor's income statement. The Company is required to adopt EITF No. 01-09 in its financial statements beginning April 1, 2002. The Company's current accounting and classification of these amounts are in compliance with the consensus reached in this EITF.
Quantitative and Qualitative Disclosures about Market Risk
As a result of its operating and financing activities, the Company is exposed to certain market risks including changes in commodity pricing and fluctuations in interest rates. Commodity pricing exposure includes weather phenomena and their effect on industry volumes, prices, product quality, and costs. The Company manages its exposure to commodity price risk primarily through its regular operating activities. The Company has not used derivative financial instruments and has not utilized financial instruments for trading or other speculative purposes.
Interest Rate Risk
As a result of its regular borrowing activities, the Company's operating results are exposed to fluctuations in interest rates, which it manages primarily through its regular financing activities. The Company uses bank lines of credit with variable interest rates to finance seasonal working capital requirements. The Company maintains investments in cash equivalents ($18.5 million as of March 31, 2002) and does have investments in a modest amount of marketable securities. Long-term debt represents secured and unsecured notes and debentures, certain notes payable to insurance companies used to finance long-term investments such as business acquisitions, and capital lease obligations. Long-term debt bears interest at fixed and variable rates. The following table provides informaton about the Company's financial instruments that are sensitive to changes in interest rates. The table presents principal cash flows and sinking fund requirements and related weighted-average interest rates by expected maturity date. Weighted-average interest rates on variable-rate debt are based on current rates as of March 31, 2002:
Interest Rate Sensitivity of Long-Term
Debt, Short-Term Debt and Short-Term Investments
March 31, 2002
(In Thousands)
EXPECTED MATURITY DATE
--------------------------------------------------------------------------------
Total / Estimated
Weighted Fair
2003 2004 2005 2006 2007 Thereafter Average Value
------------------------------------------------------------------------------------------------------------------------------------
Fixed-rate L/T debt:
Principal cash flows $22,823 $22,946 $23,081 $11,094 $10,505 $65,844 $156,293 $146,392
Average interest rate 8.87% 8.70% 8.46% 8.28% 8.23% 7.76% 8.39% --
Variable-rate L/T debt:
Principal cash flows $ -- $ -- $ -- $ -- $ -- $22,630 $ 22,630 $ 22,630
Average interest rate 4.57% 4.57% 4.57% 4.57% 4.57% 4.57% 4.57% --
Variable-rate S/T debt:
Principal cash flows $ 21,171 $ 21,171
Average interest rate 5.61% --
Short-Term investments:
Average Balance $ 8,584 $ 8,584
Average interest rate 2.38% --
------------------------------------------------------------------------------------------------------------------------------------
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Consolidated Statements of Net Earnings
Seneca Foods Corporation and Subsidiaries
(In thousands of dollars, except share amounts)
Years ended March 31, 2002 2001 2000
-------------------------------------------------------------------------------------------------------------------------
Net sales $651,075 $674,300 $621,078
-------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of product sold 609,574 630,138 575,184
Selling, general, and administrative expense 21,095 23,367 21,605
Other expense, net 1,011 971 1,254
Interest expense, net of interest income of $ 301, $629 and
$1,672, respectively 17,441 18,662 16,147
------------------------------------------
649,121 673,138 614,190
-------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 1,954 1,162 6,888
Income taxes 814 349 2,568
------------------------------------------
Net earnings $ 1,140 $ 813 $ 4,320
=========================================================================================================================
Basic earnings per common share $ .17 $ .12 $ .66
=========================================================================================================================
Diluted earnings per common share $ .11 $ .08 $ .42
=========================================================================================================================
See notes to consolidated financial statements.
