Five Year Selected Financial Data

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

Years ended March 31,	2016 (a)			2015			2014			2013(b)			2012

Net sales	$	1,275,360		$	1,286,350		$	1,340,208		$	1,276,297		$	1,257,805

Operating income before interest (c)	$	88,549		$	20,354		$	24,906		$	72,315		$	26,930
Interest expense, net		8,044			6,862			7,564			8,867			9,409
Net earnings (c)		54,458			9,899			13,779			41,413			11,256

Basic earnings per common share (c)	$	5.46		$	0.91		$	1.24		$	3.59		$	0.93
Diluted earnings per common share (c)		5.42			0.90			1.23			3.57			0.92

Working capital	$	274,429		$	463,545		$	452,771		$	446,899		$	425,082
Inventories		567,707			472,412			451,250			479,730			432,433
Net property, plant, and equipment		188,837			185,557			183,917			188,407			192,825
Total assets		895,327			806,448			768,853			798,456			738,036
Long-term debt
less current portion		35,967			271,634			216,239			230,016			226,873
Stockholders' equity		405,174			351,730			393,632			367,166			354,673

Additions to property, plant, and equipment	$	9,966		$	23,734		$	19,448		$	16,371		$	27,425

Net earnings/average equity		14.4	%		2.7	%		3.6	%		11.5	%		3.2	%
Earnings before taxes/sales		6.3	%		1.1	%		1.3	%		5.0	%		1.4	%
Net earnings/sales		4.3	%		0.8	%		1.0	%		3.2	%		0.9	%
Long-term debt/equity (d)		10.1	%		77.2	%		54.9	%		62.6	%		64.0	%
Total debt/equity ratio	1.2:1			1.3:1			1.0:1			1.2:1			1.1:1
Current ratio	1.7:1			4.8:1			4.5:1			3.8:1			4.6:1

Total stockholders' equity per equivalent common share (e)	$	40.63		$	34.81		$	35.25		$	32.83		$	29.15
Stockholders' equity per common share		41.15			35.33			36.12			33.62			29.81
Class A Global Market System
closing price range		35.78-25.85			32.65-25.06			36.07-27.80			33.63-21.42			29.73-18.34
Class B Global Market System
closing price range		44.88-32.00			41.00-27.91			36.29-27.42			33.40-21.41			29.70-19.20
Common cash dividends declared per share		-			-			-			-			-
Price earnings ratio		6.70			34.00			25.60			9.20			28.70

(a) The fiscal 2016 financial results include five months and one month of operating activity related to the Gray and Diana acquisitions, respectively.
(b) The fiscal 2013 financial results include two and one-half months of operating activity related to the Sunnyside acquisition.
(c) The effect of using the LIFO inventory valuation method in fiscal 2016 was to increase operating earnings by $24.8 million and net
earnings by $16.1 million or $1.62 per share ($1.60 diluted). The effect of using the LIFO inventory valuation method in fiscal 2015
was to reduce operating earnings by $10.7 million and net earnings by $6.9 million or $0.64 per share ($0.63 diluted). The
effect of using the LIFO inventory valuation method in fiscal 2014 was to reduce operating earnings by $20.4 million and net earnings
by $13.2 million or $1.19 per share ($1.19 diluted). The effect of using the LIFO inventory valuation method in fiscal 2013
was to increase operating earnings by $4.2 million and net earnings by $2.7 million or $0.24 per share ($0.24 diluted).
The effect of using the LIFO inventory valuation method in Fiscal 2012 was to reduce operating earnings by $47.4 million and
net earnings by $30.8 million or $2.53 per share ($2.52 diluted).
(d) The long-term debt to equity percentage for fiscal 2015-2012 include the Revolving Credit Facility as discussed
in Note 4, Long-Term Debt. During fiscal 2016, the Revolving Credit Facility was included in current liabilities. If calculated on a
comparable basis to other fiscal years, the fiscal 2016 percentage would be 77.2%.
(e) Equivalent common shares are either common shares or, for convertible preferred shares, the number of common shares that the
preferred shares are convertible into. See Note 7 of the Notes to Consolidated Financial Statements for conversion details.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

OVERVIEW

Our Business

Seneca Foods is one of North America's leading providers of packaged fruits and vegetables, with facilities located throughout the United States. Its high quality products are primarily sourced from over 2,000 American farms.

Seneca holds a large share of the retail private label, food service, and export canned vegetable markets, distributing to over 90 countries. Products are also sold under the highly regarded brands of Libby's®, Aunt Nellie's®, READ®, Cherryman® and Seneca labels, including Seneca snack chips. In addition, Seneca provides vegetable products under a contract packing agreement with B&G Foods North America, under the Green Giant label.

During 2016, the Company acquired 100% of the stock of two businesses which pack and sell maraschino cherries, fruit cocktail cherries and glace or candied fruit products: Gray & Company ("Gray") and Diana Fruit Co., Inc. ("Diana"). In 2016, fruit represented 20% of the Company's sales including the acquisitions.

The Company's business strategies are designed to grow the Company's market share and enhance the Company's sales and margins and include: 1) expand the Company's leadership in the packaged fruit and vegetable industry; 2) provide low cost, high quality fruit and vegetable products to consumers through the elimination of costs from the Company's supply chain and investment in state-of-the-art production and logistical technology; 3) focus on growth opportunities to capitalize on higher expected returns; and 4) pursue strategic acquisitions that leverage the Company's core competencies.

All references to years are fiscal years ended March 31 unless otherwise indicated.

Restructuring

During 2016, the Company recorded a restructuring charge of $10.4 million related to the closing of a plant in the Northwest of which $0.2 million was related to severance cost, $5.1 million was related to asset impairments (contra fixed assets), and $5.1 million was related to other costs ($3.6 related to operating lease costs). During 2016, the Company reduced the costs of the plant closing in the Midwest, started in 2015, by $0.1 million, mostly related to severance costs.

During 2015, the Company recorded a restructuring charge of $1.4 million related to the closing of a plant in the Midwest and the realignment of two other plants, one in the Midwest and the other in the Northwest, of which $0.8 million was related to severance cost, $0.3 million was related to equipment costs (contra fixed assets), and $0.3 million was related to equipment relocation costs.

During 2013, the Company implemented a product rationalization program and recorded a restructuring charge of $3.5 million for related equipment costs (contra fixed assets), lease impairment costs (net of realizable value), and certain inventory costs. During 2014, the Company adjusted the costs of the product rationalization program, started in 2013, by $0.5 million, mostly related to equipment costs.

These charges are included under Plant Restructuring in the Consolidated Statements of Net Earnings.

Divestitures, Other Charges and Credits

Other operating income in 2016 included a gain of $24.3 million related to a contractual payment received in conjunction with a relationship transfer agreement with General Mills. The Company reversed a provision for the Prop 65 litigation of $0.2 million and reduced an environmental accrual by $0.1 million. The Company also recorded a gain of $0.4 million from the sale of other fixed assets.

Other operating income in 2015 included a gain of $5.0 million related to a contractual payment received in connection with the closing of a Midwest plant and a charge of $0.3 million related to environmental costs related to a Company-owned plant in New York State. The Company also recorded a gain of $0.1 million from the sale of other fixed assets.

