What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-07-31 compared with 2007-04-24 · 1050 added, 5 removed, 0 unchanged (100% of the section changed)

Statements and Supplementary Data

the information in the 2006 Annual Report, “Consolidated Financial Statements

and Notes thereto including Report of Independent Registered Public Accounting

Firms”, which is incorporated by reference.

in and Disagreements with Accountants on Accounting and Financial

Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of Seneca Foods Corporation.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Seneca Foods Corporation (the “Company”) as of March 31, 2023 and 2022, the related statements of consolidated net earnings, comprehensive income (loss), stockholders' equity, and cash flows for each of the years in the three-year period ended March 31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of March 31, 2023 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated June 13, 2023 (except for the material weakness discussed in Management’s Report on Internal Control over Financial Reporting, as to which the date is July 31, 2023) expressed an adverse opinion thereon.

Restatement of Previously Issued Financial Statements

As described in Note 2, the 2023 and 2022 consolidated financial statements have been restated to correct a misstatement.

Basis for Opinion

The Company's management is responsible for these consolidated financial statements.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of Inventory –

Refer to Notes 1, 2, and 5 in the consolidated financial statements

Critical Audit Matter Description

At March 31, 2023, the Company’s inventory was $670.9 million.

As described in Notes 1, 2, and 5 to the consolidated financial statements, the Company accounts for substantially all its inventory at the lower of cost, determined using the last-in, first-out (LIFO) method, or market.

As permitted by U.S.

generally accepted accounting principles, the Company maintains its inventory costs and cost of goods sold on a first-in, first-out (FIFO) basis and adjusts total inventory and cost of goods sold from FIFO to LIFO at the end of each year.

The Company values its inventory under the LIFO method based on the inventory levels and the prevailing inventory costs existing at that time.

We identified valuation of inventory as a critical audit matter because of the significant assumptions, manual calculations, and judgements in the LIFO reserve.

Auditing management’s calculation was complex and required a high degree of auditor judgement and subjectivity when performing audit procedures and evaluating the audit evidence obtained.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the Company’s LIFO reserve included the following, among others:

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s calculation of the adjustments to convert FIFO inventory balances to LIFO, including controls over management’s review of the manual calculations described above.

We tested the completeness, accuracy, and relevance of the underlying data used in management’s calculation to adjust the FIFO inventory balances to LIFO.

Tested the calculations and application of management’s methodologies related to the valuation estimates of the LIFO reserve.

Tested the mathematical accuracy of management’s manual calculation.

/s/ Plante Moran, P.C.

We have served as the Company’s auditor since 2019.

Southfield, Michigan          

June 13, 2023 (except for the effect of the restatement disclosed in Notes 2 and 5, as to which the date is July 31, 2023)

SENECA FOODS CORPORATION AND SUBSIDIAIRIES

CONSOLIDATED STATEMENTS OF NET EARNINGS

(In thousands, except per share amounts)

$ 1,509,352  

$ 1,385,280  

$ 1,467,644  

Costs and expenses:

Cost of products sold

1,405,033  

1,243,684  

1,235,459  

Selling, general, and administrative expense

81,072  

76,343  

79,950  

Other operating (income) expense, net

( 1,662 )  

Plant restructuring

Total costs and expenses

1,487,993  

1,321,271  

1,286,577  

Operating income

21,359  

64,009  

181,067  

Other income and expenses:

Interest expense, net of interest income of $ 528 , $ 63 and $ 42 , respectively

14,325  

Loss from equity investment

11,453  

Other non-operating (income) expense

( 6,759 )  

( 9,302 )  

Earnings before income taxes

13,793  

59,895  

160,016  

13,695  

33,916  

$ 9,231  

$ 46,200  

$ 126,100  

Earnings per share:

$ 1.19  

$ 5.28  

$ 13.82  

$ 1.16  

$ 5.24  

$ 13.72  

Weighted average common shares outstanding:

See notes to consolidated financial statements.

SENECA FOODS CORPORATION AND SUBSIDIAIRIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

Comprehensive income:

$ 9,231  

$ 46,200  

$ 126,100  

Change in pension and postretirement benefits, net of tax expense (benefit) of $ 1,999 , ($ 2,423 ) and $ 19,528 , respectively

( 7,401 )  

60,153  

$ 15,211  

$ 38,799  

$ 186,253  

See notes to consolidated financial statements. 

SENECA FOODS CORPORATION AND SUBSIDIAIRIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

Assets  

Current assets:

Cash and cash equivalents

$ 12,256  

$ 10,904  

Accounts receivable, less allowance for doubtful accounts of $ 34 and $ 54 , respectively

97,101  

119,169  

670,898  

403,995  

Assets held for sale

Refundable income taxes

Other current assets

Total current assets

794,039  

550,686  

Property, plant, and equipment, net

301,212  

268,043  

Right-of-use assets operating, net

23,235  

34,008  

Right-of-use assets financing, net

33,571  

34,867  

Pension assets

59,304  

52,866  

$ 1,212,721  

$ 942,274  

Liabilities and Stockholders ’

Current liabilities:

Accounts payable

$ 69,232  

$ 87,602  

Deferred revenue

Accrued vacation

11,143  

11,611  

Accrued payroll

16,772  

16,998  

Other accrued expenses

23,293  

23,269  

Current portion of long-term debt and lease obligations

25,792  

26,020  

Total current liabilities

156,188  

173,155  

Long-term debt, less current portion

432,695  

109,624  

Operating lease obligations, less current portion

16,675  

22,533  

Financing lease obligations, less current portion

17,293  

19,942  

Deferred income tax liability, net

31,481  

33,016  

Other liabilities

Total liabilities

657,971  

363,244  

Commitments and contingencies

Stockholders’

Preferred stock

Additional paid-in capital

99,152  

98,641  

Treasury stock, at cost

( 168,573 )  

Accumulated other comprehensive loss

( 20,488 )  

Retained earnings

641,259  

632,051  

Total stockholders’

554,750  

579,030  

Total liabilities and stockholders’

$ 1,212,721  

$ 942,274  

See notes to consolidated financial statements.

SENECA FOODS CORPORATION AND SUBSIDIAIRIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Cash flows from operating activities:

Adjustments to reconcile net earnings to net cash provided by operating activities:

Depreciation and amortization

Deferred income tax expense

Gain on the sale of assets

Provision for restructuring and impairment

Gain on debt forgiveness

Loss from equity investment

401(k) match stock contribution

Changes in operating assets and liabilities (net of acquisitions):

Accounts receivable

Other current assets

Accounts payable, accrued expenses, and other

Net cash (used in) provided by operating activities

Cash flows from investing activities:

Additions to property, plant, and equipment

Proceeds from the sale of assets

Net cash (used in) provided by investing activities

Cash flows from financing activities:

Proceeds from issuance of long-term debt

Payments of long-term debt

Payments on financing leases

Change in other assets

Purchase of treasury stock

Preferred stock dividends paid

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

Supplemental disclosures of cash flow information:

Cash paid during the year for:

Noncash transactions:

Right-of-use assets obtained in exchange for lease obligations

Right-of-use assets derecognized upon early lease termination

Property, plant and equipment purchased on account

See notes to consolidated financial statements.

