SENEL Seneca Foods Corp (PK)

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

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

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

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

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

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, which are normal and recurring in nature, necessary to present fairly the financial position of Seneca Foods Corporation (the “Company”) as of January 1, 2022 and results of its operations and its cash flows for the interim periods presented. All significant intercompany transactions and accounts have been eliminated in consolidation. The March 31, 2021 balance sheet was derived from the audited consolidated financial statements.

The results of operations for the three and nine month periods ended January 1, 2022 are not necessarily indicative of the results to be expected for the full year.

For the nine months ended January 1, 2022 and December 26, 2020, the Company sold certain finished goods inventory for cash on a bill and hold basis. The terms of the bill and hold agreement(s) provide that title to the specified inventory is transferred to the customer(s) prior to shipment and the Company has the right to payment (prior to physical delivery) which results in recorded revenue as determined under the revenue recognition standard.

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

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

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

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

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

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

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

The Company uses the last-in, first-out (“LIFO”) method of valuing inventory. An actual valuation of inventory under the LIFO method is made at the end of each fiscal year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels, production pack yields, sales and the expected rate of inflation or deflation for the year. The interim LIFO calculations are subject to adjustment in the final year-end LIFO inventory valuation.

As of January 1, 2022 and December 26, 2020, first-in, first-out (“FIFO”) based inventory costs exceeded LIFO based inventory costs, resulting in a LIFO reserve of $159.3 million and $140.0 million, respectively. In order to state inventories at LIFO, the Company recorded an increase to cost of products sold of $19.0 million for the three months ended January 1, 2022 as compared to a decrease to cost of products sold of $4.7 million for the three months ended December 26, 2020. For the nine months ended January 1, 2022, the Company recorded an increase to cost of products sold of $30.7 million as compared to a decrease to cost of products sold of $4.3 million for the nine months ended December 26, 2020.

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

The Company determines whether an arrangement is a lease at inception of the agreement. Presently, the Company leases land, machinery and equipment under various operating and financing leases.

Right-of-Use, or ROU, assets represent the Company’s right to use the underlying assets for the lease term and lease obligations represent the net present value of the Company’s obligation to make payments arising from these leases. ROU assets and lease obligations are recognized at commencement date based on the present value of lease payments over the lease term using the implicit lease interest rate or, when unknown, an incremental borrowing rate based on the information available at commencement date or April 1, 2019 for leases that commenced prior to that date.

Lease terms may include options to extend or terminate the lease, and the impact of these options are included in the calculation of the ROU asset and lease obligation only when the exercise of the option is at the Company’s sole discretion and it is reasonably certain that the Company will exercise that option. The Company will not separate lease and nonlease components for its leases when it is impractical to separate the two. In addition, the Company has certain leases that have variable payments based solely on output or usage of the leased asset. These variable operating lease assets are excluded from the Company’s balance sheet presentation and expensed as incurred. Leases with an initial term of 12 months or less, or short-term leases, are not recorded on the accompanying Condensed Consolidated Balance Sheets

ROU assets and lease obligations for the Company’s operating and financing leases are disclosed separately in the Company’s Condensed Consolidated Balance Sheets.

The components of lease cost were as follows (in thousands):

Undiscounted future lease payments under non-cancelable operating and financing leases, along with a reconciliation of undiscounted cash flows to operating and financing lease obligations, respectively, as of January 1, 2022 were as follows (in thousands):

On March 24, 2021, the Company entered into a Fourth Amended and Restated Loan and Security Agreement that provides for a senior revolving credit facility of up to $400.0 million that is seasonally adjusted (the “Revolver”). Maximum borrowings under the Revolver total $300.0 million from April through July and $400.0 million from August through March. The Revolver balance is included in Long-Term Debt in the accompanying Condensed Consolidated Balance Sheet due to the Revolver’s March 24, 2026 maturity. In order to maintain availability of funds under the facility, the Company pays a commitment fee on the unused portion of the Revolver. The Revolver is secured by substantially all of the Company’s accounts receivable and inventories and contains borrowing base requirements as well as a financial covenant, if certain circumstances apply. The Company utilizes its Revolver for general corporate purposes, including seasonal working capital needs, to pay debt principal and interest obligations, and to fund capital expenditures and acquisitions. Seasonal working capital needs are affected by the growing cycles of the vegetables the Company packages. The majority of vegetable inventories are produced during the months of June through November and are then sold over the following year. Payment terms for vegetable produce are generally three months but can vary from a few days to seven months. Accordingly, the Company’s need to draw on the Revolver may fluctuate significantly throughout the year.

