-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JuIoyTSxNBwfAqc5sCkCP+Vs0yx1b1rG8tLdxS/0IqLkjWxfPp37qTDgtBLdmBnI oLY7OOlLo7UWeIYlcSenpQ== 0000088948-07-000018.txt : 20070614 0000088948-07-000018.hdr.sgml : 20070614 20070614163523 ACCESSION NUMBER: 0000088948-07-000018 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20070331 FILED AS OF DATE: 20070614 DATE AS OF CHANGE: 20070614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SENECA FOODS CORP /NY/ CENTRAL INDEX KEY: 0000088948 STANDARD INDUSTRIAL CLASSIFICATION: CANNED, FRUITS, VEG & PRESERVES, JAMS & JELLIES [2033] IRS NUMBER: 160733425 STATE OF INCORPORATION: NY FISCAL YEAR END: 0307 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-01989 FILM NUMBER: 07920331 BUSINESS ADDRESS: STREET 1: 3736 SOUTH MAIN STREET CITY: MARION STATE: NY ZIP: 14505 BUSINESS PHONE: 315 926 8100 MAIL ADDRESS: STREET 1: 3736 SOUTH MAIN STREET CITY: MARION STATE: NY ZIP: 14505 FORMER COMPANY: FORMER CONFORMED NAME: PIERCE S S COMPANY INC DATE OF NAME CHANGE: 19861210 FORMER COMPANY: FORMER CONFORMED NAME: SENECA FOODS CORP DATE OF NAME CHANGE: 19780425 FORMER COMPANY: FORMER CONFORMED NAME: SENECA GRAPE JUICE CORP DATE OF NAME CHANGE: 19710419 10-K 1 a10k033107.htm 10-K MARCH 31, 2007 Global Enclosed File Count
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K


Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

For the fiscal year ended March 31, 2007
Commission File Number 0-01989

SENECA FOODS CORPORATION
(Exact name of registrant as specified in its charter)


New York
(State or other jurisdiction of
incorporation or organization)
 
3736 South Main Street, Marion, New York
(Address of principal executive offices)
 
Registrant’s telephone number, including area code
16-0733425
(I.R.S. Employer Identification No.)
 
 
14505
(Zip Code)
 
(315) 926-8100


Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of Each Class
Name of Each Exchange on
Which Registered
Common Stock Class A, $.25 Par
NASDAQ Global Market
Common Stock Class B, $.25 Par
NASDAQ Global Market

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes     No   X  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes     No   X  

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   X   

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days.
 
Yes   X   No    

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12(b-2) of the Exchange Act).

Large accelerated filer     Accelerated filer   X   Non-accelerated filer    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes     No   X  

The aggregate market value of the Registrant’s voting and non-voting common equity held by non-affiliates based on the closing sales price per market reports by the NASDAQ Global Market System on September 30, 2006 was approximately $166,711,000.
 

Common shares outstanding as of May 30, 2007 were Class A: 4,814,284, Class B: 2,760,905.




Documents Incorporated by Reference:

(1)
Proxy Statement to be issued in connection with the Registrant’s annual meeting of stockholders (the “Proxy Statement”) applicable to Part III, Items 10-14 of Form 10-K.
 
(2)
Portions of the Annual Report to shareholders for fiscal year ended March 31, 2007 (the “2007 Annual Report”) applicable to Part I, Part II, Items 5-8 and Part IV, Item 15 of Form 10-K.
 



TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT - FISCAL 2007
SENECA FOODS CORPORATION

     
     
PART I.
 
Pages
Item 1.
1-4
Item 1A.
4-6
Item 1B.
6
Item 2.
7
Item 3.
8
Item 4.
8
     
PART II.
   
Item 5.
 
9-10
     
Item 6.
10
Item 7.
10
Item 7A.
10
Item 8.
10
Item 9.
10
Item 9A.
11-12
Item 9B.
13
     
PART III.
   
Item 10.
14
Item 11.
14
Item 12.
 
14
Item 13.
14
Item 14.
14
     
     
PART IV.
   
Item 15.
15-16
     
 
17
     



Forward-Looking Statements

Except for the historical information contained herein, the matters discussed in this report are forward-looking statements as defined in the Private Securities Litigation Reform Act (PSLRA) of 1995. The Company wishes to take advantage of the "safe harbor" provisions of the PSLRA by cautioning that numerous important factors which involve risks and uncertainties, including but not limited to economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices, and other factors discussed in the Company's filings with the Securities and Exchange Commission, in the future, could affect the Company's actual results and could cause its actual consolidated results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company.

PART I

Business

General Development of Business

SENECA FOODS CORPORATION (the “Company”) was organized in 1949 and incorporated under the laws of the State of New York. In the spring of 1995, the Company initiated a 20-year Alliance Agreement with the Pillsbury Company, which was acquired by General Mills Operations, Inc. (“GMOI”) that created the Company’s most significant business relationship. Under the Alliance Agreement, the Company packs canned and frozen vegetables carrying GMOI’s Green Giant brand name.

Since the onset of the Alliance Agreement, vegetable production has been the Company’s dominant line of business. In fiscal 1999, the Company sold its fruit juice business and its applesauce and industrial flavors business. As a result of these divestitures, the Company’s only non-vegetable food products are a line of fruit and chip products.

On August 18, 2006, the Company completed the acquisition of the sole membership interest in Signature Fruit Company L.L.C., a large producer of fruit products, from John Hancock Life Insurance Company and John Hancock Variable Life Insurance Company. As a result of this acquisition, the Company expanded its line of fruit products.

Available Information

The Company’s Internet address is www.senecafoods.com. The Company’s annual report on Form 10-K, the Company’s quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available on the Company’s web site, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. All such filings on the Company’s web site are available free of charge.

In addition, the Company's website includes items related to corporate governance matters, including charters of various committees of the Board of Directors and the Company's Code of Business Conduct and Ethics. The Company intends to disclose on its website any amendment to or waiver of any provision of the Code of Business Conduct and Ethics that would otherwise be required to be disclosed under the rules of the SEC and NASDAQ.

Financial Information about Industry Segments

The Company’s business activities are principally conducted in food processing operations. The food operation constitutes 99% of total sales, of which approximately 82% is vegetable processing and 18% is fruit processing. The fruit processing percentage represents eight months of sales of the acquired Signature Fruit Company, L.L.C. The non-food operation is mostly trade sales of cans and ends, which represents 1% of the Company’s total sales.

Narrative Description of Business

Principal Products and Markets

Food Processing

The principal products include canned fruits and vegetables, frozen vegetables and other food products. The products are sold to retail and institutional markets. The Company has divided the United States into four major marketing sections: Eastern, Southern, Northwestern, and Southwestern. Food processing operations are primarily supported by plant locations in New York, California, Wisconsin, Washington, Idaho, Illinois, and Minnesota.
 

1


The following table summarizes net sales by major product category for the years ended March 31, 2007, 2006, and 2005:
 

Classes of similar products/services:
 
2007
 
2006
 
2005
 
       
   
(In thousands)
 
Net Sales:
             
GMOI
 
$
210,313
 
$
240,490
 
$
225,527
 
Canned vegetables
   
579,731
   
573,779
   
574,802
 
Frozen vegetables
   
35,696
   
29,464
   
28,304
 
Fruit and chip products
   
183,338
   
26,640
   
23,358
 
Other
   
15,775
   
13,450
   
12,283
 
                     
   
$
1,024,853
 
$
883,823
 
$
864,274
 
                     


Source and Availability of Raw Materials


The Company’s food processing plants are located in major vegetable producing states and in two fruit producing states. Fruits and vegetables are primarily obtained through contracts with growers. The Company’s sources of supply are considered equal or superior to its competition for all of its food products.

Intellectual Property

The Company's most significant brand name, Libby's, is held pursuant to a trademark license granted to the Company in March 1982 and renewable by the Company every 10 years for an aggregate period expiring in March 2081. The original licensor was Libby, McNeill & Libby, Inc., then an indirect subsidiary of Nestlé, S. A. ("Nestlé") and the license was granted in connection with the Company's purchase of certain of the licensor's canned vegetable operations in the United States. Corlib Brands Management, LTD, acquired the license from Nestlé during 2006. The license is limited to vegetables which are shelf-stable and thermally processed, and includes the Company's major vegetable varieties - corn, peas and green beans - as well as certain other thermally processed vegetable varieties and sauerkraut.

The Company is required to pay an annual royalty, initially set at $25,000, and adjustable up or down in subsequent years based upon changes in the "Employment Cost Index-Private Non-farm Workers" published by the U. S. Bureau of Labor Statistics or an appropriate successor index as defined in the license agreement. Corlib Brands may terminate the license for non-payment of royalty, use of the trademark in sales outside the licensed territory, failure to achieve a minimum level of sales under the licensed trademark during any calendar year or a material breach or default by the Company under the agreement (which is not cured within the specified cure period). With the purchase of Signature, which also uses the Libby’s brand name, the Company re-negotiated the license agreement and created a new, combined agreement based on Libby’s revenue dollars for fruits, vegetables, and dry beans. A total of $116,000 was paid as a royalty fee for the quarter ended March of 2007.

Seasonal Business


While individual fruits and vegetables have seasonal cycles of peak production and sales, the different cycles are usually offsetting to some extent. Minimal food processing occurs in the Company's last fiscal quarter ending March 31, which is the optimal time for maintenance, repairs and equipment changes in its processing plants. The supply of commodities, current pricing, and expected new crop quantity and quality affect the timing of the Company’s sales and earnings. When the seasonal harvesting periods of the Company's major vegetables are newly completed, inventories for these processed vegetables are at their highest levels. For peas, the peak inventory time is mid-summer and for corn, the Company's highest volume vegetable, the peak inventory is in mid-autumn. An Off Season Allowance is established during the year to minimize the effect of seasonal production on earnings. The Off Season Allowance is zero at each fiscal year-end.

Backlog


In the food processing business, the end of year sales order backlog is not considered meaningful. Traditionally, larger customers provide tentative bookings for their expected purchases for the upcoming season. These bookings are further developed as data on the expected size of the related national harvests becomes available. In general, these bookings serve as a yardstick rather than as a firm commitment, since actual harvest results can vary notably from early estimates. In actual practice, the Company has substantially all of its expected seasonal production identified to potential sales outlets before the seasonal production is completed.


2


Competition and Customers


Competition in the food business is substantial with imaginative brand registration and promotion, quality, service, and pricing being the major determinants in the Company’s relative market position. The Company is aware of approximately 18 competitors in the U.S. processed vegetable industry, many of which are privately held companies. The Company believes that it is a major producer of canned vegetables, but some producers of canned, frozen and other modes of vegetable products have sales which exceed the Company's sales. The Company is aware of approximately eight competitors in the U.S. processed fruit industry. In addition, there are significant quantities of fruit that are imported from Europe, Asia and South America.

During the past year, approximately 10% of the Company’s processed foods sales were packed for retail customers under the Company’s branded labels of Libby’s®, Blue Boy®, Aunt Nellie’s Farm Kitchen®, Stokely®, Read®, Festal®, Diamond A®, and Seneca®. About 24% of processed foods sales were packed for institutional food distributors and 45% were retail packed under the private label of customers. The remaining 21% was sold under the Alliance Agreement with GMOI (see note 12 of Item 8, Financial Statements and Supplementary Data). Termination of the Alliance Agreement would substantially reduce the Company’s sales and profitability unless the Company was to enter into a new substantial supply relationship with GMOI or another major vegetable marketer. The non-Alliance customers represent a full cross section of the retail, institutional, distributor, and industrial markets; and the Company does not consider itself dependent on any single sales source other than sales attributable to the Alliance Agreement.

The Company's principal branded products are its Libby’s canned fruit and vegetable products, which rate among the top five national brands.

The information under the heading Results of Operations in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2007 Annual Report is incorporated by reference.

Environmental Protection

Environmental protection is an area that has been worked on most diligently at each food processing facility. In all locations, the Company has cooperated with federal, state, and local environmental protection authorities in developing and maintaining suitable antipollution facilities. In general, pollution control facilities are equal to or somewhat superior to those of our competitors and are within environmental protection standards. The Company does not expect any material capital expenditures to comply with environmental regulations in the near future. The Company is a potentially responsible party with respect to a waste disposal site owned and operated by a third party. The Company believes that any reasonably anticipated liabilities will not exceed $300,000 for the waste disposal site.

Environmental Litigation and Contingencies

The Company is one of a number of business and local government entities which contributed waste materials to a landfill in Yates County in upstate New York, which was operated by a party unrelated to the Company primarily in the 1970’s through the early 1980’s. The Company’s wastes were primarily food and juice products. The landfill contained some hazardous materials and was remediated by the State of New York. The New York Attorney General has advised the Company and other known non-governmental waste contributors that New York has sustained a total remediation cost of $4.9 million and seeks recovery of half that cost from the non-governmental waste contributors. The Company is one of four identified contributors (Group) who cooperatively are investigating the history of the landfill so as to identify and seek out other potentially responsible parties who are not defunct and are financially able to contribute to the non-governmental parties’ reimbursement liability. The Group has offered a settlement but has not received a response from the State. The Company does not believe that any ultimate settlement in excess of the amount accrued will have a material impact on its financial position or results of operations.

In early 1999, the Company sold to Tree Top, Inc. its applesauce business, including a plant in Prosser, Benton County, Washington. In the sale agreement governing the transaction, the Company represented to Tree Top that it was in compliance with all environmental laws. In 2003, the Benton County Clean Air Authority (“BCAA”) brought an enforcement action against Tree Top under Title V of the Clean Air Act and related State of Washington statutes, alleging that Tree Top was violating the Clean Air Act by failing to register the facility with BCAA pursuant to Title V. The BCAA also alleged that the facility failed to provide BCAA with a required notice of construction when it replaced a fourth boiler in the Prosser plant in 1988 when the Company was the sole owner. Tree Top has reached a settlement with the BCAA which, according to Tree Top, requires Tree Top to pay penalties and make modifications to equipment at a total cost of approximately $493,000. Tree Top had made a formal demand on the Company for reimbursement of the entire amount. On May 1, 2007, the Company made a payment in full settlement of this claim in an amount less than the original amount demanded. This amount did not have a material impact on its financial position or results of operations.

Employment

The Company has 3,358 employees of which 2,738 full time and 520 seasonal employees work in food processing and 73 full time employees work in other activities.

3



The Company has seven collective bargaining agreements with three unions covering approximately 900 of its full-time employees. The terms of these agreements result in wages and benefits, which are substantially the same for comparable positions for the Company’s non-union employees. Four collective bargaining agreements expire in calendar 2008, two agreements expire in calendar 2009, and one agreement expires in calendar 2010.

Export Sales

The following table sets forth domestic and export sales:
     
   
Fiscal Year
 
   
 2007
 
 2006
 
 2005
 
   
(In thousands, except percentages)
 
Net Sales:
             
United States
 
$
935,948
 
$
804,236
 
$
782,282
 
Export
   
88,905
   
79,587
   
81,992
 
Total Net Sales
 
$
1,024,853
 
$
883,823
 
$
864,274
 
                     
As a Percentage of Net Sales:
                   
United States
   
91.3
%
 
91.0
%
 
90.5
%
Export
   
8.7
%
 
9.0
%
 
9.5
%
Total
   
100.0
%
 
100.0
%
 
100.0
%



Risk Factors

The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us, may also impair our business operations. If any of the following risks actually occurs, our business, financial condition or results of operations could be materially and adversely affected. The Company refers to itself as “we”, “our” or “us” in this section.


Excess capacity in the fruit and vegetable industry has a downward impact on selling price.

Our financial performance and growth are related to conditions in the United States fruit and vegetable processing industry which is a mature industry with a modest growth rate in the last 10 years. Our net sales are a function of product availability and market pricing. In the fruit and vegetable processing industry, product availability and market prices tend to have an inverse relationship: market prices tend to decrease as more product is available and to increase if less product is available. Product availability is a direct result of plantings, growing conditions, crop yields and inventory levels, all of which vary from year to year. In addition, market prices can be affected by the planting and inventory levels and individual pricing decisions of the three or four largest processors in the industry. Generally, market prices in the fruit and vegetable processing industry adjust more quickly to variations in product availability than an individual processor can adjust its cost structure; thus, in an oversupply situation, a processor’s margins likely will weaken. We typically have experienced lower margins during times of industry oversupply.

In the past, the fruit and vegetable processing industry has been characterized by excess capacity, with resulting pressure on our prices and profit margins. Both the Company and our competitors have closed processing plants in response to the downward pressure on prices. There can be no assurance that our margins will improve in response to favorable market conditions or that we will be able to operate profitably during depressed market conditions. Moreover, fruit and vegetable production outside the United States, particularly in Europe, Asia and South America, is increasing and, in the future, may have a significant effect on competition and create downward pressure on prices.

Growing cycles and adverse weather conditions may decrease our results from operations.

Our operations are affected by the growing cycles of the fruits and vegetables we process. When the fruits and vegetables are ready to be picked, we must harvest and process them or forego the opportunity to process fresh picked fruits and vegetables for an entire year. Most of our fruits and vegetables are grown by farmers under contract with us. Consequently, we must pay the contract grower for the fruits and vegetables even if we cannot or do not harvest or process them. Most of our production occurs during the second quarter (July through September) of our fiscal year, which corresponds with the fact that the growing season ends for most of the produce processed by us. In that quarter, the growing season ends for most of the vegetables processed by us in the northern United States. A majority of our sales occur during the third and fourth quarter of each fiscal year due to seasonal consumption patterns for our products. Accordingly, inventory levels are highest during the second and third quarters, and accounts receivable levels are highest during the third and fourth quarters. Net sales generated during our third and fourth fiscal quarters have a significant impact on our results of operations. Because of these seasonal fluctuations, the results of any particular quarter, particularly in the first half of our fiscal year, will not necessarily be indicative of results for the full year or for future years.
4


Because weather conditions during the course of each fruit and vegetable crop’s growing season will affect the volume and growing time of that crop, we must set planting schedules without knowing the effect of the weather on the crops or on the entire industry’s production. As most fruits and vegetables are produced in more than one part of the U.S., we may somewhat reduce our risk that our entire crop will be subject to disastrous weather. The upper Midwest is the primary growing region for the principal vegetables which we pack, namely peas, green beans and corn, and it is also a substantial source of our competitors’ vegetable production. California is the primary growing region for the fruits we pack, namely peaches, pears, apricots and grapes. The adverse effects of weather-related reduced production may be partially mitigated by higher selling prices for the fruits and vegetables which are produced.