Other operating income in 2014 included a gain of $2.9 million from a break-up fee earned as a result of the Company being named the stalking horse bidder in an attempt to acquire substantially all the operating assets of Allens, Inc. in a bankruptcy court supervised auction, a gain of $0.7 million from the sale of two aircraft and a gain of $0.1 million as a result of adjustments related to the purchase of Sunnyside. The Company also recorded a loss of $0.5 million on the disposal of a warehouse located in Sunnyside, Washington and a net gain of $0.2 million from the sale of other fixed assets.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

Liquidity and Capital Resources

The Company's primary cash requirements are to make payments on the Company's debt, finance seasonal working capital needs and to make capital expenditures. Internally generated funds and amounts available under the revolving credit facility are the Company's primary sources of liquidity, although the Company believes it has the ability to raise additional capital by issuing additional stock, if it desires.

Revolving Credit Facility

The Company completed the closing of a five-year revolving credit facility ("Revolver") on July 20, 2011. During 2016, the Company exercised $75.0 million for the in-season facility and $100.0 million for the off-season facility of the remaining $150.0 million accordion feature of its existing revolving credit facility pursuant to the Second Amended and Restated Loan and Security Agreement dated July 20, 2011. Maximum borrowings under the Revolver total $400.0 million from April through July and $475.0 million from August through March. The Revolver balance as of March 31, 2016 was $271.6 million and is included in Current Portion of Long-Term Debt in the accompanying Consolidated Balance Sheet due to the Revolver's July 20, 2016 maturity. In order to maintain availability of funds under the facility, the Company pays a commitment fee on the unused portion of the Revolver. The Revolver is secured by the Company's accounts receivable and inventories and contains a financial covenant and borrowing base requirements. The Company utilizes its Revolver for general corporate purposes, including seasonal working capital needs, to pay debt principal and interest obligations, and to fund capital expenditures and acquisitions. Seasonal working capital needs are affected by the growing cycles of the vegetables and fruits the Company packages. The majority of vegetable and fruit inventories are produced during the months of June through November and are then sold over the following year. Payment terms for vegetable and fruit produce are generally three months but can vary from a few days to seven months. Accordingly, the Company's need to draw on the Revolver may fluctuate significantly throughout the year.

The Company is in the process of negotiating a replacement line of credit that is expected to be in place prior to the maturity of the existing Revolver. Although subject to change, the agreement being negotiated provides for a five-year term, a $400.0 million facility amount that is seasonally adjusted to $500.0 million, and interest based upon LIBOR-based spread. Closing of this new credit facility is subject to normal and customary documentation and closing conditions.

The Company believes that cash flows from operations and availability under its new Revolver will provide adequate funds for the Company's working capital needs, planned capital expenditures and debt service obligations for at least the next 12 months.

Seasonality

The Company's revenues typically are higher in the second and third fiscal quarters. This is due, in part, because the Company sells, on a bill and hold basis, Green Giant canned and frozen vegetables to B&G Foods at the end of each pack cycle, which typically occurs during these quarters. B&G Foods buys the product from the Company at cost plus an equivalent case tolling fee. See the Critical Accounting Policies section for further details. The Company's non-Green Giant sales also exhibit seasonality with the third fiscal quarter generating the highest sales due to increased retail sales during the holiday season.

The seasonality of the Company's business is illustrated by the following table:

Management's Discussion and Analysis of

Financial Condition and Results of Operations

	First Quarter			Second Quarter			Third Quarter		Fourth Quarter
	(In thousands)
Year ended March 31, 2016:
Net sales	$	226,258		$	313,202		$	432,198	$	303,702
Gross margin		20,899			29,073			53,382		44,041
Net earnings		2,968			6,522			31,123		13,845
Inventories (at quarter end)		482,556			761,703			631,181		567,707
Revolver outstanding (at quarter end)		197,350			304,468			309,211		271,592

Year ended March 31, 2015:
Net sales	$	240,043		$	312,161		$	456,207	$	277,939
Gross margin		17,341			17,133			26,435		23,454
Net earnings (loss)		(107	)		(578	)		7,819		2,765
Inventories (at quarter end)		467,290			731,527			547,149		472,412
Revolver outstanding (at quarter end)		180,050			302,220			255,000		233,000

Short-Term Borrowings

During 2016 and 2015, the Company entered into some interim lease notes which financed down payments for various equipment orders at market rates. As of March 31, 2016, these interim notes had not been converted into operating leases since the equipment was not yet delivered. These notes, which total $0.4 million and $9.9 million as of March 31, 2016 and 2015, respectively, are included in notes payable in the accompanying Consolidated Balance Sheets. These notes are expected to be converted into operating leases within the next twelve months. Until then, they bear interest at an annual rate of 1.94% in 2016 and 1.67% in 2015.

The maximum level of short-term borrowings during 2016 was affected by the two acquisitions totaling $38.3 million and the higher inventory due to the large pack totaling $95.2 million. During 2015, the maximum level of short-term borrowings was affected by the 50% investment in Truitt Bros. Inc. of $16.2 million, which took place in April 2014, and the purchase of treasury stock totaling $33.5 million. Details of the acquisitions are outlined in Note 2 of the Notes to Consolidated Financial Statements.

General terms of the Revolver include payment of interest at LIBOR plus an agreed upon spread.

The following table documents the quantitative data for Short-Term Borrowings during 2016 and 2015:

	Fourth Quarter						Year Ended
	2016			2015			2016			2015
	(In thousands)
Reported end of period:
Revolver outstanding	$	271,592		$	233,000		$	271,592		$	233,000
Weighted average interest rate		1.95	%		1.92	%		1.95	%		1.92	%
Reported during period:
Maximum Revolver	$	321,000		$	263,627		$	323,980		$	323,646
Average Revolver outstanding	$	304,104		$	252,013		$	260,886		$	234,726
Weighted average interest rate		1.92	%		1.93	%		1.93	%		1.63	%

Long-Term Debt

At March 31, 2016, the Company has two mortgages outstanding for $14.6 million, and four industrial revenue bonds ("IRBs"), totaling $22.6 million. As discussed in Note 4 of the Notes to Consolidated Financial Statements, the Company classified its Revolver balance as current portion of long-term debt at March 31, 2016. On August 1, 2013, the Company paid a final $36.7 million principal payment due on a secured note payable to John Hancock Life Insurance Company. The Company issued a $1.5 million new economic development note during 2014. The Company did not issue any significant long-term debt in 2016 and 2015, other than the Revolver.

As of March 31, 2016, scheduled maturities of long-term debt in each of the five succeeding fiscal years and thereafter are presented below. The March 31, 2016 Revolver balance of $271.6 million is presented as being due in fiscal 2017, based upon the Revolver's July 20, 2016 maturity date (in thousands):

Management's Discussion and Analysis of

Financial Condition and Results of Operations

2017	$	279,572
2018		7,904
2019		3,034
2020		2,531
2021		7,019
Thereafter		15,479
Total	$	315,539

Restrictive Covenants

The Company's debt agreements, including the Revolver, contain covenants that restrict the Company's ability to incur additional indebtedness, pay dividends on the Company's capital stock, make other restricted payments, including investments, sell the Company's assets, incur liens, transfer all or substantially all of the Company's assets and enter into consolidations or mergers. The Company's debt agreements also require the Company to meet a minimum fixed charge coverage ratio. The Revolver also contains borrowing base requirements related to accounts receivable and inventories. These financial requirements and ratios generally become more restrictive over time and are subject to allowances for seasonal fluctuations. The most restrictive financial covenant in the debt agreements is the fixed charge coverage ratio within the Master Reimbursement Agreement with Wells Fargo, which relates to the Secured Industrial Revenue Development Bonds. In connection with the Company's decision to adopt the LIFO method of inventory accounting, effective December 30, 2007, the Company executed amendments to its debt agreements, which enable the Company to compute its financial covenants as if the Company were on the FIFO method of inventory accounting. The Company was in compliance with all such financial covenants as of March 31, 2016.