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

During the nine month period ended January 1, 2022, the Company repurchased 557,311 shares of its Class A Common Stock at a cost of $27.8 million, and are included in Treasury Stock. During the nine-month period ended December 26, 2020, the Company repurchased 27,600 shares of its Class A Common Stock at a cost of $2.2 million. The Company did not repurchase any of its Class B Common Stock in either nine month interim period. As of January 1, 2022, there are 3.7 million shares or $119.0 million of repurchased stock being held as Treasury Stock. These shares are not considered outstanding.

The net periodic benefit cost for the Company’s pension plan consisted of (in thousands):

There were no pension contributions made during the nine months ended January 1, 2022. During the nine months ended December 26, 2020, the Company made a pension contribution of $73.0 million on December 14, 2020 to offset declines in plan assets that had occurred as of the previous measurement date of March 31, 2020 due to a COVID-19 induced deterioration in market conditions and also to avoid variable rate PBGC premiums.

The following table summarizes the rollforward of restructuring charges recorded and the accruals established (in thousands):

During the three months ended January 1, 2022, the Company recorded a charge of $0.5 million for various miscellaneous expenses related to properties that are held for sale. The Company also recorded miscellaneous income of $0.1 million. During the three months ended December 26, 2020, the Company completed the sale of its prepared foods business to an unaffiliated buyer who was not a previous customer. The Company recorded a gain on the sale of the prepared food business of $35.7 million. Additionally, the Company recorded a loss on the sale of unused fixed assets of $0.3 million.

During the nine months ended January 1, 2022, the Company recorded a charge of $2.4 million for supplemental early retirement plans and a charge $0.5 million for various expenses related to properties that are held for sale. These expenses were partially offset by a gain from the sale of an aircraft of $1.2 million, a gain of $0.8 million from the sale of a plant in the Midwest, and a gain from debt forgiveness of $0.5 million on an economic development loan in which the Company met all required milestones. The Company also recorded miscellaneous expenses of $0.3 million. On December 18, 2020, the Company completed the sale of its prepared foods business to an unaffiliated buyer who was not a previous customer. The Company recorded a gain on the sale of the prepared food business of $35.7 million. Additionally during the nine months ended December 26, 2020, the Company recorded a loss of $0.4 million on the disposal of equipment from a sold Northwest plant and a loss on the sale of unused fixed assets of $0.4 million. The Company also recorded a charge of $1.2 million for a supplemental early retirement plan.

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which was subsequently amended in November 2018 through ASU No. 2018-19, "Codification Improvements to Topic 326, Financial Instruments – Credit Losses." ASU No. 2016-13 will require entities to estimate lifetime expected credit losses for trade and other receivables along with other financial instruments which will result in earlier recognition of credit losses. Further, the new credit loss model will affect how entities in all industries estimate their allowance for losses for receivables that are current with respect to their payment terms. In November 2019, the FASB issued ASU No. 2019-10, which, among other things, deferred the application of the new guidance on credit losses for smaller reporting companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This guidance will be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., a modified-retrospective approach). Effective as of April 1, 2022, the Company will no longer qualify as a smaller reporting company and is therefore no longer eligible for the above-mentioned deferral. The Company expects to adopt ASU No. 2016-03, and the related ASU No. 2018-19 amendments, beginning as of April 1, 2022 and is in the process of assessing the impact, if any, that this new guidance is expected to have on the Company’s results of operations, financial condition and/or financial statement disclosures.