The commodity materials that we process or otherwise require are subject to price increases that could adversely affect our profitability.

The materials that we use, such as fruits and vegetables, steel (used to make cans) and packaging materials are commodities that may experience price volatility caused by external factors including market fluctuations, availability, currency fluctuations and changes in governmental regulations and agricultural programs. These events can result in reduced supplies of these materials, higher supply costs or interruptions in our production schedules. If prices of these raw materials increase, but we are not able to effectively pass such price increases along to our customers, our operating income will decrease.

Increased focus on ethanol will impact the Company’s cost of produce that could adversely affect our profitability.

As part of the U.S. Government’s efforts to promote alternative fuel sources via subsidies and tax credits, there is an increased interest in the production of corn-based ethanol fuel, which is diverting acreage previously used for the production of food for human consumption. Further restricting available acreage are Farm Bill provisions prohibiting planting fruits and vegetables on “base” acres used for soybeans and field corn. If prices of raw produce increase, but we are not able to effectively pass such price increases along to our customers, our operating income will decrease.

We face risks generally associated with our debt. 

As of March 31, 2007, we had a total of approximately $220 million of indebtedness. Our indebtedness could have important consequences, such as limiting our operational flexibility due to the covenants contained in our debt agreements; limiting our ability to invest in our business due to debt service requirements; limiting our ability to compete with companies that are not as highly leveraged; and increasing our vulnerability to economic downturns and changing market conditions.

Our ability to meet our debt service obligations will depend on our future performance, which will be affected by financial, business, economic, governmental and other factors, including potential changes in consumer preferences and pressure from competitors. If we do not have enough money to pay our debt service obligations, we may be required to refinance all or part of our existing debt, sell assets, borrow more money or raise equity. There is a risk that we may not be able to refinance existing debt or that the terms of any refinancing will not be as favorable as the terms of the existing debt.

Our dependence on the Alliance Agreement could negatively affect sales.

We have an Alliance Agreement with GMOI, whereby we process canned and frozen vegetables for GMOI under the Green Giant brand name. GMOI continues to be responsible for all of the sales, marketing and customer service functions for the Green Giant products. The Alliance Agreement has a remaining term of eight years. Green Giant products packed by us in fiscal 2007 and 2006 constituted approximately 21% and 27%, respectively, of our total sales. General Mills, Inc. guarantees GMOI’s obligations under the Alliance Agreement.

The Alliance Agreement has an initial term ending December 31, 2014, and will be extended automatically for additional five year terms unless terminated in accordance with the provisions of the Alliance Agreement. Upon virtually all of the causes of termination enumerated in the Alliance Agreement, GMOI will acquire legal title to three production plants and certain of the other assets which we acquired under the Alliance Agreement, and various financial adjustments between the parties will occur. If GMOI terminates the Alliance Agreement without cause, it must pay us a substantial termination payment.

Our sales and financial performance under the Alliance Agreement and our sales of Green Giant products depend to a significant extent on our success in producing quality Green Giant vegetables at competitive costs and GMOI’s success in marketing the products produced by us. The ability of GMOI to successfully market these products will depend upon GMOI’s sales efforts, as well as the factors described above under “—Excess capacity in the vegetable industry has a downward effect on price.” We cannot give assurance as to the volume of GMOI’s sales and cannot control many of the key factors affecting that volume. The Alliance Agreement contains extensive covenants by us with respect to quality and delivery of products, maintenance of the Alliance Plants and other standards of our performance. If we were to fail in our performance of these covenants, GMOI would be entitled to terminate the Alliance Agreement.

Termination of the Alliance Agreement will, in most cases, entitle our principal lenders, including our long-term lenders, to declare a default under our loan agreements with them. The principal lenders have a security interest in certain payments that we will receive from GMOI on termination of the Alliance Agreement. Unless we were to enter into a new substantial supply relationship with GMOI or another major vegetable marketer and acquire substantial production capacity to replace the GMOI production plants, any such termination would substantially reduce our sales.

5


Sales to GMOI have declined $42 million, from $252 million to $210 million, between fiscal year 2003 and fiscal year 2007.

If we do not maintain the market shares of our products, our business and revenues may be adversely affected.

All of our products compete with those of other national and regional food processing companies under highly competitive conditions. The vegetable products which we sell under our own brand names not only compete with vegetable products produced by vegetable processing competitors, but also compete with products we produce and sell to other companies who market those products under their own brand names, such as the Green Giant vegetables we sell to GMOI under the Alliance Agreement and the vegetables we sell to various retail grocery chains which carry our buyers’ own brand names.

The customers who buy our products to sell under their own brand names control the marketing programs for those products. In recent years, many major retail food chains have been increasing their promotions, offerings and shelf space allocations for their own fruit and vegetable brands, to the detriment of fruit and vegetable brands owned by the processors, including our own brands. We cannot predict the pricing or promotional activities of our competitors or whether they will have a negative effect on us. There are competitive pressures and other factors, which could cause our products to lose market share or result in significant price erosion that could have a material adverse effect on our business, financial condition and results of operations.


Increases in logistics and other transportation-related costs could materially adversely impact our results of operations. Our ability to competitively serve our customers depends on the availability of reliable and low-cost transportation.

Logistics and other transportation-related costs have a significant impact on our earnings and results of operations. We use multiple forms of transportation to bring our products to market. They include trucks, intermodals, rail cars, and ships. Disruption to the timely supply of these services or increases in the cost of these services for any reason, including availability or cost of fuel, regulations affecting the industry, or labor shortages in the transportation industry, could have an adverse effect on our ability to serve our customers, and could have a material adverse effect on our financial performance.


If we are subject to product liability claims, we may incur significant and unexpected costs and our business reputation could be adversely affected.

Food processors are subject to significant liability should the consumption of their products cause injury or illness. A product liability judgment against us could also result in substantial and unexpected expenditures, affect consumer confidence in our products, and divert management’s attention from other responsibilities. Although we maintain product liability insurance coverage in amounts customary within the industry, there can be no assurance that this level of coverage is adequate or that we will be able to continue to maintain our existing insurance or obtain comparable insurance at a reasonable cost, if at all. A product recall or a partially or completely uninsured judgment against us could have a material adverse effect on results of operations and financial condition. During the second quarter of our fiscal year 2005, the Company recalled certain products and recognized a charge of $1,280,000 as previously reported.


We generate agricultural food processing wastes and are subject to substantial environmental regulation.

As a food processor, we regularly dispose of produce wastes (silage) and processing water, as well as materials used in plant operation and maintenance, and our plant boilers, which generate heat used in processing, produce generally small emissions into the air. These activities and operations are regulated by federal and state laws and the respective federal and state environmental agencies. Occasionally, we may be required to remediate conditions found by the regulators to be in violation of environmental law or to contribute to the cost of remediating waste disposal sites, which we neither owned nor operated, but in which, we and other companies deposited waste materials, usually through independent waste disposal companies. The costs of this remediation and contributions (including occasional fines) have not been significant. As a major food producer, we run the risk of occasional future costs and inadvertent violations, even though we maintain an environmental department to assist us in environmental compliance.




Unresolved Staff Comments

The Company does not have any unresolved comments from the SEC staff regarding its periodic or current reports under the Securities Exchange Act of 1934, as amended.


6




Properties


The following table details the Company’s manufacturing plants and warehouses:


   
Square
Footage
(000)
 
 
 
Acres
 
Food Group
         
           
Modesto, California
   
1,970
   
120
 
Buhl, Idaho
   
489
   
102
 
Payette, Idaho
   
387
   
43
 
Princeville, Illinois
   
205
   
222
 
Arlington, Minnesota
   
264
   
541
 
Blue Earth, Minnesota
   
286
   
352
 
Bricelyn, Minnesota
   
58
   
6
 
Glencoe, Minnesota
   
630
   
785
 
LeSueur, Minnesota
   
181
   
71
 
Montgomery, Minnesota
   
549
   
1,021
 
Rochester, Minnesota
   
1,031
   
854
 
Geneva, New York
   
754
   
601
 
Leicester, New York
   
216
   
91
 
Marion, New York
   
368
   
187
 
Dayton, Washington
   
257
   
52
 
Yakima, Washington
   
119
   
8
 
Baraboo, Wisconsin
   
254
   
8
 
Cambria, Wisconsin
   
411
   
329
 
Clyman, Wisconsin
   
406
   
416
 
Cumberland, Wisconsin
   
228
   
287
 
Gillett, Wisconsin
   
157
   
105
 
Janesville, Wisconsin
   
1,094
   
271
 
Mayville, Wisconsin
   
282
   
367
 
Oakfield, Wisconsin
   
220
   
421
 
Ripon, Wisconsin
   
348
   
75
 
               
Non-Food Group
             
               
Penn Yan, New York
   
27
   
4
 
               
Total
   
11,191
   
7,339
 


These facilities primarily process and package various vegetable and fruit products. Most of the facilities are owned by the Company. The Company is a lessee under a number of operating and capital leases for equipment and real property used for processing and warehousing.

All of the properties are well maintained and equipped with modern machinery. All locations, although highly utilized, have the ability to expand as sales requirements justify. Because of the seasonal production cycles, the exact extent of utilization is difficult to measure. In certain circumstances, the theoretical full efficiency levels are being reached; however, expansion of the number of production days or hours could increase the output by up to 20% for a season.

Certain of the Company’s facilities are mortgaged to financial institutions to secure long-term debt and capital lease obligations. See Notes 4 and 5 of Item 8, Financial Statements and Supplementary Data, for additional information about the Company’s long-term debt and lease commitments.

7


Legal Proceedings

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

Refer to Item 1, Business -- Environmental Protection, for information regarding environmental legal proceedings.


Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of shareholders during the last quarter of the fiscal period covered by this report.


8


PART II



Market for Registrant’s Common Stock, Related Security Holder Matters and Issuer Purchases of Equity Securities

Each class of preferred stock receives preference as to dividend payment and declaration over any common stock. In addition, refer to the information in the 2007 Annual Report, “Shareholder Information and Quarterly Results”, which is incorporated by reference.


Securities Authorized for Issuance Under Equity Compensation Plans

The Company currently has no equity compensation plans or individual compensation arrangements under which equity securities of the Company are authorized for issuance to employees or directors, therefore, no table is necessary as described in Item 201(d) of Regulation S-K.

Common Stock Performance Graph

Refer to the information in the 2007 Annual Report, “Shareholder Information and Quarterly Results”, which is incorporated by reference.

9


Issuer Purchases of Equity Securities

Period
Total Number of Shares Purchased (1)
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number (or Approximate Dollar Value) or Shares that May Yet Be Purchased Under the Plans or Programs
Class A Common
Class B Common
Class A Common
Class B Common
1/01/07 - 1/31/07
-
-
$  -
$ -
N/A
N/A
2/01/07 - 2/29/07
-
-
-
-
N/A
N/A
3/01/07 - 3/31/07
9,000
-
  26.38
-
N/A
N/A
Total
9,000
-
$26.38
$ -
N/A
N/A

(1) These purchases were made in open market transactions by the Trustees of the Seneca Foods Corporation Employees' Savings Plan and the Seneca Foods, L.L.C. 401(k) Retirement Savings Plan to provide employee matching contributions under the Plans.



Selected Financial Data

Refer to the information in the 2007 Annual Report, “Five Year Selected Financial Data”, which is incorporated by reference.



Management’s Discussion and Analysis of Financial Condition and Results of Operations

Refer to the information in the 2007 Annual Report, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, which is incorporated by reference.



Quantitative and Qualitative Disclosures about Market Risk

Refer to the information in the 2007 Annual Report, “Quantitative and Qualitative Disclosures about Market Risk”, which is incorporated by reference.



Financial Statements and Supplementary Data

Refer to the information in the 2007 Annual Report, “Consolidated Financial Statements and Notes thereto including Report of Independent Registered Public Accounting Firms”, which is incorporated by reference.



Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.



10



Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), as of March 31, 2007. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2007, the Company’s disclosure controls and procedures: (1) were designed to ensure that material information relating to the Company is made known to our Chief Executive Officer and Chief Financial Officer by others within those entities, particularly during the period in which this report was being prepared, so as to allow timely decisions regarding required disclosure and (2) were effective, in that they provide reasonable assurance that information required to be disclosed by the Company in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over the Company’s financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2007. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment, management believes that, as of March 31, 2007, our internal control over financial reporting is effective based on those criteria. In conducting the Company’s evaluation of the effectiveness of its internal control over financial reporting, the Company has excluded the acquisition of Signature Fruit Company, LLC (Signature), which was completed on August 18, 2006. The contribution from the Signature acquisition represents approximately 16% of consolidated revenue for the year ended March 31, 2007 and approximately 14% of consolidated assets as of March 31, 2007. Refer to Note 2, Acquisition to the consolidated financial statements for further discussion of the Signature acquisition and their impact on the Company’s consolidated financial statements.

The independent registered public accounting firm BDO Seidman, LLP, which audited the Company’s 2007 financial statements incorporated into this Form 10-K, has issued an opinion on management’s assessment, as of March 31, 2007, of the Company’s internal control over financial reporting. Their opinion appears on page 12.



11



Internal Control over Financial Reporting

Board of Directors and Stockholders
Seneca Foods Corporation
Marion, New York

We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting that Seneca Foods Corporation maintained effective internal control over financial reporting as of March 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As indicated in the accompanying Managements’ Annual Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Signature Fruit Company LLC, which was acquired on August 18, 2006, and which is included in the 2007 consolidated financial statements of Seneca Foods Corporation and constituted 14% of consolidated assets as of March 31, 2007 and 16% of consolidated revenues for the year then ended. Management did not assess the effectiveness of internal control over financial reporting of Signature Fruit Company LLC because of the timing of the acquisition which was completed on August 18, 2006. Our audit of internal control over financial reporting of Seneca Foods Corporation also did not include an evaluation of the internal control over financial reporting of Signature Fruit Company LLC.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of March 31, 2007, is fairly stated, in all material respects, based on the criteria established in Internal Control- Integrated Framework issued by COSO. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2007, based on the criteria established in Internal Control - Integrated Framework issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Standards Board (United States), the consolidated balance sheets of Seneca Foods Corporation as of March 31, 2007 and 2006, and the related consolidated statements of net earnings, stockholders’ equity and cash flows for the years then ended and our report dated June 8, 2007 expressed an unqualified opinion on those consolidated financial statements.




/s/BDO Seidman, LLP
Milwaukee, Wisconsin

June 8, 2007


Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended March 31, 2007 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

12



Other Information

None.

13


PART III


Directors, Executive Officers and Corporate Governance

The Company has adopted a Code of Ethics that applies to the Chief Executive Officer, Chief Financial Officer and Controller. The Code of Ethics is available on our web site www.senecafoods.com (free of charge).

Additional information required by Item 10 will be filed separately with the Commission, pursuant to Regulation 14A, in a definitive proxy statement involving the election of directors, which is incorporated herein by reference.



Executive Compensation

Information required by Item 11 will be filed separately with the Commission, pursuant to Regulation 14A, in a definitive proxy statement involving the election of directors, which is incorporated herein by reference.



Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information required by Item 12 will be filed separately with the Commission, pursuant to Regulation 14A, in a definitive proxy statement involving the election of directors, which is incorporated herein by reference.



Certain Relationships and Related Transactions, and Director Independence

Information required by Item 13 will be filed separately with the Commission, pursuant to Regulation 14A, in a definitive proxy statement involving the election of directors, which is incorporated herein by reference.



Principal Accountant Fees and Services

Information required by Item 14 will be filed separately with the Commission, pursuant to Regulation 14A, in a definitive proxy statement involving the election of directors, which is incorporated herein by reference.

14



PART IV


Exhibits and Financial Statement Schedules


A. Exhibits, Financial Statements, and Supplemental Schedules 

1. Financial Statements - the following consolidated financial statements of the Registrant, included in the Annual Report for the year ended March 31, 2007, are incorporated by reference in Item 8:

   
Consolidated Statements of Net Earnings - Years ended March 31, 2007, 2006 and 2005

   
Consolidated Balance Sheets - March 31, 2007 and 2006

   
Consolidated Statements of Cash Flows - Years ended March 31, 2007, 2006 and 2005

   
Consolidated Statements of Stockholders’ Equity - Years ended March 31, 2007, 2006 and 2005

   
Notes to Consolidated Financial Statements - Years ended March 31, 2007, 2006 and 2005

   
Reports of Independent Registered Public Accounting Firms

Pages

2. Supplemental Schedule:

Schedule II Valuation and Qualifying Accounts                     16

Other schedules have not been filed because the conditions requiring the filing do not exist or the required  
information is included in the consolidated financial statements, including the notes thereto.
 
 
3.
Exhibits:

         
 
No 3
-
Articles of Incorporation and By-Laws - Incorporated by reference to exhibits 3.1, 3.2 and 3.3 the Company’s Form 10-Q/A filed August, 1995; as amended by exhibit 3 filed with the Company’s Form 10-K filed June 1996 as amended by exhibit 3(i) to the Company’s Form 8-K dated September 17, 1998; as amended by exhibit 3.3 to the Company’s form 8-K dated June 10, 2003, amended by Exhibit 3 of the Company’s Form 8-K dated August 23, 2006.
 
         
 
No. 4
-
Articles defining the rights of security holders - Incorporated by reference to the Company’s Form 10-Q/A filed August, 1995 as amended by amendments filed with the Company’s Form 10-K filed June 1996. Instrument defining the rights of any holder of Long-Term Debt - Incorporated by reference to Exhibit 99 to the Company’s Form 10-Q filed January 1995 as amended by Exhibit No. 4 of the Company’s Form 10-K filed June, 1997, amended by Exhibit 4 of the Company’s Form 10-Q and Form 10-Q/A filed November, 1997, as amended by amendments filed with the Company’s definitive proxy statement filed July, 1998 as amended by the Company’s 8-K dated June 10, 2003, amended by Exhibit 10.2 of the Company’s Form 8-K dated August 23, 2006. The Company will furnish, upon request to the SEC, a copy of any instrument defining the rights of any holder of Long-Term Debt.
 