Capital Expenditures

Capital expenditures in 2016 totaled $9.9 million and were equipment replacements and other improvements, and cost saving projects but no major projects in 2016. Capital expenditures in 2015 totaled $26.2 million and there were two major projects in 2015 as follows: 1) $7.5 million to complete a warehouse project in Sunnyside, Washington started in 2014, and 2) $2.1 million to buyout a Clyman, Wisconsin equipment lease. Capital expenditures in 2014 totaled $17.0 million and included $7.6 million towards the completion of a pouch building project in Janesville, Wisconsin, and $3.6 million for the start of a warehouse project in Sunnyside, Washington, equipment replacements and other improvements, and cost saving projects.

Accounts Receivable

In 2016, accounts receivable increased by $6.2 million or 8.8% versus 2015, due to higher sales volume in the fourth quarter of 2016 compared to 2015 and the cherry businesses we added in 2016. In 2015, accounts receivable decreased by $7.1 million or 9.3% versus 2014, due to the impact of decreased sales volume in the fourth quarter of 2015 compared to 2014.

Inventories

In 2016, inventories increased by $95.3 million primarily reflecting the effect of higher finished goods quantities and higher work in process quantities and the $24.8 million LIFO reserve decline. The LIFO reserve balance was $139.3 million at March 31, 2016 versus $164.1 million at the prior year end.

In 2015, inventories increased by $21.1 million primarily reflecting the effect of higher finished goods quantities and higher work in process quantities. The LIFO reserve balance was $164.1 million at March 31, 2015 versus $153.4 million at the prior year end.

The Company believes that the use of the LIFO method better matches current costs with current revenues.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

Critical Accounting Policies

In October 2015, the Company, B&G Foods North America ("B&G"), General Mills, Inc. and GMOL entered into a Relationship Transfer Agreement. Pursuant to the terms of the Relationship Transfer Agreement (i) the Company consented to the assignment by GMOL of the Second Amended and Restated Alliance Agreement ("Alliance Agreement") and certain related agreements to B&G in connection with the sale by GMOL of its Green Giant and Le Sueur businesses to B&G, (ii) effective upon such assignment, each of the Company and General Mills have released the other party from any future obligations under the Alliance Agreement and certain related agreements; (iii) GMOL paid Seneca for this assignment $24.3 million at the closing of the sale of GMOL's Green Giant and Le Sueur business to B&G. The effective date of the assignment was November 2, 2015. Subsequent to that date, the Company and B&G have entered into a Contract Packing Agreement that replaced the Alliance Agreement. During the year ended March 31, 2016, the Company sold for cash, on a bill and hold basis, $126.1 million of Green Giant finished goods inventory to GMOL and B&G. As of March 31, 2016, $58.8 million of this product, included in 2016 sales, remained unshipped. At the time of the sale of the Green Giant vegetables, title of the specified inventory transferred. 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 the Company's 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 the Company. As a result, the ultimate cost of a trade promotion program is dependent on the relative success of the events and the actions and level of deductions taken by retailers 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 estimated undiscounted value of the cash flows is less than the carrying value. If such is the case, a loss is recognized when the carrying value of an asset exceeds its fair value.

Obligations and Commitments

As of March 31, 2016, the Company was obligated to make cash payments in connection with its debt, operating and capital leases, and purchase commitments. The effect of these obligations and commitments on the Company's 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 additional payments as part of any early termination.

	Contractual Obligations
	March 31, 2016

							2022
	2017			2018-19		2020-21	and beyond		Total
	(In thousands)
Long-term debt	$	279,572	$	10,938	$	9,550	$	15,479	$	315,539
Interest		3,408		2,401		1,677		2,313		9,799
Operating lease obligations		43,392		72,395		51,163		28,918		195,868
Purchase commitments		183,564		—		—		—		183,564
Capital lease obligations		243		526		583		3,879		5,231
Total	$	510,179	$	86,260	$	62,973	$	50,589	$	710,001

In addition, the Company's defined benefit plan has an unfunded pension liability of $37.8 million which is subject to certain actuarial assumptions. The unfunded status decreased by $17.2 million during 2016 reflecting the actual fair value of plan assets and the projected benefit obligation as of March 31, 2016. This unfunded status reduction was recognized via the actual gain on plan assets and the decrease in accumulated other comprehensive loss of $3.5 million after the income tax benefit of $2.4 million. The increase in projected benefit obligation was a function of using the full yield curve approach, an increase in the discount rate from 4.15% to 4.36% and the change to using an updated mortality table. During 2016, the Company converted to the 2006 base rates from the RP-2014 mortality study with the Blue Collar adjustment, with a generational projection of future mortality improvements from 2006 using Scale MP-2015 for calculating the pension obligation in 2016 and the related pension expense in 2017. Effective March 31, 2016, the Company elected to change the approach used to calculate the service and interest cost components of the net periodic benefit cost for it pension and postretirement benefit plans to provide a more precise measurement of service and interest costs. Historically the Company calculated the service and interest cost components utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. Going forward the new estimate utilizes a full yield curve approach in the estimation of these components by applying the specific spot rates along the yield curve used in determination of the benefit obligation to their underlying projected cash flows. The change does not affect the measurement of pension and postretirement obligations and is accounted for as a change in accounting estimate, which is applied prospectively.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

Plan assets increased from $157.9 million as of March 31, 2015 to $176.2 million as of March 31, 2016 due to a continued recovery in market conditions and the $23.1 million contribution by the Company. The Company made this contribution to maintain its funding status at an acceptable level.

During 2016, the Company entered into new operating leases of approximately $57.4 million, based on the if-purchased value, which was primarily for agricultural and packaging equipment.

Purchase commitments represent estimated payments to growers for crops that will be grown during the calendar 2016 season.

Due to uncertainties related to uncertain tax positions, the Company is not able to reasonably estimate the cash settlements required in future periods.

The Company has no off-balance sheet debt or other unrecorded obligations other than operating lease obligations and purchase commitments noted above.

Standby Letters of Credit

The Company has standby letters of credit for certain insurance-related requirements. The majority of the Company's standby letters of credit are automatically renewed annually, unless the issuer gives cancellation notice in advance. On March 31, 2016, the Company had $13.2 million in outstanding standby letters of credit. These standby letters of credit are supported by the Company's Revolver and reduce borrowings available under the Revolver.

Cash Flows

In 2016, the Company's cash and cash equivalents decreased by $2.0 million, which is due to the net impact of $39.2 million provided by operating activities, $47.6 million used in investing activities, and $6.4 million provided by financing activities.

Operating Activities

Cash provided by operating activities increased to $39.2 million in 2016 from $19.4 million in 2015. The increase is primarily attributable to an increase in net earnings and a decrease in other current assets (mostly lease deposits), partially offset by an increase in inventories in 2016 versus 2015. The 2016 LIFO credit of $24.8 million resulted in a decrease in the tax payment deferral of $8.9 million. During 2016, the Company made a $23.1 million contribution to its pension plan compared to a $0.4 million contribution in the previous year. The 2016 net earnings reflect the effect of a $24.3 million payment received from General Mills related to a relationship transfer agreement.

