Exhibit 13
Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
Our Business
Seneca is a leading provider of packaged fruits and vegetables, with facilities located throughout the United States. Its high quality products are primarily sourced from over 1,600 American farms. The Company’s product offerings include canned, frozen and bottled produce and snack chips. Its products are sold under private label as well as national and regional brands that the Company owns or licenses, including Seneca®, Libby’s®, Aunt Nellie’s®, Cherryman®, Green Valley® and READ®. The Company’s canned fruits and vegetables are sold nationwide by major grocery outlets, including supermarkets, mass merchandisers, limited assortment stores, club stores and dollar stores. The Company also sells its products to foodservice distributors, industrial markets, other food processors, export customers in over 90 countries and federal, state and local governments for school and other food programs. The Company packs canned vegetables as well as frozen vegetables under contract packing agreements.
All references to years are fiscal years ended March 31 unless otherwise indicated.
During March 2021, the Company completed the acquisition of a processing facility in central Wisconsin for $7.1 million. This acquisition will aid the Company’s frozen business by expanding freezing capability and adding frozen celery production to the core fruit and vegetable business.
In December 2020, the Company completed the sale of its prepared foods business to an unaffiliated buyer who was not a previous customer, resulting in a gain of $34.8 million. The nature of the prepared foods business was not central to Seneca’s primary business and the sale allowed for the continued focus and investment in the Company’s core fruit and vegetable business.
In November 2019, the Company executed an agreement with Del Monte Foods to purchase a plant in Wisconsin, and as part of that agreed to process certain quantities of canned vegetables for them on a contractual basis. At the same time, Seneca acquired equipment from two already closed facilities, which was relocated and utilized by existing Seneca facilities in order to improve efficiencies or expand production capacities. Any equipment that was unable to be utilized was disposed of in fiscal 2021. The idle facilities were acquired in fiscal 2021 with no plans of operation and are currently classified as assets held for sale on the consolidated balance sheet as of March 31, 2021.
In October 2019, the Company ceased production at its fruit processing plant in Sunnyside, Washington but continued to store, case and label products at this facility until late in fiscal 2020. In February 2020, the Company invested approximately $10 million and contributed the Sunnyside facility to acquire a 49% stake in CraftAg, LLC, a newly formed company which processes hemp.
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 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.
Impact of the COVID-19 Pandemic:
The effect of COVID-19 felt throughout the United States and the international community has had, and will continue to have, an impact on financial markets, economic conditions, and portions of our business and industry.
Business Impact – We have implemented a wide range of precautionary measures at our manufacturing facilities and other work locations in response to COVID-19. We have also been working closely with our supply chain partners to ensure that we can continue to provide uninterrupted service. To date, there has been minimal disruption in our supply chain network, including the supply of fruits and vegetables, packaging or other sourced materials. We also continue to work closely with our customers and have implemented measures to allocate order volumes to ensure a consistent supply across our retail partners during this period of high demand.
We continue to monitor the latest guidance from the CDC, FDA and other federal, state and local authorities regarding COVID-19 to ensure our safety protocols remain current to protect our employees, customers, suppliers and other business partners.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financial Impact to Date – We began to see a significant increase in net sales in the second half of March 2020 as the COVID-19 pandemic reached the United States and consumers began pantry loading and increasing their at-home consumption as a result of increased social distancing and stay-at-home mandates. The overall increase in net sales continued throughout 2021. Growth in the retail channel remained strong and exceeded declines in the foodservice and chain channels experienced due to the pandemic.
We have incurred incremental costs to take the precautionary health and safety measures described above, which partially offsets the net sales favorability in our operating results, however gross margin has increased in 2021 as compared to 2020. Most of the incremental costs impact our costs of goods sold and the remaining portion impacts our selling, general and administrative expenses.
As reflected above, the pandemic has overall to date had a positive impact on our operating results and our net cash provided by operating activities. As a result, during the third quarter of fiscal 2021 we repaid all outstanding borrowings under our revolving credit facility.
Expectations and Risk Factors in Light of the COVID-19 Pandemic - As discussed above, increased customer and consumer demand resulting from the COVID-19 pandemic, social distancing and stay-at-home mandates has had a material positive impact on our company’s net sales, net cash provided by operating activities and net leverage in 2021. However, the ultimate impact of the COVID-19 pandemic on our business will depend on many factors, including, among others, the duration of social distancing and stay-at-home mandates and whether an additional wave of COVID-19 will affect the United States and the rest of North America, our company’s ability to continue to operate our manufacturing facilities, retain a sufficient seasonal workforce, fill open full time positions, maintain our supply chain without material disruption, and procure ingredients, packaging and other raw materials when needed despite unprecedented demand in the food industry, and the extent to which macroeconomic conditions resulting from the pandemic and the pace of the subsequent recovery may impact consumer eating habits.
Internal controls over financial reporting have not been impacted by COVID-19. Management is continuously monitoring to ensure controls are effective and properly maintained.
Restructuring
During 2021, the Company recorded a restructuring charge of $0.2 million related to closed plants mostly for severance.
During 2020, the Company recorded a restructuring charge of $7.0 million related to the closing of plants in the Midwest and Northwest of which $5.3 million was for accelerated amortization of right-of-use operating lease assets, $2.4 million was mostly related to equipment moves and $1.2 million was related to severance. The Company also recorded a credit of $1.9 million for the reduced lease liability of previously impaired leases.
These charges are included under Plant Restructuring Charge in the Consolidated Statements of Net Earnings.
Divestitures, Other Charges and Credits
Other operating income in 2021 includes a gain on the sale of the prepared food business of $34.8 million. Additionally the Company recorded a loss of $0.8 million on the disposal of equipment from a sold Northwest plant, a loss on the sale of unused fixed assets of $0.4 million, a loss of $3.2 million on the disposition of equipment that was previously held for sale, and a charge of $0.2 for severance. The company also recorded a charge of $1.2 million for a supplemental early retirement plan.
Other operating income in 2020 includes a gain on the partial sale of a plant in the Midwest of $3.3 million and a gain on the sale of a plant in the Northwest of $8.2 million. The Company also recorded a gain on the sale of unused fixed assets of $1.2 million.
During 2021, the Company recorded an other-than-temporary impairment charge of $9.7 million to its equity method investment representing the difference between the carrying value of the Company’s investment and its proportionate share of the investment’s fair value. This charge was included in “Loss from equity investment” in the Company’s Consolidated Statements of Net Earnings.
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
On March 24, 2021, the Company entered into a Fourth Amended and Restated Loan and Security Agreement with the lenders party thereto, Bank of America, N.A. as agent, issuing bank, and syndication agent, and BofA Securities, Inc. as lead arranger, that provides for a senior revolving credit facility of up to $400 million that is seasonally adjusted (the “Revolver”). Maximum borrowings under the Revolver total $300.0 million from April through July and $400.0 million from August through March. The Revolver balance as of March 31, 2021 was $1.0 million and is included in Long-Term Debt in the accompanying Consolidated Balance Sheet due to the Revolver’s March 24, 2026 maturity. In order to maintain availability of funds under the facility, the Company pays a commitment fee on the unused portion of the Revolver. The Revolver is secured by substantially all of the Company’s accounts receivable and inventories and contains borrowing base requirements as well as a financial covenant, if certain circumstances apply. The Company utilizes its Revolver for general corporate purposes, including seasonal working capital needs, to pay debt principal and interest obligations, and to fund capital expenditures and acquisitions. Seasonal working capital needs are affected by the growing cycles of the vegetables the Company packages. The majority of vegetable inventories are produced during the months of June through November and are then sold over the following year. Payment terms for vegetable produce are generally three months but can vary from a few days to seven months. Accordingly, the Company’s need to draw on the Revolver may fluctuate significantly throughout the year.
The Company believes that cash flows from operations and availability under its 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 highest in the second and third fiscal quarters. This is due, in part, because the Company sells canned and frozen vegetables to a co-pack customer on a bill and hold basis at the end of each pack cycle, which typically occurs during these quarters. In addition, the Company’s other fruit and vegetable sales exhibit seasonal increases in the third fiscal quarter due to increased retail demand during the holiday season.
| First Quarter |
Second Quarter |
Third Quarter |
Fourth Quarter |
|||||||||||||
| (In thousands) |
||||||||||||||||
| Year ended March 31, 2021: |
||||||||||||||||
| Net sales |
$ | 288,165 | $ | 390,294 | $ | 484,392 | $ | 304,793 | ||||||||
| Gross margin |
48,562 | 48,943 | 77,704 | 56,976 | ||||||||||||
| Net earnings |
20,706 | 18,105 | 72,460 | 14,829 | ||||||||||||
| Revolver outstanding (at quarter end) |
34,406 | 62,611 | - | 1,000 | ||||||||||||
| Year ended March 31, 2020: |
||||||||||||||||
| Net sales |
$ | 264,925 | $ | 370,002 | $ | 392,971 | $ | 307,871 | ||||||||
| Gross margin |
19,174 | 24,055 | 52,277 | 46,382 | ||||||||||||
| Net earnings |
1,103 | 4,635 | 24,428 | 21,022 | ||||||||||||
| Revolver outstanding (at quarter end) |
136,014 | 133,338 | 114,689 | 106,924 | ||||||||||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Short-Term Borrowings
The maximum level of short-term borrowings outstanding during 2021 was lower as compared 2020 driven in part by increased sales resulting from the COVID-19 pandemic. The favorable impact that increased sales had on the Company’s short-term borrowings during 2021 was partially offset by increased expenditures due to implementing a wide range of precautionary measures at our manufacturing facilities and other work locations in response to COVID-19. The maximum level of short-term borrowings during 2020 was affected by lower inventory due to a smaller seasonal pack partially offset by the purchase of assets from Del Monte Foods and the investment in CraftAg.