|
Consolidated Balance Sheets
Seneca Foods Corporation and Subsidiaries
(In thousands)
March 31, 2002 2001
------------------------------------------------------------------------------------------------------------------------------------
Assets
Current Assets:
Cash and short-term investments $ 24,973 $ 5,391
Accounts receivable, less allowance for doubtful accounts
of $605 and $632, respectively 32,035 31,510
Inventories:
Finished products 135,727 178,415
In process 8,526 13,297
Raw materials and supplies 37,582 37,458
Deferred income tax asset 4,624 5,602
Refundable income taxes 1,657 -
Prepaid expenses 362 1,308
-----------------------------
Total Current Assets 245,486 272,981
------------------------------------------------------------------------------------------------------------------------------------
Other Assets 2,901 3,802
------------------------------------------------------------------------------------------------------------------------------------
Property, Plant, and Equipment:
Land 7,855 7,618
Building 98,850 94,822
Equipment 263,587 256,703
-----------------------------
370,292 359,143
Less accumulated depreciation and amortization 215,103 191,693
------------------------------
Net Property, Plant, and Equipment 155,189 167,450
------------------------------------------------------------------------------------------------------------------------------------
Total Assets $403,576 $444,233
====================================================================================================================================
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable $ - $ 24,500
Accounts payable 33,979 39,726
Accrued expenses 25,078 26,423
Current portion of long-term debt and capital lease obligations 22,823 18,622
Income taxes - 343
------------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 81,880 109,614
Long-Term Debt 149,430 164,251
Capital Lease Obligations 6,670 7,095
Deferred Gain and Other Liabilities 7,165 6,382
Deferred Income Taxes 7,308 7,132
-----------------------------
Total Liabilities 252,453 294,474
------------------------------------------------------------------------------------------------------------------------------------
Commitments (Note 5) - -
Stockholders' Equity:
Preferred stock 42,675 42,741
Common stock 2,827 2,825
-----------------------------
Total Capital Stock 45,502 45,566
Additional paid-in capital 13,619 13,555
Accumulated other comprehensive income 1,208 961
Retained earnings 90,794 89,677
-----------------------------
Total Stockholders' Equity 151,123 149,759
------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 403,576 $444,233
====================================================================================================================================
See notes to consolidated financial statements.
|
Consolidated Statements of Cash Flows
Seneca Foods Corporation and Subsidiaries
(In thousands)
Years ended March 31, 2002 2001 2000
--------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 1,140 $ 813 $ 4,320
Adjustments to reconcile net earnings to
net cash provided by (used in) operations:
Depreciation and amortization 24,546 23,733 23,554
Deferred income taxes 969 (2,071) (87)
Gain on the sale of assets - (1,370) (965)
Impairment provision and other expenses 1,011 2,341 2,219
Changes in operating assets and liabilities:
Accounts receivable (525) 192 4,015
Inventories 47,335 (25,997) (6,961)
Prepaid expenses 946 (780) 383
Accounts payable, accrued expenses, and other liabilities (6,630) (11,243) 22,770
Income taxes (2,000) (302) 336
--------------------------------------------
Net cash provided by (used in) operations 66,792 (14,684) 49,584
--------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant, and equipment (13,423) (15,395) (19,875)
Escrow fund 1,316 4,011 (5,326)
Disposals of property, plant, and equipment 448 1,147 159
Proceeds from the sale of assets - 2,683 1,790
Acquisitions - - (43,481)
-------------------------------------------
Net cash used in investing activities (11,659) (7,554) (66,733)
--------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net (payments) borrowings on notes payable (24,500) 24,500 --
Payments of long-term debt and capital lease obligations (19,124) (8,214) (8,511)
Proceeds from issuance of long-term debt 8,079 - 6,000
Dividends paid (23) (23) (23)
Other assets 17 18 28
--------------------------------------------
Net cash (used in) provided by financing activities (35,551) 16,281 (2,506)
--------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and short-term investments 19,582 (5,957) (19,655)
Cash and short-term investments, beginning of year 5,391 11,348 31,003
--------------------------------------------
Cash and short-term investments, end of year $ 24,973 $ 5,391 $ 11,348
================================================================================================================================
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest $ 17,973 $ 17,235 $ 16,264
Income taxes 1,844 1,994 2,171
Supplemental information of noncash investing and financing activities:
In 2000, a $4,978 unsecured subordinated note was issued in conjunction with the
acquisition of assets.