Cash provided by operating activities decreased to $19.4 million in 2015 from $55.6 million in 2014. The decrease is primarily attributable to increased inventories, exclusive of LIFO, and a decrease in net earnings in 2015 versus 2014, partially offset by a decrease in accounts receivable and a decrease in other current assets (mostly lease deposits). The 2015 LIFO charge of $10.7 million resulted in an increase in the tax payment deferral of $3.7 million.

The cash requirements of the business fluctuate significantly throughout the year to coincide with the seasonal growing cycles of vegetables and fruits. The majority of the inventories are produced during the packing months, from June through November, and are then sold over the following year. Cash flow from operating activities is one of the Company's main sources of liquidity.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

Investing Activities

Cash used in investing activities was $47.6 million for 2016, principally reflecting capital expenditures and two acquisitions totaling $38.8 million. Capital expenditures aggregated $9.9 million in 2016 versus $26.2 million in 2015. The decrease was primarily attributable to the fact there were no large projects in 2016.

Cash used in investing activities was $42.1 million for 2015, principally reflecting capital expenditures and a purchase of an equity method investment of $16.2 million. Capital expenditures aggregated $26.2 million in 2015 versus $17.0 million in 2014. The increase was primarily attributable to more large projects in 2015. There were two major projects in 2015 as follows: 1) $7.5 million to complete a warehouse project in Sunnyside, Washington started in 2014, and 2) $2.1 million to buyout a Clyman, Wisconsin equipment lease.

Financing Activities

Cash provided by financing activities was $6.5 million in 2016 representing a net increase in the Revolver of $22.6 million partially offset by a partial payoff of interim funding of $9.5 million and the purchase of $6.3 million of treasury stock during 2016 versus $33.5 million purchased in 2015.

Cash provided by financing activities was $19.5 million in 2015 representing a net increase in the Revolver of $55.6 million partially offset by a partial payoff of interim funding of $2.4 million and the purchase of $33.5 million of treasury stock during 2015 versus $0.7 million purchased in 2014.

RESULTS OF OPERATIONS

Classes of similar products/services:	2016		2015		2014
	(In thousands)
Net Sales:
Green Giant *	$	144,310	$	161,993	$	177,881
Canned vegetables		746,501		754,556		753,318
Frozen		94,710		94,648		107,109
Fruit		253,658		234,918		264,549
Snack		12,336		11,667		11,496
Other		23,845		28,568		25,855
Total	$	1,275,360	$	1,286,350	$	1,340,208

* Green Giant includes canned and frozen vegetables exclusively for GMOL or B&G Foods.

Fiscal 2016 versus Fiscal 2015

Net sales for 2016 decreased $11.0 million, from $1,286.4 million to $1,275.4 million. The decrease primarily reflects a $0.7 million increase in Snack sales, a $19.0 million increase in fruit sales in part due to the October 2015 Gray acquisition and the February 2016 Diana acquisition, a $17.7 million decrease in Green Giant sales, a $8.3 million decrease in canned vegetables sales and a $4.7 million decrease in other sales. The decrease in sales is attributable to decreased sales volume of $11.1 million partially offset by higher selling prices/more favorable sales mix of $0.1 million. The slightly increased selling prices/more favorable sales mix is primarily due to canned and frozen vegetables.

Cost of product sold as a percentage of sales decreased from 93.4% in 2015 to 88.4% in 2016 primarily as a result of a $24.6 million LIFO charge decrease in 2016, due to lower commodity and steel costs, and somewhat higher selling prices in 2016 versus 2015.

Selling, general and administrative expense was 5.8% of sales in 2016 and 5.2% of sales in 2015. This increase is due in part to higher employment costs in 2016 than 2015.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

Plant restructuring costs, which are described in detail in the Restructuring section of Management's Discussion and Analysis of Financial Condition and Results of Operations, increased from $1.4 million in 2015 to $10.3 million in 2016. The $10.3 million was mostly due to the closing of a plant in the Northwest.

Interest expense, net, increased from $6.9 million in 2015 to $8.0 million in 2016 due to the higher average Revolver borrowings in 2016 versus 2015 due to the two acquisitions in 2016 and the higher inventories in 2016 than 2015.

As a result of the aforementioned factors, pre-tax earnings increased from $14.1 million in 2015 to $80.5 million in 2016. The effective tax rate was 32.3% in 2016 and 29.9% in 2015. Of the 2.4 percentage point increase in the effective tax rate for the year, the major contributor to this increase is with the federal credits for Research and Development, Work Opportunity Tax Credit and fuel. These credits are largely fixed and with the significant increase in pre-tax earnings for 2016, these credits are a smaller percentage of pre-tax earnings in comparison to 2015. This accounts for 2.0 percent of the increase.

Fiscal 2015 versus Fiscal 2014

Net sales for 2015 decreased $53.9 million, from $1,340.2 million to $1,286.3 million. The decrease primarily reflects a $15.9 million decrease in GMOL sales, a $29.6 million decrease in fruit sales, a $12.5 million decrease in frozen sales, a $1.2 million increase in canned vegetables sales and a $2.7 million increase in other sales. The decrease in sales is attributable to decreased sales volume of $95.5 million partially offset by higher selling prices/more favorable sales mix of $41.6 million. The increased selling prices/more favorable sales mix is primarily due to canned fruit.

Cost of product sold as a percentage of sales increased from 93.2% in 2014 to 93.5% in 2015 primarily as a result of higher commodity costs and the impact of lower production volume with fixed costs, partially offset by a $9.7 million LIFO charge decrease in 2015 versus 2014.

Selling, general and administrative expense was unchanged at 5.2% of sales in 2015 and 2014.

Other operating income in 2015 included a gain of $5.0 million related to a contractual payment received in connection with the closing of a Midwest plant, a charge of $0.3 million related to environmental costs related to a Company-owned plant in New York State. The Company also recorded a gain of $0.1 million from the sale of other fixed assets. Other operating income in 2014 included a gain of $2.9 million from a break-up fee earned as a result of the Company being named the stalking horse bidder in an attempt to acquire substantially all the operating assets of Allens, Inc. in a bankruptcy court supervised auction, a gain of $0.7 million from the sale of two aircraft and a gain of $0.1 million as a result of adjustments related to the purchase of Sunnyside. The Company also recorded a loss of $0.5 million on the disposal of a warehouse located in Sunnyside, Washington and a net gain of $0.2 million from the sale of other fixed assets.

Plant restructuring costs, which are described in detail in the Restructuring section of Management's Discussion and Analysis of Financial Condition and Results of Operations, increased from $0.5 million in 2014 to $1.4 million in 2015. This $1.4 million charge was mostly due to the closing of a plant in the Midwest in 2015. Product rationalization costs incurred in 2013 were adjusted in 2014.

Interest expense, net, decreased from $7.6 million in 2014 to $6.9 million in 2015 due to the continuing pay down of higher cost debt in 2015 partially offset by higher average Revolver borrowings in 2015 versus 2014.

As a result of the aforementioned factors, pre-tax earnings decreased from $17.3 million in 2014 to $14.1 million in 2015. The effective tax rate was 29.9% in 2015 and 20.5% in 2014. Of the 9.4 percentage point increase in the effective tax rate for the year, the major contributors to this increase are the following items, 1) the establishment of a valuation allowance related to the New York State investment tax credit, 2) with lower pre-tax earnings, the permanent items have a larger impact on the effective rate, and 3) less federal credits generated in the current year compared to the prior year. The impact of these increases was partially offset by the manufacturer's deduction being a higher percentage of current year earnings than the prior year.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

Recently Issued Accounting Standards

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard will be effective for the Company on April 1, 2018 (beginning of fiscal 2019). Early adoption is permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting. The Company does not anticipate a material impact on the Company's financial position, results of operations or cash flows as a result of this change.