In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2019-12 to simplify the accounting for income taxes by removing certain exceptions to the general principles and simplify areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enacted tax laws or rate changes. The new standard became effective for the Company during the first quarter of fiscal year 2022. The adoption of this ASU did not impact to the Company’s consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting which provides optional guidance for a limited time to ease the potential accounting burden associated with the expected market transition away from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. LIBOR is used to determine interest expense related to the Company’s Revolver, which matures in 2026. This update was effective starting March 12, 2020 and the Company may elect to apply the amendments prospectively through December 31, 2022. We are currently evaluating the effect that ASU 2020-04 will have on our consolidated financial statements and related disclosures.

There were no other recently issued accounting pronouncements that impacted the Company’s condensed consolidated financial statements. In addition, the Company did not adopt any other new accounting pronouncements during the nine months ended January 1, 2022.

Earnings per share for the three and nine months ended January 1, 2022 and December 26, 2020 are as follows (in thousands, except per share amounts):

On a quarterly basis, the Company estimates the fair values for financial instruments that are recorded at carrying value on the Consolidated Condensed Balance Sheets. The estimated fair value for long-term debt (classified as Level 2 in the fair value hierarchy) is determined by the quoted market prices for similar debt (comparable to the Company’s financial strength) or current rates offered to the Company for debt with the same maturities. The fair value and carrying value of the Company’s long-term debt are as follows (in thousands):

The effective tax rate for continuing operations was 23.6% and 20.9% for the nine months ended January 1, 2022 and December 26, 2020, respectively. The effective tax rate was reduced in fiscal 2021 by 3.2% as a result of the receipt of interest related to a federal NOL carryback claim. Because a similar amount of interest has not been received in fiscal 2022, the rate is effectively increased by 3.2% when compared to the prior year period. The overall effective tax rate increase was offset primarily by a 0.4% decrease in the tax rate resulting from federal credits and incentives.  The dollar amount of the credits and incentives did not change significantly, however, the projected pre-tax income decreased in fiscal 2022 as compared to fiscal 2021 resulting in the credits and incentives having a larger impact on the tax rate in fiscal 2022. 

Seneca Foods Corporation (the “Company”) is a leading provider of packaged fruits and vegetables, with facilities located throughout the United States. The Company’s product offerings include canned, frozen and bottled produce and snack chips. Its products are sold under private label as well as national and regional brands that the Company owns or licenses, including Seneca®, Libby’s®, Aunt Nellie’s®, Cherryman®, Green Valley® and READ®. The Company’s canned fruits and vegetables are sold nationwide by major grocery outlets, including supermarkets, mass merchandisers, limited assortment stores, club stores and dollar stores. The Company also sells its products to foodservice distributors, industrial markets, other food processors, export customers in over 90 countries and federal, state and local governments for school and other food programs. The Company also packs canned and frozen vegetables under contract packing agreements. The Company’s raw product is harvested mainly between June through November.

Smaller Reporting Company Status:

Management performed the annual public float test as of the last business day of the Company’s second fiscal quarter ended October 2, 2021, and determined that the Company no longer qualifies as a smaller reporting company due to its public float exceeding $250 million. The Company will continue to use the scaled disclosures permitted for a smaller reporting company through its annual report on Form 10-K for the fiscal year ending March 31, 2022. Beginning with the first quarterly report on Form 10-Q in fiscal 2023, the Company will no longer be eligible to rely on the scaled disclosure exemptions applicable to smaller reporting companies. The Company’s status as an accelerated filer was not impacted.

Impact of the COVID-19 Pandemic:

Business Impact – Commencing at the onset of the pandemic, we implemented a wide range of precautionary measures at our manufacturing facilities and other work locations in response to COVID-19. We have also been working closely with our supply chain partners to ensure that we can continue to provide uninterrupted service. To date, there has been minimal disruption in our supply chain network, including the supply of fruits and vegetables, packaging or other sourced materials. We also continue to work closely with our customers to meet their needs and ensure a consistent supply across our retail partners.

We continue to monitor the latest guidance from the CDC, FDA and other federal, state and local authorities regarding COVID-19 to ensure our safety protocols remain current to protect our employees, customers, suppliers and other business partners.