SENECA FOODS CORPORATION AND SUBSIDIAIRIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

(In thousands)

Comprehensive

Balance March 31, 2020

Cash dividends paid on preferred stock

Equity incentive program

Contribution of 401(k) match

Purchase of treasury stock

Preferred stock conversion

Change in pension and postretirement benefits adjustment (net of tax $19,528)

Balance March 31, 2021

Cash dividends paid on preferred stock

Equity incentive program

Contribution of 401(k) match

Purchase of treasury stock

Preferred stock conversion

Change in pension and postretirement benefits adjustment (net of tax $2,423)

Balance March 31, 2022

Cash dividends paid on preferred stock

Equity incentive program

Stock issued for profit sharing plan

Contribution of 401(k) match

Purchase of treasury stock

Preferred stock conversion

Change in pension and postretirement benefits adjustment (net of tax $1,999)

Balance March 31, 2023

Preferred Stock

Participating

Shares authorized and designated:

March 31, 2023

Shares outstanding:

March 31, 2021

March 31, 2022

March 31, 2023

See notes to consolidated financial statements.

SENECA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies

Nature of Operations —

Seneca Foods Corporation (the “Parent Company”) and subsidiaries (the “Company”) currently has 26 facilities in eight states in support of its main operations.

The Company markets private label and branded packaged 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.

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 ("GAAP") 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 estimates.

Subsequent Events —

The Company has evaluated subsequent events for disclosure through the date of issuance of the accompanying consolidated financial statements.

Reclassifications —

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

Cash Equivalents —

The Company considers all highly liquid instruments purchased with an original maturity of three months or less as cash equivalents.

Fair Value of Financial Instruments —

The carrying values of cash and cash equivalents (Level 1 ), accounts receivable, short-term debt (Level 2 ) and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments.

See Note 13, Fair Value of Financial Instruments, for a discussion of the fair value of long-term debt.

The three -tier value hierarchy is utilized to prioritize the inputs used in measuring fair value.

The hierarchy gives the highest priority to quoted prices in active markets (Level 1 ) and the lowest priority to unobserved inputs (Level 3 ).

The three levels are defined as follows:

Level 1 - Quoted prices for identical instruments in active markets.

Level 2 - Quoted prices for similar instruments;

quoted prices for identical or similar instruments in markets that are not active;

and model-derived valuations in which all significant inputs or significant value-drivers are observable.

Level 3 - Model-derived valuations in which one or more inputs or value-drivers are both significant to the fair value measurement and unobservable.

Accounts Receivable and Doubtful Accounts —

Accounts receivable is stated at invoice value, which is net of any off-invoice promotions. 

In determining the Company’s reserve for credit losses, receivables are assigned an expected loss based on historical information adjusted for forward-looking economic factors.

Management believes these provisions are adequate based upon the relevant information presently available.

Inventories —

Substantially all inventories are stated at the lower of cost or market with cost determined using the last-in, first -out (“LIFO”) method.

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.

In contrast, 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.

Assets Held for Sale —

The Company classifies its assets as held for sale at the time management commits to a plan to sell the asset, the asset is actively marketed and available for immediate sale, and the sale is expected to be completed within one year.

Due to market conditions, certain assets may be classified as held for sale for more than one year as the Company continues to actively market the assets.

Assets that meet the held for sale criteria are presented separately on the consolidated balance sheet at the lower of carrying value or estimated fair value less costs to sell and depreciation is no longer recognized.

SENECA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property, Plant and Equipment —

Property, plant, and equipment are stated at cost.

Interest incurred during the construction of major projects is capitalized.

For financial reporting, the Company provides for depreciation on the straight-line method at rates based upon the estimated useful lives of the various assets.

The estimated useful lives are as follows:

Land improvements

Buildings and improvements

Machinery & equipment

Office furniture

Computer software

Long-Lived Assets —

The Company assesses its long-lived assets for impairment whenever there is an indicator of impairment.

Impairment losses are evaluated if the estimated undiscounted cash flows from using the assets are less than carrying value.

A loss is recognized when the carrying value of an asset exceeds its fair value.

Additionally, the Company assesses the potential for an other-than-temporary impairment of its equity method investment when impairment indicators are identified by considering 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 year 2022, the Company recorded an impairment charge of $ 6.3 million to reduce the carrying value of the equity method investment to $ 0 , as the value of the investment was determined to not be recoverable.

Deferred Financing Costs —

Deferred financing costs incurred in obtaining debt are amortized on a straight-line basis over the term of the debt, which is not materially different than using the effective interest rate method.

As of March 31, 2023 there were $ 0.6 million of unamortized financing costs included in other assets related to the Company’s revolving credit facility and $ 0.6 million of unamortized financing costs related to its term loans that are included as a contra to long-term debt and current portion of long-term debt on the Consolidated Balance Sheets.

Revenue Recognition —

Revenue recognition is completed for most customers at a point in time basis when product control is transferred to the customer.  In general, control transfers to the customer when the product is shipped or delivered to the customer based upon applicable shipping terms, as the customer can direct the use and obtain substantially all of the remaining benefits from the asset at this point in time.

The Company does sell certain finished goods inventory for cash on a bill and hold basis.

The terms of the bill and hold agreement(s) provide that title to the specified inventory is transferred to the customer(s) prior to shipment and the Company has the right to payment (prior to physical delivery) which results in recorded revenue as determined under the revenue recognition standard. 

See Note 3, Revenue Recognition, for further discussion of the policy.

Trade promotions are an important component of the sales and marketing of the Company’s branded products, and are critical to the support of the business.

Trade promotion costs, which are recorded as a reduction of sales, include amounts paid to retailers for shelf space, to obtain favorable display positions and to offer temporary price reductions for the sale of our products to consumers.

Accruals for trade promotions are recorded primarily at the time of sale to the retailer based on expected levels of performance.

Settlement of these liabilities typically occurs in subsequent periods primarily through an authorized process for deductions taken by a retailer from amounts otherwise due to the Company.

As a result, the ultimate cost of a trade promotion program is dependent on the relative success of the events and the actions and level of deductions taken by retailers.

Final determination of the permissible deductions may take extended periods of time.

Concentration of Credit Risk —

Financial instruments that potentially subject the Company to credit risk consist of trade receivables, interest-bearing investments, and cash and cash equivalents.

Wholesale and retail food distributors comprise a significant portion of the trade receivables;

collateral is generally not required.