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes which requires that all deferred tax liabilities and assets of the same tax jurisdiction or a tax filing group, as well as any related valuation allowance, be offset and be presented as a single noncurrent amount in a classified balance sheet. This standard is effective for the Company for fiscal years beginning after December 15, 2017 (beginning of fiscal 2019). Early adoption is permitted. The Company adopted this standard during 2016 on a prospective basis. Prior periods were not retrospectively adjusted.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018 (beginning fiscal 2020), including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. While we are still evaluating the impact of our pending adoption of the new standard on our consolidated financial statements, we expect that upon adoption we will recognize ROU assets and lease liabilities and that the amounts could be material.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

The Company maintained $8.6 million in cash equivalents as of March 31, 2016. 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, seasonal working capital requirements and to pay debt principal and interest obligations. In addition, long-term debt includes secured notes payable. Long-term debt bears interest at fixed and variable rates. With $283.5 million in average variable-rate debt during fiscal 2016, a 1% change in interest rates would have had a $2.8 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, 2016.

Interest Rate Sensitivity of Long-Term Debt and Short-Term Investments
March 31, 2016
(In thousands)

	P A Y M E N T S B Y Y E A R
																			Total/			Estimated
																			Weighted			Fair
	2017			2018			2019			2020			2021			Thereafter			Average			Value

Fixed-rate L/T debt:
Principal cash flows	$	7,980		$	2,844		$	3,034		$	2,531		$	2,344		$	2,584		$	21,317		$	21,256
Average interest rate		5.98	%		6.62	%		6.67	%		6.71	%		6.61	%		6.87	%		6.58	%
Variable-rate L/T debt:
Principal cash flows	$	271,592		$	5,060		$	-		$	-		$	4,675		$	12,895		$	294,222		$	294,222
Average interest rate		1.95	%		3.02	%		-	%		-	%		3.02	%		3.02	%		2.03	%
Average Revolver debt:
Principal cash flows																			$	260,886		$	260,886
Average interest rate																				1.93	%
Short-term investments:
Average balance																			$	5,656		$	5,656
Average interest rate																				0.21	%

Commodity Risk

The materials that the Company uses, such as vegetables, fruits, steel, ingredients, and packaging materials, as well as the electricity and natural gas used in the Company's business, are commodities that may experience price volatility caused by external factors including market fluctuations, availability, weather, currency fluctuations, and changes in governmental regulations and agricultural programs. These events may result in reduced supplies of these materials, higher supply costs, or interruptions in the Company's 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. With $183.6 million in produce costs expected during 2017, a 1% change would have a $1.8 million effect on inventory costs. A 1% change in steel unit costs would equate to a $0.9 million cost impact.

The Company does not currently hedge or otherwise use derivative instruments to manage interest rate or commodity risks.

Consolidated Statements of Net Earnings

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

Years ended March 31,	2016			2015			2014


Net sales	$	1,275,360		$	1,286,350		$	1,340,208

Costs and expenses:
Cost of products sold		1,127,965			1,201,987			1,247,943
Selling, general, and administrative expense		73,515			67,381			70,129
Other operating income, net		(24,971	)		(4,748	)		(3,271	)
Plant restructuring		10,302			1,376			501
Total costs and expenses		1,186,811			1,265,996			1,315,302

Operating income		88,549			20,354			24,906
Loss (earnings) from equity investment		48			(628	)		-
Interest expense, net of interest income of
$54, $18, and $4, respectively		8,044			6,862			7,564

Earnings before income taxes		80,457			14,120			17,342
Income tax expense		25,999			4,221			3,563
Net earnings	$	54,458		$	9,899		$	13,779

Basic earnings per common share	$	5.46		$	0.91		$	1.24

Diluted earnings per common share	$	5.42		$	0.90		$	1.23

See notes to consolidated financial statements.

Consolidated Statements of Comprehensive Income (Loss)

Seneca Foods Corporation and Subsidiaries
(In thousands)

Years ended March 31,	2016		2015			2014

Comprehensive income (loss):
Net earnings	$	54,458	$	9,899		$	13,779
Change in pension and postretirement benefits
(net of income tax of $2,179, $13,140, and $7,222, respectively)		3,408		(20,552	)		11,296

Total	$	57,866	$	(10,653	)	$	25,075

See notes to consolidated financial statements.


Consolidated Balance Sheets

Seneca Foods Corporation and Subsidiaries
(In thousands)

March 31,	2016			2015

Assets
Current Assets:
Cash and cash equivalents	$	8,602		$	10,608
Accounts receivable, less allowance for doubtful accounts
of $111 and $145, respectively		76,788			70,591
Assets held for sale		5,025			-
Inventories:
Finished products		366,911			301,705
In process		17,122			10,167
Raw materials and supplies		183,674			160,540
		567,707			472,412
Deferred income taxes, net		-			6,997
Other current assets		15,765			27,439
Total Current Assets		673,887			588,047
Deferred income tax asset, net		12,897			14,829
Other assets		19,706			18,015
Property, plant, and equipment:
Land		22,430			20,971
Buildings and improvements		204,944			200,739
Equipment		359,927			347,169
		587,301			568,879
Less accumulated depreciation and amortization		398,464			383,322
Net property, plant, and equipment		188,837			185,557
Total Assets	$	895,327		$	806,448

Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable	$	402		$	9,903
Accounts payable		67,410			68,859
Accrued vacation		11,792			11,347
Accrued payroll		9,438			6,344
Other accrued expenses		27,627			23,732
Current portion of long-term debt and capital lease obligations		279,815			2,530
Income taxes payable		2,974			1,787
Total Current Liabilities		399,458			124,502
Long-term debt, less current portion		35,967			271,634
Pension liabilities		37,798			54,960
Other liabilities		11,942			3,622
Capital lease obligations, less current portion		4,988			-
Total Liabilities		490,153			454,718
Commitments and contingencies
Stockholders' Equity:
Preferred stock		1,344			2,119
Common stock		3,023			3,010
Additional paid-in capital		97,373			96,578
Treasury stock, at cost		(65,709	)		(61,277	)
Accumulated other comprehensive loss		(28,396	)		(31,804	)
Retained earnings		397,539			343,104
Total Stockholders' Equity		405,174			351,730
Total Liabilities and Stockholders' Equity	$	895,327		$	806,448

Consolidated Statements of Cash Flows
Seneca Foods Corporation and Subsidiaries
(In thousands)

Years ended March 31,	2016			2015			2014

Cash flows from operating activities:
Net earnings	$	54,458		$	9,899		$	13,779
Adjustments to reconcile net earnings to
net cash provided by operations:
Depreciation and amortization		21,737			21,834			23,281
Deferred income tax benefit		(533	)		(612	)		(3,798	)
(Gain) loss on the sale of assets		(432	)		2			(325	)
Impairment provision		10,302			264			341
Loss (earnings) from equity investment		48			(628	)		-
Changes in operating assets and liabilities (net of acquisitions):
Accounts receivable		1,289			6,373			1,276
Inventories		(52,185	)		(21,162	)		28,320
Other current assets		12,544			6,155			(8,295	)
Accounts payable, accrued expenses,
and other liabilities		(10,316	)		(3,567	)		4,236
Income taxes		2,246			874			(3,187	)
Net cash provided by operating activities		39,158			19,432			55,628