===============================================================================================================================
See notes to consolidated financial statements.
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Consolidated Statements of Stockholders' Equity
Seneca Foods Corporation and Subsidiaries
(In thousands, except share amounts)
Preferred Stock
-------------------------------------------------
6% 10% Participating
Cumulative Par Cumulative Par Convertible Par
Callable at Par Convertible Stated Value Common Stock Common Stock
Voting Voting $11.93 Par Value $.25 Par Value $.25
---------------------------------------------------------------------------------------------------------
Shares authorized 200,000 1,400,000 4,166,667 20,000,000 10,000,000
=========================================================================================================
Shares issued and outstanding:
March 31, 2000 200,000 807,240 3,593,140 3,797,388 2,767,357
=========================================================================================================
March 31, 2001 200,000 807,240 3,576,433 3,814,095 2,767,357
=========================================================================================================
March 31, 2002 200,000 807,240 3,570,861 3,823,115 2,764,005
=========================================================================================================
---------------------------------------------------------------------------------------------------------
Balance March 31, 1999 $50 $20 $46,363 $870 $1,878
Net earnings -- -- -- -- --
Cash dividends paid
on preferred stock -- -- -- -- --
Preferred Stock Conversion -- -- (3,493) 74 --
Common Stock Conversion -- -- -- 6 (6)
Net unrealized gain on
investments -- -- -- -- --
---------------------------------------------------------------------------------------------------------
Balance March 31, 2000 50 20 42,870 950 1,872
Net earnings -- -- -- -- --
Cash dividends paid
on preferred stock -- -- -- -- --
Preferred Stock Conversion -- -- (199) 3 --
Net unrealized loss on
investments -- -- -- -- --
---------------------------------------------------------------------------------------------------------
Balance March 31, 2001 50 20 42,671 953 1,872
Net earnings - - - - -
Cash dividends paid
on preferred stock -- -- -- -- --
Preferred stock conversion -- -- (66) 2 --
Common stock conversion -- -- -- 1 (1)
Net unrealized gain on
investments -- -- -- -- --
---------------------------------------------------------------------------------------------------------
Balance March 31, 2002 $50 $20 $42,605 $956 $1,871
=========================================================================================================
See notes to consolidated financial statements.
Consolidated Statements of Stockholders' Equity (continued)
Seneca Foods Corporation and Subsidiaries
(In thousands, except share amounts)
Accumulated
Additional Other
Paid-In Comprehensive Retained Comprehensive
Capital Income Earnings Income
-------------------------------------------------------------------------------------
Shares authorized
=====================
Shares issued and outstanding:
March 31, 2000
=======================
March 31, 2001
=======================
March 31, 2002
=======================
-------------------------------------------------------------------------------------
Balance March 31, 1999 $ 9,940 $ 877 $84,590
Net earnings -- -- 4,320 $ 4,320
Cash dividends paid
on preferred stock -- -- (23) --
Preferred Stock Conversion 3,419 -- -- --
Common Stock Conversion -- -- -- --
Net unrealized gain on
investments -- 114 -- 114
-------------------------------------------------------------------------------------
Balance March 31, 2000 13,359 991 88,887 $ 4,434
========
Net earnings -- -- 813 $ 813
Cash dividends paid
on preferred stock -- -- (23) --
Preferred Stock Conversion 196 -- -- --
Net unrealized loss on
investments - (30) -- (30)
-------------------------------------------------------------------------------------
Balance March 31, 2001 13,555 961 89,677 $ 783
========
Net earnings 1,140 $ 1,140
Cash dividends paid
on preferred stock -- -- (23) --
Preferred stock conversion 64 -- -- --
Common stock conversion -- -- -- --
Net unrealized gain on
investments -- 247 -- 247
-------------------------------------------------------------------------------------
Balance March 31, 2002 $13,619 $1,208 $90,794 $1,387
=====================================================================================
See notes to consolidated financial statements.
|
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 21 plants and warehouses in five states. The Company markets branded and private label processed foods to retailers 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. Wholesale and retail food distributors comprise a significant portion of the trade receivables; collateral is generally 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 in certain accounts exceed the federal insured limit, however, the Company has not experienced any losses in such accounts.