A relatively limited number of customers account for a large percentage of the Company’s total net sales.

The top ten customers represented approximately 55 % and 53 % of net sales for fiscal years 2023 and 2022, respectively.

The Company closely monitors the credit risk associated with its customers.

The Company places substantially all of 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.

SENECA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Advertising Costs —

Advertising costs are expensed as incurred and totaled $ 2.2 million in each of fiscal years 2023 and 2022 and $ 1.8 million in fiscal year 2021.

Income Taxes —

The provision for income taxes includes federal and state income taxes currently payable and those deferred because of temporary differences between the financial statement and tax basis of assets and liabilities and tax credit carryforwards.

The Company uses the flow-through method to account for its investment tax credits.

The Company evaluates the likelihood of realization of its net deferred income tax assets by assessing its valuation allowance and by adjusting the amount of such allowance, if necessary.

The factors used to assess the likelihood of realization are the Company’s forecast of future taxable income, the projected reversal of temporary differences and available tax planning strategies that could be implemented to realize the net deferred income tax assets.

Current rules on the accounting for uncertainty on income taxes prescribe a minimum recognition threshold for a tax position taken or expected to be taken in a tax return that is required to be met before being recognized in the financial statements.

Those rules also provide guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The Company recognizes interest and penalties accrued on unrecognized tax benefits as well as interest received from favorable settlements within income tax expense.

Earnings per Common Share —

The Company has three series of convertible preferred stock, which are deemed to be participating securities that are entitled to participate in any dividend on Class A common stock as if the preferred stock had been converted into common stock immediately prior to the record date for such dividend.

Basic earnings per share for common stock is calculated using the “two-class”

method by dividing the earnings attributable to common stockholders by the weighted average of common shares outstanding during the period.

Diluted earnings per share is calculated by dividing earnings attributable to common stockholders by the sum of the weighted average common shares outstanding plus the dilutive effect of convertible preferred stock using the “if-converted”

method, which treats the contingently-issuable shares of convertible preferred stock as common stock.

Restricted stock is included in the diluted earnings per share calculation.

Recently Issued Accounting Standards —

Effective April 1, 2022, the Company adopted ASU 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 2016 - 13”

The amended guidance requires entities to estimate lifetime expected credit losses for trade and other receivables, including those that are current with respect to payment terms, along with other financial instruments which may result in earlier recognition of credit losses.

The Company evaluated its existing methodology for estimating an allowance for doubtful accounts and the risk profile of its receivables portfolio and developed a model that includes the qualitative and forecasting aspects of the “expected loss”

model under the amended guidance.

In determining the Company’s reserve for credit losses, receivables are assigned an expected loss based on historical information adjusted for forward-looking economic factors.

The adoption of ASU 2016 - 13 did not have a material impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU 2020 - 04, Reference Rate Reform (Topic 848 ):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020 - 04”

ASU 2020 - 04 provides an optional expedient and exceptions for applying U.S.

GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The optional guidance can be applied from March 12, 2020 through December 31, 2022.

ASU 2020 - 04 eases the potential accounting burden associated with the expected discontinuance of the London Interbank Offered Rate (LIBOR) and other interbank offered rates, which are being replaced by alternative reference rates such as the Secured Overnight Financing Rate (SOFR).

The interest rates associated with the Company’s previous borrowings under its senior revolving credit facility (as defined in Note 8, “Long-term Debt”) were tied to LIBOR.

Subsequent to the amendment of the senior revolving credit facility agreement on September 14, 2022, the Company’s borrowings are tied to SOFR plus a spread adjustment (see Note 8, “Long-term Debt”).

The adoption of ASU 2020 - 04 as a result of this amendment did not have a material impact on the Company’s consolidated financial statements.

There were no other recently issued accounting pronouncements that impacted the Company’s consolidated financial statements.

In addition, the Company did not adopt any other new accounting pronouncements during fiscal year 2023.

SENECA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restatement of Previously Issued Financial Statements

On July 25, 2023, we reported that we had identified an error related to our accounting for valuing inventory using the LIFO method of accounting as of March 31, 2023 and 2022.

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.

During the formulaic valuation of actual inventory values at fiscal year end, incorrect quantities were applied to the calculation which resulted in an understatement of the LIFO reserve as of March 31, 2023 and 2022.

Management determined that correct LIFO quantities were applied to the actual valuation of LIFO at year end prior to fiscal year 2022, as only trivial differences were noted during Management's examination.

The interim LIFO calculations are subject to adjustment in the final year-end LIFO inventory valuation.

The Consolidated Statements of Cash Flows are not presented in the following tables because there is no impact on total cash flows from operating activities, investing activities and financing activities.

The impact from the restatements within the operating activities section of the cash flow statement are illustrated in the balance sheet and net earnings adjustments below.

The following tables present a summary of the effects of these restatements:

Consolidated Statements of Net Earnings

Fiscal Year Ended

March 31, 2023

March 31, 2022

Cost of products sold

$ 1,373,456  

$ 31,577  

$ 1,405,033  

$ 1,237,348  

$ 6,336  

$ 1,243,684  

Total costs and expenses

1,456,416  

31,577  

1,487,993  

1,314,935  

1,321,271  

Operating income

52,936  

( 31,577 )  

21,359  

70,345  

( 6,336 )  

64,009  

Earnings before income taxes

45,370  

( 31,577 )  

13,793  

66,231  

( 6,336 )  

59,895  

12,232  

( 7,670 )  

15,224  

( 1,529 )  

13,695  

33,138  

( 23,907 )  

51,007  

( 4,807 )  

46,200  

Earnings per share:

Earnings per share - basic

$ 4.23  

$ ( 3.04 )  

$ 1.19  

$ 5.83  

$ ( 0.55 )  

$ 5.28  

Earnings per share - diluted

$ 4.20  

$ ( 3.04 )  

$ 1.16  

$ 5.79  

$ ( 0.55 )  

$ 5.24  

Consolidated Balance Sheets

March 31, 2023

March 31, 2022

$ 708,811  

$ ( 37,913 )  

$ 670,898  

$ 410,331  

$ ( 6,336 )  

$ 403,995  

Refundable income taxes

Total current assets

824,976  

( 30,937 )  

794,039  

555,442  

( 4,756 )  

$ 550,686  

1,243,658  

( 30,937 )  

1,212,721  

947,030  

( 4,756 )  

942,274  

Liabilities and Stockholders ’

Income taxes payable

( 2,018 )  

Total current liabilities

158,206  

( 2,018 )  

156,188  

173,155  

Deferred income tax liability, net

$ 31,625  

$ ( 144 )  

$ 31,481  

$ 32,944  

33,016  

Other liabilities

( 61 )  

( 21 )  

Total liabilities

660,194  

( 2,223 )  

657,971  

363,193  

363,244  

Retained earnings

669,973  

( 28,714 )  

641,259  

636,858  

( 4,807 )  

632,051  

Total stockholders’

583,464  

( 28,714 )  

554,750  

583,837  

( 4,807 )  

579,030  

Total liabilities and stockholders’

1,243,658  

( 30,937 )  

1,212,721  

947,030  

( 4,756 )  

942,274  

Additionally, Notes 4, 5, 10, and 15 were impacted and restated as result of the error related to our accounting for valuing inventory using the LIFO method of accounting.