The following table documents the quantitative data for Short-Term Borrowings during 2021 and 2020:
| Fourth Quarter |
Year Ended |
|||||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||
| (In Thousands) |
||||||||||||||||
| Reported end of period: |
||||||||||||||||
| Revolver outstanding |
$ | 1,000 | $ | 106,924 | $ | 1,000 | $ | 106,924 | ||||||||
| Weighted average interest rate |
1.38 | % | 2.59 | % | 1.38 | % | 2.59 | % | ||||||||
| Reported during period: |
||||||||||||||||
| Maximum Revolver |
$ | 1,000 | $ | 118,790 | $ | 107,967 | $ | 151,477 | ||||||||
| Average Revolver outstanding |
$ | 572 | $ | 109,031 | $ | 33,453 | $ | 122,443 | ||||||||
| Weighted average interest rate |
1.69 | % | 3.22 | % | 1.95 | % | 3.61 | % | ||||||||
Long-Term Debt
On May 28, 2020 the Company entered into an Amended and Restated Loan and Guaranty Agreement with Farm Credit East, ACA that provides for a $100.0 million unsecured term loan. The amended and restated agreement with Farm Credit East has a maturity date of June 1, 2025 and converted the term loan to a fixed interest rate rather than a variable interest rate in addition to requiring quarterly principal payments of $1.0 million, which commenced during fiscal 2021. The Company incurred financing costs totaling $0.2 million which have been classified as a discount to the debt. This agreement contains certain covenants, including maintaining a minimum EBITDA and minimum tangible net worth.
As of March 31, 2021, scheduled maturities of long-term debt in each of the five succeeding fiscal years and thereafter are presented below. The March 31, 2021 Revolver balance of $1.0 million is presented as being due in fiscal 2026, based upon the Revolver’s March 24, 2026 maturity date (in thousands):
| 2022 |
$ | 4,500 | ||
| 2023 |
4,000 | |||
| 2024 |
4,000 | |||
| 2025 |
4,000 | |||
| 2026 |
81,869 | |||
| Thereafter |
216 | |||
| Total |
$ | 98,585 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Restrictive Covenants
The Company’s debt agreements, including the Revolver and term loan, contain customary affirmative and negative covenants that restrict, with specified exceptions, the Company’s ability to incur additional indebtedness, incur liens, pay dividends on the Company’s capital stock, make other restricted payments, including investments, transfer all or substantially all of the Company’s assets, enter into consolidations or mergers, and enter into transactions with affiliates. The Company’s debt agreements also require the Company to meet certain financial covenants including a minimum EBITDA and minimum tangible net worth. The Revolver contains borrowing base requirements related to accounts receivable and inventories and also requires the Company to meet a financial covenant related to a minimum fixed charge coverage ratio if (a) an event of default has occurred or (b) availability on the Revolver is less than the greater of (i) 10% of the commitments then in effect and (ii) $25,000,000. The most restrictive financial covenant in the debt agreements is the minimum EBITDA within the Farm Credit term loan which for fiscal year end 2021 was greater than $50 million. The Company computes its financial covenants as if the Company were on the FIFO method of inventory accounting. The Company has met all such financial covenants as of March 31, 2021.
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.
Capital Expenditures
Capital expenditures in 2021 totaled $71.5 million and there were 4 major projects in 2021 as follows; 1) $7.1 million for a facility in Berlin, Wisconsin, 2) $5.0 million for a facility and equipment in Albany, Oregon, 3) $4.4 million for a production line in Janesville, Wisconsin, 4) $2.5 million for a spray field in Cambia, Wisconsin. Capital expenditures in 2020 totaled $66.4 million and there were four major projects in 2020 as follows: 1) $10.0 million to buy the plant in Cambria, Wisconsin from Del Monte, 2) $9.6 million for equipment purchases from Del Monte, 3) $4.7 million for the Glencoe Freezer project and 4) $2.6 million for the completion of a warehouse in Hart, Michigan started in 2019. In addition, there were lease buyouts, equipment replacements and other improvements in 2021 and 2020.
Accounts Receivable
In 2021, accounts receivable decreased by $17.6 million or 16.0% versus 2020, due partially to lower sales volume in March 2021 compared to March 2020 and also the sale of our prepared foods business. In 2020, accounts receivable increased by $25.7 million or 30.6% versus 2019 due to higher sales volume in the fourth quarter of 2020 compared to 2019.
Inventories
In 2021, inventories decreased by $68.5 million or 16.6% primarily reflecting the effect of lower finished goods quantities due to increased sales demand outpacing the 2020 seasonal pack yields. The LIFO reserve balance was $128.7 million at March 31, 2021 versus $144.3 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
During the years ended March 31, 2021 and 2020, the Company sold certain finished goods inventory for cash on a bill and hold basis. The terms of the bill and hold agreement(s) provide that title to the specified inventory is transferred to the customer(s) prior to shipment and the Company has the right to payment (prior to physical delivery) which results in recorded revenue as determined under the revenue recognition standard.
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, 2021, the Company was obligated to make cash payments in connection with its debt, operating and finance 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.
In addition, the Company has a defined benefit plan which is subject to certain actuarial assumptions. The funded status increased by $138.3 million during 2021 reflecting the actual fair value of plan assets and the projected benefit obligation as of March 31, 2021. During fiscal years 2021 and 2020, the actuarial loss in the pension plan’s projected benefit obligation was primarily driven by data revisions resulting in demographic losses as well as a decline in discount rates. Additionally, the Society of Actuaries released an updated mortality table for fiscal year 2020 and an updated mortality projection scale for both fiscal years 2020 and 2021 which partially offset the actuarial loss. Plan assets increased from $202.5 million as of March 31, 2020 to $348.9 million as of March 31, 2021 due primarily to a gain on plan assets of $103.2 million and a $73.0 million contribution by the Company.
The Plan was amended to freeze accruals to new hires and rehires effective January 1, 2020. This amendment triggered a curtailment event under ASC 715. The curtailment accelerated statement of earnings recognition of the unrecognized prior service cost resulting in $0.1 million curtailment charge in 2020.
During 2021, the Company entered into new finance and operating leases of approximately $3.7 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 2021 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.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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, 2021, the Company had $10.1 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 2021, the Company’s cash and cash equivalents increased by $49.1 million, which is due to the net impact of $183.2 million provided by operating activities, $2.3 million provided by investing activities, and $136.3 million used in financing activities.
Operating Activities
Cash provided by operating activities totaled $183.2 million in 2021 as compared to $127.3 million of cash provided by operating activities in 2020, an increase of $55.9 million. The increase was largely due to higher net income, primarily attributable to the positive impact of increased base business unit volume on our net sales as a result of the COVID-19 pandemic. The 2021 earnings reflect a LIFO credit of $15.6 million that resulted in an increase in the tax payment deferral of $3.9 million. The increase in net cash provided by operating activities also reflected favorable working capital comparisons in fiscal 2021 compared to the fiscal 2020 comparisons, primarily comprised of accounts receivable, $57.6 million, and other current assets, $8.4 million. The increases were partially offset by an unfavorable working capital comparison for inventories of $21.6 million and a pension contribution made by the Company of $73.0 million in fiscal 2021 compared to a $26.0 million contribution in the previous year.
The cash requirements of the business fluctuate significantly throughout the year to coincide with the seasonal growing cycles of vegetables. 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.
Investing Activities
Cash provided by investing activities was $2.3 million for 2021, principally reflecting proceeds from the sales of assets of $73.7 million largely offset by $71.4 million of capital expenditures. Cash used by investing activities was $43.2 million for 2020, principally reflecting proceeds from the sale of assets of $22.5 million offset by $65.7 million of capital expenditures.
Financing Activities
Cash used in financing activities was $136.3 million in 2021 compared to $84.9 million in 2020, an increase of $51.4 million. The cash used in financing during 2021 is primarily comprised of a net decrease in the debt (primarily the Revolver) of $119.0 million compared to $48.7 million in the prior year. In addition, the Company purchased $4.4 million of treasury stock in 2021 compared to $12.7 million in 2020. Lastly, the Company made a $10.0 million investment in CraftAg during 2020.