         
 
15

 
 
       
 
No. 10
-
Material Contracts - Incorporated by reference to the Company’s Form 8-K dated February 24, 1995 for the First Amended and Restated Alliance Agreement and the First Amended and Restated Asset Purchase Agreement both with The Pillsbury Company amended by the Company’s Form 8-K dated June 11, 2002. Incorporated by reference to exhibit 10 to the Company's Form 10-K filed June 25, 2002 for a form of Indemnification Agreement dated January 31, 2002. Incorporated by reference to the Company’s 8-K dated June 10, 2003 for the Purchase Agreement by and among Seneca Foods Corporation, Chiquita Brands International, Inc. and Friday Holdings, L.C.C. dated as of March 6, 2003. Incorporated by reference to the Company’s Form 8-K dated August 23, 2006 for the Purchase Agreement by and among Seneca Foods Corporation, John Hancock Life Insurance Company and John Hancock Variable Life Insurance Company dated as of August 18, 2006, the Company's Amended and Restated Revolving Credit Agreement and Registration Rights Agreement between the Company and John Hancock Life Insurance Company.  Seneca Foods Corporation Management Profit Sharing Bonus Plan (filed herewith).
 
         
 
No. 13
-
The material contained in the 2007 Annual Report to Shareholders under the following headings: “Five Year Selected Financial Data”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Consolidated Financial Statements and Notes thereto including Independent Auditors’ Report”, “Quantitative and Qualitative Disclosures about Market Risk”, and “Shareholder Information and Quarterly Results” (filed herewith).
 
 
No. 21
-
List of Subsidiaries (filed herewith)
 
         
 
No. 23.1
-
 
         
 
No. 23.2
-
 
         
 
No. 24
 
Powers of Attorney (filed herewith)
 
         
 
No. 31.1
-
 
         
 
No. 31.2
-
 
         
 
No. 32
-
 


Schedule II
 
 
(In thousands)

   
Balance at
Beginning
of period
 
Charged/
(Credited)
to income
 
Charged to
other
accounts
 
Deductions
from
reserve
 
Balance
at end
of period
 
Year-ended March 31, 2007:
Allowance for doubtful accounts
 
$
445
 
$
(149
)
$
89 (b
)
$
(119) (c
)
$
504
 
Income tax valuation allowance
 
$
¾
 
$
3,538
 
$
¾
 
$
¾
 
$
3,538
 
                                 
Year-ended March 31, 2006:
Allowance for doubtful accounts
 
$
625
 
$
(568
)
$
¾
 
$
(388) (c
)
$
445
 
                                 
Year-ended March 31, 2005:
Allowance for doubtful accounts
 
$
945
 
$
913
 
$
¾
 
$
1,233 (a
)
$
625
 
                                 

(a) Accounts written off, net of recoveries.

(b) Acquired via the Signature acquisition.

(c) Recoveries, net of accounts written off.

16



Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 


SENECA FOODS CORPORATION
 
By /s/Jeffrey L. Van Riper
Jeffrey L. Van Riper
Controller and Secretary
(Principal Accounting Officer)
June 13, 2007


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
 

 
Signature
 
Title
 
Date
         
* 
 
Chairman and Director
 
June 13, 2007
Arthur S. Wolcott
       
         
* 
Kraig H. Kayser
 
President, Chief Executive Officer, and Director
 
June 13, 2007
         
/s/Roland E. Breunig
Roland E. Breunig
 
Chief Financial Officer and Treasurer
 
June 13, 2007
         
/s/Jeffrey L. Van Riper
 Jeffrey L. Van Riper
 
Controller and Secretary (Principal Accounting Officer)
 
June 13, 2007
         
* 
 
Director
 
June 13, 2007
Arthur H. Baer
       
         
* 
 
Director
 
June 13, 2007
Andrew M. Boas
       
         
* 
 
Director
 
June 13, 2007
Robert T. Brady
       
         
* 
 
Director
 
June 13, 2007
Douglas F. Brush
       
         
* 
 
Director
 
June 13, 2007
G. Brymer Humphreys
       
         
* 
 
Director
 
June 13, 2007
Thomas Paulson
       
         
* 
 
Director
 
June 13, 2007
Susan W. Stuart
       
         
/s/Roland E. Breunig
*By Roland E. Breunig,
Attorney-in-fact
       
 
17

EX-21 2 ex2110k000307.htm LIST OF SUBSIDIARIES
 
Exhibit 21

LIST OF SUBSIDIARIES

The following is a listing of subsidiaries 100% owned by Seneca Foods Corporation, directly or indirectly:


Name
State
Marion Foods, Inc.
New York
Seneca Foods L.L.C.
Delaware
Seneca Foods International, Ltd.
New York
Seneca Snack Company
Washington
EX-23.1 3 ex23110k033107.htm BDO CONSENT BDO Consent
 
Exhibit 23.1
 
 
CONSENT AND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 

 
 
Seneca Foods Corporation
Marion, New York

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3/A (No. 333-120982) and Form S-8 (No. 333-12365) of Seneca Foods Corporation of our reports dated June 8, 2007, relating to the Consolidated Financial Statements and financial statement schedule, and the effectiveness of Seneca Food Corporation’s internal control over financial reporting , which appear in the Company’s Annual Report on Form 10-K for the year ended March 31, 2007.
 

/s/BDO Seidman, LLP
Milwaukee, Wisconsin
 
June 13, 2007
 

 
 

 
EX-23.2 4 ex23210k033107.htm ERNST & YOUNG CONSENT Ernst & Young Consent
 
Exhibit 23.2
 
 

 
 

 
 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 

 
Board of Directors
Seneca Foods Corporation

We consent to the incorporation by reference in this Annual Report (Form 10-K) of Seneca Foods Corporation of our report dated June 10, 2005, with respect to the consolidated financial statements of Seneca Foods Corporation for the fiscal year ended March 31, 2005, included in the 2007 Annual Report to Shareholders of Seneca Foods Corporation.

Our audit also included the financial statement schedule for the fiscal year ended March 31, 2005 of Seneca Foods Corporation listed in Item 15(A)(2). This schedule is the responsibility of Seneca Foods Corporation's management. Our responsibility is to express an opinion based on our audit. In our opinion, as to which the date is June 10, 2005, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We consent to the incorporation by reference in the following Registration Statements:

(1)
Registration Statement (Form S-3/A No. 333-120982) of Seneca Foods Corporation, and
(2)
Post-Effective Amendment No. 1 of Registration Statement (Form S-8 No. 333-12365) pertaining to the Seneca Foods Corporation Employees' Savings Plan,


of our report dated June 10, 2005, with respect to the consolidated financial statements of Seneca Foods Corporation incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule of Seneca Foods Corporation included in this Annual Report (Form 10-K) of Seneca Foods Corporation.


 
/s/ Ernst & Young LLP



Buffalo, New York
June 12, 2007
EX-24 5 ex2410k033107.htm POWERS OF ATTORNEY Powers of Attorney
 
EXHIBIT 24
 

POWERS OF ATTORNEY




SENECA FOODS CORPORATION
POWER OF ATTORNEY

The undersigned Director of Seneca Foods Corporation, a New York corporation, hereby constitutes and appoints Roland E. Breunig or Jeffrey L. Van Riper as the true and lawful Attorney-in-fact and Agent of the undersigned to sign on behalf of the undersigned: (a) the Annual Report of the Company on Form 10-K (or such other form as may be required) for the year ended March 31, 2007 to be filed with the Securities and Exchange Commission (“SEC”); and (b) any and all amendments to such Report as may be required to be filed with the SEC.

/s/Arthur S. Wolcott 
Arthur S. Wolcott
Chairman and Director
 

 

SENECA FOODS CORPORATION
POWER OF ATTORNEY

The undersigned Director of Seneca Foods Corporation, a New York corporation, hereby constitutes and appoints Roland E. Breunig or Jeffrey L. Van Riper as the true and lawful Attorney-in-fact and Agent of the undersigned to sign on behalf of the undersigned: (a) the Annual Report of the Company on Form 10-K (or such other form as may be required) for the year ended March 31, 2007 to be filed with the Securities and Exchange Commission (“SEC”); and (b) any and all amendments to such Report as may be required to be filed with the SEC.

/s/Kraig H. Kayser 
Kraig H. Kayser
President, Chief Executive Officer and Director



SENECA FOODS CORPORATION
POWER OF ATTORNEY

The undersigned Director of Seneca Foods Corporation, a New York corporation, hereby constitutes and appoints Roland E. Breunig or Jeffrey L. Van Riper as the true and lawful Attorney-in-fact and Agent of the undersigned to sign on behalf of the undersigned: (a) the Annual Report of the Company on Form 10-K (or such other form as may be required) for the year ended March 31, 2007 to be filed with the Securities and Exchange Commission (“SEC”); and (b) any and all amendments to such Report as may be required to be filed with the SEC.

/s/Arthur H. Baer 
Arthur H. Baer
Director


SENECA FOODS CORPORATION
POWER OF ATTORNEY

The undersigned Director of Seneca Foods Corporation, a New York corporation, hereby constitutes and appoints Roland E. Breunig or Jeffrey L. Van Riper as the true and lawful Attorney-in-fact and Agent of the undersigned to sign on behalf of the undersigned: (a) the Annual Report of the Company on Form 10-K (or such other form as may be required) for the year ended March 31, 2007 to be filed with the Securities and Exchange Commission (“SEC”); and (b) any and all amendments to such Report as may be required to be filed with the SEC.

/s/Andrew M. Boas 
Andrew M. Boas
Director





SENECA FOODS CORPORATION
POWER OF ATTORNEY

The undersigned Director of Seneca Foods Corporation, a New York corporation, hereby constitutes and appoints Roland E. Breunig or Jeffrey L. Van Riper as the true and lawful Attorney-in-fact and Agent of the undersigned to sign on behalf of the undersigned: (a) the Annual Report of the Company on Form 10-K (or such other form as may be required) for the year ended March 31, 2007 to be filed with the Securities and Exchange Commission (“SEC”); and (b) any and all amendments to such Report as may be required to be filed with the SEC.

/s/Robert T. Brady 
Robert T. Brady
Director



SENECA FOODS CORPORATION
POWER OF ATTORNEY

The undersigned Director of Seneca Foods Corporation, a New York corporation, hereby constitutes and appoints Roland E. Breunig or Jeffrey L. Van Riper as the true and lawful Attorney-in-fact and Agent of the undersigned to sign on behalf of the undersigned: (a) the Annual Report of the Company on Form 10-K (or such other form as may be required) for the year ended March 31, 2007 to be filed with the Securities and Exchange Commission (“SEC”); and (b) any and all amendments to such Report as may be required to be filed with the SEC.

/s/Douglas F. Brush 
Douglas F. Brush
Director


SENECA FOODS CORPORATION
POWER OF ATTORNEY

The undersigned Director of Seneca Foods Corporation, a New York corporation, hereby constitutes and appoints Roland E. Breunig or Jeffrey L. Van Riper as the true and lawful Attorney-in-fact and Agent of the undersigned to sign on behalf of the undersigned: (a) the Annual Report of the Company on Form 10-K (or such other form as may be required) for the year ended March 31, 2007 to be filed with the Securities and Exchange Commission (“SEC”); and (b) any and all amendments to such Report as may be required to be filed with the SEC.

/s/G. Brymer Humphreys 
G. Brymer Humphreys
Director


SENECA FOODS CORPORATION
POWER OF ATTORNEY

The undersigned Director of Seneca Foods Corporation, a New York corporation, hereby constitutes and appoints Roland E. Breunig or Jeffrey L. Van Riper as the true and lawful Attorney-in-fact and Agent of the undersigned to sign on behalf of the undersigned: (a) the Annual Report of the Company on Form 10-K (or such other form as may be required) for the year ended March 31, 2007 to be filed with the Securities and Exchange Commission (“SEC”); and (b) any and all amendments to such Report as may be required to be filed with the SEC.

/s/Thomas Paulson 
Thomas Paulson
Director


SENECA FOODS CORPORATION
POWER OF ATTORNEY

The undersigned Director of Seneca Foods Corporation, a New York corporation, hereby constitutes and appoints Roland E. Breunig or Jeffrey L. Van Riper as the true and lawful Attorney-in-fact and Agent of the undersigned to sign on behalf of the undersigned: (a) the Annual Report of the Company on Form 10-K (or such other form as may be required) for the year ended March 31, 2007 to be filed with the Securities and Exchange Commission (“SEC”); and (b) any and all amendments to such Report as may be required to be filed with the SEC.

/s/Susan W. Stuart 
Susan W. Stuart
Director
EX-31.1 6 ex31110k033107.htm CERTIFICATION CEO Certification CEO
 
EXHIBIT 31.1
 

CERTIFICATION


I, Kraig H. Kayser, certify that:
 

1. I have reviewed this annual report on Form 10-K of Seneca Foods Corporation;

 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

 
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; 

 
(c)
 
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

 
5.
The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.



Dated: June 13, 2007
By: /s/Kraig H. Kayser
 
 
 
Kraig H. Kayser
President and Chief Executive Officer


EX-31.2 7 ex31210k033107.htm CERTIFICATION CFO Certification CFO
EXHIBIT 31.2

 
CERTIFICATION
 
 


I, Roland E. Breunig, certify that:

1. I have reviewed this annual report on Form 10-K of Seneca Foods Corporation;
 
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

 
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; 


 
(c)
 
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

 
5.
The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.



Dated: June 13, 2007
By: /s/Roland E. Breunig
 
 
 
Roland E. Breunig
Chief Financial Officer and Treasurer

EX-32 8 ex3210k033107.htm CERTIFICATION SECTION 1350 Certification Section 1350
 
EXHIBIT 32
 


CERTIFICATION PURSUANT TO
18. U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
 
In connection with the Annual Report of Seneca Foods Corporation (the"Registrant") on Form 10-K for the period ended March 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Kraig H. Kayser, Chief Executive Officer and Roland E. Breunig, Chief Financial Officer of the Registrant, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that, to our knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.


 
By: /s/Kraig H. Kayser
 
 
 
Kraig H. Kayser
President and Chief Executive Officer
June 13, 2007



 
By: /s/Roland E. Breunig
 
 
 
Roland E. Breunig
Chief Financial Officer and Treasurer
June 13, 2007


EX-13 9 ex1310k033107.htm EXHIBIT 13 ANNUAL REPORT Exhibit 13 Annual Report
Five Year Selected Financial Data

Summary of Operations and Financial Condition
(In thousands, except per share data and ratios)

Years ended March 31,
 
2007(a)
 
2006
 
2005
 
2004(b)
 
2003
 
                       
Net sales
 
$
1,024,853
 
$
883,823
 
$
864,274
 
$
890,850
 
$
644,379
 
                                 
Operating earnings before interest and other
                               
expense (income), net
 
$
60,945
 
$
52,357
 
$
24,868
 
$
36,476
 
$
33,035
 
Interest expense, net
   
20,936
   
15,784
   
16,592
   
16,135
   
13,757
 
Net earnings
   
32,067
   
21,993
   
7,907
   
12,941
   
9,050
 
                                 
Basic earnings per common share
 
$
2.65
 
$
1.97
 
$
0.71
 
$
1.18
 
$
0.89
 
Diluted earnings per common share
   
2.63
   
1.96
   
0.70
   
1.17
   
0.88
 
                                 
Working capital
 
$
334,455
 
$
229,510
 
$
205,430
 
$
187,764
 
$
172,382
 
Inventories
   
380,487
   
318,770
   
294,470
   
270,283
   
141,649
 
Net property, plant, and equipment
   
172,235
   
148,501
   
163,290
   
181,907
   
132,969
 
Total assets
   
626,715
   
535,144
   
524,495
   
533,903
   
379,540
 
Long-term debt and capital lease
                               
obligations
   
210,395
   
142,586
   
154,125
   
160,987
   
133,337
 
Stockholders’ equity
   
273,571
   
217,779
   
195,809
   
190,249
   
159,364
 
                                 
Additions to property, plant, and equipment
 
$
21,627
 
$
11,906
 
$
14,415
 
$
23,109
 
$
6,832
 
                                 
Net earnings/average equity
   
13.1
%
 
10.6
%
 
4.1
%
 
7.4
%
 
5.8
%
Earnings before taxes/sales
   
4.4
%
 
4.0
%
 
1.4
%
 
2.3
%
 
2.3
%
Net earnings/sales
   
3.1
%
 
2.5
%
 
0.9
%
 
1.5
%
 
1.4
%
Long-term debt/equity (c)
   
76.9
%
 
65.5
%
 
78.7
%
 
84.6
%
 
83.7
%
Total debt/equity ratio
   
1.3:1
   
1.5:1
   
1.7:1
   
1.8:1
   
1.4:1
 
Current ratio
   
3.9:1
   
2.5:1
   
2.3:1
   
2.2:1
   
3.4:1
 
                                 
Stockholders’ equity per common share
 
$
26.93
 
$
23.89
 
$
20.77
 
$
19.97
 
$
17.64
 
Class A Global Market System
                               
  closing price range
   
30.84-19.67
   
21.00-15.51
   
20.00-16.75
   
21.97-16.20
   
18.75-10.75
 
Class B Global Market System
                               
  closing price range
   
32.25-20.00
   
20.77-16.00
   
19.45-16.99
   
22.88-16.85
   
18.38-12.75
 
Common cash dividends declared per share
    -    
-
   
-
   
-
   
-
 
Price earnings ratio
   
10.3
   
10.1
   
23.8
   
16.0
   
13.6
 

(a) The fiscal 2007 financial results include eight months of operating activity related to the Signature Fruit acquisition (See Note 2,
acquisition)
(b) The fiscal 2004 financial results include ten months of operating activity related to the Chiquita Processed Foods acquisition.
(c) The long-term debt to equity percentage for 2007 includes the Revolving Credit Facility as discussed in Note 4, Long-Term Debt.
If calculated on a comparable basis to 2006 and prior, the 2007 percentage would be 55.6%.

1




Management's Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

Our Business

Seneca Foods is the world’s leading producer and distributor of canned vegetables. Canned vegetables are sold nationwide in all channels serving retail markets, certain export markets, the food service industry, and other food processors. Canned vegetables represent 78% of the Company’s sales. The Company maintains a number one share in the private label, food service and export canned vegetable markets and a number three position in the branded canned vegetable market. Our Company also supplies canned and frozen vegetable products to General Mills Operations, Inc. (“GMOI”) under an Alliance Agreement. In addition, our Company is the supplier of frozen vegetable products principally to the food service industry, and fruit and snack chip products principally serving retail markets and other food processors.