SENECA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition

The Company applies the provisions of ASC 606 - 10, "Revenue from Contracts with Customers" , and recognizes revenue under the core principle to depict the transfer of products to customers in an amount reflecting the consideration the Company expects to receive.

The Company conducts its business almost entirely in food packaging, which contributed approximately 98 % of the Company's fiscal year 2023 net sales.

Nature of products —

The Company manufactures and sells the following:

private label products to retailers, such as supermarkets, mass merchandisers, and specialty retailers, for resale under the retailers’ own or controlled labels;

private label and branded products to the foodservice industry, including foodservice distributors and national restaurant operators;

branded products under our own proprietary brands, primarily on a national basis to retailers;

branded products under co-pack agreements to other major branded companies for their distribution;

products to our industrial customer base for repackaging in portion control packages and for use as ingredients by other food manufacturers.

Disaggregation of revenue —

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

Canned vegetables

Frozen vegetables

Fruit products

Snack products

Prepared foods

When Performance Obligations Are Satisfied —

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue recognition.  A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.  The Company’s primary performance obligation is the production of food products and secondarily case and labeling services and storage services for certain bill and hold sales.

Revenue recognition is completed primarily at a point in time basis when product control is transferred to the customer.  In general, control transfers to the customer when the product is shipped or delivered to the customer based upon applicable shipping terms, as the customer can direct the use and obtain substantially all of the remaining benefits from the asset at this point in time.   

Customer contracts generally do not include more than one performance obligation.  When a contract does contain more than one performance obligation, we allocate the contract’s transaction price to each performance obligation based on its relative standalone selling price. The standalone selling price for each distinct good is generally determined by directly observable data.  

The performance obligations in our contracts are generally satisfied within one year.

As such, we have not disclosed the transaction price allocated to remaining performance obligations for labeling and storage as of March 31, 2023 which is included in deferred revenue on the Consolidated Balance Sheet.

Significant Payment Terms —

Our customer contracts identify the product, quantity, price, payment and final delivery terms.  Payment terms usually include early pay discounts.  We grant payment terms consistent with industry standards.

Although some payment terms may be more extended, no terms beyond one year are granted at contract inception.  As a result, we do not adjust the promised amount of consideration for the effects of a significant financing component because the period between our transfer of a promised good or service to a customer and the customer’s payment for that good or service will be generally 30 days or less.  

Shipping —

All shipping and handling costs associated with outbound freight are accounted for as fulfillment costs and are included in the cost of sales;

this includes shipping and handling costs after control over a product has transferred to a customer.

SENECA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Variable Consideration —

In addition to fixed contract consideration, some contracts include some form of variable consideration.  Trade promotions are an important component of the sales and marketing of the Company’s branded products, and are critical to the support of the business.

Accruals for trade promotions are recorded primarily at the time of sale to the retailer based on expected levels of performance.

Settlement of these liabilities typically occurs in subsequent periods primarily through an authorized process for deductions taken by a retailer from amounts otherwise due to the Company.

As a result, the ultimate cost of a trade promotion program is dependent on the relative success of the events and the actions and level of deductions taken by retailers.

Final determination of the permissible deductions may take extended periods of time.

Contract Balances —

The contract asset balances are $ 0.6 million and $ 0.9 million as of March 31, 2023 and 2022, respectively.

Refer to Note 7, Assets Held for Sale, for contract liabilities.  The Company does not have significant deferred revenue or unbilled receivable balances because of transactions with customers. 

The Company does have deferred revenue for prepaid case and labeling and storage services which have been collected from bill and hold sales.

Contract Costs —

We have identified certain incremental costs to obtain a contract, primarily sales commissions, requiring capitalization under the standard. The Company continues to expense these costs as incurred because the amortization period for the costs would have been one year or less. The Company does not incur significant fulfillment costs requiring capitalization.

Earnings per Share

Earnings per share for fiscal years 2023, 2022 and 2021 are as follows (in thousands, except per share amounts):

Deduct preferred stock dividends

Undistributed earnings

Earnings attributable to participating preferred shareholders

Earnings attributable to common shareholders

Weighted average common shares outstanding

Basic earnings per common share

Earnings attributable to common shareholders

Add dividends on convertible preferred stock

Earnings attributable to common stock on a diluted basis

Weighted average common shares outstanding-basic

Additional shares to be issued related to the equity compensation plan

Additional shares to be issued under full conversion of preferred stock

Total shares for diluted

Diluted earnings per share

SENECA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company uses the LIFO method of valuing inventory as it believes this method allows for better matching of current production cost to current revenue.

As of March 31, 2023 and 2022, first -in, first -out (“FIFO”) based inventory costs exceeded LIFO based inventory costs, resulting in a LIFO reserve of $ 302.4 million and $ 170.8 million, respectively.

In order to state inventories at LIFO, the Company recorded an increase to cost of products sold of $ 131.6 million and $ 42.2 million for fiscal years 2023 and 2022, respectively.

The inventories by category and the impact of using the LIFO method are shown in the following table (in thousands):

Finished products

Raw materials and supplies

Less excess of FIFO cost over LIFO cost

Total inventories

Property, Plant and Equipment

Property, plant and equipment is comprised of the following (in thousands):

Land and land improvements

Buildings and improvements

Machinery and equipment

Office furniture, vehicles and computer software

Construction in progress

Property, plant and equipment, cost

accumulated depreciation

Property, plant and equipment, net

Depreciation expense totaled $ 33.9 million, $ 30.2 million, and $ 27.1 million for fiscal years 2023, 2022, and 2021, respectively.

Assets Held For Sale

As of March 31, 2023, the Company has two non-operating facilities in the Pacific Northwest with a carrying value of $ 3.1 million and related idle production equipment with a carrying value of $ 1.2 million that have met the criteria to be classified as held for sale in our Consolidated Balance Sheets.

The Company recorded charges of $ 2.3 million and $ 0.1 million in fiscal years 2023 and 2022, respectively, in order to properly reflect the carrying value of the assets held for sale as equal to the lower of carrying value or fair value less costs to sell.

As of March 31, 2023, the Company has executed sales agreements to sell one of the facilities and the related equipment therein to two unaffiliated buyers.

A deposit of $ 0.6 million has been received from the buyer of the production equipment and is recorded as a contract liability as of March 31, 2023, as the Company maintains control of the equipment until the sale is finalized.