Results of Operations - Fiscal 2021 versus Fiscal 2020
Net Sales:
The following table presents net sales by product category:
| 2021 |
2020 |
|||||||
| (In thousands) |
||||||||
| Canned vegetables |
$ | 1,172,635 | $ | 986,080 | ||||
| Frozen |
102,339 | 119,044 | ||||||
| Fruit Products |
88,289 | 97,393 | ||||||
| Prepared foods |
71,866 | 105,044 | ||||||
| Chip Products |
10,999 | 11,475 | ||||||
| Other |
21,516 | 16,733 | ||||||
| Total |
$ | 1,467,644 | $ | 1,335,769 | ||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Net sales for 2021 totaled $1,467.6 million compared to $1,335.8 million for the prior year, an increase of $131.8 million. The overall increase was driven by a $186.6 million increase in canned vegetables sales along with a $4.7 million increase in other sales that was partially offset by declines in frozen sales of $16.7 million, fruit product sales of $9.1 million, and chip product sales of $0.4 million. Additionally, prepared foods sales decreased by $33.2 million in 2021 compared to 2020 due to the sale of the business in December 2020. The overall increase in sales is attributable to increased sales volume of $74.2 million and higher selling prices/ favorable sales mix of $57.6 million, both predominantly due to canned vegetables.
Operating Income:
The following table presents components of operating income as a percentage of net sales:
| 2021 |
2020 |
|||||||
| (In thousands) |
||||||||
| Gross Margin |
15.8 | % | 10.6 | % | ||||
| Selling, General, and Administrative expense |
5.4 | % | 5.8 | % | ||||
| Plant Restructuring |
0.0 | % | 0.5 | % | ||||
| Other Operating Income |
-2.0 | % | -0.9 | % | ||||
| Operating Income |
12.3 | % | 5.3 | % | ||||
| Interest Expense, net |
0.4 | % | 0.9 | % | ||||
Gross margin as a percentage of net sales increased from 10.6% in 2020 to 15.8% in 2021 due to the favorable impact of higher selling prices and an improved selling mix outweighing the negative impact of a smaller than planned pack and incremental expenditures incurred for precautionary and safety measures taken for COVID-19.
Selling, general and administrative expense was at 5.4% of sales in 2021 and 5.8% of sales in 2020. The decrease as a percentage of net sales is primarily due to higher sales and the fixed nature of certain expenses.
Other operating income in 2021 includes a gain on the sale of the prepared food business of $34.8 million. Additionally the Company recorded a loss of $0.8 million on the disposal of equipment from a sold Northwest plant, a loss on the sale of unused fixed assets of $0.4 million, a loss of $3.2 million on the disposition of equipment that was previously held for sale, and a charge of $0.2 for severance. The Company also recorded a charge of $1.2 million for a supplemental early retirement plan. Other operating income in 2020 includes a gain on the partial sale of a plant in the Midwest of $3.3 million and a gain on the sale of a plant in the Northwest of $8.2 million. The Company also recorded a gain on the sale of unused fixed assets of $1.2 million.
Non-Operating Income:
The Company’s loss from equity investment was $11.5 million and $0.1 million for 2021 and 2020, respectively. During 2021, the Company recorded an other-than-temporary impairment charge of $9.7 million to its equity method investment representing the difference between the carrying value of the Company’s investment and its proportionate share of the investment’s fair value. This charge was included in “Loss from equity investment” in the Company’s Consolidated Statements of Net Earnings.
Interest expense, net, decreased from $11.8 million in 2020 to $6.1 million in 2021 due mostly to lower average Revolver borrowings during the year in 2021 versus 2020.
As a result of the aforementioned factors, continuing pre-tax earnings increased from $65.6 million in 2020 to pre-tax earnings of $160.0 million in 2021. The effective tax rate was 21.2% in 2021 and 22.0% in 2020. The decrease of 0.8 percentage points in the effective tax rate for the year is primarily the result of two items. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), among other things, allows NOLs incurred in taxable years beginning after December 31, 2017 and before January 01, 2021 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. Seneca was able to carryback the NOL generated in the 2019 tax year at a 21% corporate tax rate to the 2015 tax year at a 35% corporate tax rate. The tax rate difference realized for the NOL carryback decreased the Company’s effective tax rate by 2.8%. See Footnote 8 for the full tax rate reconciliation.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Recently Issued Accounting Standards
In August 2018, the FASB issued ASU No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which modifies the disclosure requirements for defined benefit pension plans and other postretirement plans. ASU 2018-14 became effective for annual periods ending after December 15, 2020. The Company adopted the standard for its fiscal year ended March 31, 2021 and the adoption of ASU 2018-14 did not have an impact on the consolidated financial statements as this ASU only modified disclosure requirements. See Note 10 “Retirement Plants” and related disclosures.
In May 2020, the SEC issued a final rule that amends the financial statement requirements for acquisitions and dispositions of businesses. The amendments primarily relate to disclosures required by Rule 3-05 and Article 11 of Regulation S-X. Among other things, the final rule modifies the tests provided in Rule 1-02(w) of Regulation S-X used to determine whether a subsidiary or an acquired or disposed business is significant. The amendments took effect January 1, 2021 and the Company did not elect to early adopt the provisions of the final rule prior to that date. This rule, as amended, did not impact the Company’s financial statement disclosures in fiscal 2021.
In March 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting which provides optional guidance for a limited time to ease the potential accounting burden associated with the expected market transition away from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. LIBOR is used to determine interest expense related to the Company’s Revolver, which matures in 2026. This update was effective starting March 12, 2020 and the Company may elect to apply the amendments prospectively through December 31, 2022. We are currently evaluating the effect that ASU 2020-04 will have on our consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU No. 2019-12 to simplify the accounting for income taxes by removing certain exceptions to the general principles and simplify areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enacted tax laws or rate changes. The new standard will be effective for the Company in the first quarter fiscal year 2022. We are currently evaluating the effect that the new standard will have on the Company’s financial position, results of operations and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which was subsequently amended in November 2018 through ASU No. 2018-19, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses." ASU No. 2016-13 will require entities to estimate lifetime expected credit losses for trade and other receivables along with other financial instruments which will result in earlier recognition of credit losses. Further, the new credit loss model will affect how entities in all industries estimate their allowance for losses for receivables that are current with respect to their payment terms. In November 2019, the FASB issued ASU No. 2019-10, which, among other things, deferred the application of the new guidance on credit losses for smaller reporting companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This guidance will be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., a modified-retrospective approach). Under the above-mentioned deferral, the Company expects to adopt ASU No. 2016-03, and the related ASU No. 2018-19 amendments, beginning as of April 1, 2023 and is in the process of assessing the impact, if any, that this new guidance is expected to have on the Company’s results of operations, financial condition and/or financial statement disclosures.