During 2007, the Company acquired Signature Fruit Company, LLC, located in Modesto, California, which is a large producer of canned fruits. See “The Acquisition” below for details.

With this acquisition, the Company has become a leading producer and distributor of canned fruits. Canned fruit products are sold nationwide in a variety of markets. Canned fruits represent 18% of the Company’s sales. The fruit processing percentage represents eight months of sales of the acquired Signature Fruit Company, LLC. The Company maintains a number one position in the food service market, a number two position in the private label market, and a number three position in the branded canned fruit market.

Currently, our business strategies are designed to maintain our market share and enhance our sales and margins and include: (1) position the Company as the low-cost, high quality producer of canned fruit and vegetables through the elimination of costs from our supply chain and investment in state-of-the-art production and logistical technology; (2) drive growth in earnings through the use of cash flow to de-leverage the balance sheet; and (3) focus on our growth segments to capitalize on their higher expected returns.


 

2





The Acquisition

On August 18, 2006, the Company completed its acquisition of 100% of the membership interest in Signature Fruit Company, LLC (“Signature”) from John Hancock Life Insurance Company and John Hancock Variable Life Insurance Company. The rationale for the acquisition was twofold: (1) to broaden the Company’s product offerings into the canned fruit business; and (2) to take advantage of distribution efficiencies by combining vegetables and fruits on shipments since the customer base of the two companies is similar. The purchase price totaled $47.3 million plus the assumption of certain liabilities.

This acquisition was financed with proceeds from a newly expanded $250.0 million revolving credit facility, and $25.0 million of the Company’s Participating Convertible Preferred Stock. The Preferred Stock is convertible into the Company’s Class A Common Stock on a one-for-one basis subject to antidilution adjustments. The Preferred Stock was valued at $24.385 per share based on the market value of the Class A Common Stock during the 30 day average period prior to the acquisition.


Purchase Price Allocation

The purchase price to acquire Signature was allocated based on the internally developed fair value of the assets and liabilities acquired. The purchase price of $47.3 million has been calculated as follows (in millions):

Cash
 
$
20.0
 
Issuance of convertible preferred stock
   
25.0
 
Closing cost
   
2.3
 
Purchase price
 
$
47.3
 
         

The total purchase price of the transaction has been allocated as follows:

Current assets
 
$
131.6
 
Property, plant and equipment
   
25.5
 
Other assets
   
2.3
 
Current liabilities
   
(58.6
)
Long-term debt
   
(45.5
)
Other non-current liabilities
   
(8.0
)
Total
 
$
47.3
 

Restructuring

After a comprehensive review of our production capacities following the Chiquita Processed Foods (“CPF”) acquisition in May 2003, the Company completed a plant restructuring program in 2005 resulting in a restructuring charge of $7.7 million. The restructuring charge consisted of a non-cash impairment charge of $7.0 million and a cash severance charge of $0.7 million which are included in Plant Restructuring in the Consolidated Statement of Net Earnings. This restructuring program principally involved the closure of three processing facilities including a green bean plant in upstate New York and corn plants in Wisconsin and Washington. In addition, the Company restructured the Payette, Idaho facility through the removal of canned meat production to focus exclusively on dry beans. The rationalization of the Company’s productive capacity: 1) improved the Company’s overall cost structure and competitive position; 2) addressed the excess capacity situation arising from the recent acquisition of CPF; and 3) mitigated the effect of inflationary pressures on the Company’s raw material inputs such as steel and fuel. During 2006, the non-cash impairment charge was increased by $0.2 million related to the green bean plant in New York.
 
The closure of the Washington corn processing facility coincided with an amendment to the Alliance Agreement with GMOI. Under the amendment, the Blue Earth, Minnesota facility was removed from the Alliance Agreement due to a reduction in GMOI volume requirements and is now operated by the Company as a non-Alliance facility. Additionally, GMOI agreed to reimburse the Company in the future for the remaining lease and depreciation costs at the Blue Earth facility which, on a net present value basis, approximates the closure costs associated with the Washington facility.

With the closure of the Washington corn processing facility in the fall of 2004, the Company’s labeling and warehousing requirements at the Salem, Oregon leased distribution facility were dramatically reduced. In 2006, the Company announced the phase out of the Salem labeling operation which resulted in a restructuring charge of $1.8 million consisting of a provision for future lease payments of $1.3 million, a cash severance charge of $0.4 million, and a non-cash impairment charge of $0.1 million. The Company recently completed a $4.8 million warehouse in Payette, Idaho to replace this Salem, Oregon leased distribution facility. The Company is in the process of vacating the Salem facility and efforts to sublease the unused portion of the facility have been unsuccessful to date. The lease on the Salem warehouse expires February of 2008.

The fiscal 2006 asparagus harvest, completed in the first quarter, represented a partial pack as GMOI was in process of moving the production of asparagus offshore from the Dayton, Washington manufacturing facility. Fiscal 2006 represented the final year of operation for the Dayton, Washington facility. The Company and GMOI negotiated a definitive agreement to close this facility. Under the terms of the agreement, costs incurred by the Company related to the asparagus production prior to March 31, 2006 were paid by GMOI. The Company retains ownership of the real estate associated with the Dayton facility, and it is being used as part of the Company’s seed milling operations. In addition, the manufacturing equipment of the Dayton facility was either conveyed to GMOI, redeployed by the Company, or salvaged. Lastly, GMOI reduced the principal balance of its secured subordinated promissory note with the Company by $0.5 million to $42.6 million, which represents the net book value of the equipment conveyed to GMOI or salvaged.

3

Divestitures and Other Real Estate Sold

The Company sold three former Chiquita Processed Foods plants and related assets to Lakeside Foods, Inc. on June 17, 2003. The Company sold one additional former Chiquita Processed Foods plant and related assets to Lakeside Foods, Inc. on August 6, 2003. These divestitures to Lakeside Foods generated $46.0 million in cash proceeds, which was used to pay down debt. The Company sold additional plant locations and related assets that were previously closed by Chiquita Processed Foods and designated as assets held for sale during 2005 and 2004, generating $1.6 million and $2.5 million, respectively, in additional proceeds used for debt repayment.

During 2006, the Company sold a previously closed corn processing facility in Washington for $0.5 million in cash and a $3.6 million note which carried an interest rate of 8% and was due in full on May 14, 2007. This note was secured by a mortgage on the property. The Company accounted for the sale under the installment method. During the first quarter of 2006, $0.4 million of the gain was included in Other Expense (Income), net and an additional $2.8 million of the gain on this sale was deferred in Other Long-Term Liabilities. During 2007, the Company collected the note prior to the original due date and recorded a gain on the sale of $2.8 million, which is included in Other (Income) Expense.

During 2006, the Company sold a warehouse location in Oregon, which resulted in cash proceeds of $0.6 million and a pre-tax gain of $0.5 million. This gain was included in Other (Income) Expense, net.

During 2007, the Company sold a plant and warehouse located in California that was acquired in the Signature acquisition, which resulted in cash proceeds of $27.8 million. There was no gain or loss recorded on this sale since the property was valued at the net proceeds as part of the purchase price allocation.

Liquidity and Capital Resources

The Company’s primary cash requirements are to make payments on our debt, finance seasonal working capital needs and to make capital expenditures. Internally generated funds and amounts under our revolving credit facility are our primary sources of liquidity.

Revolving Credit Facility

On August 18, 2006, in connection with the Acquisition, the Company entered into a $250.0 million five-year floating rate secured revolving credit facility (the “Revolver”) with several lenders, under which $99.3 million was initially borrowed to pay off the prior revolver balance. As of March 31, 2007, the outstanding balance on the Revolver was $58.3 million. In order to maintain availability of funds under the facility, we pay a commitment fee on the unused portion of the Revolver. The Revolver is used to fund capital expenditures, acquisitions and our seasonal working capital needs, which are affected by the growing cycles of the vegetables and fruits we process. The vast majority of fruit and vegetable inventories are produced during the harvesting and packing months of June through November and depleted through the remaining six months. Payment terms for raw fruit and vegetables are generally three months but can vary from a few days to seven months. Accordingly, our need to draw on the Revolver may fluctuate significantly throughout the year. The final maturity date of the Revolver is August 18, 2011.

We believe that cash flows from operations and availability under our Revolver will provide adequate funds for our working capital needs, planned capital expenditures and debt service obligations for at least the next 12 months.

Long-Term Debt

The Company has two major long-term debt instruments: 1) a $64.5 million secured note payable to John Hancock Life Insurance Company, with an interest rate of 8.03%, which is payable in installments through 2014; and 2) a $39.1 million secured note payable to GMOI, with an interest rate of 8%, which is payable in installments through 2010. In addition, the Company has two mortgages. During 2007, the Company issued a mortgage note to GE Capital for $23.8 million with an interest rate of 6.98% and a term of 15 years. The proceeds were used to pay down debt associated with the acquisition of Signature. The note is secured by a mortgage on a portion of the property in Modesto, California acquired via the Signature acquisition. The Company did not issue any significant long-term debt in 2006. During 2005, the Company issued a mortgage to GE Capital for $8.0 million with an interest rate of 6.35% and a term of 15 years. The proceeds were used to finance new warehouse construction in Janesville and Cambria, Wisconsin. The Company also has a number of industrial revenue bonds totaling $24.5 million.

At March 31, 2007, scheduled maturities of long-term debt in each of the five succeeding fiscal years and thereafter are as follows (in thousands):

2008
 
$
9,825
 
2009
   
10,095
 
2010
   
38,668
 
2011
   
64,726
 
2012
   
6,839
 
Thereafter
   
90,067
 


4


Restrictive Covenants

Our credit facilities contain covenants that restrict our ability to incur additional indebtedness, pay dividends on and redeem our capital stock, make other restricted payments (including investments), sell our assets, incur liens, transfer all or substantially all of our assets and enter into consolidations or mergers. Our credit facilities also require us to meet certain financial tests, including minimum fixed charge coverage, minimum interest coverage and maximum total debt ratios. These financial requirements and ratios generally become more restrictive over time, subject to allowances for seasonal fluctuations. We are in compliance with all such financial covenants, and were in compliance therewith as of March 31, 2007. The most restrictive financial covenant in the credit agreements is the adjusted debt to total capitalization ratio.

 
Capital Expenditures

Capital expenditures in 2007 totaled $21.6 million and included a $4.8 million warehouse project in Payette, Idaho and a $3.5 million can line in Marion, New York, equipment replacements and other improvements, and economic return and cost saving projects. Capital expenditures in 2006 totaled $11.9 million and included a $2.3 million waste treatment expansion in Montgomery, Minnesota, equipment replacements and other improvements, and economic return and cost saving projects. Capital expenditures in 2005 totaled $14.4 million and included $7.4 million of construction costs for three warehouse expansion projects in Geneva, New York, Janesville, Wisconsin, and Cambria, Wisconsin together with equipment replacement and cost saving projects.

Inventories

In 2007, inventories increased by $61.7 million primarily reflecting the effect of $66.0 million of inventory attributable to the Signature acquisition. In 2006, inventories increased by $12.8 million primarily reflecting the effect of higher quantities on hand associated with the large harvest in the summer of 2005, partially offset by unit cost reductions.

Critical Accounting Policies

During the year ended March 31, 2007, the Company sold for cash, on a bill and hold basis, $181.9 million of Green Giant finished goods inventory to GMOI. At the time of the sale of the Green Giant vegetables to GMOI, title of the specified inventory transferred to GMOI. The Company believes it has met the criteria required by the accounting standards for bill and hold treatment.

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 net sales, include amounts paid to encourage retailers to offer temporary price reductions for the sale of our products to consumers, amounts paid to obtain favorable display positions in retail stores, and amounts paid to retailers for shelf space in retail stores. Accruals for trade promotions are recorded primarily at the time of sale of product 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 us. 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 for amounts they consider due to them. Final determination of the permissible deductions may take extended periods of time.

The Company assesses its long-lived assets for impairment whenever there is an indicator of impairment. Property, plant, and equipment are depreciated over their assigned lives. The assigned lives and the projected cash flows used to test impairment are subjective. If actual lives are shorter than anticipated or if future cash flows are less than anticipated, a future impairment charge or a loss on disposal of the assets could be incurred. Impairment losses are evaluated if the undiscounted value of the cash flows is less than carrying value. A loss is recognized when the carrying value of an asset exceeds its fair value.
 
Obligations and Commitments

As of March 31, 2007, the Company is obligated to make cash payments in connection with our capital leases, debt, and operating leases. The effect of these obligations and commitments on our liquidity and cash flows in future periods are listed below. All of these arrangements require cash payments over varying periods of time. Certain of these arrangements are cancelable on short notice and others require termination or severance payments as part of any early termination.

Contractual Obligations
March 31, 2007

   
2008
 
2009-10
 
2011-12
 
2013
and beyond
 
Total
 
                       
Long-term debt
 
$
9,825
 
$
48,763
 
$
71,565
 
$
90,067
 
$
220,220
 
Interest
   
18,072
   
32,390
   
22,559
   
32,841
   
105,862
 
Operating lease
                               
obligations
   
19,371
   
29,910
   
19,165
   
5,501
   
73,947
 
Purchase commitments
   
186,346
   
   
   
   
186,346
 
Capital lease obligations
   
208
   
   
   
   
208
 
Total
 
$
233,822
 
$
111,063
 
$
113,289
 
$
128,409
 
$
586,583
 

In addition, the Company’s defined benefit plan has an unfunded pension liability of $11.8 million which is subject to certain actuarial assumptions.

Purchase commitments represent estimated payments to growers for crops during the 2007 season.

We have no material off-balance sheet debt or other unrecorded obligations other than the items noted above.


5

Standby Letters of Credit

We have standby letters of credit for certain insurance-related requirements and capital leases. The majority of our standby letters of credit are automatically renewed annually, unless the issuer gives cancellation notice in advance. On March 31, 2007, we had $14.0 million in outstanding standby letters of credit. These standby letters of credit are supported by our revolving credit facility and reduce borrowings available under the Revolver.

Cash Flows

In 2007, our cash and cash equivalents increased by $2.5 million, which is due to the net impact of $70.2 million provided by operating activities, $10.7 million used in investing activities, and $57.0 million used by financing activities.

Operating Activities

Cash provided by operating activities increased to $70.2 million in 2007 from $31.8 million in 2006. The increase is primarily a function of higher operating earnings in 2007 and the lower inventory buildup in 2007 versus 2006 after considering the impact of the Signature acquisition, partially offset by higher income tax payments in 2007 than 2006. The cash requirements of the business fluctuate significantly throughout the year to coincide with the seasonal growing cycles of vegetables and fruits. The vast majority of the inventories are produced during the packing months, from June through November, and then depleted during the remaining six months. Cash flow from operating activities is one of our main sources of liquidity.

Cash provided by operating activities increased to $31.8 million in 2006 from $18.0 million in 2005. The increase is primarily a function of higher operating earnings in 2006 and the lower inventory buildup in 2006 versus 2005.

Cash provided by operating activities increased to $18.0 million in 2005 from $1.6 million in 2004. The increase is primarily a function of the negative cash flow impact in 2004 associated with the inventory increase related to the CPF acquisition partially offset by lower operating earnings in 2005.

6



Investing Activities

Cash used in investing activities was $10.7 million for 2007, primarily reflecting the cash requirements of the Signature acquisition were more than offset by proceeds from the sale of assets, primarily involving the divestiture of one plant and associated warehouses purchased in the Signature acquisition. Capital expenditures aggregated $21.6 million in 2007 versus $11.9 million in 2006. The increase is primarily attributable to equipment replacements and other improvements, including the $4.8 million construction of a warehouse expansion project in Payette, Idaho.

Cash used in investing activities was $10.7 million in 2006, principally reflecting capital expenditures partially offset by $1.2 million in proceeds from the sale of certain fixed assets. Capital expenditures aggregated $11.9 million in 2006 versus $14.4 million in 2005. Capital expenditures in 2006 included a $2.3 million waste treatment expansion in the Midwest, equipment replacements and other improvements, and economic return and cost saving projects.

Cash used in investing activities was $8.2 million in 2005, principally reflecting capital expenditures partially offset by $6.2 million in proceeds from the sale of assets including $4.6 million from the sale of Class B Common Stock of Moog Inc. Capital expenditures aggregated $14.4 million in 2005 versus $23.1 million in 2004. Capital expenditures were unusually high in 2004 reflecting a significant number of equipment upgrades and other improvements in connection with the CPF acquisition. Capital expenditures in 2005 and 2004 included $7.4 million and $7.2 million, respectively, for warehouse expansion projects. This included the completion of the Janesville and Cambria, Wisconsin projects started in 2004 and a Geneva, New York warehouse expansion.

Financing Activities

Cash used in financing activities was $57.0 million in 2007. During 2007, we borrowed cash to fund the Signature acquisition.

Cash used in financing activities was $20.2 million in 2006 principally consisting of the repayment of $17.0 million in long-term debt and the repayment of $3.7 million in notes payable.

Cash used in financing activities was $9.2 million in 2005 principally consisting of the repayment of $21.9 million in long-term debt partially offset by the $9.1 million in proceeds from long-term debt.


RESULTS OF OPERATIONS

Fiscal 2007 versus Fiscal 2006

Classes of similar
products/services:
 
2007
 
2006
 
2005
 
   
(In thousands)
 
Net Sales:
             
GMOI
 
$
210,313
 
$
240,490
 
$
225,527
 
Canned vegetables
   
579,731
   
573,779
   
574,802
 
Frozen vegetables
   
35,696
   
29,464
   
28,304
 
Fruit and chip products
   
183,338
   
26,640
   
23,358
 
Other
   
15,775
   
13,450
   
12,283
 
Total
 
$
1,024,853
 
$
883,823
 
$
864,274
 


Net sales for fiscal 2007 increased $141.0 million, or 16%, from $883.8 million to $1,024.9 million. The increase primarily reflects the eight months of activity related to the Signature acquisition which was reflected in the $156.7 million increase in fruit and chip product sales partially offset by the planned decline in GMOI sales of $30.2 million.