The contract liability is included in other accrued expenses on the Consolidated Balance Sheet as the sale is expected to close and control of the equipment transferred to the buyer within twelve months.

The following table presents information related to the major classes of assets and liabilities that were held for sale in our Consolidated Balance Sheets (in thousands):

Property, plant and equipment (net)

Current assets held for sale

SENECA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long-Term Debt

Long-term debt is comprised of the following (in thousands):         

Revolving credit facility

$ 180,598  

$ 20,508  

Term Loan A-1

Outstanding principal

89,000  

93,000  

Unamortized debt issuance costs

Term Loan A-1, net

88,932  

92,900  

Term Loan A-2

Outstanding principal

173,500  

Unamortized debt issuance costs

Term Loan A-2, net

172,949  

Total long-term debt

442,695  

113,624  

Less current portion

10,000  

Long-term debt, less current portion

$ 432,695  

$ 109,624  

Revolving credit facility —

On March 24, 2021, the Company entered into a Fourth Amended and Restated Loan and Security Agreement that provides for a senior revolving credit facility of up to $ 400 million that is seasonally adjusted (the “Revolver”).

Maximum borrowing availability under the Revolver totals $ 300.0 million from April through July and $ 400.0 million from August through March.

The Revolver balance as of March 31, 2023 was $ 180.6 million and is included in Long-Term Debt in the accompanying 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 following table documents the quantitative data for short-term borrowings on the Revolver during fiscal years 2023 and 2022 (in thousands, except for percentages):

Outstanding borrowings

$ 180,598  

$ 20,508  

Interest rate

Maximum amount of borrowings

$ 350,828  

$ 58,323  

Average outstanding borrowings

$ 159,670  

$ 22,357  

Weighted average interest rate

SENECA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Term loans —

On May 28, 2020 the Company entered into an Amended and Restated Loan and Guaranty Agreement with Farm Credit East, ACA that provides for a $ 100.0 million unsecured term loan (the “Term Loan”).

The amended and restated agreement has a maturity date of June 1, 2025 and converted the Term Loan to a fixed interest rate of 3.30 % until maturity rather than a variable interest rate in addition to requiring quarterly principal payments of $ 1.0 million, which commenced during fiscal year 2021.

This agreement contains certain covenants, including maintaining a minimum EBITDA and minimum tangible net worth.

On January 20, 2023, the Company entered into a Second Amended and Restated Loan and Guaranty Agreement with Farm Credit East, ACA (the “Amended Agreement”).

The Amended Agreement governs two term loans, summarized below:

Term Loan A- 1:

The Amended Agreement continues certain aspects of the $ 100 million term loan described above, namely Term Loan A- 1 will continue to bear interest at a fixed interest rate of 3.3012 %, mature on June 1, 2025 , and remain unsecured.

Term Loan A- 2:

The Amended Agreement adds an additional term loan in the amount of $ 175 million that will mature on January 20, 2028 , and is secured by a portion of the Company’s property, plant and equipment.

Term Loan A- 2 bears interest at a variable interest rate based upon SOFR plus an additional margin determined by the Company’s leverage ratio.

The Amended Agreement for Term Loan A- 1 and Term Loan A- 2 (collectively, the “Term Loans”) contains restrictive covenants usual and customary for loans of its type, in addition to financial covenants including minimum EBITDA and minimum tangible net worth which apply to both terms loans described above.

In connection with the Amended Agreement, the Company incurred $ 0.6 million of financing costs which will be deferred and amortized over the life of Term Loan A- 2.

Covenants & other debt matters —

The Company’s debt agreements, including the Revolver and term loan, contain customary affirmative and negative covenants that restrict, with specified exceptions, the Company’s ability to incur additional indebtedness, incur liens, pay dividends on the Company’s capital stock, make other restricted payments, including investments, transfer all or substantially all of the Company’s assets, enter into consolidations or mergers, and enter into transactions with affiliates.

The Company’s debt agreements also require the Company to meet certain financial covenants including a minimum EBITDA and minimum tangible net worth.

The Revolver contains borrowing base requirements related to accounts receivable and inventories and also requires the Company to meet a financial covenant related to a minimum fixed charge coverage ratio if (a) an event of default has occurred or (b) availability on the Revolver is less than the greater of (i) 10 % of the commitments then in effect and (ii) $ 25,000,000 .

The most restrictive financial covenant in the debt agreements is the minimum EBITDA within the Term Loan which for fiscal year 2023 was greater than $ 75 million.

The Company computes its financial covenants as if the Company were on the FIFO method of inventory accounting.

The Company has met all such financial covenants as of March 31, 2023.

The Company's debt agreements limit the payment of dividends and other distributions.

There is an annual total distribution limitation of $ 50,000 , less aggregate annual dividend payments totaling $ 23,000 that the Company presently pays on two outstanding classes of preferred stock.

The carrying value of assets pledged for secured debt, including the Revolver, is $ 949.7 million as of March 31, 2023.

Debt repayment requirements for the next five fiscal years are (in thousands):

$ 10,000  

10,000  

267,598  

149,500  

$ 443,314  

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.

SENECA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Lease terms may include options to extend or terminate the lease, and the impact of these options are included in the calculation of the ROU asset and lease obligation only when the exercise of the option is at the Company’s sole discretion and it is reasonably certain that the Company will exercise that option.

The Company will not separate lease and non-lease components for its leases when it is impractical to separate the two.

In addition, the Company 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 Consolidated Balance Sheets.

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

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

Amortization of right of use asset

Interest on lease liabilities

Finance lease cost

Operating lease cost

Total lease cost

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from finance leases

Operating cash flows from operating leases

Financing cash flows from finance leases

Right-of-use assets obtained in exchange for new finance lease liabilities

Right-of-use assets obtained in exchange for new operating lease liabilities

Weighted-average lease term (years):

Financing leases

Operating leases

Weighted-average discount rate:

Financing leases

Operating leases

Undiscounted future lease payments under non-cancelable operating leases and financial leases, along with a reconciliation of undiscounted cash flows to operating and financing lease liabilities, respectively, as of March 31, 2023 were as follows (in thousands):

Years ending March 31:

Total minimum payment required

Less interest

Present value of minimum lease payments

Amount due within one year

Long-term lease obligation

SENECA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company files a consolidated federal and various state income tax returns.

The provision for income taxes is as follows (in thousands):

Total income taxes

A reconciliation of the expected U.S.

statutory rate to the effective rate follows:

Computed (expected tax rate)

State income taxes (net of federal tax benefit)

Federal credits

State rate changes

State credit expiration

Change in valuation allowance

Federal return to accrual

State return to accrual

Permanent differences

Federal net operating loss (NOL) carryback rate difference

Interest received on federal NOL carryback

Uncertain tax benefits return to accrual

Effective income tax rate

The Company’s effective tax rate, as restated in fiscal years 2023 and 2022, was 33.1 % and 22.9 %, respectively and was 21.2 % in fiscal year 2021.