| Consolidated Statements of Net Earnings |
| Seneca Foods Corporation and Subsidiaries |
| (In thousands of dollars, except per share amounts) |
| Years ended March 31, | 2021 | 2020 | ||||||
| Net sales | $ | $ | ||||||
| Costs and expenses: | ||||||||
| Cost of products sold | ||||||||
| Selling, general, and administrative expense | ||||||||
| Other operating income, net | ( | ) | ( | ) | ||||
| Plant restructuring charge | ||||||||
| Total costs and expenses | ||||||||
| Operating income | ||||||||
| Loss from equity investment | ||||||||
| Other loss (income) | ( | ) | ||||||
| Interest expense, net of interest income of $ and $, respectively | ||||||||
| Earnings From Continuing Operations Before Income Taxes | ||||||||
| Income Taxes From Continuing Operations | ||||||||
| Earnings From Continuing Operations | ||||||||
| Earnings From Discontinued Operations (net of income taxes) | ||||||||
| Net Earnings | $ | $ | ||||||
| Basic Earnings per Common Share: | ||||||||
| Continuing Operations | $ | $ | ||||||
| Discontinued Operations | $ | $ | ||||||
| Net Basic Earnings per Common Share | $ | $ | ||||||
| Diluted Earnings per Common Share: | ||||||||
| Continuing Operations | $ | $ | ||||||
| Discontinued Operations | $ | $ | ||||||
| Net Diluted Earnings per Common Share | $ | $ | ||||||
| See notes to consolidated financial statements. |
| Consolidated Statements of Comprehensive Income (Loss) |
| Seneca Foods Corporation and Subsidiaries |
| (In thousands of dollars) |
| Years ended March 31, | 2021 | 2020 | ||||||
| Comprehensive income (loss): | ||||||||
| Net earnings | $ | $ | ||||||
| Change in pension and postretirement benefits (net of income tax of and $, respectively) | ( | ) | ||||||
| Total | $ | $ | ( | ) | ||||
| See notes to consolidated financial statements. |
| Consolidated Balance Sheets |
| Seneca Foods Corporation and Subsidiaries |
| (In thousands) |
| March 31, | 2021 | 2020 | ||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, less allowance for doubtful accounts of $ and $, respectively | ||||||||
| Contracts receivable | ||||||||
| Assets held for sale-discontinued operations | ||||||||
| Inventories | ||||||||
| Assets held for sale | ||||||||
| Refundable income taxes | ||||||||
| Other current assets | ||||||||
| Total Current Assets | ||||||||
| Deferred income tax asset, net | ||||||||
| Noncurrent assets held for sale-discontinued operations | ||||||||
| Other assets | ||||||||
| Pension assets | ||||||||
| Right-of-use assets operating, net | ||||||||
| Right-of-use assets financing, net | ||||||||
| Property, plant, and equipment: | ||||||||
| Land | ||||||||
| Buildings and improvements | ||||||||
| Equipment | ||||||||
| Total | ||||||||
| Less accumulated depreciation and amortization | ||||||||
| Net property, plant, and equipment | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Deferred revenue | ||||||||
| Accrued vacation | ||||||||
| Accrued payroll | ||||||||
| Other accrued expenses | ||||||||
| Current liabilities held for sale-discontinued operations | ||||||||
| Current portion of long-term debt and lease obligations | ||||||||
| Total Current Liabilities | ||||||||
| Long-term debt, less current portion | ||||||||
| Operating lease obligations, less current portion | ||||||||
| Financing lease obligations, less current portion | ||||||||
| Pension liabilities | ||||||||
| Other liabilities | ||||||||
| Deferred income tax liability, net | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock | ||||||||
| Common stock | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock, at cost | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Retained earnings | ||||||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
| See notes to consolidated financial statements. |
| Consolidated Statements of Cash Flows |
| Seneca Foods Corporation and Subsidiaries |
| (In thousands) |
| Years ended March 31, |
2021 |
2020 |
||||||
| Cash flows from operating activities: |
||||||||
| Net earnings |
$ | $ | ||||||
| Adjustments to reconcile net earnings to net cash provided by operations: |
||||||||
| Depreciation and amortization |
||||||||
| Deferred income tax expense |
||||||||
| Gain on the sale of assets |
( |
) | ( |
) | ||||
| Restructuring provision |
||||||||
| Loss from equity investment |
||||||||
| 401(k) match stock contribution |
||||||||
| Changes in operating assets and liabilities (net of acquisitions): |
||||||||
| Accounts and contracts receivable |
( |
) | ||||||
| Inventories |
||||||||
| Other current assets |
( |
) | ||||||
| Accounts payable, accrued expenses, and other liabilities |
( |
) | ( |
) | ||||
| Income taxes |
( |
) | ( |
) | ||||
| Net cash provided by operating activities |
||||||||
| Cash flows from investing activities: |
||||||||
| Additions to property, plant, and equipment |
( |
) | ( |
) | ||||
| Proceeds from the sale of assets |
||||||||
| Net cash provided by (used in) investing activities |
( |
) | ||||||
| Cash flows from financing activities: |
||||||||
| Proceeds from issuance of long-term debt |
||||||||
| Payments of long-term debt |
( |
) | ( |
) | ||||
| Payments on financing leases |
( |
) | ( |
) | ||||
| Change in other assets |
( |
) | ( |
) | ||||
| Purchase of treasury stock |
( |
) | ( |
) | ||||
| Preferred stock dividends paid |
( |
) | ( |
) | ||||
| Net cash used in financing activities |
( |
) | ( |
) | ||||
| Net increase (decrease) in cash and cash equivalents |
( |
) | ||||||
| Cash and cash equivalents, beginning of year |
||||||||
| Cash and cash equivalents, end of year |
$ | $ | ||||||
| Supplemental disclosures of cash flow information: |
||||||||
| Cash paid during the year for: |
||||||||
| Interest |
$ | $ | ||||||
| Income taxes paid |
||||||||
| Noncash transactions: |
||||||||
| Investment in CraftAg. LLC via contribution of plant |
$ | $ | ||||||
| Property, plant and equipment issued under finance and operating leases |
||||||||
| Property, plant and equipment purchased on account |
||||||||
| 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, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| Net earnings | ||||||||||||||||||||||||
| Cash dividends paid on preferred stock | ( | ) | ||||||||||||||||||||||
| Equity incentive program | ||||||||||||||||||||||||
| Contribution of 401(k) match | ||||||||||||||||||||||||
| Purchase of treasury stock | ( | ) | ||||||||||||||||||||||
| Preferred stock conversion | ( | ) | ||||||||||||||||||||||
| Operating lease impairment adjustment upon the adoption of ASU 2016-02 "Leases" (net of tax $) | ( | ) | ||||||||||||||||||||||
| Change in pension and postretirement benefits adjustment (net of tax $) | ( | ) | ||||||||||||||||||||||
| Balance March 31, 2020 | ( | ) | ( | ) | ||||||||||||||||||||
| Net earnings | ||||||||||||||||||||||||
| Cash dividends paid on preferred stock | ( | ) | ||||||||||||||||||||||
| Equity incentive program | ||||||||||||||||||||||||
| Contribution of 401(k) match | ||||||||||||||||||||||||
| Purchase of treasury stock | ( | ) | ||||||||||||||||||||||
| Preferred stock conversion | ( | ) | ||||||||||||||||||||||
| Change in pension and postretirement benefits adjustment (net of tax $) | ||||||||||||||||||||||||
| Balance March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| 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, 2021 |
||||||||||||||||||||||||
| Shares outstanding: |
||||||||||||||||||||||||
| March 31, 2020 |
||||||||||||||||||||||||
| March 31, 2021 |
||||||||||||||||||||||||
| Stock amount |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
| 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”) currently has
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 4, 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.
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 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 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. |
Cash and cash equivalents as of March 31, 2021 include an investment in a money market fund, which is classified within Level 1 of the fair value hierarchy because it has readily-available market prices in active markets that are publicly accessible at the measurement date.
Notes to Consolidated Financial Statements
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.
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 no 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.
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.
Notes to Consolidated Financial Statements
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, | 2021 | 2020 | ||||||
| Continuing Operations | (In thousands, except per share amounts) | |||||||
| Basic | ||||||||
| Continuing operations earnings | $ | $ | ||||||
| Deduct preferred stock dividends | ||||||||
| Undistributed earnings | ||||||||
| Earnings attributable to participating preferred shareholders | ||||||||
| Earnings attributable to common shareholders | $ | $ | ||||||
| Weighted average common shares outstanding | ||||||||
| Basic earnings from continuing operations per common share | $ | $ | ||||||
| Diluted | ||||||||
| Earnings attributable to common shareholders | $ | $ | ||||||
| Add dividends on convertible preferred stock | ||||||||
| Earnings attributable to common stock on a diluted basis | $ | $ | ||||||
| Weighted average common shares outstanding-basic | ||||||||
| Additional shares to be issued related to the equity compensation plan | ||||||||
| Additional shares to be issued under full conversion of preferred stock | ||||||||
| Total shares for diluted | ||||||||
| Diluted earnings from continuing operations per share | $ | $ | ||||||
| Years ended March 31, | 2021 | 2020 | ||
| Discontinued Operations | (In thousands, except per share amounts) | |||
| Basic | ||||
| Discontinued operations earnings | $ | $ | ||
| Deduct preferred stock dividends | ||||
| Undistributed earnings | ||||
| Earnings attributable to participating preferred shareholders | ||||
| Earnings attributable to common shareholders | $ | $ | ||
| Weighted average common shares outstanding | ||||
| Basic earnings from discontinued operations per common share | $ | $ | ||
| Diluted | ||||
| Earnings attributable to common shareholders | $ | $ | ||
| Add dividends on convertible preferred stock | ||||
| Earnings attributable to common stock on a diluted basis | $ | $ | ||
| Weighted average common shares outstanding-basic | ||||
| Additional shares to be issued related to the equity compensation plan | - | |||
| Additional shares to be issued under full conversion of preferred stock | ||||
| Total shares for diluted | ||||
| Diluted earnings from discontinued operations per share | $ | $ | ||
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 $
Notes to Consolidated Financial Statements
The Company assesses its long-lived assets for impairment whenever there is an indicator of impairment. Impairment losses are evaluated if the estimated undiscounted cash flows from using the assets are less than carrying value. A loss is recognized when the carrying value of an asset exceeds its fair value.
Additionally, the Company’s assesses the potential for an other-than-temporary impairment of its equity method investment when impairment indicators are identified. The Company considers all available information, including the recoverability of the investment, the earnings and near-term prospects of the investment, factors related to the industry, amongst others relevant information. If an investment is considered to be impaired and the decline in value is other than temporary, an impairment charge is recorded. During 2021, the Company recorded an other-than-temporary impairment charge of $
Recently Issued Accounting Standards — In August 2018, the FASB issued ASU No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which modifies the disclosure requirements for defined benefit pension plans and other postretirement plans. ASU 2018-14 became effective for annual periods ending after December 15, 2020. The Company adopted the standard for its fiscal year ended March 31, 2021 and the adoption of ASU 2018-14 did not have an impact on the consolidated financial statements as this ASU only modified disclosure requirements. See Note 10 “Retirement Plants” and related disclosures.