Cost of product sold as a percentage of sales decreased slightly from 88.5% in 2006 to 88.2% in 2007 primarily reflecting mix issues plus the Company’s overall cost structure continued to benefit. from the closure of three processing facilities in connection with the plant restructuring program implemented in 2005.

Selling, general and administrative expense increased slightly from 5.3% of sales in 2006 to 5.7% in 2007 principally reflecting higher administrative costs incurred during the first several months after the Signature acquisition.

Plant restructuring costs decreased from $1.9 million in 2006 to $0.7 million in 2007 and are described in detail in the Restructuring section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Interest expense increased from $15.8 million in 2006 to $20.9 million in 2007 primarily reflecting the new debt supporting the Signature acquisition.

Other income of $4.9 million in 2007 primarily reflects the effect of a $5.2 million gain on the sale of certain fixed assets partially offset by a non-cash loss of $0.3 million on the disposal of property, plant and equipment. Other expense of $1.1 million in 2006 primarily reflects the effect of a $1.9 million non-cash loss on the disposal of property, plant and equipment which was partially offset by a $1.0 million gain on the sale of certain fixed assets.
 
As a result of the above factors, pre-tax earnings increased from $35.5 million in 2006 to $44.9 million in 2007. The effective tax rate was 28.6% in 2007 and 38.0% in 2006. The decrease in the 2007 effective tax rate reflects additional tax credits (5.6%) included in the 2007 rate and reversal of tax reserves (3.5%).

7



Fiscal 2006 versus Fiscal 2005

Net sales for fiscal 2006 increased $19.5 million, or 2%, from $864.3 million to $883.8 million. The increase primarily reflects a $14.9 million increase in sales to GMOI associated with the favorable growing conditions in the summer of 2005 together with a $3.3 million increase in Fruit and Chip Product sales reflecting increased co-pack potato chip volume associated with improved market conditions.

Cost of product sold as a percentage of sales decreased from 90.9% in 2005 to 88.5% in 2006 primarily reflecting favorable manufacturing variances associated with the excellent growing season which drove improved crop yields and plant recovery rates. Furthermore, the Company’s overall cost structure benefited from the closure of three processing facilities in connection with the plant restructuring program implemented in 2005.

Selling, general and administrative expense remained unchanged at 5.3% of sales.

Plant restructuring costs decreased from $7.7 million in 2005 to $1.9 million in 2006 and are described in detail in the Restructuring section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Interest expense decreased from $16.6 million in 2005 to $15.8 million in 2006 primarily reflecting the scheduled repayment of long-term debt in 2006.

Other expense of $1.1 million in 2006 primarily reflects the effect of a $1.9 million non-cash loss on the disposal of property, plant and equipment which was partially offset by a $1.0 million gain on the sale of certain fixed assets. Other income of $3.8 million in 2005 reflects the gain on the sale of Moog Inc. stock of $3.9 million and the gain on the sale of certain fixed assets of $0.6 million. This was partially offset by a non-cash charge of $0.7 million reflecting the write-down of deferred financing costs associated with the reduction of the Revolver from $200 million to $125 million.
 
As a result of the above factors, pre-tax earnings increased from $12.0 million in 2005 to $35.5 million in 2006. The effective tax rate was 38.0% in 2006 and 34.3% in 2005. The increase in the 2006 effective tax rate reflects the reversal of certain tax reserves in 2005 which were no longer required.

Recently Issued Accounting Standards

In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 prescribes a comprehensive model for how we should recognize, measure, present, and disclose in our financial statements uncertain tax positions that we have taken or expect to take on a tax return (including our decision whether to file or not to file a return in a particular jurisdiction). FIN 48 is applicable to all uncertain tax positions for taxes accounted for under FASB Statement No. 109, Accounting for Income Taxes, and substantially changes the applicable accounting model. FIN 48 is likely to cause greater volatility in our income statements as more items are recognized discretely within income tax expense. FIN 48 is effective beginning with our first quarter of fiscal 2008 for the Company. The Company estimated the impact of this statement and determined it is not expected to have a material affect on its financial condition or results of operations.

 
In September 2006, the FASB issued FASB Statement No. 157, “Fair Value Measurements” (“FASB 157”). FASB 157 redefines fair value, establishes a framework for measuring fair value and expands the disclosure requirements regarding fair value measurement. FASB 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company does not expect that the adoption of FASB 157 will have a material impact on its results of operations or financial position; however, additional disclosures will be required under FASB 157.






 

8



QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

The Company maintained $8.6 million in cash equivalents as of March 31, 2007. As a result of its regular borrowing activities, the Company’s operating results are exposed to fluctuations in interest rates, which it manages primarily through its regular financing activities. The Company uses a revolving credit facility with variable interest rates to finance capital expenditures, acquisitions and seasonal working capital requirements. In addition, long-term debt includes secured notes payable and capital lease obligations. Long-term debt bears interest at fixed and variable rates. With $118.5 million in average variable-rate debt during fiscal 2007, a 1% change in interest rates would have had a $1.2 million effect on interest expense. The following table provides information about the Company’s financial instruments that are sensitive to changes in interest rates. The table presents principal cash flows and related weighted average interest rates by expected maturity date. Weighted average interest rates on long-term variable-rate debt are based on rates as of March 31, 2007.

Commodity Risk

The materials that the Company uses, such as vegetables, fruits, steel, and packaging materials are commodities that may experience price volatility caused by external factors including market fluctuations, availability, currency fluctuations, and changes in governmental regulations and agricultural programs. These events can result in reduced supplies of these materials, higher supply costs, or interruptions in our production schedules. If prices of these raw materials increase and the Company is not able to effectively pass such price increases along to its customers, operating income will decrease. In light of the recent volatility in steel pricing, a 5% change in steel unit costs would equate to a $6.5 million cost impact.

The Company does not currently use derivative instruments to potentially alter its interest rate or commodity risks.

Interest Rate Sensitivity of Long-Term Debt, Capital Lease Obligations and Short-Term Investments
March 31, 2007
(In thousands)

EXPECTED MATURITY DATE
 
 
2008
 
2009
 
2010
 
2011
 
2012
 
Thereafter
 
Total Weighted
Average
 
Estimated
Value
 
                                   
Fixed-rate L/T debt:
                                                 
Principal cash flows
 
$
10,033
 
$
10,095
 
$
38,668
 
$
6,434
 
$
6,839
 
$
67,437
 
$
139,506
 
$
135,573
 
Average interest rate
   
6.40
%
 
6.51
%
 
6.76
%
 
7.63
%
 
7.68
%
 
7.35
%
 
7.00
%
 
-
 
Variable-rate L/T debt:
                                                 
Principal cash flows
 
$
-
 
$
-
 
$
-
 
$
58,292
 
$
-
 
$
22,630
 
$
80,922
 
$
80,922
 
Average interest rate
   
-
%
 
-
%
 
-
%
 
6.57
%
 
-
%
 
5.70
%
 
6.33
%
 
-
 
Average Revolver debt:
                                                 
Principal cash flows
                                     
$
95,628
 
$
95,628
 
Average interest rate
                                       
6.63
%
 
-
 
Short-term investments:
                                                 
Average balance
                                     
$
531
 
$
531
 
Average interest rate
                                       
5.20
%
 
-
 


 

9




Consolidated Statements of Net Earnings

Seneca Foods Corporation and Subsidiaries
(In thousands, except per share amounts)

Years ended March 31,
 
2007
 
2006
 
2005
 
               
               
Net sales
 
$
1,024,853
 
$
883,823
 
$
864,274
 
                     
Costs and expenses:
                   
Cost of product sold
   
905,207
   
782,351
   
785,799
 
Selling, general, and administrative expense
   
57,988
   
47,195
   
45,929
 
Plant restructuring
   
713
   
1,920
   
7,678
 
Total costs and expenses
   
963,908
   
831,466
   
839,406
 
Operating income
   
60,945
   
52,357
   
24,868
 
Other (income) expense, net
   
(4,933
)
 
1,115
   
(3,757
)
Interest expense, net of interest income of
                   
$31, $286, and $102, respectively
   
20,936
   
15,784
   
16,592
 
                     
Earnings before income taxes
   
44,942
   
35,458
   
12,033
 
Income taxes
   
12,875
   
13,465
   
4,126
 
Net earnings
 
$
32,067
 
$
21,993
 
$
7,907
 
                     
Basic earnings per common share
 
$
2.65
 
$
1.97
 
$
0.71
 
                     
Diluted earnings per common share
 
$
2.63
 
$
1.96
 
$
0.70
 

See notes to consolidated financial statements.

10


Consolidated Balance Sheets

Seneca Foods Corporation and Subsidiaries
(In thousands)

March 31,
 
2007
 
2006
 
           
Assets
         
Current Assets:
             
Cash and cash equivalents
 
$
8,552
 
$
6,046
 
Accounts receivable, less allowance for doubtful accounts
             
of $504 and $445, respectively
   
55,500
   
46,618
 
Inventories:
             
Finished products
   
286,866
   
231,663
 
In process
   
21,635
   
22,012
 
Raw materials and supplies
   
71,986
   
65,095
 
Deferred income taxes
   
6,260
   
6,426
 
Assets held for sale
   
-
   
1,369
 
Other current assets
   
640
   
2,141
 
Total Current Assets
   
451,439
   
381,370
 
Other assets
   
3,041
   
5,273
 
Property, Plant, and Equipment:
             
Land
   
15,840
   
9,945
 
Building and improvements
   
134,866
   
119,937
 
Equipment
   
273,600
   
275,667
 
     
424,306
   
405,549
 
Less accumulated depreciation and amortization
   
252,071
   
257,048
 
Net Property, Plant, and Equipment
   
172,235
   
148,501
 
Total Assets
 
$
626,715
 
$
535,144
 

Liabilities and Stockholders’ Equity
         
Current Liabilities:
         
Notes payable
 
$
-
 
$
57,029
 
Accounts payable
   
58,615
   
42,229
 
Accrued vacation
   
8,999
   
7,206
 
Other accrued expenses
   
38,980
   
29,518
 
Current portion of long-term debt and capital lease obligations
   
10,033
   
9,788
 
Income taxes
   
357
   
6,090
 
Total Current Liabilities
   
116,984
   
151,860
 
Long-term debt, less current portion
   
210,395
   
138,813
 
Capital lease obligations, less current portion
   
-
   
3,773
 
Other liabilities
   
21,645
   
15,381
 
Deferred income taxes
   
4,120
   
7,538
 
Total Liabilities
   
353,144
   
317,365
 
Commitments and contingencies (Note 13)
             
Stockholders’ Equity:
             
Preferred stock
   
69,619
   
54,486
 
Common stock
   
3,075
   
2,890
 
Accumulated other comprehensive loss
   
(1,253
)
 
-
 
Additional paid-in capital
   
28,277
   
17,810
 
Retained earnings
   
173,853
   
142,593
 
Total Stockholders’ Equity
   
273,571
   
217,779
 
Total Liabilities and Stockholders’ Equity
 
$
626,715
 
$
535,144
 
 
See notes to consolidated financial statements.

11


Consolidated Statements of Cash Flows

Seneca Foods Corporation and Subsidiaries
(In thousands)

Years ended March 31,
 
2007
 
2006
 
2005
 
Cash flows from operating activities:
             
Net earnings
 
$ 32,067
 
$ 21,993
 
$ 7,907
 
Adjustments to reconcile net earnings to
             
net cash provided by operations:
             
Depreciation and amortization
   
22,881
   
23,793
   
29,178
 
Deferred income tax benefit
   
(2,451
)
 
(4,344
)
 
(1,552
)
Gain on the sale of assets
   
(5,273
)
 
(966
)
 
(4,469
)
Impairment provision and other expenses
   
340
   
2,081
   
5,673
 
Changes in operating assets and liabilities (excluding
                   
the effects of business combination):
                   
Accounts receivable
   
6,294
   
(2,591
)
 
2,516
 
Inventories
   
24,813
   
(24,300
)
 
(24,187
)
Other current assets
   
6,161
   
5,051
   
4,906
 
Accounts payable, accrued expenses,
                   
and other liabilities
   
(8,869
)
 
3,838
   
(1,218
)
Income taxes
   
(5,733
)
 
7,289
   
(748
)
Net cash provided by operations
   
70,230
   
31,844
   
18,006
 
                     
Cash flows from investing activities:
                   
Proceeds from the sale of assets
   
32,227
   
1,215
   
6,233
 
Business acquisition
   
(22,288
)
 
-
   
-
 
Additions to property, plant, and equipment
   
(21,627
)
 
(11,906
)
 
(14,415
)
Cash received from business acquisition
   
952
   
-
   
-
 
Net cash used in investing activities
   
(10,736
)
 
(10,691
)
 
(8,182
)
                     
Cash flows from financing activities:
                   
Payments of long-term debt and capital lease obligations
   
(452,982
)
 
(17,039
)
 
(21,856
)
Proceeds from issuance of long-term debt
   
396,738
   
397
   
9,146
 
Payments on notes payable
   
(40,936
)
 
(315,185
)
 
(283,087
)
Borrowings on notes payable
   
39,390
   
311,481
   
285,425
 
Change in other assets
   
825
   
83
   
1,180
 
Preferred dividends paid
   
(23
)
 
(23
)
 
(23
)
Net cash used in financing activities
   
(56,988
)
 
(20,286
)
 
(9,215
)
                     
Net increase in cash and cash equivalents
   
2,506
   
867
   
609
 
Cash and cash equivalents, beginning of year
   
6,046
   
5,179
   
4,570
 
Cash and cash equivalents, end of year
 
$
8,552
 
$
6,046
 
$
5,179
 
                     
Supplemental disclosures of cash flow information:
                   
Cash paid during the year for:
                   
Interest
 
$
20,187
 
$
15,260
 
$
16,973
 
Income taxes
   
21,059
   
10,520
   
6,425
 
Supplemental information of non-cash investing and
financing activities
 
$25.0 million of Preferred Stock was issued in partial consideration for the Signature acquisition in 2007. The Company assumed $45.5 million of long-term debt related to the Signature acquisition. The Company acquired a $3.6 million note receivable from the sale of the Washington corn processing facility in 2006.

See notes to consolidated financial statements.


 

12



Consolidated Statements of Stockholders’ Equity

Seneca Foods Corporation and Subsidiaries
(In thousands, except share amounts)

 
 
Preferred
Stock
 
Common
Stock
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Comprehensive
Income
 
                           
Balance March 31, 2004
 
$
56,338
 
$
2,859
 
$
15,989
 
$
2,324
 
$
112,739
       
Net earnings
   
-
   
-
   
-
   
-
   
7,907
 
$
7,907
 
Cash dividends paid
                                     
on preferred stock
   
-
   
-
   
-
   
-
   
(23
)
 
-
 
Preferred stock conversion
   
(3
)
 
-
   
3
   
-
   
-
   
-
 
Net unrealized gain on
                                     
investments (net of tax $16)
   
-
   
-
   
-
   
32
   
-
   
32
 
Net reclassification of accumulated
                                     
other comprehensive loss
                                     
(net of tax $1,160)
   
-
   
-
   
-
   
(2,356
)
 
-
   
(2,356
)
Balance March 31, 2005
   
56,335
   
2,859
   
15,992
   
-
   
120,623
 
$
5,583
 
Net earnings
   
-
   
-
   
-
   
-
   
21,993
 
$
21,993
 
Cash dividends paid
                                     
on preferred stock
   
-
   
-
   
-
   
-
   
(23
)
 
-
 
Preferred stock conversion
   
(1,849
)
 
31
   
1,818
   
-
   
-
   
-
 
Balance March 31, 2006
   
54,486
   
2,890
   
17,810
   
-
   
142,593
 
$
21,993
 
Net earnings
   
-
   
-
   
-
   
-
   
32,067
 
$
32,067
 
Preferred stock issued
   
25,000
   
-
   
-
   
-
   
-
   
-
 
Beneficial conversion
   
-
   
-
   
784
   
-
   
(784
)
 
-
 
Cash dividends paid
                                     
on preferred stock
   
-
   
-
   
-
   
-
   
(23
)
 
-
 
Preferred stock conversion
   
(9,867
)
 
185
   
9,683
   
-
   
-
   
-
 
Accumulated other comprehensive
                                     
loss (net of tax $801)
   
-
   
-
   
-
   
(1,253
)
 
-
   
-
 
Balance March 31, 2007
 
$
69,619
 
$
3,075
 
$
28,277
 
$
(1,253
)
$
173,853
 
$
32,067
 


   
Preferred Stock
 
Common Stock
 
 
 
6%
Cumulative Par
Value $.25
Callable at Par
Voting
 
10%
Cumulative Par
Value $0.25
Convertible
Voting
 
Participating
Convertible Par
Value $.025
 
2003 Series
Participating
Convertible Par
Value $.025
 
2006 Series
Participating
Convertible Par
Value $.025
 
Class A
Common Stock
Par Value $.25
 
Class B
Common Stock
Par Value $.25
 
                               
Shares authorized:
March 31, 2007
   
200,000
   
1,400,000
   
4,166,667
   
967,742
   
1,025,220
   
20,000,000
   
10,000,000
 
Shares issued and outstanding:
                                           
March 31, 2005
   
200,000
   
807,240
   
3,443,359
   
967,742
   
-
   
3,951,717
   
2,762,905
 
March 31, 2006
   
200,000
   
807,240
   
3,436,809
   
853,500
   
-
   
4,074,509
   
2,760,905
 
March 31, 2007
   
200,000
   
807,240
   
2,991,344
   
559,790
   
1,025,220
   
4,813,684
   
2,760,905
 
Stock Amount
 
$
50
 
$
202
 
$
35,691
 
$
8,676
 
$
25,000
 
$
1,204
 
$
1,871
 
See notes to consolidated financial statements.


 

13



Notes to Consolidated Financial Statements

Seneca Foods Corporation and Subsidiaries

1. Summary of Significant Accounting Policies

Nature of Operations - Seneca Foods Corporation and subsidiaries (the “Company”) conducts its business almost entirely in food processing, operating 25 plants and warehouses in seven states. The Company markets branded and private label processed foods to retailers and institutional food distributors.

Principles of Consolidation - The consolidated financial statements include the accounts for the parent company and all of its wholly-owned subsidiaries after elimination of intercompany transactions, profits, and balances.