The COVID-19 pandemic continues to pose the risk that our employees, contractors, suppliers, customers and other business partners may be prevented from conducting business activities, partially or completely, for an indefinite period of time, including due to shutdowns that may be requested or required by governmental authorities or imposed by management, or that the pandemic may otherwise interrupt or impair business activities. The Company is actively encouraging employees to be vaccinated against COVID-19 and has achieved some success in these efforts. If a vaccination mandate is established by the government, management cannot currently predict the impact that requiring vaccination would have on our workforce, our ability to secure skilled labor in the future, or the cost of implementation and compliance with such rule, if put into effect.

Financial Impact to Date –The pandemic has to date had a positive impact on our operating results, and significantly improved our net sales, net income, and net cash provided by operating activities in fiscal 2021. For the nine months ended January 1, 2022, our net sales decreased when compared to the nine months ended December 26, 2020 due to the extraordinary demand for our products that began in March 2020 and carried into fiscal 2021 as the COVID-19 pandemic reached the United States and consumers began pantry loading and increasing their at-home consumption as a result of increased social distancing and stay-at-home and work-from-home mandates and recommendations. However, demand for our products remains strong and base business net sales are expected to be in line with pre-pandemic levels, prior to the extraordinary demand and pantry loading at the height of the pandemic. We continue to incur incremental costs to take the precautionary health and safety measures described above. Most of the incremental costs impact our costs of goods sold and the remaining portion impacts our selling, general and administrative expenses.

Expectations and Risk Factors in Light of the COVID-19 Pandemic –The ultimate impact of the COVID-19 pandemic on our business will depend on many factors, including, among others: how long social distancing and stay-at-home and work-from home policies and recommendations remain in effect; whether additional variants of COVID-19 will affect the United States and the rest of North America; our ability to continue to operate our manufacturing facilities, retain a sufficient seasonal workforce, fill open full time positions, maintain our supply chain without material disruption, procure ingredients, packaging and other raw materials when needed despite unprecedented demand in the food industry; the extent to which macroeconomic conditions resulting from the pandemic and the pace of the subsequent recovery may impact consumer eating and shopping habits; and the extent to which consumers continue to work remotely even after the pandemic subsides and how that may impact consumer habits. We have also seen and expect to continue to see cost inflation for various inputs, including steel, commodities, ingredients, packaging and transportation.

Internal controls over financial reporting have not been impacted by COVID-19. Management is continuously monitoring to ensure controls are effective and properly maintained.

Three Months Ended January 1, 2022 and December 26, 2020

Net sales amounted to $445.6 million for the three months ended January 1, 2022 as compared with $484.4 million for the three months ended December 26, 2020. The overall net sales decrease of $38.8 million, or 8.0%, was primarily due to lower sales volumes, which equated to a $63.5 million decrease partially offset by higher selling prices/improved sales mix generating a favorable impact of $24.7 million over the prior year quarter.

Prepared foods decreased $23.5 million, all due to volume, as the segment was exited in the third quarter of fiscal 2021 after the sale of the prepared foods business. Canned vegetable sales decreased $21.3 million on reduced sales volumes during the three months ended January 1, 2022 given the extraordinary level of demand in fiscal 2021 due to consumer pantry loading resulting from the COVID-19 pandemic. The canned vegetable sales volume decrease was partially offset by higher selling prices. Additionally, there were slight decreases of $0.5 million and $0.2 million in fruit and snack product sales, respectively. Frozen vegetables partially offset the aforementioned categorical decreases, increasing by $5.0 million, primarily due to higher sales volumes partially offset by lower selling prices/unfavorable sales mix, and other sales also increased by $1.7 million.

Nine Months Ended January 1, 2022 and December 26, 2020

Net sales amounted to $1,052.9 million for the nine months ended January 1, 2022 as compared with $1,162.9 million for the nine months ended December 26, 2020. The overall net sales decrease of $110.0 million, or 9.5%, was primarily due to lower sales volumes, which equated to a $155.1 million decrease partially offset by higher selling prices/improved sales mix generating a favorable impact of $45.1 million over the prior year interim period.