In May 2020, the SEC issued a final rule that amends the financial statement requirements for acquisitions and dispositions of businesses. The amendments primarily relate to disclosures required by Rule 3-05 and Article 11 of Regulation S-X. Among other things, the final rule modifies the tests provided in Rule 1-02(w) of Regulation S-X used to determine whether a subsidiary or an acquired or disposed business is significant. The amendments took effect January 1, 2021 and the Company elected not to early adopt the provisions of the final rule prior to that date. Therefore the final rule became effective January 1, 2021 and did not impact the Company’s financial statement disclosures in fiscal 2021.
In March 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting which provides optional guidance for a limited time to ease the potential accounting burden associated with the expected market transition away from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. LIBOR is used to determine interest expense related to the Company’s Revolver, which matures in 2026. This update was effective starting March 12, 2020 and the Company may elect to apply the amendments prospectively through December 31, 2022. We are currently evaluating the effect that ASU 2020-04 will have on our consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU No. 2019-12 to simplify the accounting for income taxes by removing certain exceptions to the general principles and simplify areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enacted tax laws or rate changes. The new standard will be effective for the Company in the first quarter fiscal year 2022. We are currently evaluating the effect that the new standard will have on the Company’s financial position, results of operations and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which was subsequently amended in November 2018 through ASU No. 2018-19, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses." ASU No. 2016-13 will require entities to estimate lifetime expected credit losses for trade and other receivables along with other financial instruments which will result in earlier recognition of credit losses. Further, the new credit loss model will affect how entities in all industries estimate their allowance for losses for receivables that are current with respect to their payment terms. In November 2019, the FASB issued ASU No. 2019-10, which, among other things, deferred the application of the new guidance on credit losses for smaller reporting companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This guidance will be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., a modified-retrospective approach). Under the above-mentioned deferral, the Company expects to adopt ASU No. 2016-03, and the related ASU No. 2018-19 amendments, beginning as of April 1, 2023 and is in the process of assessing the impact, if any, that this new guidance is expected to have on the Company’s results of operations, financial condition and/or financial statement disclosures.
Notes to Consolidated Financial Statements
2. Assets Held For Sale
As of March 31, 2021, the Company has certain non-operating units in the Midwest and equipment in the Northwest that have met the criteria to be classified as held for sale, which requires the Company to present the related assets and liabilities as separate line items in our Condensed Consolidated Balance Sheet. The Company recorded a charge of $
| March 31, 2021 | ||||
| Property, Plant and Equipment (net) | $ | |||
| Current Assets Held For Sale | $ | |||
3. Discontinued Operations
On July 13, 2018, the Company executed a nonbinding letter of intent with a perspective buyer of the Modesto facility. On October 9, 2018, the Company closed on the sale of the facility to this outside buyer with net proceeds of $
The following table presents information related to the major classes of assets and liabilities of Modesto that are classified as Held For Sale-Discontinued Operations in the Company's Consolidated Condensed balance sheets (in thousands):
| March 31, 2021 | March 31, 2020 | |||||||
| Other Current Assets | $ | $ | ||||||
| Current Assets Held For Sale-Discontinued Operations | $ | $ | ||||||
| Other Assets | $ | $ | ||||||
| Noncurrent Assets Held For Sale-Discontinued Operations | $ | $ | ||||||
| Accounts Payable and Accrued Expenses | $ | $ | ||||||
| Current Liabilities Held For Sale-Discontinued Operations | $ | $ | ||||||
Notes to Consolidated Financial Statements
The operating results of the discontinued operations that are reflected in the Unaudited Condensed Consolidated Statements of Net Earnings from discontinued operations are as follows (in thousands):
| Twelve Months Ended | ||||||||
| March 31, 2021 | March 31, 2020 | |||||||
| Net Sales | $ | $ | ||||||
| Costs and Expenses: | ||||||||
| Cost of Product Sold | ||||||||
| Selling, General and Administrative | ||||||||
| Plant Restructuring Charge (a) | ( | ) | ||||||
| Interest Expense | ||||||||
| Total cost and expenses | ( | ) | ||||||
| Earnings From Discontinued Operations Before Income Taxes | ||||||||
| Gain on the Sale of Assets Before Income Taxes | ( | ) | ||||||
| Income Tax Expense | ||||||||
| Net Earnings From Discontinued Operations, Net of Tax | $ | $ | ||||||
| (a) Includes $ |
4. Revenue Recognition
The Company applies the provisions of ASC 606-10, Revenue from Contracts with Customers, and recognizes revenue under the core principle to depict the transfer of products to customers in an amount reflecting the consideration the Company expects to receive. The Company conducts its business almost entirely in food packaging, which contributed approximately
Nature of products
The Company manufactures and sells the following:
| • | private label products to retailers, such as supermarkets, mass merchandisers, and specialty retailers, for resale under the retailers’ own or controlled labels; |
| • | private label and branded products to the foodservice industry, including foodservice distributors and national restaurant operators; |
| • | branded products under our own proprietary brands, primarily on a national basis to retailers; |
| • | branded products under co-pack agreements to other major branded companies for their distribution; and |
| • | products to our industrial customer base for repackaging in portion control packages and for use as ingredients by other food manufacturers. |
Notes to Consolidated Financial Statements
Disaggregation of revenue
In the following table, segment revenue is disaggregated by product category groups (in thousands):
| Year Ended | ||||||||
| March 31, 2021 | March 31 ,2020 | |||||||
| Canned Vegetables | $ | $ | ||||||
| Frozen | ||||||||
| Fruit Products | ||||||||
| Prepared Foods | ||||||||
| Chip Products | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
When Performance Obligations Are Satisfied
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue recognition. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s primary performance obligation is the production of food products and secondarily case and labeling services and storage services for certain bill and hold sales.
Revenue recognition is completed primarily at a point in time basis when product control is transferred to the customer. In general, control transfers to the customer when the product is shipped or delivered to the customer based upon applicable shipping terms, as the customer can direct the use and obtain substantially all of the remaining benefits from the asset at this point in time.
Customer contracts generally do not include more than one performance obligation. When a contract does contain more than one performance obligation, we allocate the contract’s transaction price to each performance obligation based on its relative standalone selling price. The standalone selling price for each distinct good is generally determined by directly observable data.
The performance obligations in our contracts are generally satisfied within one year. As such, we have not disclosed the transaction price allocated to remaining performance obligations for labeling and storage as of March 31, 2021 which is included in deferred revenue on the consolidated balance sheet.
Significant Payment Terms
Our customer contracts identify the product, quantity, price, payment and final delivery terms. Payment terms usually include early pay discounts. We grant payment terms consistent with industry standards. Although some payment terms may be more extended, no terms beyond one year are granted at contract inception. As a result, we do not adjust the promised amount of consideration for the effects of a significant financing component because the period between our transfer of a promised good or service to a customer and the customer’s payment for that good or service will be generally 30 days or less.
Shipping
All shipping and handling costs associated with outbound freight are accounted for as fulfillment costs and are included in the cost of sales; this includes shipping and handling costs after control over a product has transferred to a customer.
Variable Consideration
In addition to fixed contract consideration, some contracts include some form of variable consideration. Trade promotions are an important component of the sales and marketing of the Company’s branded products, and are critical to the support of the business. 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.
Notes to Consolidated Financial Statements
Contract balances
The contract asset balances are $
Contract Costs
We have identified certain incremental costs to obtain a contract, primarily sales commissions, requiring capitalization under the new standard. The Company continues to expense these costs as incurred because the amortization period for the costs would have been one year or less. The Company does not incur significant fulfillment costs requiring capitalization.
5. Revolving Credit Facility
On March 24, 2021, the Company entered into a Fourth Amended and Restated Loan and Security Agreement that provides for a senior revolving credit facility of up to $
6. Long-Term Debt
| 2021 | 2020 | |||||||
| (In thousands) | ||||||||
| Revolving credit facility, and , due through 2026 | $ | $ | ||||||
| Farm Credit term loan, and , due 2026 | ||||||||
| Bluegrass tax exempt bonds, and | ||||||||
| Economic development note, , due through 2022 | ||||||||
| Other | ||||||||
| Total | ||||||||
| Less current portion | ||||||||
| Long-term debt | $ | $ | ||||||
See Note 5, Revolving Credit Facility, for discussion of the Revolver.