Revenue Recognition - Sales and related cost of product sold are recognized when legal title passes to the purchaser, which is primarily upon shipment of products. When customers, under the terms of specific orders, request that the Company invoice goods and hold the goods for future shipment, the Company recognizes revenue when legal title to the finished goods inventory passes to the purchaser. Generally, the Company receives cash from the purchaser when legal title passes. During the year ended 2007, the Company sold for cash, on a bill and hold basis, $181.9 million of Green Giant finished goods inventory to GMOI. At the time of the sale of the Green Giant vegetables to GMOI, title of the specified inventory transferred to GMOI. The Company believes it has met the criteria required by the accounting standards for bill and hold treatment.

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 net sales, include amounts paid to encourage retailers to offer temporary price reductions for the sale of our products to consumers, amounts paid to obtain favorable display positions in retailers’ stores, and amounts paid to retailers for shelf space in retail stores. Accruals for trade promotions are recorded primarily at the time of sale of product 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 us. 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 for amounts they consider due to them. 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 and interest-bearing investments. 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 our total sales. GMOI sales represented 21%, 27% and 26% of net sales in fiscal 2007, 2006 and 2005, respectively. The top ten customers represented approximately 50%, 55% and 52%, of net sales for fiscal 2007, 2006 and 2005, 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.

Cash and Cash Equivalents - The Company considers all highly liquid instruments purchased with an original maturity of three months or less as short-term investments.

Deferred Financing Costs - Deferred financing costs incurred in obtaining debt are amortized on a straight-line basis over the term of the debt.

Inventories - Inventories are stated at lower of cost; determined under the first-in, first-out (FIFO) method; or market.

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 bases of assets and liabilities and tax credit carryforwards.

Shipping and Handling Costs - The Company includes all shipping and handling costs billed to customers in net sales and the corresponding costs in cost of product sold.

14

Notes to Consolidated Financial Statements (continued)

 
Advertising Costs - Advertising costs are expensed as incurred.

Doubtful Accounts - A provision for doubtful accounts is recorded based upon an assessment of credit risk within the accounts receivable portfolio, experience of delinquencies (accounts over 15 days past due) and charge-offs (accounts removed from accounts receivable for expectation of non-payment), and current market conditions. Management believes these provisions are adequate based upon the relevant information presently available. However, it is possible that the Company’s loss experience may change in the future.

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 must be calculated using the “two-class” method by dividing the earnings allocated to common stockholders by the weighted average of common shares outstanding during the period.

Diluted earnings per share is calculated by dividing earnings allocated 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.

Years ended March 31,
 
2007
 
2006
 
2005
 
   
(In thousands, except per share amounts)
 
Basic
             
Net earnings
 
$
32,067
 
$
21,993
 
$
7,907
 
Deduct preferred stock dividends
   
807
   
23
   
23
 
                     
Undistributed earnings
   
31,260
   
21,970
   
7,884
 
Earnings allocated to participating
                   
Preferred
   
11,797
   
8,522
   
3,126
 
                     
Earnings allocated to common
                   
Shareholders
 
$
19,463
 
$
13,448
 
$
4,758
 
                     
Weighted average common shares
                   
Outstanding
   
7,353
   
6,811
   
6,714
 
                     
Basic earnings per common share
 
$
2.65
 
$
1.97
 
$
0.71
 
Diluted
                   
Earnings allocated to common
                   
Shareholders
 
$
19,463
 
$
13,448
 
$
4,758
 
Add dividends on convertible
                   
preferred stock
   
20
   
20
   
20
 
Earnings applicable to common
                   
stock on a diluted basis
 
$
19,483
 
$
13,468
 
$
4,778
 
Weighted average common shares
                   
outstanding-basic
   
7,353
   
6,811
   
6,714
 
Additional shares to be issued under
                   
full conversion of preferred stock
   
67
   
67
   
67
 
                     
Total shares for diluted
   
7,420
   
6,878
   
6,781
 
Diluted earnings per share
 
$
2.63
 
$
1.96
 
$
0.70
 


Depreciation and Valuation - Property, plant, and equipment are stated at cost or, in the case of capital leases, the present value of future lease payments. For financial reporting, the Company provides for depreciation and capital lease amortization on the straight-line method at rates based upon the estimated useful lives of the various assets or term of lease, if shorter. Depreciation and capital lease amortization was $22,043,000, $23,011,000, and $28,503,000 in fiscal 2007, 2006, and 2005, respectively. The estimated useful lives are as follows: buildings - 30 years; machinery and equipment - 10-15 years; vehicles - 3-7 years; and land improvements - 10-20 years. The Company assesses its long-lived assets for impairment whenever there is an indicator of impairment.

15


Notes to Consolidated Financial Statements (continued)

Impairment losses are evaluated if the undiscounted value of the cash flows are less than carrying value. A loss is recognized when the carrying value of an asset exceeds its fair value. There were no significant impairment losses included in Plant Restructuring in 2007 or 2006. There were $4,960,000 of impairment losses in 2005 included in Plant Restructuring (see Plant Restructuring, note 14). Assets held for sale are carried at the lower of estimated fair value less selling costs or depreciated value at date of determination to sell.

Use of Estimates in the Preparation of Financial Statements - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the related revenues and expenses during the reporting period. Actual amounts could differ from those estimated.

Recently Issued Accounting Standards - In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the Company has taken or expect to take on a tax return (including our decision whether to file or not to file a return in a particular jurisdiction). FIN 48 is applicable to all uncertain tax positions for taxes accounted for under FASB Statement No. 109, Accounting for Income Taxes, and substantially changes the applicable accounting model. FIN 48 is likely to cause greater volatility in the Company’s income statements as more items are recognized discretely within income tax expense. FIN 48 is effective beginning with the Company’s first quarter of fiscal 2008. The Company estimated the impact of this statement and determined it is not expected to have a material affect on its financial condition or results of operations.

 
In September 2006, the FASB issued FASB Statement No. 157, “Fair Value Measurements” (“FASB 157”). FASB  157 redefines fair value, establishes a framework for measuring fair value and expands the disclosure requirements regarding fair value measurement. FASB 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company does not expect that the adoption of FASB 157 will have a material impact on its results of operations or financial position; however, additional disclosures will be required under FASB 157.

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

2. Acquisition

On August 18, 2006, the Company completed its acquisition of 100% of the membership interest in Signature Fruit Company, LLC (“Signature”) from John Hancock Life Insurance Company and John Hancock Variable Life Insurance Company. The rationale for the acquisition was twofold: (1) to broaden the Company’s product offerings into the canned fruit business; and (2) to take advantage of distribution efficiencies by combining vegetables and fruits on shipments since the customer base of the two companies is similar. The purchase price totaled $47.3 million plus the assumption of certain liabilities.

This acquisition was financed with proceeds from a newly expanded $250.0 million revolving credit facility, and $25.0 million of the Company’s Participating Convertible Preferred Stock. The Preferred Stock is convertible into the Company’s Class A Common Stock on a one-for-one basis subject to antidilution adjustments. The Preferred Stock was valued at $24.385 per share based on the market value of the Class A Common Stock during the 30 day average period prior to the acquisition. A non-cash dividend of $784,000 was recorded based on the beneficial conversion of this Preferred Stock for the difference between the conversion price of $24.385 and the average price of the Company’s Class A Common Stock when the acquisition was announced.


16


Notes to Consolidated Financial Statements (continued)

The purchase price to acquire Signature was allocated based on the internally developed fair value of the assets and liabilities acquired. The purchase price of $47.3 million has been calculated as follows (in millions):

Cash
 
$
20.0
 
Issuance of convertible preferred stock
   
25.0
 
Closing cost
   
2.3
 
Purchase price
 
$
47.3
 

The total purchase price of the transaction has been allocated as follows:

Current assets
 
$
131.6
 
Property, plant and equipment
   
25.5
 
Other assets
   
2.3
 
Current liabilities
   
(58.6
)
Long-term debt
   
(45.5
)
Other non-current liabilities
   
(8.0
)
Total
 
$
47.3
 


The Company’s consolidated statement of net earnings for the year ended March 31, 2007 includes eight months of the acquired Signature operations. A condensed pro forma income statement as if the operations were acquired at the beginning of the years presented follows:

   
2007
 
2006
 
   
(unaudited)
 
Net sales
 
$
1,089,609
 
$
1,126,810
 
               
Cost of product sold
   
964,834
   
1,017,212
 
Selling, general and administrative expense
   
62,545
   
58,043
 
Plant restructuring
   
713
   
1,920
 
Interest expense (net)
   
24,908
   
31,397
 
Other (income) expense (net)
   
(3,326
)
 
2,865
 
Total Costs and Expenses
   
1,049,674
   
1,111,437
 
               
Earnings Before Income Taxes
   
39,935
   
15,373
 
Income Taxes
   
11,123
   
6,435
 
Net Earnings
 
$
28,812
 
$
8,938
 
Basic Earnings Per Share
 
$
2.37
 
$
0.80
 
Diluted Earnings Per Share
 
$
2.35
 
$
0.80
 



3. Lines of Credit


The Company primarily funds its capital expenditures, acquisitions and working capital requirements through bank borrowings. On August 18, 2006, in connection with the acquisition of Signature, the Company entered into a $250 million five-year floating rate secured revolving credit facility (the “Revolver”) with various banks. The final maturity date is August 18, 2011. As of March 31, 2007, the outstanding balance of the Revolver was $58,292,000, with a weighted average interest rate of 6.57%, and is included in long-term debt on the Consolidated Balance Sheet. The Revolver is secured by accounts receivable and inventories with a carrying value of $435,987,000. There were $57,029,000 in bank borrowings under the Revolver at March 31, 2006. The Company had $13,973,000 and $5,937,000 of outstanding standby letters of credit as of March 31, 2007 and 2006, respectively, that reduce borrowing availability under the Revolver. See Note 4, Long-Term Debt, for additional comments related to the Revolver.

17


Notes to Consolidated Financial Statements (continued)


4. Long-Term Debt

   
2007
 
2006
 
   
(In thousands)
 
Secured note payable to insurance company,
             
8.03%, due through 2014
 
$
64,517
 
$
67,816
 
Revolving credit facility,
             
6.57%, due through 2011
   
58,292
   
-
 
Secured subordinated promissory
             
note, 8.00%, due through 2010
   
39,118
   
42,618
 
Secured promissory note,
             
6.98%, due through 2021
   
23,573
   
-
 
Secured Industrial Revenue Development Bonds,
             
5.70% and 4.89%, due through 2029
   
22,630
   
22,630
 
Secured promissory note,
             
6.35%, due through 2020
   
7,072
   
7,438
 
Secured Industrial Revenue Development Bond,
             
5.69%, due through 2010
   
1,889
   
2,550
 
Secured notes payable to utility company,
             
3.00%, due through 2011
   
1,026
   
1,414
 
Other
   
2,103
   
3,463
 
     
220,220
   
147,929
 
Less current portion
   
9,825
   
9,116
 
   
$
210,395
 
$
138,813
 



During 2007, the Company re-evaluated its classification of the Revolving Credit Facility as a current liability. The Company decided that it was appropriate to classify it as a long-term liability due to its five-year term and the fact that it met the criteria required by the accounting standards for this classification.

The Company’s credit facilities, including the Revolver, contain covenants that restrict the Company’s ability to incur additional indebtedness; pay dividends on and redeem our capital stock; make other restricted payments, including investments; sell our assets; incur liens; transfer all or substantially all of our assets; and enter into consolidations or mergers. The Company’s credit facilities also require us to meet certain financial tests, including minimum fixed charge coverage, minimum interest coverage, and maximum total debt ratios. These financial requirements and ratios generally become more restrictive over time, subject to allowances for seasonal fluctuations. The Company is in compliance with all such financial covenants, and were in compliance therewith as of March 31, 2007. The most restrictive financial covenant in the credit agreements is adjusted debt to total capitalization ratio. 

As of March 31, 2007, the most restrictive credit agreement limitation on the Company’s payment of dividends and other distributions, such as purchases of shares, to holders of Class A or Class B Common Stock is an annual total limitation of $500,000 reduced by aggregate annual dividend payments totaling $23,000, which the Company presently pays on two outstanding classes of preferred stock.

18


Notes to Consolidated Financial Statements (continued)


The Company has four Industrial Revenue Bonds (“IRB’s”) totaling $22,630,000, which are secured by direct pay letters of credit. The interest rates in the table above reflect the direct pay letters of credit costs and amortization of other related costs for those IRB’s. Other than the four IRB’s above, the carrying value of assets pledged for secured debt, including the $250 million Revolver is $543,475,000.

Debt repayment requirements for the next five fiscal years are:

 
(In thousands)
 
2008
$ 9,825
 
2009
10,095
 
2010
38,668
 
2011
64,726
 
2012
6,839
 
Thereafter
90,067
 
Total
$ 220,220


5. Leases

The Company leases a portion of its equipment and buildings. Capitalized leases consist of equipment leases, which bear interest rates from 1.42% to 1.45%. Other leases include operating leases expiring at various dates through 2016. Generally, operating leases provide for early purchase options one year prior to expiration.

Leased assets under capital leases consist of the following:

 
 
2007
 
2006
 
   
(In thousands)
 
           
Land
 
$
-
 
$
67
 
Buildings
   
-
   
1,033
 
Equipment
   
1,551
   
11,262
 
     
1,551
   
12,362
 
Less accumulated amortization
   
868
   
11,026
 
 
 
$
683
 
$
1,336
 



19


Notes to Consolidated Financial Statements (continued)


The following is a schedule, by year, of minimum rental payments due under leases as of March 31, 2007:

 
 
Operating
 
Capital
 
   
(In thousands)
 
Years ending March 31:
         
2008
 
$
19,371
 
$
209
 
2009
   
16,016
   
-
 
2010
   
13,894
   
-
 
2011
   
10,746
   
-
 
2012
   
8,419
   
-
 
2013-2017
   
5,501
   
-
 
Total minimum payment required
 
$
73,947
 
$
209
 
Less interest
         
1
 
Present value of minimum lease payments
         
208
 
Amount due within one year
         
208
 
Long-term capital lease obligations
       
$
-
 

Rental expense in fiscal 2007, 2006, and 2005 was $25,939,000, $23,999,000, and $23,059,000, respectively


6. Income Taxes

The Company files a consolidated income tax return. The provision for income taxes is as follows:
 
 
2007
 
2006
 
2005
 
   
(In thousands)
 
Current:
             
Federal
   
15,029
   
14,852
   
4,489
 
State
   
297
   
2,957
   
1,189
 
   
$
15,326
 
$
17,809
 
$
5,678
 
                     
Deferred:
                   
Federal
   
(1,452
)
 
(3,898
)
 
(1,448
)
State
   
(999
)
 
(446
)
 
(104
)
     
(2,451
)
 
(4,344
)
 
(1,552
)
Total income taxes
 
$
12,875
 
$
13,465
 
$
4,126
 



20



Notes to Consolidated Financial Statements (continued)



A reconciliation of the expected U.S. statutory rate to the effective rate follows:

 
 
2007
 
2006
 
2005
 
Computed (expected tax rate)
   
35.0
%
 
35.0
%
 
35.0
%
State income taxes (net of
                   
federal tax benefit)
   
2.8
   
4.5
   
5.9
 
State tax credits
   
(1.9
)
 
-
   
-
 
R&D credit
   
(3.7
)
 
-
   
-
 
Manufacturer’s deduction
   
(1.3
)
 
(1.6
)
 
-
 
Reversal of tax reserves
   
(3.5
)
 
(1.0
)
 
(4.2
)
Other permanent differences
                   
not deductible
   
0.2
   
0.4
   
1.7
 
Tax-exempt income
   
(0.5
)
 
(0.3
)
 
-
 
Other
   
1.5
   
1.0
   
(4.1
)
Effective income tax rate
   
28.6
%
 
38.0
%
 
34.3
%

The 3.5% reduction in tax reserves for March 2007 was due to Federal and State accrual adjustments from the prior year for permanent and other provision to return adjustments and changes in sales allocation factors in various states resulting in additional refundable taxes.

The following is a summary of the significant components of the Company’s deferred income tax assets and liabilities as of March 31, 2007 and 2006:

 
 
2007
 
2006
 
   
(In thousands)
 
Deferred income tax liabilities:
         
Property basis and depreciation difference
 
$
9,868
 
$
11,504
 
Inventory valuation
   
183
   
-
 
Other
   
762
   
264
 
   
$
10,813
 
$
11,768
 
Deferred income tax (assets) liabilities:
             
Future tax credits
   
4,371
   
-
 
Inventory valuation
   
-
   
1,238
 
Employee benefits
   
2,189
   
2,810
 
Pension
   
4,849
   
4,073
 
Insurance
   
3,973
   
2,138
 
Other comprehensive loss
   
801
   
-
 
Deferred gain on sale/leaseback
   
223
   
331
 
Severance
   
85
   
66
 
 
   
16,491
   
10,656
 
Valuation allowance
   
3,538
   
-
 
Net deferred income tax (asset) liability
 
$
(2,140
)
$
1,112
 


Net current deferred income tax assets of $6,260,000 and $6,426,000 as of March 31, 2007 and 2006, respectively, are recognized in the Consolidated Balance Sheets. Also recognized are net non-current deferred income tax liabilities of $4,120,000 and $7,538,000 as of March 31, 2007 and 2006, respectively.
 

21


Notes to Consolidated Financial Statements (continued)


The Company has State tax credit carryforwards amounting to $3,538,000 (New York, net of Federal impact) and $833,000 (Wisconsin, net of Federal impact), which are available to reduce future taxes payable in each respective state through 2021 (New York) and 2023 (Wisconsin). The Company has performed the required assessment regarding the realization of deferred tax assets in accordance with Statement of Financial Accounting Standards No. 109. At March 31, 2007, the Company has recorded a valuation allowance amounting to $3,538,000, which relates primarily to tax credit carryforwards for which management has concluded it is more likely than not that these 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 taxes 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. 


7. Stockholders’ Equity

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 $.025 par value, Class A, to be issued in series by the Board of Directors (“Class A Preferred”). The Board of Directors has designated five series of Class A Preferred Stock 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; Convertible Participating Preferred Stock, Series 2003; and Convertible Participating Preferred Stock, Series 2006.