Cash flows from investing activities:
Additions to property, plant, and equipment		(9,864	)		(26,213	)		(17,027	)
Purchase of an equity method investment		-			(16,242	)		-
Cash paid for acquisitions (net of cash acquired)		(38,795	)		-			-
Proceeds from the sale of assets		1,026			337			998
Net cash used in investing activities		(47,633	)		(42,118	)		(16,029	)

Cash flows from financing activities:
Proceeds from issuance of long-term debt		355,932			384,510			393,972
Payments of long-term debt		(333,382	)		(328,862	)		(445,642	)
(Payments) borrowings on notes payable		(9,501	)		(2,352	)		12,255
Change in other assets		(305	)		(312	)		248
Purchase of treasury stock		(6,252	)		(33,506	)		(674	)
Preferred stock dividends paid		(23	)		(23	)		(23	)
Net cash provided by (used in) financing activities		6,469			19,455			(39,864	)

Net decrease in cash and cash equivalents		(2,006	)		(3,231	)		(265	)
Cash and cash equivalents, beginning of year		10,608			13,839			14,104
Cash and cash equivalents, end of year	$	8,602		$	10,608		$	13,839

Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	6,820		$	5,116		$	6,586
Income taxes		24,108			6,003			10,695
Noncash transactions:
Property, plant and equipment issued under capital lease		5,313			-			-

See notes to consolidated financial statements.

Consolidated Statements of Stockholders' Equity
Seneca Foods Corporation and Subsidiaries
(In thousands, except share amounts)
											Accumulated
						Additional					Other
	Preferred			Common		Paid-In		Treasury			Comprehensive			Retained
	Stock			Stock		Capital		Stock			Loss			Earnings

Balance March 31, 2013	$	5,422		$	2,955	$	93,069	$	(31,204	)	$	(22,548	)	$	319,472
Net earnings		-			-		-		-			-			13,779
Cash dividends paid
on preferred stock		-			-		-		-			-			(23	)
Equity incentive program		-			-		100		-			-			-
Stock issued for profit sharing plan		-			-		4		-			-			-
Contribution of 401(k) match		-			-		-		1,984			-			-
Purchase of treasury stock		-			-		-		(674	)		-			-
Preferred stock conversion		(90	)		3		87		-			-			-
Change in pension and postretirement
benefits adjustment (net of tax $7,222)		-			-		-		-			11,296			-
Balance March 31, 2014		5,332			2,958		93,260		(29,894	)		(11,252	)		333,228
Net earnings		-			-		-		-			-			9,899
Cash dividends paid
on preferred stock		-			-		-		-			-			(23	)
Equity incentive program		-			-		100		-			-			-
Stock issued for profit sharing plan		-			1		56		-			-			-
Contribution of 401(k) match		-			-		-		2,123			-			-
Purchase of treasury stock		-			-		-		(33,506	)		-			-
Preferred stock conversion		(3,213	)		51		3,162		-			-			-
Change in pension and postretirement
benefits adjustment (net of tax $13,140)		-			-		-		-			(20,552	)		-
Balance March 31, 2015		2,119			3,010		96,578		(61,277	)		(31,804	)		343,104
Net earnings		-			-		-		-			-			54,458
Cash dividends paid
on preferred stock		-			-		-		-			-			(23	)
Equity incentive program		-			-		33		-			-			-
Contribution of 401(k) match		-			-		-		1,820			-			-
Purchase of treasury stock		-			-		-		(6,252	)		-			-
Preferred stock conversion		(775	)		13		762		-			-			-
Change in pension and postretirement
benefits adjustment (net of tax $2,179)		-			-		-		-			3,408			-
Balance March 31, 2016	$	1,344		$	3,023	$	97,373	$	(65,709	)	$	(28,396	)	$	397,539

	Preferred Stock														Common Stock
			6	%			10	%
	Cumulative Par				Cumulative Par							2003 Series
	Value $.25				Value $.025				Participating			Participating			Class A			Class B
	Callable at Par				Convertible				Convertible Par			Convertible Par			Common Stock			Common Stock
	Voting				Voting				Value $.025			Value $.025			Par Value $.25			Par Value $.25
Shares authorized and designated:
March 31, 2016			200,000				1,400,000				90,826			500			20,000,000			10,000,000

Shares outstanding:
March 31, 2014			200,000				807,240				90,901			257,790			8,735,714			2,013,953
March 31, 2015			200,000				807,240				90,826			50,500			7,926,280			1,967,958
March 31, 2016			200,000				807,240				90,826			500		$	7,918,069		$	1,894,599
Stock amount		$	50			$	202			$	1,084		$	8		$	2,519		$	504

See notes to consolidated financial statements.

Notes to Consolidated Financial Statements

Seneca Foods Corporation and Subsidiaries

1. Summary of Significant Accounting Policies

Nature of Operations — Seneca Foods Corporation (the "Parent Company") and subsidiaries (the "Company") conducts its business almost entirely in food packaging, operating 28 plants and 32 warehouses in ten states. The Company markets private label and branded packaged foods to retailers and institutional food distributors.

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

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 but hold the goods ("Bill and Hold") 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 years ended March 31, 2016 and 2015, the Company sold for cash, on a bill and hold basis, $126.1 million and $138.6 million, respectively, of Green Giant finished goods inventory. At the time of the sale of the Green Giant vegetables, title of the specified inventory transferred. The Company believes it has met the criteria required by the accounting standards for Bill and Hold treatment. As of March 31, 2016, $58.8 million of 2016 product remained unshipped.

Trade promotions are an important component of the sales and marketing of the Company's branded products, and are critical to the support of the business. Trade promotion costs, which are recorded as a reduction of sales, include amounts paid to retailers for shelf space, to obtain favorable display positions and to offer temporary price reductions for the sale of our products to consumers. Accruals for trade promotions are recorded primarily at the time of sale to the retailer based on expected levels of performance. Settlement of these liabilities typically occurs in subsequent periods primarily through an authorized process for deductions taken by a retailer from amounts otherwise due to the Company. As a result, the ultimate cost of a trade promotion program is dependent on the relative success of the events and the actions and level of deductions taken by retailers. Final determination of the permissible deductions may take extended periods of time.

Concentration of Credit Risk — Financial instruments that potentially subject the Company to credit risk consist of trade receivables 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 the Company's total sales. GMOL sales represented 11%, 13% and 13% of net sales in each of 2016, 2015 and 2014, respectively. The top ten customers, including GMOL, represented approximately 48%, 49% and 50% of net sales for 2016, 2015 and 2014, 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 Equivalents — The Company considers all highly liquid instruments purchased with an original maturity of three months or less as cash equivalents.

Fair Value of Financial Instruments — The carrying values of cash and cash equivalents (Level 1), accounts receivable, short-term debt (Level 2) and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments. See Note 9, Fair Value of Financial Instruments, for a discussion of the fair value of long-term debt.

The three-tier value hierarchy is utilized to prioritize the inputs used in measuring fair value. The hierarchy gives the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobserved inputs (Level 3). The three levels are defined as follows:

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

·	Level 2- Quoted prices for similar instruments; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs or significant value-drivers are observable.