The Company’s debt agreements, including the Revolver and term loan, contain customary affirmative and negative covenants that restrict, with specified exceptions, the Company’s ability to incur additional indebtedness, incur liens, pay dividends on the Company’s capital stock, make other restricted payments, including investments, transfer all or substantially all of the Company’s assets, enter into consolidations or mergers, and enter into transactions with affiliates. The Company’s debt agreements also require the Company to meet certain financial covenants including a minimum EBITDA and minimum tangible net worth. The Revolver contains borrowing base requirements related to accounts receivable and inventories and also requires the Company to meet a financial covenant related to a minimum fixed charge coverage ratio if (a) an event of default has occurred or (b) availability on the Revolver is less than the greater of (i)
Notes to Consolidated Financial Statements
The Company's debt agreements limit the payment of dividends and other distributions. There is an annual total distribution limitation of $
On May 28, 2020 the Company entered into an Amended and Restated Loan and Guaranty Agreement with Farm Credit East, ACA that provides for a $
The carrying value of assets pledged for secured debt, including the Revolver, is $
Debt repayment requirements for the next five fiscal years are (in thousands):
| Years ending March 31: | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ |
7. Leases
The Company determines if an arrangement is a lease at inception of the agreement. Operating leases are included in right-of-use operating assets, current portion of long-term debt and lease obligations, and noncurrent operating lease obligations in the Company’s Consolidated Balance Sheets. Lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. If the lease does not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The right-of-use operating lease assets also include in its calculation any prepaid lease payments made and excludes any lease incentives received from the arrangement. The Company’s lease terms may include options to extend or terminate the lease, and the impact of these options are included in the lease liability and lease asset calculations when the exercise of the option is at the Company’s sole discretion and it is reasonably certain that the Company will exercise that option. The Company will not separate lease and nonlease components for its leases when it is impractical to separate the two, such as leases with variable payment arrangements. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
The Company has operating leases for land, machinery and equipment. The Company also has finance leases for machinery and equipment. The commencement date used for the calculation of the lease obligation is the latter of April 1, 2019 or the lease start date. Certain of the leases have options to extend the life of the lease, which are included in the liability calculation when the option is at the sole discretion of the Company and it is reasonably certain that the Company will exercise the option. In addition, the Company has certain leases that have variable payments based solely on output or usage of the leased asset. These variable operating lease assets are excluded from the Company’s balance sheet presentation and expensed as incurred. Leases with an initial term of 12 months or less are not material.
Upon adoption of ASU 2016-02, the Company determined its right-of-use assets related to the operating leases for its plant equipment in Sunnyside, Washington were partially impaired and therefore were reduced with a corresponding charge to retained earnings of $
Notes to Consolidated Financial Statements
Lease expense for lease payments is recognized on a straight-line basis over the lease term. The components of lease expense were as follows (In thousands):
| Year Ended | Year Ended | |||||||
| March 31, 2021 | March 31, 2020 | |||||||
| Lease cost: | ||||||||
| Amortization of right of use asset | $ | $ | ||||||
| Interest on lease liabilities | ||||||||
| Finance lease cost | ||||||||
| Operating lease cost | ||||||||
| Total lease cost | $ | $ | ||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||
| Operating cash flows from finance leases | $ | $ | ||||||
| Operating cash flows from operating leases | ||||||||
| Financing cash flows from finance leases | ||||||||
| Total | $ | $ | ||||||
| Right-of-use assets obtained in exchange for new finance lease liabilities | $ | $ | ||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | $ | ||||||
| Weighted-average lease term (years): | ||||||||
| Financing leases | ||||||||
| Operating leases | ||||||||
| Weighted-average discount rate (percentage): | ||||||||
| Financing leases | ||||||||
| Operating leases | ||||||||
Notes to Consolidated Financial Statements
Undiscounted future lease payments under non-cancelable operating leases and financial leases, along with a reconciliation of undiscounted cash flows to operating and financing lease liabilities, respectively, as of March 31, 2021 were as follows (in thousands):
| Years ending March 31: | Operating | Financing | |||||||
| 2022 | $ | $ | |||||||
| 2023 | |||||||||
| 2024 | |||||||||
| 2025 | |||||||||
| 2026 | |||||||||
| 2027-2032 | |||||||||
| Total minimum payment required | $ | $ | |||||||
| Less interest | |||||||||
| Present value of minimum lease payments | |||||||||
| Amount due within one year | |||||||||
| Long-term lease obligation | $ | $ | |||||||
Undiscounted future lease payments under non-cancelable operating leases and financial leases, along with a reconciliation of undiscounted cash flows to operating and financing lease liabilities, respectively, as of March 31, 2020 were as follows (in thousands):
| Years ending March 31: | Operating | Financing | |||||||
| 2021 | $ | $ | |||||||
| 2022 | |||||||||
| 2023 | |||||||||
| 2024 | |||||||||
| 2025 | |||||||||
| 2026-2031 | |||||||||
| Total minimum payment required | $ | $ | |||||||
| Less interest | |||||||||
| Present value of minimum lease payments | |||||||||
| Amount due within one year | |||||||||
| Long-term lease obligation | $ | $ | |||||||
8. Income Taxes
The Company files a consolidated federal and various state income tax returns. The provision for income taxes is as follows (in thousands):
| 2021 | 2020 | |||||||
| (In thousands) | ||||||||
| Current: | ||||||||
| Federal | $ | $ | ( | ) | ||||
| State | ||||||||
| Total | ( | ) | ||||||
| Deferred: | ||||||||
| Federal | $ | $ | ||||||
| State | ||||||||
| Total | ||||||||
| Total income taxes (1) | $ | $ | ||||||
| (1) Income tax expense (benefit) included in the financial statements is comprised of $ |
A reconciliation for continuing operations of the expected U.S. statutory rate to the effective rate follows:
| 2021 | 2020 | |||||||
| Computed (expected tax rate) | % | % | ||||||
| State income taxes (net of federal tax benefit) | ||||||||
| Federal credits | ( | ) | ( | ) | ||||
| Addition/(reduction) to uncertain tax positions | ( | ) | ||||||
| Other permanent differences not deductible | ||||||||
| Change in valuation allowance | ||||||||
| Tax law change | ( | ) | ||||||
| Federal NOL carryback rate difference | ( | ) | ||||||
| Other | ||||||||
| Effective income tax rate | % | % | ||||||
The effective tax rate was
Notes to Consolidated Financial Statements
The following is a summary of the significant components of the Company's deferred income tax assets and liabilities as of March 31:
| 2021 | 2020 | |||||||
| (In thousands) | ||||||||
| Deferred income tax assets: | ||||||||
| Future tax credits | $ | $ | ||||||
| Inventory valuation | ||||||||
| Restructuring reserve | ||||||||
| Employee benefits | ||||||||
| Insurance | ||||||||
| Other comprehensive loss | ||||||||
| Interest | ||||||||
| Prepaid revenue | ||||||||
| Other | ||||||||
| Equity investment basis difference | ||||||||
| Net operating loss and other tax attribute carryovers | ||||||||
| Total assets | ||||||||
| Deferred income tax liabilities: | ||||||||
| Property basis and depreciation difference | ||||||||
| Intangibles | ||||||||
| Equity investment basis difference | ||||||||
| Right of use assets | ||||||||
| Pension | ||||||||
| Total liabilities | ||||||||
| Valuation allowance - non-current | ||||||||
| Net deferred income tax (liability)/asset | $ | ( | ) | $ | ||||
Net non-current deferred income tax liabilities of $
The Company has State tax credit carryforwards amounting to $
Notes to Consolidated Financial Statements
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 classifies the liability for uncertain tax positions in other accrued expenses or other long-term liabilities depending on their expected settlement. The change in the liability for the years ended March 31, 2021 and 2020 consists of the following:
| 2021 | 2020 | |||||||
| (In thousands) | ||||||||
| Beginning balance | $ | $ | ||||||
| Tax positions related to current year: | ||||||||
| Additions | ||||||||
| Tax positions related to prior years: | ||||||||
| Additions | ||||||||
| Reductions | ( | ) | ( | ) | ||||
| Lapses in statues of limitations | ( | ) | ( | ) | ||||
| Balance as of March 31, | $ | $ | ||||||
As of March 31, 2021 and 2020 unrecognized tax benefits include $
The Company recognizes interest and penalties accrued on unrecognized tax benefits as well as interest received from favorable settlements within income tax expense. During the years ended March 31, 2021 and 2020, the Company recognized approximately $
Although management believes that an adequate position has been made for uncertain tax positions, there is the possibility that the ultimate resolution could have an adverse effect on the earnings of the Company. Conversely, if resolved favorably in the future, the related provisions would be reduced, thus having a positive impact on earnings. During 2021 the statute of limitations lapsed on one uncertain tax position. The lapse results in the position no longer being uncertain. As a result of the statute of limitations lapse and in accordance with its accounting policies, the Company recorded a decrease to the liability and a decrease to tax expense of $
The federal income tax returns for years after March 31, 2015 are open because we claimed a refund on the 3/31/16 taxable income. The tax year ending March 31, 2017 is currently under audit with the IRS.