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.
Notes to Consolidated Financial Statements (continued)
Earnings per Common Share
A reconciliation of basic earnings per share with diluted earnings per share as
follows:
Years ended March 31, 2002 2001 2000
---------------------------------------------------------------------------------------------
(In thousands, except share amounts)
Basic
Net earnings $ 1,140 $ 813 $ 4,320
Deduct preferred stock dividends paid 23 23 23
---------------------------------------
Basic earnings $ 1,117 $ 790 $ 4,297
=============================================================================================
Weighted average common shares outstanding 6,585 6,577 6,498
=============================================================================================
Basic earnings per share $ .17 $ .12 $ .66
=============================================================================================
Diluted
Basic earnings $ 1,117 $ 790 $ 4,297
Add dividends on convertible preferred stock 20 20 20
---------------------------------------
Earnings applicable to common stock on a
diluted basis $ 1,137 $ 810 $ 4,317
=============================================================================================
Shares used in calculating basic earnings per
share above 6,585 6,577 6,498
Additional shares to be issued under full
conversion of preferred stock 3,640 3,648 3,727
---------------------------------------
Total shares for diluted 10,225 10,225 10,225
=============================================================================================
Diluted earnings per share $ .11 $ .08 $ .42
=============================================================================================
|
Depreciation Property, plant, and equipment are 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. The estimated useful lives are as follows: buildings - 30 years; machinery and equipment - 10-15 years; vehicles - 3-7 years; and land improvements - 10-20 years. 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. Impairment losses of $690,000, $898,000, and $518,000 were recognized in 2002, 2001, and 2000, respectively, and were included in Other Expense, net (see Other Income and Expense, note 11).
Use of Estimates in the Preparation of Financial Statements - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.
Recently Issued Accounting Standards -
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets. Since the Company does not have goodwill or other intangible assets on its consolidated balance sheet, this Statement is not expected to have an impact on its consolidated financial statements.
In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 is effective in fiscal year 2004. The Company is currently evaluating the impact on its consolidated financial statements of implementing SFAS No. 143.
Notes to Consolidated Financial Statements (continued)
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment of Long-Lived Assets, which supersedes SFAS No. 121, Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and the accounting provisions of APB No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. SFAS No. 144 is effective in fiscal year 2003. SFAS No. 144 retains many of the provisions of SFAS No. 121, but addresses certain implementation issues associated with the Statement. The Company is currently evaluating the impact on its consolidated financial statements of implementing this Statement.
In 2001, the Emerging Issues Task Force ("EITF") issued EITF No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)," which addresses the recognition, measurement and income statement classification of consideration given by a vendor to a customer (including both a reseller of the vendor's products and an entity that purchases the vendor's products from a reseller). EITF No. 01-09, among other things, requires that certain consideration given by a vendor to a customer be characterized as a reduction of revenue when recognized in the vendor's income statement. The Company is required to adopt EITF No. 01-09 in its financial statements beginning April 1, 2002. The Company's current accounting and classification of these amounts are in compliance with the consensus reached in this EITF.
Notes to Consolidated Financial Statements (continued)
2. Common Stock of Moog Inc.
Other assets include the Company's investment in the Class B Common Stock of Moog Inc. totaling $2,696,000, and $2,264,000 as of March 31, 2002 and 2001, respectively, which is classified as an available-for-sale security and is carried at fair value. There were no realized gains or losses in 2002, 2001, and 2000, and gross unrealized holding gains were $1,980,000, $1,548,000, and $1,548,000.