Canned vegetable sales decreased $57.1 million, as there was extraordinary sales demand during the nine months ended December 26, 2020 due to consumer pantry loading that was experienced at the onset of the pandemic and continued throughout fiscal 2021. Prepared foods decreased $71.2 million due to exiting the segment in fiscal 2021 after the sale of the prepared foods business. Additionally, there was a $5.2 million decrease in fruit product sales. The noted decreases to net sales were partially offset by a $19.6 million increase in frozen vegetable sales driven by increased sales volumes, a $1.5 million increase in snack product sales, and a $3.1 million increase in other sales.

Three Months Ended January 1, 2022 and December 26, 2020

Gross margin: Gross margin for the three months ended January 1, 2022 was 10.1% as compared with 16.0% for the three months ended December 26, 2020. The decrease in gross margin for the three months ended January 1, 2022 was due primarily to cost inflation for various inputs, including steel, commodities, ingredients, packaging and transportation as well as a large LIFO charge in fiscal 2022 as compared to a LIFO credit in fiscal 2021 LIFO. The Company’s LIFO charge for the three months ended January 1, 2022 was $19.0 million as compared to a credit of $4.7 million for the three months ended December 26, 2020. The increase in the LIFO reserve over the three months ended January 1, 2022 reflects the projected impact of expected cost increases and an overall inventory quantity increase as compared to fiscal 2021. On an after-tax basis, LIFO decreased net earnings by $14.3 million for the three months ended January 1, 2022 and increased net earnings by $3.5 million for the three months ended December 26, 2020, based on the historical statutory federal income tax rate.

Selling: Selling costs as a percentage of net sales for the three months ended January 1, 2022 were 2.3% as compared with 2.2% for the prior year quarter. Selling costs as a percentage of net sales increased in part due to the decrease in net sales and the fixed nature of certain selling expenses.

Administrative: Administrative costs as a percentage of net sales for the three months ended January 1, 2022 were 2.4% as compared with 2.5% for the prior year quarter. The decrease in administrative costs as a percentage of net sales was due to the sale of the prepared foods business, and the Company no longer incurring the related administrative expenses for that business.

Other Operating Loss: During the three months ended January 1, 2022, the Company recorded a charge of $0.5 million for various miscellaneous expenses related to properties that are held for sale. The Company also recorded miscellaneous income of $0.1 million. During the three months ended December 26, 2020, the Company completed the sale of its prepared foods business to an unaffiliated buyer who was not a previous customer. The Company recorded a gain on the sale of the prepared food business of $35.7 million. Additionally, the Company recorded a loss on the sale of unused fixed assets of $0.3 million.

Interest Expense: Interest expense as a percentage of net sales was 0.3% for the three months ended January 1, 2022 and December 26, 2020. During the three months ended January 1, 2022, the weighted average interest rate was lower than the previous year, however average borrowings were slightly higher in fiscal year 2022. The net impact resulted in interest expense being down slightly in fiscal 2022. Net sales also decreased year over year which contributed to interest expenses as a percentage of net sales remaining flat when comparing fiscal 2022 to fiscal 2021.

Nine Months Ended January 1, 2022 and December 26, 2020

Gross margin: Gross margin for the nine months ended January 1, 2022 was 11.5% as compared with 15.1% for the nine months ended December 26, 2020. The decrease in gross margin for the nine months ended January 1, 2022 was due primarily to cost inflation for various inputs, including steel, commodities, ingredients, packaging and transportation as well as a large LIFO charge in fiscal 2022 as compared to a LIFO credit in fiscal 2021 LIFO. The Company’s LIFO charge for the nine months ended January 1, 2022 was $30.7 million as compared to a credit of $4.3 million for the nine months ended December 26, 2020. The increase in the LIFO reserve over the nine months ended January 1, 2022 reflects the projected impact of expected cost increases and an overall inventory quantity increase as compared to fiscal 2021. On an after-tax basis, LIFO decreased net earnings by $23.0 million for the nine months ended January 1, 2022 and increased net earnings by $3.2 million for the nine months ended December 26, 2020, based on the historical statutory federal income tax rate.