In fiscal year 2023, the Company added a valuation allowance against state tax credits because it was determined that it was more likely than not that the credits will not be used prior to expiration.

This change, along with other current year increases in the existing valuation allowances, had a 9.0 % increase on the fiscal year 2023 effective tax rate as compared to fiscal year 2022.

The fiscal year 2023 effective tax rate was further increased by 2.5 % versus fiscal year 2022 due to state rate changes which were mostly caused by changes in the Company’s business activities that impact state apportionment. 

In fiscal year 2021, the Company was able to carryback the NOL generated in the 2019 tax year at a 21 % corporate tax rate to the 2015 tax year at a 35 % corporate tax rate.

The NOL carryback had a 2.8 % decrease on the fiscal year 2021 rate and without this impact in fiscal year 2022, the tax rate effectively increased by 2.8 % when comparing fiscal year 2022 to 2021.

The year over year increase in the effective tax rate was partially offset by a decrease of 0.6 % due to the federal income tax credits having a larger impact on the effective tax rate in fiscal year 2022, amongst other decreases noted in the table above.

SENECA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of the significant components of the Company's deferred income tax assets and liabilities (in thousands):

Deferred income tax assets:

Future tax credits

Inventory valuation

Employee benefits

State depreciation basis differences

Operating leases

Other comprehensive loss

Prepaid revenue

Net operating loss and other tax attribute carryovers

Deferred income tax liabilities:

Property basis and depreciation difference

Inventory reserve

Right-of-use assets

Total liabilities

Valuation allowance - noncurrent

Deferred income tax liability, net

Net deferred income tax liabilities, as restated, of $ 31.5 million and $ 33.0 million as of March 

31, 2023 and 2022, respectively, are recognized as noncurrent liabilities in the Consolidated Balance Sheets.

The Company has State tax credit carryforwards amounting to $ 1.5 million (California, net of Federal impact), $ 1.3 million (New York, net of Federal impact), and $ 2.2 million (Wisconsin, net of Federal impact), which are available to reduce future taxes payable in each respective state through 2028 (California), through 2035 (New York), and through 2038 (Wisconsin).

The Company has performed the required assessment regarding the realization of deferred tax assets and as of March 31, 2023, the Company has recorded a valuation allowance amounting to $ 5.0 million, which relates primarily to tax credit carryforwards which management has concluded it is more likely than not they will not be realized in the ordinary course of operations.

Although realization is not assured, management has concluded that it is more likely than not that the deferred tax assets for which a valuation allowance was determined to be unnecessary will be realized in the ordinary course of operations.

The amount of net deferred tax assets considered realizable, however, could be reduced if actual future income or income tax rates are lower than estimated or if there are differences in the timing or amount of future reversals of existing taxable or deductible temporary differences. 

SENECA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Those rules also provide guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The Company classifies the liability for uncertain tax positions in other accrued expenses or other long-term liabilities on the Consolidated Balance Sheets depending on their expected settlement date.

The change in the liability for fiscal years 2023 and 2022 consists of the following (in thousands):

Beginning balance

Tax positions related to current year:

Tax positions related to prior years:

Lapses in statues of limitations

Ending balance

The liability balances as of March 31, 2023 and 2022 do not include tax positions that are highly certain but for which there is uncertainty about the timing.

Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of these positions would not impact the annual effective tax rate but would accelerate the payment of cash to the tax authority to an earlier period.

The Company recognizes interest and penalties accrued on unrecognized tax benefits as well as interest received from favorable settlements within income tax expense.

During fiscal years 2023 and 2022, the accrued interest and penalties balance and change during the respective fiscal years was not significant associated with unrecognized tax benefits.

Although management believes that an adequate position has been made for uncertain tax positions, there is the possibility that the ultimate resolution could have an adverse effect on the net earnings of the Company.

Conversely, if resolved favorably in the future, the related provisions would be reduced, thus having a positive impact on net earnings.

During fiscal year 2023, the statute of limitations lapsed on one uncertain tax position, which results in the position no longer being uncertain.

As a result of this lapse and in accordance with its accounting policies, the Company recorded an insignificant decrease to the liability and tax expense.

The federal income tax returns for fiscal years after 2015 are open because the Company claimed refunds on taxable income for fiscal years 2017 and 2016.

These years will remain open until fiscal years 2018 and 2020, which were taxable loss years, are closed however the exposure is limited to the refund amounts for each fiscal year.

Fiscal years 2018, 2019, and 2020 are currently under audit with the Internal Revenue Service. 

SENECA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Retirement Plans

The Company has a noncontributory defined benefit pension plan (the “Plan”) covering most employees who meet certain age-entry requirements and work a stated minimum number of hours per year.

The Plan was amended to freeze accruals to new hires and rehires effective January 1, 2020.

The Plan was adequately funded as of March 31, 2023 and 2022 and no contributions were required to meet 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, 2023 and a statement of the funded status as of March 

31, 2023 and 2022 (in thousands):

Change in benefit obligation

Benefit obligation at beginning of year

Interest cost

Actuarial gain

Benefit payments and expenses

Benefit obligation at end of year

Change in plan assets

Fair value of plan assets at beginning of year

Actual return on plan assets

Benefit payments and expenses

Fair value of plan assets at end of year

Funded status

The Plan’s funded status increased by $ 6.4 million during fiscal year 2023 reflecting the actual fair value of plan assets and the projected benefit obligation as of March 31, 2023.

This funded status increase was primarily driven by actuarial gains on the projected benefit obligation, as described in more detail below, partially offset by a combination of growth in the Plan’s projected benefit obligation due to service cost and interest cost and a negative return on plan assets.

During fiscal year 2023, the actuarial gain in the pension plan’s projected benefit obligation was driven by an increase in discount rates and the annual update in plan census data resulting in demographic gains, partially offset by an assumed salary increase rate for fiscal year 2024 in excess of the long-term rate.

During fiscal year 2022, the actuarial gain in the pension plan’s projected benefit obligation was primarily driven by an increase in discount rates.

The gain was partially offset by actuarial losses due to a combination of data revisions resulting in the demographic losses, a change in near-term assumed salary increases, and an update to the most recently released mortality projection scale by the Society of Actuaries (SOA).

Plan assets decreased from $ 327.9 million as of March 31,2022 to $ 294.3 million as of March 31, 2023 primarily due to normal payments of benefits and a negative return on plan assets.