Notes to Consolidated Financial Statements (continued)
3. Lines of Credit
The Company obtains required short-term funds through bank borrowings. As of March 31, 2002, the Company had $2,356,268 outstanding for letters of credit, a committed revolving line of credit totaling $20,000,000, and uncommitted lines of credit totaling $76,000,000. The lines are renewable annually at various dates and provide for loans of varying maturities. There are no formal compensating balance arrangements with any of the banks. As of March 31, 2002 and 2001, the amounts borrowed under the line of credit were none and $24,500,000, respectively.
The interest rates on the amounts borrowed at fiscal year-end 2002 and 2001 were none and 6.90%, respectively.
Notes to Consolidated Financial Statements (continued)
4. Long-Term Debt
2002 2001
----------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Secured nonrecourse subordinated promissory note, 8.00%, due through 2009 $ 57,458 $ 61,083
Note payable to insurance company, 10.81%, due through 2009 37,500 42,500
Note payable to insurance company, 10.78%, due through 2005 36,000 44,700
Industrial Revenue Development Bonds, 4.57% and 6.30%, due through 2028 22,630 22,630
Unsecured subordinated promissory note, 8.00%, due through 2009 4,978 4,978
Industrial Revenue Development Bond, 5.69%, due through 2009 4,845 5,342
Notes payable to utility company, 3.00%, due through 2007 2,971 -
Industrial Revenue Development Bond, 5.61%, due through 2008 2,837 -
Other 2,609 1,235
-----------------------
171,828 182,468
Less current portion 22,398 18,217
------------------------
$ 149,430 $ 164,251
========================
|
Long-term debt agreements contain various restrictive financial covenants, the most restrictive of which requires the Company to maintain specific quarterly levels of interest coverage. In addition, these agreements include 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, 2002.
The Company has four Industrial Revenue Bonds ("IRB's") totaling $22,630,000, which are secured by direct pay letters of credit. The interest rates in the table above reflect the direct pay letters of credit costs and amortization of other related costs for those IRB's. Other than the four IRB's above, the carrying value of assets pledged for secured debt is $59,312,000.
Debt repayment requirements for the next five fiscal years are:
(In thousands)
2003 $22,398
2004 22,506
2005 22,621
2006 10,619
2007 10,010
|
Notes to Consolidated Financial Statements (continued)
5. Leases
The Company leases a portion of its equipment and buildings. Capitalized leases consist primarily of limited obligation special revenue bonds, which bear interest rates from 3.55% to 4.75%. Other leases include non-cancelable operating leases expiring at various dates through 2024.
Leased assets under capital leases consist of the following:
2002 2001
----------------------------------------------------------------------------
(In thousands)
Land $ 67 $ 67
Buildings 1,033 1,033
Equipment 9,711 9,711
---------------------------------
10,811 10,811
Less accumulated amortization 7,270 6,325
---------------------------------
$ 3,541 $ 4,486
============================================================================
The following is a schedule by year of minimum payments due under leases as of
March 31, 2002:
Operating Capital
----------------------------------------------------------------------------
(In thousands)
Years ending March 31:
2003 $ 7,479 $ 721
2004 6,573 718
2005 5,598 720
2006 5,039 715
2007 4,256 716
2008-2017 7,716 5,745
-----------------------------
Total minimum payment required $36,661 $ 9,335
============================================================
Less interest 2,240
--------------
Present value of minimum lease payments 7,095
Amount due within one year 425
--------------
Long-term capital lease obligations $ 6,670
============================================================================
|
Rental expense in 2002, 2001, and 2000 was $12,545,000, $11,762,000, and $10,612,000, respectively.