Selling: Selling costs as a percentage of net sales for the nine month period ended January 1, 2022 were 2.5% as compared with 2.2% for the same period of the prior year. Selling costs as a percentage of net sales increased in part due to the decrease in net sales and the fixed nature of certain selling expenses. Additionally, the Company incurred increased charges for certain shipping supplies in an effort to mitigate any potential future supply chain interruptions.

Administrative: Administrative costs as a percentage of net sales were 3.0% for the nine month periods ended January 1, 2022 and December 26, 2020. The sale of the Company’s prepared foods business reduced administrative costs for the first nine months of fiscal 2022 when compared to the same period in fiscal 2021. However, net sales also decreased over the same time period and caused administrative expenses as a percentage of net sales to remain flat year over year.

Other Operating Loss: During the nine months ended January 1, 2022, the Company recorded a charge of $2.4 million for supplemental early retirement plans and a charge $0.5 million for various expenses related to properties that are held for sale. These expenses were partially offset by a gain from the sale of an aircraft of $1.2 million, a gain of $0.8 million from the sale of a plant in the Midwest, and a gain from debt forgiveness of $0.5 million on an economic development loan in which the Company met all required milestones. The Company also recorded miscellaneous expenses of $0.3 million. On December 18, 2020, the Company completed the sale of its prepared foods business to an unaffiliated buyer who was not a previous customer. The Company recorded a gain on the sale of the prepared food business of $35.7 million. Additionally during the nine months ended December 26, 2020, the Company recorded a loss of $0.4 million on the disposal of equipment from a sold Northwest plant and a loss on the sale of unused fixed assets of $0.4 million. The Company also recorded a charge of $1.2 million for a supplemental early retirement plan.

Interest Expense: Interest expense as a percentage of net sales was 0.4% for the nine months ended January 1, 2022 and December 26, 2020. During the nine months ended January 1, 2022, the weighted average interest rate and average borrowings were lower than the previous year resulting in lower interest expense in fiscal 2022. Net sales also decreased year over year which contributed to interest expenses as a percentage of net sales remaining flat when comparing fiscal 2022 to fiscal 2021.

Income Taxes:

The effective tax rate for continuing operations was 23.6% and 20.9% for the nine months ended January 1, 2022 and December 26, 2020, respectively. The effective tax rate was reduced in fiscal 2021 by 3.2% as a result of the receipt of interest related to a federal NOL carryback claim. Because a similar amount of interest has not been received in fiscal 2022, the rate is effectively increased by 3.2% when compared to the prior year period. The overall effective tax rate increase was offset primarily by a 0.4% decrease in the tax rate resulting from federal credits and incentives.  The dollar amount of the credits and incentives did not change significantly, however, the projected pre-tax income decreased in fiscal 2022 as compared to fiscal 2021 resulting in the credits and incentives having a larger impact on the tax rate in fiscal 2022. 

For details of the calculation of these amounts, refer to footnote 12 of the Notes to Condensed Consolidated Financial Statements.

Note: Equivalent common shares are either common shares or, for convertible preferred shares, the number of common shares that the preferred shares are convertible into. See Note 9 of the Notes to Consolidated Financial Statements of the Company’s 2021 Annual Report on Form 10-K for conversion details.

As shown in the Condensed Consolidated Statements of Cash Flows, net cash used in operating activities was $11.1 million for the nine months ended January 1, 2022, compared to $103.1 million provided by operating activities for the same period of the prior year, a decrease of $114.2 million. For the first nine months of fiscal 2022 as compared to the first nine months of fiscal 2021, the reduction in cash provided by operating activities is primarily comprised of decreases in cash provided by inventories, $139.5 million, accounts receivable, $8.9 million, income taxes, $14.3 million, and net earnings, $66.8 million. The increase in cash provided by accounts payable, accrued expenses and other of $89.7 million for the first nine months of fiscal 2022 as compared to the first nine months of fiscal 2021 partially offset the aforementioned decreases to operating cash flows.

Cash used in investing activities was $31.7 million for the nine months ended January 1, 2022 as compared to $32.6 million of cash provided by investing activities for the nine months ended December 26, 2020, a change of $64.3 million. Proceeds from the sale of assets in the prior year period included the sale of the Company’s prepared food business. There was not a sale of comparable size in the current year, which reduced cash provided by the sale of assets by $68.0 million. Additions to property, plant and equipment decreased $3.7 million during the first nine months of fiscal 2022 compared to the same period of fiscal 2021 to partially offset the overall decrease in cash used in investing activities.