The following table provides the components of the Plan’s accumulated other comprehensive loss, pre-tax (in thousands):

Amounts Recognized in Accumulated Other Comprehensive Pre-Tax Loss

Prior service cost

Accumulated other comprehensive pre-tax loss

SENECA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides the components of net periodic benefit cost for the Plan for fiscal years 2023, 2022, and 2021 (in thousands):

Service cost including administration

Interest cost

Expected return on plan assets

Amortization of net loss

Prior service cost

Net periodic benefit cost

The Company utilizes a full yield curve approach in the estimation of net periodic benefit cost components by applying the specific spot rates along the yield curve used in determination of the benefit obligation to their underlying projected cash flows.

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 and pension expense are shown in the following table:

Weighted Average Assumptions for Balance Sheet Liability at End of Year:

Discount rate - projected benefit obligation

Rate of compensation increase

Mortality table

Pri-2012 Blue Collar Generational Table Improvement Scale MP-2021

Pri-2012 Blue Collar Generational Table Improvement Scale MP-2020

Weighted Average Assumptions for Benefit Cost at Beginning of Year:

Discount rate - benefit obligations

Discount rate - interest cost

Discount rate - service cost

Expected return on plan assets

Rate of compensation increase

Investment Policy and Strategy - The Company maintains an investment policy that utilizes a liability-driven investments approach to reduce the ongoing volatility of the Plan’s funded status.

During fiscal year 2023, the Company updated its current target allocation to be 20 % allocated to a diversified mix of return-seeking investments including equities and alternative investments and 80 % allocated to liability-hedging fixed income investments.

SENECA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company's plan assets consist of the following:

Allocation for:

Percentage of Plan

Assets as of:

Equity securities

Debt securities

The following tables set forth the Company’s plan assets at fair value, by level within the fair value hierarchy (as defined in Note 1 ), as of March 31, 2023 and 2022, (in thousands):

As of March 31, 2023

Equity securities

Held in common/collective trusts

Equity securities

Debt securities

Cash/short-term investments (2)

Other investments

Fair value of plan assets

As of March 31, 2022

Equity securities

Held in common/collective trusts

Equity securities

Debt securities

Cash/short-term investments (2)

Other investments

Fair value of plan assets

Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy but are included to reconcile to the amounts presented in our Obligations and Funded Status table.

The cash/short term investments consist of a money market fund that holds individual, high quality, short duration fixed income investments, however the fund does not trade on public markets.

The Company elected to consistently apply the practical expedient to all investments within common/collective trusts, and therefore, the fair value of this fund is measured at net asset value per share.

SENECA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Expected Return on Plan Assets

For fiscal year 2023, the expected long-term rate of return on Plan assets was 5.00 %.

For fiscal year 2024, the Company will increase the expected long-term rate of return on Plan assets to 6.15 %.

The Company expected 5.00 % and 6.15 % to fall within the 35 to 65 percentile range of returns on investment portfolios with asset diversification similar to that of the Plan's target asset allocation for fiscal years 2023 and 2024, respectively.

Expected contributions for fiscal year ending March 

31, 2024 (in thousands):

Expected Employer Contributions

Expected Employee Contributions

Estimated future benefit payments reflecting expected future service for the fiscal years ending March 31 ( in thousands):

401 (k) Plans

The Company also has employees’

savings 401 (k) plans 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 $ 1.5 million, $ 1.1 million, and $ 1.6 million in fiscal years 2023, 2022, and 2021, respectively.

In each of the aforementioned fiscal years, the matching contribution was entirely treasury stock.

This stock portion of the matching contribution is valued at current market value while the treasury stock is valued at cost.

Unfunded Deferred Compensation Plan

The Company sponsors an unfunded nonqualified deferred compensation plan to permit certain eligible employees to defer receipt of a portion of their compensation to a future date.

This plan was designed to compensate the plan participants for any loss of company contributions under the 401 (k) plans.

As of March 31, 2023 and 2022, the Company has accrued $ 1.7 million and $ 0.9 million, respectively, in connection with the unfunded deferred compensation plan.

Stockholders ’

Preferred Stock —

The Company has authorized three classes of preferred stock consisting of 200,000 shares of Six Percent ( 6 %) Voting Cumulative Preferred Stock, par value $ 0.25 ( “6% Preferred”);

30,000 shares of Preferred Stock Without Par Value to be issued in series by the Board of Directors, none of which are currently designated or outstanding;

and 8,200,000 shares of Preferred Stock with $ 0.025 par value, Class A, to be issued in series by the Board of Directors (“Class A Preferred”).

The Board of Directors has designated four series of Class A Preferred including 10 % Cumulative Convertible Voting Preferred Stock—Series A (“Series A Preferred”);

10 % Cumulative Convertible Voting Preferred Stock—Series B (“Series B Preferred”);

Convertible Participating Preferred Stock;

and Convertible Participating Preferred Stock, Series 

SENECA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Convertible Participating Preferred Stock and Convertible Participating Preferred Stock, Series 

2003 are convertible at the holders’

option on a one -for- one basis into shares of Class A Common Stock, subject to antidilution adjustments.

These series of preferred stock have the right to receive dividends and distributions at a rate equal to the amount of any dividends and distributions declared or made on the Class A Common Stock.

No dividends were declared or paid on this preferred stock in fiscal year 2023 or 2022.

In addition, these series of preferred stock have certain distribution rights upon liquidation.

Upon conversion, shares of these series of preferred stock become authorized but unissued shares of Class A Preferred and may be reissued as part of another series of Class A Preferred.

As of March 

31, 2023, the Company has an aggregate of 6,791,708 shares of non-designated Class A Preferred authorized for issuance.

The Convertible Participating Preferred Stock has a liquidation preference of $ 12 per share and a stated value of $ 11.931 per share.

There were 8,292 shares outstanding as of March 

31, 2023 and 23,964 conversions during the fiscal year.

The Convertible Participating Preferred Stock, Series 

2003 was issued as partial consideration of the purchase price in the Chiquita Processed Foods acquisition.

The 967,742 shares issued in that 2003 acquisition were valued at $ 16.60 per share which represented the then market value of the Class A Common Stock into which the preferred shares were immediately convertible.

This series has a liquidation preference of $ 15.50 per share and has no shares outstanding as of March 

There are 407,240 shares of Series A Preferred outstanding as of March 

31, 2023 which are convertible into one share of Class A Common Stock and one share of Class B Common stock for every 20 shares of Series A Preferred.

There are 400,000 shares of Series B Preferred outstanding as of March 

31, 2023 which are convertible into one share of Class A Common Stock and one share of Class B Common Stock for every 30 shares of Series B preferred.

There are 200,000 shares of 6 % Preferred outstanding as of March 

31, 2023 which are callable at their par value at any time at the option of the Company.

The Company paid dividends of $ 20,000 on the Series A and Series B Preferred and $ 3,000 on the 6 % Preferred during each of fiscal year 2023 and 2022.

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.