Notes to Consolidated Financial Statements (continued)
6. Income Taxes
The Company files a consolidated income tax return. The provision for income
taxes is as follows:
2002 2001 2000
---------------------------------------
(In thousands)
Current:
Federal $ 50 $ 1,286 $ 2,233
State 93 151 413
----------------------------------------
143 1,437 2,646
----------------------------------------
Deferred:
Federal 600 (973) (59)
State 71 (115) (19)
----------------------------------------
671 (1,088) (78)
----------------------------------------
Total income taxes $ 814 $ 349 $ 2,568
========================================
|
As of March 31, 2002, the Company has Alternative Minimum Tax Credits in the amount of $5,089,000 to offset future years' regular tax expense. State net operating loss carry forwards of approximately $9,500,000, expiring March 31, 2003 through March 31, 2018, are available to offset future state tax expense.
During fiscal year 2001, the Internal Revenue Service completed an audit of fiscal years 1997, 1998 and 1999. Audit adjustments related primarily to changes in the timing of deductions for income tax purposes. There was no negative effect on the Company's income statement for the year.
A reconciliation of the expected U.S. statutory rate to the effective rate follows:
2002 2001 2000
-----------------------------------------------------------------------------
Computed (expected tax rate) 34.0% 34.0% 34.0%
Tax-exempt income (5.9) (8.8) (0.9)
Other permanent differences
not deductible 2.1 (6.6) 0.7
State income taxes (net of
federal tax benefit) 6.4 6.4 3.7
Other 5.0 5.0 (0.2)
-------------------------------------
Effective tax rate 41.6% 30.0% 37.3%
=============================================================================
|
6. Income Taxes (continued)
The following is a summary of the significant components of the Company's deferred tax assets and liabilities as of March 31, 2002 and 2001:
2002 2001
---------------------------------------------------------------------------------
(In thousands)
Deferred tax liabilities:
Basis and depreciation difference $ 15,705 $ 15,231
Moog investment 772 588
-----------------------------------
16,477 15,819
-----------------------------------
Deferred tax assets:
Inventory valuation 625 2,202
Future tax credits 5,089 5,036
Net operating loss carryforwards 1,208 753
Employee benefits 1,772 1,816
Pension 1,629 1,763
Insurance 1,996 1,261
Deferred gain on sale/leaseback 1,054 1,136
Impairment - 82
Other 420 240
-----------------------------------
13,793 14,289
-----------------------------------
Net deferred tax liability $ 2,684 $ 1,530
=================================================================================
|
Net current deferred tax assets of $4,624,000 and $5,602,000 as of March 31, 2002 and 2001, respectively, are recognized in the Consolidated Balance Sheets. Also recognized are net non-current deferred tax liabilities of $7,308,000 and $7,132,000 as of March 31, 2002 and 2001, respectively.
Notes to Consolidated Financial Statements (continued)
7. Stockholders' Equity
Preferred Stock - The Company has issued a class of preferred stock ("Participating Preferred Stock") which is convertible, participating, and has an $11.93 stated value. These shares are convertible immediately on a share-for-share basis into shares of Class A Common Stock. There were no dividends on this class of 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 common share of Class A and Class B for thirty conversion rate. The Series A and B shares have a $.025 stated value and a $.025 par value. There are 2,633,333 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 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.
Unissued shares of common stock reserved for conversion privileges were 33,695 of Class A and Class B as of March 31, 2002 and 2001. Additionally, there were 3,570,861 and 3,576,433 shares of Class A reserved for conversion of the Participating Preferred Stock as of March 31, 2002 and 2001, respectively.
Notes to Consolidated Financial Statements (continued)
8. Retirement Plans
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.
The following tables provide a reconciliation of the changes in the plan's benefit obligation and fair value of plan assets over the two-year period ended March 31, 2002 and a statement of the funded status as of March 31 of both years:
2002 2001
-----------------------------
Change in Benefit Obligation (In thousands)
Benefit obligation at beginning of year $ 31,150 $ 26,655
Service cost 2,150 2,017
Interest cost 2,232 2,080
Actuarial gain 669 2,045
Benefit payments and expenses (1,833) (1,647)
------------------------------------------------------------------------------
Benefit obligation at end of year $ 34,368 $ 31,150
==============================================================================
Change in Plan Assets
Fair value of plan assets at beginning of year $ 29,153 $ 23,373
Actual return on plan assets 4,483 3,832
Employer contributions 1,547 3,595
Benefit payments and expenses (1,833) (1,647)
------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 33,350 $ 29,153
==============================================================================
Funded Status
Funded status at end of year $(1,018) $ (1,997)
Unrecognized transition asset (2,714) (2,990)
Unrecognized prior service cost 31 125
Unrecognized gain (1,430) (255)
-----------------------------------------------------------------------------
Accrued benefit cost $(5,131) $ (5,117)
=============================================================================
|
The Plan holds the Company's common stock with a fair market value of $2,961,000.