The Convertible Participating Preferred Stock, Convertible Participating Preferred Stock, Series 2003 and Convertible Participating Preferred Stock, Series 2006 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 2007, 2006 or 2005. 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 Stock and may be reissued as part of another series of Class A Preferred Stock. As of March 31, 2007, the Company has an aggregate of 2,223,646 shares of non-designated Class A Preferred Stock authorized for issuance.

The Convertible Participating Preferred Stock has a liquidation value of $12 per share and has 2,991,344 shares outstanding as of March 31, 2007 after conversion of 445,465 shares into Class A Common Stock during fiscal 2007. The Convertible Participating Preferred Stock, Series 2003 was issued as partial consideration of the purchase price in the CPF acquisition. The 967,742 shares issued in that 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 value of $15.50 per share and has 559,790 shares outstanding as of March 31, 2007 after conversion of 293,710 shares into Class A Common Stock during fiscal 2007. The Convertible Participating Preferred Stock, Series 2006 was issued as partial consideration of the purchase price in the Signature acquisition. The 1,025,220 shares issued in that acquisition were valued at $24.385 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 value of $24.385 per share and has 1,025,220 shares outstanding as of March 31, 2007. A non-cash dividend of $784,000 was recorded based on the beneficial conversion of this Preferred Stock for the difference between the conversion price of $24.385 and the average price of the Company’s Class A Common Stock when the acquisition was announced.

There are 407,240 shares of Series A Preferred outstanding as of March 31, 2007 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, 2007 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, 2007 which are callable at their par value at any time at the option of the Company. The Company paid dividends of $20,181 on the Series A and Series B Preferred and $3,000 on the 6% Preferred during each of fiscal 2007, 2006 and 2005.


22


Notes to Consolidated Financial Statements (continued)


Common Stock - The Class A Common Stock and the Class B Common Stock have substantially identical rights with respect to any dividends or distributions of cash or property declared on shares of common stock, and rank equally as to the right to receive proceeds on liquidation or dissolution of the Company after payment of the Company’s indebtedness and liquidation right to the holders of preferred shares. However, holders of Class B Common Stock retain a full vote per share, whereas the holders of Class A Common Stock have voting rights of 1/20th of one vote per share on all matters as to which shareholders of the Company are entitled to vote.

Unissued shares of common stock reserved for conversion privileges of designated non-participating preferred stock were 33,695 of both Class A and Class B as of March 31, 2007 and 2006. Additionally, there were 4,576,354 and 4,290,309 shares of Class A reserved for conversion of the Participating Preferred Stock as of March 31, 2007 and 2006, respectively.

8. Retirement Plans

The Company has a noncontributory defined benefit pension plan (the “Plan”) covering all employees who meet certain age-entry requirements and work a stated minimum number of hours per year. Annual contributions are made to the Plan sufficient to satisfy legal funding requirements.

23


Notes to Consolidated Financial Statements (continued)


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, 2007 and a statement of the funded status as of March 31, 2007 and 2006:

 
 
2007
 
2006
 
   
(In thousands)
 
Change in Benefit Obligation
 
Benefit obligation at beginning of year
 
$
81,260
 
$
74,683
 
Service cost
   
4,057
   
3,998
 
Interest cost
   
4,442
   
4,124
 
Actuarial gain
   
1,035
   
1,414
 
Benefit payments and expenses
   
(3,381
)
 
(2,959
)
Benefit obligation at end of year
 
$
87,413
 
$
81,260
 


Change in Plan Assets
 
Fair value of plan assets at beginning of year
 
$
66,671
 
$
62,972
 
Actual return on plan assets
   
9,823
   
6,658
 
Employer contributions
   
2,500
   
-
 
Benefit payments and expenses
   
(3,381
)
 
(2,959
)
Fair value of plan assets at end of year
 
$
75,613
 
$
66,671
 

 
 
 
2007
 
2006
 
   
(In thousands)
 
Funded Status
             
               
Funded status at end of year
 
$
(11,800
)
$
(14,589
)
Unrecognized transition asset
   
-
   
(1,609
)
Unrecognized loss
   
-
   
6,419
 
Accrued benefit cost
 
$
(11,800
)
$
(9,779
)

 
The Company adopted FASB Statement No. 158 as required effective March 31, 2007. This statement requires companies with defined benefit plans and certain other plans to recognize on the balance sheet the difference between benefit obligations and any plan assets of those benefit plans.

 
 
Before
Application
 
Incremental
Effect
 
After
Application
 
   
(In thousands)
 
Incremental Effect of Applying FASB No. 158
                   
                     
Other liabilities
 
$
-
 
$
2,054
 
$
2,054
 
Deferred income tax asset
   
5,459
   
801
   
6,260
 
Accumulated other comprehensive loss
   
-
   
1,253
   
1,253
 
 

24

 
Notes to Consolidated Financial Statements (continued)

 
The following table provides the components of net periodic benefit cost for the Plan for fiscal years 2007, 2006, and 2005:

 
 
2007
 
2006
 
2005
 
   
(In thousands)
 
Service cost
 
$
4,057
 
$
3,998
 
$
3,050
 
Interest cost
   
4,442
   
4,124
   
3,987
 
Expected return on plan assets
   
(5,756
)
 
(5,377
)
 
(5,183
)
Amortization of transition asset
   
(276
)
 
(276
)
 
(276
)
Amortization of net gain
   
-
   
50
   
-
 
Net periodic benefit cost
 
$
2,467
 
$
2,519
 
$
1,578
 

The Plan’s accumulated benefit obligation was $78,064,000 at March 31, 2007, and $72,552,000 at March 31, 2006.

The prior service costs are amortized on a straight-line basis over the average remaining service period of active participants. Gains and losses in excess of 10% of the greater of the benefit obligation and the market-related value of assets are amortized over the average remaining service period of active participants.

25


Notes to Consolidated Financial Statements (continued)


The assumptions used to measure the Company’s benefit obligation are shown in the following table:

 
 
2007
 
2006
 
           
Discount rate
   
5.50
%
 
5.50
%
Expected return on plan assets
   
8.75
%
 
8.75
%
Rate of compensation increase
   
3.50
%
 
3.50
%



Plan Assets

   
Target
Allocation
 
Percentage of Plans
Assets at March 31,
 
 
 
2008
 
2007
 
2006
 
Plan Assets:
             
Equity securities
   
99
%
 
99
%
 
98
%
Debt securities
   
-
   
-
   
-
 
Real estate
   
-
   
-
   
-
 
Cash
   
1
   
1
   
2
 
Total
   
100
%
 
100
%
 
100
%


Expected Return on Plan Assets
The expected rate of return on Plan assets is 8.75%. The Company expects 8.75% to fall within the 40-to-50 percentile range of returns on investment portfolios with asset diversification similar to that of the pension plan’s target asset allocation.

Investment Policy and Strategy
The Company maintains an investment policy designed to achieve a long-term rate of return, including investment income through dividends and equity appreciation, sufficient to meet the actuarial requirements of the pension plans. The Company seeks to accomplish its return objectives by prudently investing in a diversified portfolio of public company equities with broad industry representation seeking to provide long-term growth consistent with the performance of relevant market indices, as well as maintain an adequate level of liquidity for pension distributions as they fall due. The strategy of being fully invested in equities has historically provided greater rates of return over extended periods of time. The Plan holds the Company’s common stock with a fair market value of $7,868,000 as of March 31, 2007.

Cash Flows

The Company does not expect to have to fund the Plan in 2008.

Estimated future benefit payments reflecting expected
future service for the fiscal years ending March 31:

2008
 
$
3,330
 
2009
   
3,551
 
2010
   
3,672
 
2011
   
3,909
 
2012
   
4,141
 
2013-2017
   
23,794
 
 

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 $1,077,000, $1,240,000, and $1,519,000, in fiscal 2007, 2006, and 2005, respectively.

26


Notes to Consolidated Financial Statements (continued)


9. Fair Value of Financial Instruments

The carrying amount and estimated fair values of the Company’s debt are summarized as follows:

   
2007
 
2006
 
 
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
 
   
(In thousands)
 
Long-term debt, including
                         
current portion
 
$
220,220
 
$
216,284
 
$
147,929
 
$
144,836
 
Notes payable
   
-
   
-
   
57,029
   
57,029
 
Capital leases, including
                         
current portion
   
208
   
211
   
4,445
   
3,704
 


The estimated fair values were determined as follows:

 
Long-term debt and capital lease obligations - The quoted market prices for similar debt or current rates offered to the Company for debt with the same maturities.

 
Notes payable - The carrying amount approximates fair value due to the short-term maturity of the notes.

All other financial instruments of the Company have estimated fair value equal to carrying cost due to the short-term nature of these instruments.


10. Common Stock of Moog Inc.

During 2005, the Company sold its investment in the common stock of Moog Inc. The sale provided proceeds of $4,578,000 and a realized gain of $3,862,000 included in Other (Income) Expense on the Consolidated Statements of Net Earnings. The gross unrealized holding gains of $3,749,000 at March 31, 2004 were included in Other Comprehensive Income at that date.


11. Other Income and Expense

Other income in 2007 consisted of recognizing a deferred gain of $2,800,000 from the sale of a processing facility in Washington. Gains were also recorded from the sale of various facilities located in Idaho, New York and Washington totaling $2,473,000. Other expenses included the write off of certain fixed assets of $340,000.

Other income in 2006 consisted of a gain of $427,000 from the sale of a processing facility in Washington and $539,000 from the sale of a warehouse located in Oregon. Other expenses include a non-cash loss on the disposal of property, plant and equipment of $1,938,000 and a $143,000 non-cash charge reflecting the write down of the corresponding pro-rata amount of deferred financing cost due to reducing the Revolver from $125 million to $100 million.

Other income in 2005 consisted of a gain of sale of Moog stock of $3,862,000 and a gain on the sale of certain fixed assets of $607,000. Other expenses included a $712,000 non-cash charge reflecting the write down of the corresponding pro-rata amount of deferred financing costs due to reducing the Revolver from $200 million to $125 million.

27



Notes to Consolidated Financial Statements (continued)


12. Segment Information

The Company manages its business on the basis of one reportable segment - the processing and sale of fruits and vegetables. The Company markets its product almost entirely in the United States. Export sales represent 8.7%, 9.0%, and 9.5% of total sales in 2007, 2006, and 2005, respectively. The Company has an Alliance Agreement with General Mills Operations, Inc. (GMOI) whereby the Company processes canned and frozen vegetables for GMOI under the Green Giant brand name. GMOI continues to be responsible for all of the sales, marketing, and customer service functions for the Green Giant products. In 2007, 2006, and 2005, the sale of Green Giant vegetables accounted for 21%, 27%, and 26% of net sales, respectively. The following information is presented in accordance with SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information”:

Classes of similar
products/services:
 
2007
 
2006
 
2005
 
   
(In thousands)
 
Net Sales:
                   
GMOI
 
$
210,313
 
$
240,490
 
$
225,527
 
Canned vegetables
   
579,731
   
573,779
   
574,802
 
Frozen vegetables
   
35,696
   
29,464
   
28,304
 
Fruit and chip products
   
183,338
   
26,640
   
23,358
 
Other
   
15,775
   
13,450
   
12,283
 
Total
 
$
1,024,853
 
$
883,823
 
$
864,274
 

The fruit and vegetable component, consisting of GMOI, canned vegetables, fruit and frozen vegetables, represents 99%, 99% and 99% of assets and 96%, 92% and 101% of pre-tax earnings in 2007, 2006 and 2005, respectively.

13.  
Legal Proceedings and Other Contingencies

In the ordinary course of its business, the Company is made a party to certain legal proceedings seeking monetary damages, including proceedings involving product liability claims, worker’s compensation and other employee claims, tort and other general liability claims, for which it carries insurance, as well as patent infringement and related litigation. 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.
 
The Company is one of a number of business and local government entities which contributed waste materials to a landfill in Yates County in upstate New York, which was operated by a party unrelated to the Company primarily in the 1970’s through the early 1980’s. The Company’s wastes were primarily food and juice products. The landfill contained some hazardous materials and was remediated by the State of New York. The New York Attorney General has advised the Company and other known non-governmental waste contributors that New York has sustained a total remediation cost of $4.9 million and seeks recovery of half that cost from the non-governmental waste contributors. The Company is one of four identified contributors (“Group”) who cooperatively are investigating the history of the landfill so as to identify and seek out other potentially responsible parties who are not defunct and are financially able to contribute to the non-governmental parties’ reimbursement liability. The Group has offered a settlement but has not received a response from the State. The Company does not believe that any ultimate settlement in excess of the amount accrued will have a material impact on its financial position or results of operations.

In early 1999, the Company sold to Tree Top, Inc. its applesauce business, including a plant in Prosser, Benton County, Washington. In the sale agreement governing the transaction, the Company represented to Tree Top that it was in compliance with all environmental laws. In 2003, the Benton County Clean Air Authority (“BCAA”) brought an enforcement action against Tree Top under Title V of the Clean Air Act and related State of Washington statutes, alleging that Tree Top was violating the Clean Air Act by failing to register the facility with BCAA pursuant to Title V. The BCAA also alleged that the facility failed to provide BCAA with a required notice of construction when it replaced a fourth boiler in the Prosser plant in 1988 when the Company was the sole owner. Tree Top has reached a settlement with the BCAA which, according to Tree Top, requires Tree Top to pay penalties and make modifications to equipment at a total cost of approximately $493,000. Tree Top had made a formal demand on the Company for reimbursement of the entire amount. On May 1, 2007, the Company made a payment in full settlement of this claim in an amount less than the original demand. It did not have a material impact on the Company’s financial position or results of operations.

28


Notes to Consolidated Financial Statements (continued)


During 2004, in its bankruptcy proceedings in the U.S. Bankruptcy Court for the District of Columbia, the Fleming Companies asserted various claims totaling approximately $3,211,000 against the Company and a subsidiary acquired in 2003 for (i) receipt of allegedly preferential payments under the U.S. Bankruptcy Code ($1,292,000), (ii) receipt of alleged overpayments ($1,139,000) and (iii) amounts allegedly owing under various vendor promotional programs ($780,000). During 2005, the Company settled and paid these claims for $399,000.

The Company has seven collective bargaining agreements with three unions covering approximately 900 of its full-time employees. The terms of these agreements result in wages and benefits, which are substantially the same for comparable positions for the Company’s non-union employees. Four collective bargaining agreements expire in calendar 2008, two agreements expire in calendar 2009, and one agreement expires in calendar 2010.

14.  
Plant Restructuring

After a comprehensive review of its production capacities following the CPF acquisition in 2004, the Company completed a plant restructuring program in 2005 resulting in a restructuring charge of $7,678,000. The restructuring charge consisted of a non-cash impairment charge of $6,952,000 and a cash severance charge of $726,000, which are included in Plant Restructuring in the Consolidated Statements of Net Earnings. The Company used two methods to determine fair value: (1) no value was assigned to machinery and equipment that could not be redeployed within the Company and where there was no ready market for the asset; and (2) quoted prices or prices for similar assets for real estate.

This restructuring program principally involved the closure of three processing facilities, including a green bean plant in upstate New York and corn plants in Wisconsin and Washington. In addition, the Company restructured the Payette, Idaho facility through the removal of canned meat production to focus exclusively on dry beans. The rationalization of the Company’s productive capacity has: (1) improved the Company’s overall cost structure and competitive position; (2) addressed the excess capacity situation arising from the acquisition of CPF; and (3) mitigated the effect of inflationary pressures on the Company’s raw material inputs such as steel and fuel.

The closure of the Washington corn processing facility coincided with an amendment to the Alliance Agreement with GMOI. Under the amendment, the Blue Earth, Minnesota facility was removed from the Alliance Agreement due to a reduction in GMOI volume requirements and is now operated by the Company as a non-Alliance facility. Additionally, GMOI agreed to reimburse the Company in the future for the remaining lease and depreciation costs at the Blue Earth facility which, on a net present value basis, approximates the closure costs associated with the Washington facility.

With the closure of the Washington corn processing facility in the fall of 2004, the Company’s labeling and warehousing requirements at the Salem, Oregon leased distribution facility were dramatically reduced. In 2006, the Company announced the phase out of the Salem labeling operation which resulted in a restructuring charge of $1,754,000 consisting of a provision for future lease payments of $1,306,000, a cash severance charge of $369,000, and a non-cash impairment charge of $79,000. In 2007, the Company recorded an additional restructuring charge of $657,000 consisting of a provision for future lease payments of $420,000, a cash severance charge of $151,000, a cash union pension charge of $69,000 and a non-cash impairment charge of $17,000. The Company intends to use a portion of the facility for warehousing and will attempt to sublease the remaining unutilized portion of the facility until the February 2008 expiration of the lease.

The fiscal 2006 asparagus harvest, completed in the first quarter, represented a partial pack as GMOI was in process of moving the production of asparagus offshore from the Dayton, Washington manufacturing facility. As fiscal 2006 represented the final year of operation for the Dayton, Washington facility, the Company and GMOI negotiated a definitive agreement related to the closure of this facility. Under the terms of the agreement, any costs incurred by the Company related to the asparagus production prior to March 31, 2006 were paid by GMOI. The Company shall retain ownership of the real estate associated with the Dayton facility. In addition, the manufacturing equipment of the Dayton facility shall either be conveyed to GMOI, redeployed by the Company, or salvaged. Lastly, GMOI reduced the principal balance of the secured nonrecourse subordinated promissory note by $466,000 to $42,618,000, which represents the net book value of the equipment to be conveyed to GMOI or salvaged.

During 2006, the Company sold the previously closed corn processing facility in Washington for $0.5 million in cash and a $3.6 million note which carries an interest rate of 8% and was due in full on May 14, 2007. This note is secured by a mortgage on the property. The Company accounted for the sale under the installment method. During the first quarter of 2006, $0.4 million of the gain was included in Other (Income) Expense, net and an additional $2.8 million of the gain on this sale was deferred in Other Long-Term Liabilities. During 2007, The Company collected the note prior to its original due date and recorded a gain on the sale of $2.8 million, which is included in Other (Income) Expense.