During fiscal year 2023, there were 1,319 shares of Class B Common Stock issued in lieu of cash compensation under the Company's Profit Sharing Bonus Plan.

Unissued shares of common stock reserved for conversion privileges of designated non-participating preferred stock were 33,695 of both Class A and Class B as of March 

31, 2023 and 2022.

Additionally, there were 8,292 and 32,756 shares of Class A reserved for conversion of the Participating Preferred Stock as of March 

31, 2023 and 2022, respectively.

Treasury Stock —

During fiscal year 2023 the Company repurchased $ 41.2 million, or 766,071 shares of its Class A Common Stock and none of its Class B Common Stock.

As of March 31, 2023, there is a total of $ 168.6 million, or 4,566,242 shares, of repurchased stock.

These shares are not considered outstanding.

The Company contributed $ 1.5 million or 39,177 treasury shares for the 401 (k) match in fiscal year 2023 as described in Note 11, Retirement Plans.

Fair Value of Financial Instruments

The carrying amount and estimated fair values of the Company's long-term debt are summarized as follows (in thousands):

Long-term debt, including current portion

The estimated fair value for long-term debt 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 which is Level 2 from the fair value hierarchy.

Since quoted prices for identical instruments in active markets are not available (Level 1 ), the Company makes use of observable market based inputs to calculate fair value, which is Level 2.

SENECA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Operating Income and Expense

The Company had net other operating income of $ 1.7 million in fiscal year 2023, which was driven primarily by gains on the sale of the Company’s western trucking fleet and an aircraft, along with a favorable true-up of the supplemental early retirement plan accrual.

This other operating income was partially offset by a write down of idle equipment to estimated selling price, less commission, as the assets met the criteria to be classified as held for sale.

The Company had net other operating expense of $ 1.2 million in fiscal year 2022, which was driven by charges for supplemental early retirement plans and to maintain non-operating facilities classified as held for sale.

These charges were partially offset by a net gain on the sale of assets and a gain from debt forgiveness on an economic development loan.

The Company had net other operating income of $ 29.0 million in fiscal year 2021, which was primarily comprised of a net gain on the sale of assets, due largely to the gain realized upon the divestiture of the Company’s prepared foods business.

The gain was partially offset by charges to maintain non-operational plants acquired in the Midwest, a charge for a supplemental early retirement plan, and a charge for severance.

Segment Information

The Company has historically managed its business on the basis of three reportable food packaging segments:

( 1 ) fruits and vegetables, ( 2 ) prepared food products and ( 3 ) snack products, with non-food packaging sales comprising the other category.

The other category includes the sale of cans, ends, seed, and outside revenue from the Company's trucking and aircraft operations.

During fiscal year 2021, the Company sold its prepared foods business, leaving just two reportable segments along with the other category.

Export sales represented 6.7 %, 7.2 % and 7.2% of total sales in fiscal 2023, 2022 and 2021, respectively. 

The following table summarizes certain financial data for the Company’s reportable segments (in thousands):

Fiscal Year 2023:

Operating income

Capital expenditures

Depreciation and amortization

Fiscal Year 2022:

Operating income

Capital expenditures

Depreciation and amortization

Fiscal Year 2021:

Operating income

Capital expenditures

Depreciation and amortization

After the sale of the prepared foods business in fiscal year 2021, over 99 % of the Company’s total assets from the Consolidated Balance Sheets belong to the fruit and vegetable segment and this information is no longer necessary.

SENECA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Legal Proceedings and Other Contingencies

In the ordinary course of its business, the Company is made a party to certain legal proceedings seeking monetary damages, including proceedings involving product liability claims, workers’

compensation along with other employee claims, tort and other general liability claims, for which it carries insurance, as well as patent infringement and related litigation.

The Company is in a highly regulated industry and is also periodically involved in government actions for regulatory violations and other matters surrounding the manufacturing of its products, including, but not limited to, environmental, employee, and product safety issues.

While it is not feasible to predict or determine the ultimate outcome of these matters, the Company does not believe that an adverse decision in any of these legal proceedings would have a material adverse impact on its financial position, results of operations, or cash flows.

Plant Restructuring

The following table summarizes the restructuring charges recorded and the accruals established during fiscal years 2023, 2022 and 2021 (in thousands):

Balance March 31, 2020

Charge to expense

Cash payments/write offs

Balance March 31, 2021

Charge to expense

Cash payments/write offs

Balance March 31, 2022

Charge to expense

Cash payments/write offs

Balance March 31, 2023

During fiscal year 2023, the Company incurred restructuring charges primarily due to ceasing production of green beans at a plant in the Northeast.

The charges mainly consisted of severance and write-downs of production equipment that was to be scrapped or sold.

During fiscal years 2022 and 2021, the Company incurred restructuring charges primarily related to plants that were closed in previous periods, including severance, health care costs, and lease impairments, amongst other minor changes.

Related Party Transactions

During fiscal years 2023, 2022, and 2021, less than 1% of vegetables supplied to the Company are grown by a Director of Seneca Foods Corporation.

The Company’s grower purchases from the Director were $ 3.1 million, $ 2.9 million, and $ 2.2 million in fiscal years 2023, 2022, and 2021, respectively, pursuant to a raw vegetable grower contract. 

The Chairman of the Audit Committee reviewed the relationship and determined that the contract was negotiated at arm's length and on no more favorable terms than to other growers in the marketplace.

The Company made charitable contributions to the Seneca Foods Foundation, a related party, in the amount of $ 0.5 million, $ 1.0 million and $ 1.0 million in fiscal years 2023, 2022 and 2021, respectively.

The Foundation is a nonprofit entity that supports charitable activities by making grants to unrelated organizations or institutions and is managed by current employees of the Company.

During fiscal year 2022, the Company recorded a liability for retirement arrangements to beneficiaries of certain former employees of the Company that have family relationships to two of the Company’s current Directors.

As of March 31, 2023 and 2022, the liability for these benefits totaled $ 1.0 million and $ 1.9 million, respectively.

Payments are made monthly over the beneficiary’s lifetime.

SENECA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Subsequent Event

On May 23, 2023, the Company entered into Second Amended and Restated Loan and Guaranty Agreement Amendment 1 with Farm Credit East, ACA (“the Amendment”).

The Amendment amends, restates and replaces in its entirety Term Loan A- 2 (as defined in Note 8, Long-Term Debt) and provides a single advance term facility in the principal amount of $ 125.0 million to be combined with the existing $ 173.5 million Term Loan A- 2 into one single $ 298.5 million term loan (“Amended Term Loan A- 2”

Amended Loan Term A- 2 is secured by a portion of the Company’s property, plant and equipment and bears interest at a variable interest rate based upon SOFR plus an additional margin determined by the Company’s leverage ratio. 

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K/A

Item 8. Financial Statements and Supplementary Data