Notes to Consolidated Financial Statements (continued)
8. Retirement Plan (continued)
The following table provides the components of net periodic benefit cost for the plan for fiscal years 2002, 2001, and 2000:
2002 2001 2000
-------------------------------------------------------------------------------------------------------
(In thousands)
Service cost $ 2,150 $ 2,017 $ 1,781
Interest cost 2,232 2,080 1,843
Expected return on plan assets (2,639) (2,288) (2,013)
Amortization of transition assets (276) (276) (276)
Amortization of prior service cost 94 94 94
-------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 1,561 $ 1,627 $ 1,429
=======================================================================================================
|
The prior service costs are amortized on a straight-line basis over the average remaining service period of active participants. Gains and losses in excess of 10% of the greater of the benefit obligation and the market-related value of assets are amortized over the average remaining service period of active participants.
The assumptions used to measure the Company's benefit obligation are shown in the following table:
2002 2001
----------------------------------------------------------------------------
Discount rate 7.25% 7.50%
Expected return on plan assets 9.00% 9.50%
Rate of compensation increase 4.00% 5.00%
|
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 amounted to $846,000, $875,000, and $761,000, in 2002, 2001, and 2000, respectively.
9. Fair Value of Financial Instruments
The carrying amounts and the estimated fair values of the Company's financial instruments are summarized as follows:
2002 2001
-----------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Long-term debt, including current portion $171,828 $163,885 $182,468 $179,603
Notes payable - - 24,500 24,500
Class B Common Stock of Moog Inc. 2,696 2,696 2,264 2,264
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 the notes.
Class B Common Stock of Moog Inc. - Based on quoted market prices.
|
Notes to Consolidated Financial Statements (continued)
10. Acquisition
In 2000, the Company acquired certain assets of the Midwest private label canned vegetable business from Agrilink Foods, Inc., a wholly-owned subsidiary of Pro-Fac Cooperative, for approximately $48 million. The Company purchased a plant and related equipment for $5 million in Arlington, Minnesota and inventories of the acquired business for $43 million. The annual sales of this business are approximately $73 million. The purchase price was partially funded by a subordinated note for $5 million while the balance was paid in cash.
This acquisition was accounted for under the purchase method, and accordingly, the operating results of the acquired business have been included in the consolidated operating results since the acquisition date.
Notes to Consolidated Financial Statements (continued)
11. Other Income and Expense
Other expense in 2002 consisted of the following: 1) an impairment loss of $690,000; and 2) a severance accrual of $321,000.
Other expense in 2001 consisted of the following: 1) a gain on the sale of the Othello, Washington facility of $1,151,000; 2) a loss of $1,443,000 which is related primarily to exiting a line of business; 3) an impairment loss of $898,000; and 4) a gain on the sale of the Buckley, Michigan facility of $219,000.
Other expense in 2000 consisted of the following: 1) a loss of $2,219,000 which is related primarily to exiting a line of business; and 2) a gain on the sale of the Chicopee, Massachusetts warehouse of $965,000.
12. Sales Information
The Company sold $228,556,000, $241,492,000 and $209,872,000, representing 35%, 36% and 34% of net sales, to one customer in 2002, 2001 and 2000, respectively.