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

Notes to Consolidated Financial Statements

Deferred Financing Costs — Deferred financing costs incurred in obtaining debt are amortized on a straight-line basis over the term of the debt, which is not materially different than using the effective interest rate method. As of March 31, 2016, there were $0.1 million of unamortized financing cost included in other current assets and $0.1 million of unamortized financing costs included in other assets on the Consolidated Balance Sheets.

Inventories — Substantially all inventories are stated at the lower of cost; determined under the last-in, first-out ("LIFO") 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 basis of assets and liabilities and tax credit carryforwards. The Company uses the flow-through method to account for its investment tax credits.

The Company evaluates the likelihood of realization of its net deferred income tax assets by assessing its valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization are the Company's forecast of future taxable income, the projected reversal of temporary differences and available tax planning strategies that could be implemented to realize the net deferred income tax assets.

Current rules on the accounting for uncertainty on income taxes prescribe a minimum recognition threshold for a tax position taken or expected to be taken in a tax return that is required to be met before being recognized in the financial statements. Those rules also provide guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company recognizes interest and penalties accrued on unrecognized tax benefits as well as interest received from favorable settlements within income tax expense.

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 products sold. The shipping and handling costs billed to customers in net sales were $38.3 million, $38.8 million and $41.3 million in 2016, 2015, and 2014, respectively.

Advertising Costs — Advertising costs are expensed as incurred. Advertising costs charged to operations were $2.0 million, $1.7 million and $1.5 million in 2016, 2015 and 2014, respectively.

Accounts Receivable and Doubtful Accounts — Accounts receivable is stated at invoice value, which is net of any off invoice promotions. 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.

Earnings per Common Share — The Company has three series of convertible preferred stock, which are deemed to be participating securities that are entitled to participate in any dividend on Class A common stock as if the preferred stock had been converted into common stock immediately prior to the record date for such dividend. Basic earnings per share for common stock is calculated using the "two-class" method by dividing the earnings attributable to common stockholders by the weighted average of common shares outstanding during the period. Restricted stock is included in all earnings per share calculations.

Diluted earnings per share is calculated by dividing earnings attributable to common stockholders by the sum of the weighted average common shares outstanding plus the dilutive effect of convertible preferred stock using the "if-converted" method, which treats the contingently-issuable shares of convertible preferred stock as common stock.

Notes to Consolidated Financial Statements

Years ended March 31,	2016		2015		2014
	(In thousands, except per share amounts)
Basic
Net earnings	$	54,458	$	9,899	$	13,779
Deduct preferred stock dividends		23		23		23
Undistributed earnings		54,435		9,876		13,756
Earnings attributable to participating
preferred shareholders		544		160		438
Earnings attributable to common
shareholders	$	53,891	$	9,716	$	13,318
Weighted average common shares
outstanding		9,878		10,690		10,747
Basic earnings per common share	$	5.46	$	0.91	$	1.24
Diluted
Earnings attributable to common
shareholders	$	53,891	$	9,716	$	13,318
Add dividends on convertible
preferred stock		20		20		20
Earnings attributable to common
stock on a diluted basis	$	53,911	$	9,736	$	13,338
Weighted average common shares
outstanding-basic		9,878		10,690		10,747
Additional shares to be issued related to
the equity compensation plan		3		5		5
Additional shares to be issued under
full conversion of preferred stock		67		67		67
Total shares for diluted		9,948		10,762		10,819
Diluted earnings per share	$	5.42	$	0.90	$	1.23

Depreciation and Valuation — Property, plant, and equipment are stated at cost. Interest incurred during the construction of major projects is capitalized. For financial reporting, the Company provides for depreciation on the straight-line method at rates based upon the estimated useful lives of the various assets. Depreciation was $21.4 million, $21.5 million, and $22.9 million in 2016, 2015, and 2014, respectively. The estimated useful lives are as follows: buildings and improvements — 30 years; machinery and equipment — 10-15 years; computer software — 3-5 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. Impairment losses are evaluated if the estimated undiscounted cash flows from using the assets are less than carrying value. A loss is recognized when the carrying value of an asset exceeds its fair value. There were $5.1 million of impairment losses in 2016 included in Plant Restructuring (see Note 14, Plant Restructuring). There were no significant impairment losses in 2015 and 2014.

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

Recently Issued Accounting Standards — In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard will be effective for the Company on April 1, 2018 (beginning of fiscal 2019). Early adoption is permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting. The Company does not anticipate a material impact on the Company's financial position, results of operations or cash flows as a result of this change.

Notes to Consolidated Financial Statements

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes which requires that all deferred tax liabilities and assets of the same tax jurisdiction or a tax filing

group, as well as any related valuation allowance, be offset and be presented as a single noncurrent amount in a classified balance sheet. This standard is effective for the Company for fiscal years beginning after December 15, 2017 (beginning of fiscal 2019). Early adoption is permitted. The Company adopted this standard during 2016 on a prospective basis. Prior periods were not retrospectively adjusted.

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

2. Acquisitions

In October 2015, the Company completed the acquisition of 100% of the stock of Gray & Company. The business, based in Hart, Michigan, is a processor of maraschino cherries and a provider of glace or candied fruit products. This acquisition includes a plant in Dayton, Oregon. The purchase price was approximately $23.8 million (net of cash acquired) plus the assumption of certain liabilities. In conjunction with the closing, the Company paid off $12.0 million of liabilities acquired. The rationale for the acquisition was twofold: (1) the business is a complementary fit with the existing business and (2) it provides an extension of the Company's product offerings. This acquisition was financed with proceeds from the Company's revolving credit facility. The purchase price to acquire Gray & Company was allocated based on the internally developed preliminary fair value of the assets acquired and liabilities assumed and the independent valuation of inventory, intangibles, and property, plant, and equipment. The purchase price of $23.8 million has been allocated as follows (in thousands):

Purchase Price (net of cash received)	$	23.8

Allocated as follows:
Current assets	$	36.6
Other long-term assets		1.4
Property, plant and equipment		13.7
Deferred taxes		(7.7	)
Current liabilities		(16.0	)
Other long-term liabilities		(4.2	)
Total	$	23.8

In February 2016, the Company completed the acquisition of 100% of the stock of Diana Fruit Co., Inc. The business, based in Santa Clara, California, is a processor of maraschino cherries and cherries for fruit cocktail. The purchase price was approximately $15.0 million (net of cash acquired) plus the assumption of certain liabilities. In conjunction with the closing, the Company paid off $1.4 million of liabilities acquired. The rationale for the acquisition was the business is a complementary fit with the recent acquisition of Gray & Company. This acquisition was financed with proceeds from the Company's revolving credit facility. The purchase price to acquire Diana was allocated based on the internally developed preliminary fair value of the assets acquired and liabilities assumed and the preliminary independent valuation of inventory, intangibles, and property, plant, and equipment. The purchase price of $15.0 million has been allocated as follows (in thousands):

Notes to Consolidated Financial Statements

Purchase Price (net of cash received)	$	15.0

Allocated as follows:
Current assets	$	16.8
Other long-term assets		0.5
Property, plant and equipment		0.9
Deferred taxes		0.4
Current liabilities		(3.6	)
Total	$	15.0

The Company's Consolidated Statement of Net Earnings for the year ended March 31, 2016 includes five months of the acquired Gray & Company and one month of Diana Fruit operating results which amounted to Net Sales of $25.5 million and Net Loss of $1.7 million. If Gray and Diana had been acquired at the beginning of the year ended March 31, 2015, total Net Sales would be $1,324.8 million (unaudited) for 2016 and $1,363.7 million (unaudited) for 2015 and Net Earnings would have been $54.2 million (unaudited) for 2016 and $8.6 million (unaudited) for 2015.

In April 2014, the Company purchased a 50% equity interest in Truitt Bros. Inc. ("Truitt") for $16.2 million. The purchase agreement grants the Company the right to acquire the remaining 50% ownership of Truitt in the future under certain conditions. Truitt is known for its industry innovation related to packing shelf stable foods in trays, pouches and bowls. Truitt has two state-of-the-art plants located in Oregon and Kentucky. This investment is included in Other Assets in the Consolidated Balance Sheets as of March 31, 2016 and is accounted for using the equity method of accounting.

3. Short-Term Borrowings

Notes to Consolidated Financial Statements

4. Long-Term Debt

	2016		2015
	(In thousands)
Revolving credit facility,
1.95% and 1.92%, due through 2017	$	271,592	$	233,000
Secured Industrial Revenue Development Bonds,
3.02%, and 2.97%, due through 2029		22,630		22,630
Secured promissory note,
6.98%, due through 2022		12,114		13,769
Lease financing obligations,
2.62%, due through 2020		5,313		-
Secured promissory note,
6.35%, due through 2020		2,474		3,122
2.00%, due through 2021		1,200		1,398
Other		216		245
		315,539		274,164
Less current portion		279,572		2,530
		35,967		271,634

See Note 3, Short-Term Borrowings, for discussion of the Revolver.

The Company's debt agreements, including the Revolver, contain covenants that restrict the Company's ability to incur additional indebtedness, pay dividends on the Company's capital stock, make other restricted payments, including investments, sell the Company's assets, incur liens, transfer all or substantially all of the Company's assets and enter into consolidations or mergers. The Company's debt agreements also require the Company to meet certain financial covenants, including a minimum fixed charge coverage ratio. The Revolver also contains borrowing base requirements related to accounts receivable and inventories. These financial requirements and ratios generally become more restrictive over time and are subject to allowances for seasonal fluctuations. The most restrictive financial covenant in the debt agreements is the fixed charge coverage ratio within the Master Reimbursement Agreement with Wells Fargo, which relates to the Secured Industrial Revenue Development Bonds. In connection with the Company's decision to adopt the LIFO method of inventory accounting, effective December 30, 2007, the Company executed amendments to its debt agreements, which enable the Company to compute its financial covenants as if the Company were on the FIFO method of inventory accounting. The Company was in compliance with all such financial covenants as of March 31, 2016.

The Company's debt agreements limit the payment of dividends and other distributions. There is an annual total distribution limitation of $50,000, less aggregate annual dividend payments totaling $23,000 that the Company presently pays on two outstanding classes of preferred stock.

The Company has four outstanding Industrial Revenue Development Bonds ("IRBs"), totaling $22.6 million that are secured by direct pay letters of credit. The interest rates shown for these IRBs in the table above reflect the costs of the direct pay letters of credit and amortization of other related costs of those IRBs. A Master Reimbursement Agreement with Wells Fargo, which provides for the direct pay letters of credit, expires in July 2016.

The Company entered into sale-leaseback transaction that did not qualify for sale-leaseback accounting due to certain forms of continuing involvement and, as a result, the lease was classified as a financing transaction in the Company's consolidated financial statements. Under the financing method, the assets remain on the consolidated balance sheet and the net proceeds received by the Company from these transactions are recorded as a lease financing liability. Payments under these leases are applied as payments of imputed interest and deemed principal on the underlying financing obligations. This lease generally provides for an initial term of 10 years with a nine year buyout option.

On August 1, 2013, the Company paid a final $36.7 million principal payment due on a secured note payable to John Hancock Life Insurance Company.

The carrying value of assets pledged for secured debt, including the Revolver, is $752.8 million.

Notes to Consolidated Financial Statements

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

Years ending March 31:
2017	$	279,572
2018		7,904
2019		3,034
2020		2,531
2021		7,019
Thereafter		15,479
Total	$	315,539

5. Leases

The Company had a new capital lease in fiscal 2016 and no capital leases as of March 31, 2015. The new capital lease is a building lease that bears an interest rate of 5.2%. The cost is $5.3 million and the accumulated amortization is $0.1 million.

Leased assets under capital leases consist of the following:

	2016		2015
Land		-		-
Buildings	$	5,313		-
Equipment		-		-
		5,313		-
Less accumulated amortization		89		-
	$	5,224		-

The Company has operating leases expiring at various dates through 2030. Operating leases generally provide for early purchase options one year prior to expiration.

The following is a schedule, by year, of minimum operating and capital lease payments due as of March 31, 2016 (in thousands):

Years ending March 31:		Operating		Capital
2017		$	43,392	$	507
2018			38,649		507
2019			33,746		507
2020			28,784		507
2021			22,379		507
	2022-2030		28,918		4,943
Total minimum payment required		$	195,868	$	7,478
Less interest					2,247
Present value of minimum lease payments					5,231
Amount due within one year					243
Long-term capital lease obligation				$	4,988

Lease expense in fiscal 2016, 2015 and 2014 was $51.4 million, $49.6 million and $43.9 million, respectively.

Notes to Consolidated Financial Statements

6. Income Taxes

The Company files a consolidated federal and various state income tax returns. The provision for income taxes is as follows:

	2016				2015				2014
	(In thousands)
Current:
Federal		$	24,579			$	4,380			$	7,238
State			1,953				453				123
			26,532				4,833				7,361
Deferred:
Federal			(689	)			(925	)			(3,231	)
State			156				313				(567	)
			(533	)			(612	)			(3,798	)
Total income taxes		$	25,999			$	4,221			$	3,563


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


	2016				2015				2014
Computed (expected tax rate)		35.0		%		35.0		%		35.0	%
State income taxes (net of federal tax benefit)		2.7				2.9				3.4
State tax credits		(0.9	)			(8.7	)			(1.6	)
Federal credits		(0.4	)			(2.4	)			(3.6	)
Manufacturer's deduction		(3.9	)			(5.0	)			(4.6	)
(Reversal of) addition to uncertain tax positions		0.2				(1.0	)			(0.8	)
State VDA/Nexus Changes		-				-				(1.7	)
Other permanent differences not deductible		(0.2	)			0.7				0.5
Change in valuation allowance		0.1				9.9				(2.1	)
Tax effect of pension contribution		-				-				0.4
Other		(0.3	)			(1.5	)			(4.4	)
Effective income tax rate		32.3		%		29.9		%		20.5	%

The effective tax rate was 32.3% in 2016 and 29.9% in 2015. Of the 2.4 percentage point increase in the effective tax rate for the year, the major contributor to this increase is with the federal credits for Research and Development, Work Opportunity Tax Credit and fuel. These credits are largely fixed and with the significant increase in pre-tax earnings for 2016, these credits are a smaller percentage of pre-tax earnings in comparison to 2015. This accounts for 2.0 percent of the increase.

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

	2016		2015
	(In thousands)
Deferred income tax assets:
Future tax credits	$	3,807	$	4,021
Inventory valuation		-		2,348
Employee benefits		3,174		3,009
Insurance		881		816
Other comprehensive loss		18,154		20,335
Interest		21		46
Prepaid revenue		571		701
Other		2,804		1,364
Pension		-		1,372
Severance		3		256
		29,415