9. Stockholders’ Equity
Preferred Stock — The Company has authorized three classes of preferred stock consisting of
The Convertible Participating Preferred Stock and Convertible Participating Preferred Stock, Series 2003 are convertible at the holders’ option on a
Notes to Consolidated Financial Statements
The Convertible Participating Preferred Stock has a liquidation preference of $
There are
Common Stock — The Class A Common Stock and the Class B Common Stock have substantially identical rights with respect to any dividends or distributions of cash or property declared on shares of common stock, and rank equally as to the right to receive proceeds on liquidation or dissolution of the Company after payment of the Company’s indebtedness and liquidation right to the holders of preferred shares. However, holders of Class B Common Stock retain a full vote per share, whereas the holders of Class A Common Stock have voting rights of of one vote per share on all matters as to which shareholders of the Company are entitled to vote. During 2021, there were
Unissued shares of common stock reserved for conversion privileges of designated non-participating preferred stock were
Treasury Stock — During 2021 the Company repurchased $
10. Retirement Plans
The Company has a noncontributory defined benefit pension plan (the “Plan”) covering most employees who meet certain age-entry requirements and work a stated minimum number of hours per year. The Plan was amended to freeze accruals to new hires and rehires effective January 1, 2020. Annual contributions made to the Plan are sufficient to satisfy legal funding requirements.
The following tables provide a reconciliation of the changes in the Plan’s benefit obligation and fair value of plan assets over the two-year period ended March 31, 2021 and a statement of the funded (unfunded) status as of March 31, 2021 and 2020:
| 2021 | 2020 | |||||||
| (In thousands) | ||||||||
| Change in Benefit Obligation | ||||||||
| Benefit obligation at beginning of year | $ | $ | ||||||
| Service cost | ||||||||
| Interest cost | ||||||||
| Liability gain due to curtailment | ( | ) | ||||||
| Actuarial loss | ||||||||
| Benefit payments and expenses | ( | ) | ( | ) | ||||
| Benefit obligation at end of year | $ | $ | ||||||
| Change in Plan Assets | ||||||||
| Fair value of plan assets at beginning of year | $ | $ | ||||||
| Actual return on plan assets | ( | ) | ||||||
| Employer contributions | ||||||||
| Benefit payments and expenses | ( | ) | ( | ) | ||||
| Fair value of plan assets at end of year | $ | $ | ||||||
| Funded (Unfunded) Status | $ | $ | ( | ) | ||||
The funded status increased by $
Plan assets increased from $
| 2021 | 2020 | |||||||
| (In thousands) | ||||||||
| Amounts Recognized in Accumulated Other Comprehensive Pre-Tax Loss | ||||||||
| Prior service cost | $ | ( | ) | $ | ( | ) | ||
| Net loss | ( | ) | ( | ) | ||||
| Accumulated other comprehensive pre-tax loss | $ | ( | ) | $ | ( | ) | ||
| Pension and | ||||
| post retirement plan | ||||
| adjustments, net | ||||
| of tax | ||||
| (In thousands) | ||||
| Accumulated Other Comprehensive Loss | ||||
| Balance at March 31, 2020 | $ | ( | ) | |
| Other comprehensive income | ||||
| Balance at March 31, 2021 | $ | ( | ) | |
The following table provides the components of net periodic benefit cost for the Plan for fiscal years 2021 and 2020:
| 2021 | 2020 | |||||||
| (In thousands) | ||||||||
| Service cost including administration | $ | $ | ||||||
| Interest cost | ||||||||
| Expected return on plan assets | ( | ) | ( | ) | ||||
| Amortization of net loss | ||||||||
| Prior service cost | ||||||||
| Net periodic benefit cost | $ | $ | ||||||
| Settlement/curtailment expense | ||||||||
| Net periodic benefit cost with curtailment | $ | $ | ||||||
The Company utilizes a full yield curve approach in the estimation of net periodic benefit cost components by applying the specific spot rates along the yield curve used in determination of the benefit obligation to their underlying projected cash flows.
Prior service costs are amortized on a straight-line basis over the average remaining service period of active participants. Gains and losses in excess of 10% of the greater of the benefit obligation and the market-related value of assets are amortized over the average remaining service period of active participants.
Notes to Consolidated Financial Statements
The assumptions used to measure the Company’s benefit obligation and pension expense are shown in the following table:
| 2021 | 2020 | |||||||
| Weighted Average Assumptions for Balance Sheet Liability at End of Year: | ||||||||
| Discount rate - projected benefit obligation | % | % | ||||||
| Rate of compensation increase | % | % | ||||||
| Mortality table |
| Pri-2012 Blue Collar Generational Table Improvement Scale MP-2020 |
| Pri-2012 Blue Collar Generational Table Improvement Scale MP-2019 | ||||
| Weighted Average Assumptions for Benefit Cost at Beginning of Year: | ||||||||
| Discount rate - benefit obligations | % | % | ||||||
| Discount rate - interest cost | % | % | ||||||
| Discount rate - service cost | % | % | ||||||
| Discount rate - interest on service cost | % | % | ||||||
| Expected return on plan assets | % | % | ||||||
| Rate of compensation increase | % | % | ||||||
The Company's plan assets consist of the following:
| Target | Percentage of Plan | |||||||||||
| Allocation | Assets at March 31, | |||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Plan Assets | ||||||||||||
| Equity securities | % | % | % | |||||||||
| Debt securities | % | % | ||||||||||
| Real estate | ||||||||||||
| Cash | % | % | ||||||||||
| Total | % | % | % | |||||||||
All securities, which are valued at fair market value, are considered to be level 1, due to their public active market.
Expected Return on Plan Assets
For fiscal 2021, the expected long term rate of return on Plan assets was
Investment Policy and Strategy
Historically, the Company maintained an investment policy designed to achieve a long-term rate of return by investing in a diversified portfolio of public company equities seeking to provide long-term growth consistent with the performance of relevant market indices, as well as maintain an adequate level of liquidity for pension distributions as they fall due. The Company is currently in the process of reviewing its investment policy and shifting towards more liability-driven investments to reduce the ongoing volatility of the Plan’s funded status. As an initial step, in March 2021, the Company adjusted the allocation of the Plan assets by moving 50% of the assets into liability-hedging investment grade fixed income investments, while maintaining 50% of the assets in diversified public company equities. Additionally, in FY 2022, the Company intends to implement a glide path approach that will adjust the asset allocation as the Plan’s funded status changes, with more assets being allocated to fixed income investments as the funded status improves to continue to reduce the Plan’s funded status volatility.
Notes to Consolidated Financial Statements
Cash Flows
Expected contributions for fiscal year ending March 31, 2022 (in thousands):
| Expected Employer Contributions | $ | |||
| Expected Employee Contributions | $ |
Estimated future benefit payments reflecting expected future service for the fiscal years ending March 31 (in thousands):
| 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027-2031 |
401(k) Plans
The Company also has employees’ savings 401(k) plans covering all employees who meet certain age-entry requirements and work a stated minimum number of hours per year. Participants may make contributions up to the legal limit. The Company’s matching contributions are discretionary. Costs charged to operations for the Company’s matching contributions amounted to $
Unfunded Deferred Compensation Plan
The Company sponsors an unfunded nonqualified deferred compensation plan to permit certain eligible employees to defer receipt of a portion of their compensation to a future date. This plan was designed to compensate the plan participants for any loss of company contributions under the 401(k) plans. The total cost for this plan was not significant in fiscal 2021 or 2020.
11. Fair Value of Financial Instruments
The carrying amount and estimated fair values of the Company's debt are summarized as follows (in thousands):
| 2021 | 2020 | |||||||||||||||
| Carrying | Estimated | Carrying | Estimated | |||||||||||||
| Amount | Fair Value | Amount | Fair Value | |||||||||||||
| (in thousands) | ||||||||||||||||
| Long-term debt, including current portion | $ | $ | $ | $ | ||||||||||||
The estimated fair value for long-term debt is determined by the quoted market prices for similar debt (comparable to the Company’s financial strength) or current rates offered to the Company for debt with the same maturities which is Level 2 from the fair value hierarchy. Since quoted prices for identical instruments in active markets are not available (Level 1), the Company makes use of observable market based inputs to calculate fair value, which is Level 2.
12. Inventories
Effective December 30, 2007, the Company changed its inventory valuation method from the lower of cost, determined under the FIFO method, or market to the lower of cost, determined under the LIFO method, or market. In the high inflation environment that the Company was experiencing, the Company believed that the LIFO inventory method was preferable over the FIFO method because it better compares the cost of current production to current revenue. The effect of LIFO was to increase continuing net earnings by $
| 2021 |
2020 |
|||||||
| Finished products |
$ | $ | ||||||
| In process |
||||||||
| Raw materials and supplies |
||||||||
| Less excess of FIFO cost over LIFO cost |
||||||||
| Total inventories |
$ | $ | ||||||
13. Other Operating Income and Expense
Other operating income in 2021 includes a gain on the sale of the prepared food business of $
Other operating income in 2020 includes a gain on the partial sale of a plant in the Midwest of $
14. Segment Information
The Company manages its business on the basis of
| Fruit and | Prepared | |||||||||||||||||||
| Vegetable | Foods | Snack | Other | Total | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| 2021: | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | $ | |||||||||||||||
| Operating income | ||||||||||||||||||||
| Identifiable assets | ||||||||||||||||||||
| Capital expenditures | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| 2020: | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | $ | |||||||||||||||
| Operating income (loss) | ( | ) | ||||||||||||||||||
| Identifiable assets | ||||||||||||||||||||
| Capital expenditures | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
15. Legal Proceedings and Other Contingencies
In the ordinary course of its business, the Company is made a party to certain legal proceedings seeking monetary damages, including proceedings involving product liability claims, workers’ compensation along with other employee claims, tort and other general liability claims, for which it carries insurance, as well as patent infringement and related litigation. The Company is in a highly regulated industry and is also periodically involved in government actions for regulatory violations and other matters surrounding the manufacturing of its products, including, but not limited to, environmental, employee, and product safety issues. While it is not feasible to predict or determine the ultimate outcome of these matters, the Company does not believe that an adverse decision in any of these legal proceedings would have a material adverse impact on its financial position, results of operations, or cash flows.