13. Segment Information
The Company manages its business on the basis of one reportable segment - the processing and sale of vegetables. The Company markets its product almost entirely in the United States. 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. In 2002, 2001, and 2000, the sale of Green Giant vegetables account for 40%, 43%, and 42% of net sales. The following information is presented in accordance with SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information":
Classes of similar products/services: 2002 2001 2000
-------------------------------------------------------------------------------------------------------
(In thousands)
Net Sales:
Green Giant vegetables $258,412 $ 290,346 $ 263,279
Canned vegetables 333,048 326,224 291,436
Frozen vegetables 25,165 22,052 27,889
Fruit and chip products 19,982 20,092 21,075
Flight operations 5,588 5,905 5,105
Other 8,880 9,681 12,294
-------------------------------------------------------------------------------------------------------
$651,075 $ 674,300 $ 621,078
=======================================================================================================
|
Independent Auditors' Report
To the Board of Directors and Stockholders of
Seneca Foods Corporation
Marion, New York
We have audited the accompanying consolidated balance sheets of Seneca Foods Corporation and subsidiaries as of March 31, 2002 and 2001, 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, 2002. 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 auditing standards generally accepted in the United States of America. 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, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2002 in conformity with accounting principles generally accepted in the United States of America.
/s/DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Rochester, New York May 24, 2002 |
Notice of Annual Meeting The 2002 Annual Meeting of Shareholders will be held on Friday, August 2, 2002, beginning at 1:00 P.M. at the Company's facilities at 3732 South Main Street, Marion, New York. A formal notice of the meeting together with a proxy statement and proxy form will be mailed to shareholders of record as of June 14, 2002.
Additional Information
A copy of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2002, as filed with the Securities and Exchange Commission, will be provided by the Company to any shareholder who so requests in writing.
Requests should be sent to Philip G. Paras, Seneca Foods Corporation, 3736 South Main Street, Marion, New York 14505, or contact us via our web site at http://www.senecafoods.com, or e-mail us at senecafoods@senecafoods.com.
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.
Shareholder Information and Quarterly Results
The Company's common stock is traded on The NASDAQ National Stock Market. The
3.8 million of Class A outstanding shares and 2.8 million Class B outstanding
shares are owned by 327 and 321 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: 2002 2001
------------------------------------------------
Quarter High Low High Low
---------------------------------------------------------------
First $13.90 $12.62 $12.75 $11.00
Second 13.75 11.50 14.00 11.25
Third 14.39 12.10 15.25 12.75
Fourth 14.75 13.45 14.13 12.38
Class B: 2002 2001
------------------------------------------------
Quarter High Low High Low
---------------------------------------------------------------
First $13.70 $12.63 $12.25 $10.75
Second 13.75 12.00 14.88 11.50
Third 14.00 12.11 14.75 12.75
Fourth 14.77 13.20 14.25 12.75
|
The Company may pay dividends on common stock only from consolidated net earnings available for distribution, which were none as of March 31, 2002. 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:
First Second Third Fourth
-------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Year ended March 31, 2002:
Net sales $132,693 $176,800 $236,932 $104,650
Gross margin 7,973 9,372 12,968 11,188
Net earnings (loss) (1,286) (416) 2,290 552
Basic earnings (loss) per common share (.20) (.06) .35 .08
Diluted earnings (loss) per common share (.20) (.06) .22 .05
Year ended March 31, 2001:
Net sales $131,159 $187,774 $248,109 $107,258
Gross margin 11,468 13,630 10,821 8,243
Net earnings (loss) 1,290 2,053 (1,116) (1.414)
Basic earnings per common share (loss) .20 .31 (.17) (.22)
Diluted earnings per common share (loss) .13 .20 (.17) (.22)
|
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.
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 |
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post-Effective Amendment No. 1 of Registration Statement No. 333-12365 of Seneca Foods Corporation on Form S-8 of our reports dated May 24, 2002, appearing in and incorporated by reference in this Annual Report on Form 10-K of Seneca Foods Corporation for the year ended March 31, 2002.
/s/DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Rochester, New York June 25, 2002 |