29


Notes to Consolidated Financial Statements (continued)


The following table summarizes the restructuring and related asset impairment charges recorded and the accruals established during 2005, 2006, and 2007:

 
 
Severance
 
Long-Lived
Asset
Charges
 
Other
Costs
 
Total
 
   
(In thousands)
 
Total expected
                 
restructuring charge
 
$
1,248
 
$
5,304
 
$
3,758
 
$
10,310
 
                           
Balance March 31, 2004
   
-
   
-
   
-
   
-
 
Second-quarter charge
                         
to expense
   
619
   
-
   
-
   
619
 
Third-quarter charge
                         
to expense
   
94
   
3,798
   
1,912
   
5,804
 
Fourth-quarter charge
                         
to expense
   
13
   
1,162
   
80
   
1,255
 
Loss on disposal of
                         
assets
   
-
   
(3,361
)
 
-
   
(3,361
)
Cash payments
   
(470
)
 
-
   
-
   
(470
)
Balance March 31, 2005
 
$
256
 
$
1,599
 
$
1,992
 
$
3,847
 
Second-quarter charge
                         
to expense
   
368
   
77
   
1,016
   
1,461
 
Third-quarter charge
                         
to expense
   
-
   
-
   
290
   
290
 
Disposal of assets
   
-
   
(1,676
)
 
-
   
(1,676
)
Cash payments
   
(458
)
 
-
   
(527
)
 
(985
)
Fourth-quarter charge
                         
to expense
   
3
   
250
   
(84
)
 
169
 
Balance March 31, 2006
 
$
169
 
$
250
 
$
2,687
 
$
3,106
 
Third-quarter charge
                         
to expense
   
-
   
-
   
374
   
374
 
Cash payments
   
(236
)
 
-
   
(903
)
 
(1,139
)
Fourth-quarter charge
                         
to expense
   
151
   
17
   
171
   
339
 
Balance March 31, 2007
 
$
84
 
$
267
 
$
2,329
 
$
2,680
 
                           
Total costs incurred
                         
  to date
 
$
1,164
 
$
5,037
 
$
1,429
 
$
7,630
 

In addition, $771,000 was charged to cost of product sold in the second quarter of 2005 related to exiting a line of contract packing business.


30


REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
 
Board of Directors and Stockholders
Seneca Foods Corporation
Marion, New York

We have audited the accompanying consolidated balance sheets of Seneca Foods Corporation as of March 31, 2007 and 2006 and the related consolidated statements of net earnings, stockholders’ equity, and cash flows for each of the two years in the period ended March 31, 2007. We have also audited the accompanying schedule II, Valuation of Qualifying Accounts for each of the two years in the period ended March 31, 2007. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements and schedule presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Seneca Foods Corporation as of March 31, 2007 and 2006, and the results of its operations and its cash flows for each of the two years in the period ended March 31, 2007 in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the schedule presents fairly, in all material respects, the information set forth therein.

As discussed in Note 8 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans as of March 31, 2007.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Seneca Foods Corporation’s internal control over financial reporting as of March 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated June 8, 2007, expressed an unqualified opinion thereon.



/s/BDO Seidman, LLP
Milwaukee, Wisconsin

June 8, 2007
 


To the Board of Directors and Stockholders of
Seneca Foods Corporation
Marion, New York


We have audited the accompanying consolidated statements of net earnings, stockholders' equity, and cash flows of Seneca Foods Corporation and Subsidiaries for the year ended March 31, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of the operations and the cash flows of Seneca Foods Corporation and Subsidiaries for the year ended March 31, 2005, in conformity with U.S. generally accepted accounting principles.

/s/Ernst & Young LLP

Buffalo, New York
June 10, 2005

31


Shareholder Information and Quarterly Results

The Company’s common stock is traded on The NASDAQ Global Stock Market. The 4.8 million of Class A outstanding shares and 2.8 million Class B outstanding shares are owned by 266 and 257 shareholders of record, respectively. The high and low prices of the Company’s common stock during each quarter of the past two years are shown below:

Class A:
 
2007
 
2006
 
Quarter
 
High
 
Low
 
High
 
Low
 
First
 
$
30.84
 
$
19.67
 
$
18.48
 
$
15.75
 
Second
   
27.10
   
22.73
   
17.90
   
15.51
 
Third
   
27.35
   
23.95
   
20.88
   
17.25
 
Fourth
   
27.00
   
24.21
   
21.00
   
18.77
 


Class B:
 
2007
 
2006
 
Quarter
 
High
 
Low
 
High
 
Low
 
First
 
$
32.25
 
$
20.00
 
$
20.00
 
$
16.00
 
Second
   
28.99
   
22.66
   
17.90
   
16.00
 
Third
   
29.99
   
24.36
   
20.77
   
17.50
 
Fourth
   
26.25
   
24.00
   
20.75
   
19.00
 


Common Stock Performance Graph

The graph below shows the cumulative, five year total return for the Company’s Common Stock compared with the NASDAQ Market Index (which includes the Company) and a peer group of companies (described below).

Performance data assumes that $100.00 was invested on March 31, 2002, in the Company’s Class B Common Stock, the NASDAQ Market, and the peer group. The data assumes the reinvestment of all cash dividends and the cash value of other distributions. Stock price performance shown in the graph is not necessarily indicative of future stock price performance. The companies in the peer group are H.J. Heinz Company, DelMonte Company, Hanover Foods, and Hain Celestial Group, Inc.

 
As of March 31, 2007, the most restrictive credit agreement limitation on the Company’s payment of dividends and other distributions, such as purchases of shares, to holders of Class A or Class B Common Stock is an annual total limitation of $500,000, reduced by aggregate annual dividend payments totaling $23,000, which the Company presently pays on two outstanding classes of preferred stock. Payment of dividends to common stockholders is made at the discretion of the Company’s Board of Directors and depends, among other factors, on earnings; capital requirements; and the operating and financial condition of the Company. The Company has not declared or paid a common dividend in many years.

32



The following is a summary of the unaudited interim results of operations by quarter:

   
First
 
Second
 
Third
 
Fourth
 
   
(In thousands, except per share data)
 
Year ended March 31, 2007:
                 
Net sales
 
$
148,341
 
$
283,324
 
$
391,012
 
$
202,176
 
Gross Margin
   
20,859
   
34,226
   
37,344
   
27,217
 
Net Earnings
   
3,659
   
8,523
   
11,322
   
8,563
 
Basic earnings
                         
  per common share
   
.33
   
.65
   
.93
   
.70
 
Diluted earnings
                         
  per common share
   
.33
   
.65
   
.92
   
.70
 


Year ended March 31, 2006:
                 
Net sales
 
$
156,595
 
$
244,169
 
$
316,253
 
$
166,806
 
Gross Margin
   
18,504
   
24,956
   
26,246
   
31,766
 
Net Earnings
   
2,420
   
3,687
   
6,936
   
8,950
 
Basic earnings
                         
  per common share
   
.22
   
.33
   
.62
   
.80
 
Diluted earnings
                         
  per common share
   
.22
   
.33
   
.62
   
.80
 


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

Earnings for the fourth quarter have historically reflected adjustments of previously estimated raw material costs and production levels. Due to the dependence on fruit and vegetable yields of the Company’s food processing segment, interim costing must be estimated.


 
33


Forward Looking Statements

Except for the historical information contained herein, the matters discussed in this annual report are forward-looking statements as defined in the Private Securities Litigation Reform Act (PSLRA) of 1995. The Company wishes to take advantage of the “safe harbor” provisions of the PSLRA by cautioning that numerous important factors, which involve risks and uncertainties, including but not limited to economic, competitive, governmental, and technological factors affecting the Company’s operations, markets, products, services and prices, and other factors discussed in the Company’s filings with the Securities and Exchange Commission, in the future, could affect the Company’s actual results and could cause its actual consolidated results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company.


Shareholder Information

For investor information, including comprehensive earnings releases:
http://consumer.senecafoods.com/profile/investor/investor.cfm
 

Annual Meeting

The 2007 Annual Meeting of Shareholders will be held on Friday, August 10, 2007, beginning at 1:00 P.M. (EDT) at the offices of Seneca Foods Corporation at 3736 South Main Street, Marion, New York. A formal notice of the meeting, together with a proxy statement and proxy form, will be mailed to shareholders of record as of June 15, 2007.


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Seneca Foods Corporation 
3736 South Main Street 
Marion, New York 14505 

(315) 926-8100
www.senecafoods.com
senecafoods@senecafoods.com


Additional Information

Annual Report and Other Investor Information
A copy of the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2007, as filed with the Securities and Exchange Commission, will be provided by the Company to any shareholder who so requests in writing to:

Roland E. Breunig 
Seneca Foods Corporation 
418 East Conde Street 
Janesville, Wisconsin 53546
(608) 757-6000

This annual report is also available online at www.senecafoods.com

Foundation/Contribution Requests
Seneca Foods Foundation 
Cynthia L. Fohrd 
3736 South Main Street
Marion, New York 14505

(315) 926-8100
foundation@senecafoods.com 

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Independent Registered Public Accounting Firm 
BDO Seidman, LLP
Milwaukee, Wisconsin

General Counsel
Jaeckle Fleischmann & Mugel, LLP
Buffalo, New York

Transfer Agent and Registrar
Seneca Foods Corporation
1605 Main Street, Suite 1010
Sarasota, Florida 34236
(941) 366-9707

Corporate Governance
http://consumer.senecafoods.com/profile/governance/governance.cfm

Code of Business Ethics
http://consumer.senecafoods.com/profile/governance/ethics.pdf
Hotline 800-213-9185






 

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EX-10 10 mgtbonus10k033107.htm MANAGEMENT PROFIT SHARING BONUS PLAN Management Profit Sharing Bonus Plan                                             Exhibit 10

SENECA FOODS CORPORATION
Management Profit Sharing Bonus Plan

1. PRELIMINARY MATTERS

 
1.1
Name - The Plan evidenced by this instrument shall be known as the Seneca Foods Corporation Profit Sharing Bonus Plan.

 
1.2
Purpose - This Plan is designed as a bonus plan to provide for the payment of profit sharing benefits to eligible Employees.

1.3 Effective Date - This plan shall be in effect beginning April 1, 2006.

2. DEFINITIONS

 
2.1
“Board of Directors” means all present and succeeding Board of Directors of the Corporation.

 
2.2
“Compensation” means the base salary paid to an Employee for service during the fiscal year.

2.3 “Corporation” means Seneca Foods Corporation and its subsidiaries.

 
2.4
“Disability” means the inability to engage in any occupation or employment for remuneration or profit that would qualify an Employee for disability benefits under the Federal Social Security Act.

2.5 “Division” means any present or future division of Seneca Foods Corporation.

 
2.6
“Employee” means a person employed by the Corporation in one of the eligible positions.

 
2.7
“Executive Committee” means the committee composed of the senior executives of the Corporation as constituted from time to time.

 
2.8
“Normal Retirement” means an Employee’s retirement at age 65 or at any earlier age approved by the Executive Committee with specific reference to this Plan.

 
2.9
“Plan” means the Seneca Foods Corporation Profit Sharing Bonus Plan as set forth in this document or as amended from time to time.

 
 

 

3. ALLOCATION OF PROFITS

 
3.1
Allocation Formula - For each fiscal year, the Corporation shall calculate the Bonus Base as defined in Section 3.2. If pre-tax profit as defined in Section 3.3 for the fiscal year equals or exceeds the Bonus Base, all Employees shall be eligible to receive payment of the bonus amounts under the Plan. If the bonus base exceeds pre-tax profit, then no bonus amounts shall be paid under the Plan.

3.2 Calculation of Bonus Base - The bonus base shall equal the sum of
i. the Corporate Bogey and
ii. the aggregate Bonus amounts calculated under Section 3.2.2.

   
3.2.1
Corporate Bogey - The Corporate Bogey shall equal the consolidated net worth of the Corporation as stated in the annual report for the prior fiscal year multiplied by a rate based on a graduated schedule as defined in Section 3.2.2. The Corporate Bogey will be adjusted pro rata to reflect significant sales or acquisitions of corporate assets during the fiscal year.

   
3.2.2
Bonus Amounts 
     
Employees shall receive a bonus based on obtaining quantified financial objectives:
 
Bogey at 7.5% Bonus Payment 10% of Base salary earned during the fiscal year (prorated if less than one year).
Bogey at 10.0% Bonus 15%
Bogey at 12.5% Bonus 20%
Bogey at 15.0% Bonus 25%
Bogey at 20.0% Bonus 50%

   
The Chairman and Chief Executive Officer’s bonus will be determined by the Compensation Committee and will come out of the same bonus pool.

   
The Corporate Human Resource Department will administer the bonus plan to ensure that no more than the available bonus pool is used. Any unused portion of the bonus pool will remain with the Corporation.

 
 

 


3.2.3 Carryforward Losses - In the event that the Corporation has a loss year (as defined in this Plan, without regard to non-operating gains or losses resulting from extraordinary events such as the sale of a significant part of a Division’s fixed assets), the full amount of the loss must be earned back in future years by adding it to the Corporate Bogey before any profit is recognized for profit sharing.

Example:             Year 1     Year 2     Year 3
 
    Pre-tax profit (loss)     (2,000 )      5,000      5,500 
         Bogey (7.5%)        (4,000 )     (4,100 )     (4,200)
        Loss carryforward (prior)      -     (2,000 )        -
        Bonus base         (6,000 )     (1,100 )     < /font>1,300
        Loss carryforward      (2,000 )     0           0
Bonus             0         0  As calculated

 
3.3
Pre-Tax Profit - Pre-tax profit shall mean profit before provision for Federal and State income and franchise tax and before provision for bonuses paid under the Plan. Pre-tax profit shall be based on final figures for each fiscal year after all audit adjustments and final corporate allocations, and shall not include non- operating gains resulting from extraordinary events such as the sale of a significant part of a Division’s fixed assets. It will be the sole discretion of the Chief Executive Officer as to the definition of non-operating gains.

 
3.4
Carryover - In the event that the restrictions on profit sharing contained in the corporate by-laws limit the allocation amount payable in any fiscal year, the allocation earned but not paid shall be carried forward to subsequent fiscal years. Any such carryover shall terminate automatically upon termination of the Plan. The Board of Directors may, at its discretion, terminate any such carryover after three years if the level of corporate profits does not permit their payment.

4. PAYMENT OF BENEFITS

 
4.1
Form of Payment - All amounts payable under this Plan shall be paid at the direction of the Executive Committee as a lump sum.

 
4.2
Timing of Payment - All amounts payable under this Plan shall be paid within 75 days after the end of the fiscal year to which the bonus relates. No bonus shall be paid to any employee who is not employed by the Corporation on the payment date and who terminated employment with the Corporation for reasons other then a normal retirement, disability or death.


 
 

 

5. PLAN ADMINISTRATION

 
5.1
Executive Committee - The Executive Committee and its members shall have full authority and responsibility to control and manage the operation and administration of the Plan.
 
 
5.2
Powers - The Executive Committee shall have the exclusive right to interpret the Plan (but not modify or amend the Plan) and to decide any and all questions arising in the administration, interpretation and application of the Plan. The Executive Committee shall establish whatever rules it finds necessary for the operation and administration of the Plan and shall endeavor to apply such rules in its decisions so as not to discriminate in favor of any person. The decisions of the Executive Committee or its action with respect to the Plan shall be conclusive and binding upon the Corporation and all persons having or claiming to have any right or interest in or under the Plan.

 
5.3
Indemnification - Each person who is or has been a member of the Executive Committee shall be indemnified by the Corporation against expenses (including amounts paid in settlement with the approval of the Corporation) reasonably incurred by him in conjunction with any action, suit or proceeding to which he may be a party or with which he may be threatened by reason of his being, or having been, and he shall be adjudged in such action, suit or proceeding to be liable for negligence or willful misconduct in the performance of his duty as such member of the Executive Committee. The foregoing right of indemnification shall be in addition to any other right to which any such member of the Executive Committee may be entitled to as a matter of law.

 
5.4
Meetings - The Executive Committee shall hold meetings upon such notice, at such place or places and at such time or times as they may determine. A majority of members of the Executive Committee shall constitute a quorum for the transaction of business. All resolutions or other actions taken by the Executive Committee shall be by a vote of a majority of those present at a meeting of the Executive Committee at which a quorum shall be present or, if they act without a meeting, in writing by all members of the Committee.
 
5.5
Compensation - No member of the Executive Committee shall receive any compensation for his services, but the Corporation may reimburse any member for any necessary expenses incurred.

 
5.6
Records - The Executive Committee shall maintain accounts showing the fiscal transaction of the Plan. The Executive Committee shall have a report prepared annually giving a brief account of the operation of the Plan for the past year. Such reports shall be submitted to the Board of Directors.

 
 

 

6. AMENDMENT AND TERMINATION OF THE PLAN

 
6.1
Amendment - The Corporation may amend the Plan at any time or from time to time by an instrument in writing executed with the same formality as this instrument. The Executive Committee may amend Section 3.3.1 (i) and (ii) of the Plan within 120 days after the end of any fiscal year by an instrument in writing executed by each member of the Committee.

 
6.2
Termination - The Plan is intended by the Corporation to be a permanent program for the provision of profit sharing benefits for its employees. The Corporation nevertheless reserves the right to terminate the Plan at any time and for any reason. Such termination shall be effected by a written instrument executed by the Corporation with the same formality as this instrument.

7. MISCELLANEOUS

 
7.1
No Rights Conferred - The adoption and maintenance of the Plan shall not be deemed to constitute a contract between the Corporation and any employee or to be a consideration for, an inducement to or condition of, any employment of any person. Nothing herein contained shall be deemed to (a) give to any employee the right to be retained in the employment of the Corporation (b) interfere with the right of the Corporation to discharge any employee at any time (c) give to the Corporation the right to require any employee to remain in its employ (d) interfere with any employee’s right to terminate his employment with the Corporation at any time.

 
7.2
Spendthrift Provision - Except to the extent that this provision may be contrary to law, the right of employees under the Plan shall not be subject to assignment, attachment, garnishment or alienation in any form.

 
7.3
Impossibility of Performance - In the event that it becomes impossible for the Corporation to perform any act under the Plan, that act shall be performed which in the judgment of the Corporation will most nearly carry out the intent and purpose of the Plan.

 
7.4
Governing Law - All legal questions pertaining to the Plan shall be determined in accordance with the laws of New York State except when those laws are preempted by the laws of the United States of America.

IN WITNESS WHEREOF, Seneca Foods Corporation has caused this instrument to be executed this 1st day of May, 2006.

SENECA FOODS CORPORATION

By ___________________________
Kraig H. Kayser
President and Chief Executive Office




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