16. Plant Restructuring
During 2021, the Company recorded a restructuring charge of $
During 2020, the Company recorded a restructuring charge of $
These charges are included under Plant Restructuring Charge in the Consolidated Statements of Net Earnings. Severance Payable and Other Costs Payable are included in Other Accrued Expenses on the Consolidated Balance Sheets.
Notes to Consolidated Financial Statements
The following table summarizes the restructuring and related asset impairment charges recorded and the accruals established during 2021 and 2020 (in thousands):
| Other | ||||||||||||
| Severance | Cost | |||||||||||
| Payable | Payable | Total | ||||||||||
| Balance March 31, 2019 | $ | $ | ||||||||||
| Charge to expense | ||||||||||||
| Cash payments/write offs | ( | ) | ( | ) | ( | ) | ||||||
| Balance March 31, 2020 | ||||||||||||
| Charge to expense | ( | ) | ||||||||||
| Cash payments/write offs | ( | ) | ( | ) | ||||||||
| Balance March 31, 2021 | $ | $ | $ | |||||||||
17. Related Party Transactions
During fiscal 2021 and 2020, less than 1% of vegetables supplied to the Company are grown by a Director of Seneca Foods Corporation. The Director supplied the Company approximately $
During the years ended March 31, 2021 and 2020, the Company made charitable contributions to a related party foundation in the amount of approximately $
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Seneca Foods Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Seneca Foods Corporation (the “Company”) as of March 31, 2021 and 2020, the related statements of consolidated net earnings, comprehensive income (loss), stockholders' equity, and cash flows for each of the years in the two-year period ended March 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended March 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
We also have audited the Company’s internal control over financial reporting as of March 31, 2021, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our report dated June 11, 2021, expresses an unqualified opinion.
Basis for Opinion
The Company's management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Report of Independent Registered Public Accounting Firm
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Inventory – Refer to Notes 1 and 12 in the financial statements
Critical Audit Matter Description
At March 31, 2021, the Company’s inventory was $343.1 million. As described in Notes 1 and 12 to the consolidated financial statements, the Company accounts for substantially all its inventory at the lower of cost, determined using the last-in, first-out (LIFO) method, or market. As permitted by U.S. generally accepted accounting principles, the Company maintains its inventory costs and cost of goods sold on a first-in, first-out (FIFO) basis and adjusts total inventory and cost of goods sold from FIFO to LIFO at the end of each year. The Company values its inventory under the LIFO method based on the inventory levels and the prevailing inventory costs existing at that time.
We identified valuation of inventory as a critical audit matter because of the significant assumptions, manual calculations, and judgements in the LIFO reserve. Auditing management’s calculation was complex and required a high degree of auditor judgement and subjectivity when performing audit procedures and evaluating the audit evidence obtained.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s LIFO reserve included the following, among others:
| ● |
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s calculation of the adjustments to convert FIFO inventory balances to LIFO, including controls over management’s review of the manual calculations described above. |
| ● |
Tested the completeness, accuracy, and relevance of the underlying data used in management’s calculation to adjust the FIFO inventory balances to LIFO. |
| ● |
Tested the calculations and application of management’s methodologies related to the valuation estimates of the LIFO reserve. |
| ● |
Tested the mathematical accuracy of management’s manual calculation. |
/s/ Plante Moran, P.C.
We have served as the Company’s auditor since 2019.
Southfield, Michigan
June 11, 2021
| Schedule II |
| VALUATION AND QUALIFYING ACCOUNTS |
| (In thousands) |
| Balance at | Charged/ | Charged to | Deductions | Balance | ||||||||||||||||||
| beginning | (credited) | other | from | at end | ||||||||||||||||||
| of period | to income | accounts | reserve | of period | ||||||||||||||||||
| Year-ended March 31, 2021: | ||||||||||||||||||||||
| Allowance for doubtful accounts | $ | | $ |
|
| $ | _ | $ |
|
| (a) | $ | | |||||||||
| Income tax valuation allowance | $ | | $ | | $ | - | $ | - | $ | | ||||||||||||
| Year-ended March 31, 2020: | ||||||||||||||||||||||
| Allowance for doubtful accounts | $ | | $ | | $ | - | $ | | (a) | $ | | |||||||||||
| Income tax valuation allowance | $ | | $ | | $ | - | $ | - | $ | | ||||||||||||
| (a) Accounts written off, net of recoveries. |
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Seneca Foods Corporation
Marion, New York
The audit referred to in our report dated June 11, 2021 relating to the consolidated financial statements of Seneca Foods Corporation, which is incorporated in Item 8 of Form 10-K by reference to the Annual Report to Shareholders for the years ended March 31, 2021 and 2020 also included the audit of the consolidated financial statement schedule listed in the accompanying index. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this consolidated financial statement schedule based on our audit.
In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ Plante Moran, P.C.
We have served as the Company’s auditor since 2019.
Southfield, Michigan
June 11. 2021
Corporate Information
| Directors |
||
| Kathryn J. Boor, Ph.D. |
Linda K. Nelson |
Arthur S. Wolcott |
| Dean, College of Agriculture and Life Sciences |
Former Chief Financial Officer |
Chairman |
| Cornell University |
Birds Eye Foods, Inc. | |
| Peter R. Call |
Michael F. Nozzolio |
Keith A. Woodward |
| President |
Partner |
Former Chief Financial Officer |
| My-T Acres, Inc. |
Harris Beach PLLC |
Tennant Company |
| John P. Gaylord |
Donald Stuart |
|
| President |
Managing Partner/Founder |
|
| Jacintoport Terminal Company |
Cadent Consulting Group |
|
| Officers |
||
| Arthur S. Wolcott |
Dean E. Erstad |
Cynthia L. Fohrd |
| Chairman |
Senior Vice President - |
Senior Vice President and |
| Sales and Marketing |
Chief Administrative Officer |
|
| Paul L. Palmby |
Matt J. Henschler |
John D. Exner |
| President and Chief Executive Officer |
Senior Vice President |
General Counsel and Secretary |
| Technical Services and Development |
||
| Timothy J. Benjamin |
Aaron M. Girard |
Gregory Ide |
| Senior Vice President |
Senior Vice President of Logistics |
Vice President, Controller and |
| Chief Financial Officer and Treasurer |
Assistant Secretary |
|
| Timothy R. Nelson |
Carl A. Cichetti |
|
| Senior Vice President |
Senior Vice President - Technology and |
|
| Operations |
Planning and Chief Information Officer |
|
| Operations |
||
| Western Vegetable Operations |
Accounting |
Strategic Sourcing |
| Jon A. Brekken |
Mary Sagona |
Leon Lindsay |
| Vice President |
Vice President |
Vice President |
| Human Resources |
Technical Services |
Eastern Vegetable Operations |
| Amiee Jo Castleberry |
Steven F. Lammers |
Eric E. Martin |
| Vice President |
Vice President |
Vice President |
| Human Resources |
Technical Services |
Process Excellence |
| Diane Marciano |
Benjamin M. Scherwitz |
Paul Hendrickson |
| Vice President |
Vice President |
Vice President |
| Procurement and Contract Manufacturing |
Technology Operations |
Seneca Flight |
| Mark W. Forsting |
Timothy Nolan |
Richard Leppert |
| Vice President |
Vice President |
General Manager |
| Customer Service |
Seneca Snack |
|
| Richard L. Waldorf |
Beth Newell |
|
| Vice President |
General Manager |
|
| Sales and Marketing Groups |
||
| Branded Sales |
International |
E-Business |
| Carl B. Bowling |
Kevin F. Lipps |
Aaron L. Wadell |
| Vice President |
Vice President |
Vice President |
| Foodservice Dry Grocery |
Industrial and Ingredient Sales |
Marketing |
| Beau P. Simonson |
Victoria A. Ninneman |
Bruce S. Wolcott |
| Vice President |
Vice President |
Vice President |
| Private Label Retail |
Frozen Sales |
Glace Sales |
| George E. Hopkins, III |
Stephen J. Ott |
Tracy Shhulis |
| Vice President |
Vice President |
Vice President |