Cash used in financing activities was $6.1 million for the nine months ended January 1, 2022, a decrease of $126.2 million compared to cash used in financing activities for the nine months ended December 26, 2020 of $132.3 million. In fiscal 2021, the Company paid down substantially all of its Revolver given the additional sales as a result of pantry loading due to the COVID-19 pandemic. During 2021, the Company paid down $587.2 million of debt, primarily the Revolver, and borrowed $468.2 million resulting in a net use of cash totaling $119.0 million. As sales began to normalize in 2022 after the height of the pandemic, the Company borrowed on the Revolver in support of seasonal working capital needs. During fiscal 2022, the Company borrowed $278.1 million and paid down $248.4 million, providing net cash of $29.7 million, which was a swing of $148.7 million compared to fiscal 2021. Other than borrowings under the Revolver, there was no new long-term debt during the first nine months of fiscal 2022. Additionally, during fiscal 2022 the Company repurchased $27.8 million of its common stock under a stock repurchase program that was authorized in the first quarter of fiscal 2022. By comparison, the Company repurchased $2.2 million during the nine months ended December 26, 2020, an increase in cash used in financing activities of $25.6 million.

On March 24, 2021, the Company entered into a Fourth Amended and Restated Loan and Security Agreement that provides for a senior revolving credit facility of up to $400.0 million that is seasonally adjusted (the “Revolver”). Maximum borrowings under the Revolver total $300.0 million from April through July and $400.0 million from August through March. The Revolver balance is included in Long-Term Debt in the accompanying Condensed Consolidated Balance Sheet due to the Revolver’s March 24, 2026 maturity. In order to maintain availability of funds under the facility, the Company pays a commitment fee on the unused portion of the Revolver. The Revolver is secured by substantially all of the Company’s accounts receivable and inventories and contains borrowing base requirements as well as a financial covenant, if certain circumstances apply. The Company utilizes its Revolver for general corporate purposes, including seasonal working capital needs, to pay debt principal and interest obligations, and to fund capital expenditures and acquisitions. Seasonal working capital needs are affected by the growing cycles of the vegetables the Company packages. The majority of vegetable inventories are produced during the months of June through November and are then sold over the following year. Payment terms for vegetable produce are generally three months but can vary from a few days to seven months. Accordingly, the Company’s need to draw on the Revolver may fluctuate significantly throughout the year.

The Company’s credit facilities contain standard representations and warranties, events of default, and certain affirmative and negative covenants, including various financial covenants. At January 1, 2022, the Company was in compliance with all such covenants.

New Accounting Standards

Refer to footnote 11 of the Notes to Condensed Consolidated Financial Statements.

Seasonality

The Company’s revenues typically are highest in the second and third fiscal quarters. This is due, in part, because the Company sells canned and frozen vegetables to a co-pack customer on a bill and hold basis at the end of each pack cycle, which typically occurs during these quarters. In addition, the Company’s other fruit and vegetable sales exhibit seasonal increases in the third fiscal quarter due to increased retail demand during the holiday season.

Forward-Looking Information

The information contained in this report contains, or may contain, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this report and include statements regarding the intent, belief or current expectations of the Company or its officers (including statements preceded by, followed by or that include the words “believes,” “expects,” “anticipates” or similar expressions) with respect to various matters, including (i) the Company’s anticipated needs for, and the availability of, cash, (ii) the Company’s liquidity and financing plans, (iii) the Company’s ability to successfully integrate acquisitions into its operations, (iv) trends affecting the Company’s financial condition or results of operations, including anticipated sales price levels and anticipated expense levels, in particular higher production, fuel and transportation costs, (v) the Company’s plans for expansion of its business (including through acquisitions) and cost savings, and (vi) the impact of competition.

Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Investors are cautioned not to place undue reliance on such statements, which speak only to events as of the date the statements were made. Among the factors that could cause actual results to differ materially are: