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

plants and

warehouses in

nine

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

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

Revenue Recognition, for further discussion of the policy.

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

may

take extended periods of time.

Concentration of Credit Risk

— Financial instruments that potentially subject the Company to credit risk consist of trade receivables 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. Green Giant sales to B & G Foods represented

6%,

and

11%

of net sales in each of

2019

and

2018,

respectively. The top

ten

customers, including B & G Foods, represented approximately

47%,

and

45%

of net sales for

2019

and

2018,

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

), accounts receivable, short-term debt (Level

) and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments. See Note

11,

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

) and the lowest priority to unobserved inputs (Level

). The

three

levels are defined as follows:

●

Level

- Quoted prices for identical instruments in active markets.

●

Level

- 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

- Model-derived valuations in which

one

or more inputs or value-drivers are both significant to the fair value measurement and unobservable.

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, 2019,

there were

$0.5

million of unamortized financing cost included in other current assets and

$0.1

million of unamortized financing costs included as a contra to long-term debt and current portion of long-term debt 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.

Inc

ome 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.

Assets Held for Sale—

The Company classifies property and equipment as held for sale when certain criteria are met. At such time, the properties, including significant assets that are expected to be transferred as part of a sale transaction, are presented separately on the consolidated balance sheet at the lower of carrying value or estimated fair value less costs to sell and depreciation is

longer recognized. Assets classified as held for sale included buildings, land and equipment.

Discontinued Operations

— Discontinued operations comprise those activities that have been disposed of during the period or that have been classified as held for sale at the end of the period, and represent a separate major line of business or geographical area that can be clearly distinguished for operational and financial reporting purposes. In fiscal

2019,

the Company sold its Modesto fruit operations and began reporting the results of operations, cash flows and the balance sheet amounts pertaining to this as a component of discontinued operations in the consolidated financial statements.

Unless otherwise indicated, information in the notes to the consolidated financial statements relates to continuing operations.

Advertising Costs

— Advertising costs are expensed as incurred. Advertising costs charged to continuing operations were

$2.1

million and

$2.4

million in

2019

and

2018,

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

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 (Loss) 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 (loss) 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.

Years ended March 31,	2019			2018
Continuing Operations		(In thousands, except per share amounts)
Basic
Continuing operations (loss) earnings	$	(36,483	)	$	10,049
Deduct preferred stock dividends		23			23
Undistributed (loss) earnings		(36,506	)		10,026
(Loss) earnings attributable to participating preferred shareholders		(143	)		48
(Loss) earnings attributable to common shareholders	$	(36,363	)	$	9,978
Weighted average common shares outstanding		9,652			9,769
Basic (loss) earnings from continuing operations per common share	$	(3.77	)	$	1.02
Diluted
(Loss) earnings attributable to common shareholders	$	(36,363	)	$	9,978
Add dividends on convertible preferred stock		-			20
(Loss) earnings attributable to common stock on a diluted basis	$	(36,363	)	$	9,998
Weighted average common shares outstanding-basic		9,652			9,769
Additional shares to be issued related to the equity compensation plan		-			3
Additional shares to be issued under full conversion of preferred stock		-			67
Total shares for diluted		9,652			9,839
Diluted (loss) earnings from continuing operations per share	$	(3.77	)	$	1.02

Years ended March 31,	2019		2018
Discontinued Operations	(In thousands, except per share amounts)
Basic
Discontinued operations earnings (loss)	$	42,230	$	(18,529	)
Deduct preferred stock dividends		23		23
Undistributed earnings (loss)		42,207		(18,552	)
Earnings (loss) attributable to participating preferred shareholders		166		(88	)
Earnings (loss) attributable to common shareholders	$	42,041	$	(18,464	)
Weighted average common shares outstanding		9,652		9,769
Basic earnings (loss) from discontinued operations per common share	$	4.36	$	(1.89	)
Diluted
Earnings (loss) attributable to common shareholders	$	42,041	$	(18,464	)
Add dividends on convertible preferred stock		20		-
Earnings (loss) attributable to common stock on a diluted basis	$	42,061	$	(18,464	)
Weighted average common shares outstanding-basic		9,652		9,769
Additional shares to be issued related to the equity compensation plan		3		-
Additional shares to be issued under full conversion of preferred stock		67		-
Total shares for diluted		9,722		9,769
Diluted earnings (loss) from discontinued operations per share	$	4.33	$	(1.89	)

Note: For fiscal

2019

addbacks for equity compensation and additional shares that were anti-dilutive were excluded from diluted earnings per share from continuing operations calculations.

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

$29.5

million and

$29.0

million, in

2019,

and

2018,

respectively. The estimated useful lives are as follows: buildings and improvements —

years; machinery and equipment —

years; computer software —

years; vehicles —

years; and land improvements —

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. Appraisals were used to help determine fair value. There was a

$7.8

million impairment loss recorded in

2019

related to a Northwest plant. There were

significant impairment losses in

2018.

Use of Estimates in the Preparation of Financial Statements

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

Recently Issued Accounting Standards

— In

February 2016,

the FASB issued ASU

2016

02,

“Leases.” ASU

2016

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

months. In

July 2018,

the FASB issued ASU

No.

2018

11,

"Targeted Improvements - Leases (Topic

842

)." This update provides an optional transition method that allows entities to elect to apply the standard retrospectively at the beginning of the period of adoption, versus recasting the prior periods presented. If elected, an entity would recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This guidance is effective for annual periods beginning after

December 15, 2018.

We currently expect to adopt ASU

2016

as of

April 1, 2019,

using the optional transition method provided by ASU

2018

11.

Our evaluation of ASU

2016

is ongoing and

not

complete. Our estimated date of completion of FASB ASC

842

technical assessment of applying the new standard to the Company’s lease contracts is between

of fiscal year

2019

and

of fiscal year

2020.

The estimated date of revised Internal Control over of Financial Reporting (ICFR) is

of fiscal year

2020.

The estimated date of draft footnote disclosures is

of Fiscal Year

2020.

The Company believes that the new standard will have a material impact on its consolidated balance sheet due to the recognition of ROU assets and liabilities for the Company’s operating leases but it will

not

have a material impact on its statement of operations or liquidity. We expect our accounting for capital leases to remain substantially unchanged. The ASU also will require disclosures to help investors and other financial statement users to better understand the amount, timing and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. Our leasing activity is primarily related to buildings and equipment.

May 2014,

the FASB issued Accounting Standards Update

2014

09,

Revenue from Contracts with customers, now commonly referred to as Accounting Standards Codification Topic

606

(“ASC

606”

). The FASB issued ASC

606

to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes the most current revenue recognition guidance. ASC

606

requires the recognition of revenue when control of performance obligations as stipulated in the contracts, is transferred to a customer for an amount that reflects the consideration the entity expects to receive in exchange for promised goods and services. The Company adopted ASC

606

as of

April 1, 2018,

utilizing the full retrospective method of transition, which requires a restatement of each prior reporting period presented. In adopting ASC

606,

the Company used the practical expedient where the transaction price allocated to the remaining performance obligations before the date of the initial application is

not

disclosed. The Company implemented new policies, processes and systems to enable both the preparation of financial information and internal controls over financial reporting in connection with its adoption of ASC

606.

The primary impact of adopting ASC

606

on the Company’s

2019

and

2018

revenue was to report the product sales to B&G as bill and hold sales, but deferring a small portion of the sale for future case and labeling services along with storage services. See Note

to the Consolidated Financial Statements for more information.

March 2017,

the FASB issued ASU

2017

07,

“Compensation – Retirement Benefits (Topic

715

): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” ASU

2017

requires that the service cost component of net periodic benefit costs from defined benefit and other postretirement benefit plans be included in the same statement of earnings captions as other compensation costs arising from services rendered by the covered employees during the period. The other components of net benefit cost will be presented in the statement of earnings separately from service costs. ASU

2017

is effective for fiscal years beginning after

December 31, 2017 (

fiscal year

2019

for the Company). Following adoption, only service costs will be eligible for capitalization into manufactured inventories, which should reduce diversity in practice. The amendments of ASU

2017

should be applied retrospectively for the presentation of the service cost component and the other components of net periodic benefit costs from defined benefit and other postretirement benefit plans in the statement of earnings and prospectively, on and after the effective date, for the capitalization of the service cost component into manufactured inventories. The Company adopted the new guidance in

first

quarter of fiscal year

2019,

and the changes to earnings before income taxes were immaterial in the year of adoption.

February 2018,

the FASB issued ASU

No.

2018

02,

Income Statement – Reporting Comprehensive Income (Topic

220

): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.

This amendment is intended to allow a reclassification from accumulated other comprehensive loss to retained earnings for stranded tax effects resulting only from the

December 2017

enacted United States Tax Cuts and Jobs Act (TCJA) and is

not

intended to impact underlying accounting guidance that requires that the effect of a change in tax laws or tax rates be included in income from operations. This update is effective for fiscal years beginning after

December 31, 2018

with earlier adoption permitted. The Company has early adopted this update in its

fourth

quarter ended

March 31, 2018

resulting in a

$2.4

million reclassification from accumulated other comprehensive loss and a corresponding

$2.4

million increase to retained earnings. This reclassification from accumulated other comprehensive loss relates to the deferred income tax stranded tax effects resulting from the change in the U.S. federal corporate income tax rate under the TCJA. The pension and post-retirement benefits adjustment is the Company’s only component of accumulated other comprehensive loss.

Reclassifications

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