0000088948-11-000011.txt : 20110526 0000088948-11-000011.hdr.sgml : 20110526 20110526164850 ACCESSION NUMBER: 0000088948-11-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20110331 FILED AS OF DATE: 20110526 DATE AS OF CHANGE: 20110526 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Seneca Foods Corp CENTRAL INDEX KEY: 0000088948 STANDARD INDUSTRIAL CLASSIFICATION: CANNED, FRUITS, VEG & PRESERVES, JAMS & JELLIES [2033] IRS NUMBER: 160733425 STATE OF INCORPORATION: NY FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-01989 FILM NUMBER: 11874665 BUSINESS ADDRESS: STREET 1: 3736 SOUTH MAIN STREET CITY: MARION STATE: NY ZIP: 14505 BUSINESS PHONE: 315 926 8100 MAIL ADDRESS: STREET 1: 3736 SOUTH MAIN STREET CITY: MARION STATE: NY ZIP: 14505 FORMER COMPANY: FORMER CONFORMED NAME: SENECA FOODS CORP /NY/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: PIERCE S S COMPANY INC DATE OF NAME CHANGE: 19861210 FORMER COMPANY: FORMER CONFORMED NAME: SENECA FOODS CORP DATE OF NAME CHANGE: 19780425 10-K 1 a10k033111.htm 10-K MARCH 31, 2011 a10k033111.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

 
Washington, D.C. 20549

 
FORM 10-K


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

For the fiscal year ended March 31, 2011
Commission File Number 0-01989

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


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


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

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

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

 
None

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

 
Yes         No     X   

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

 
Yes          No     X   

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes         No       *  (*Registrant is not subject to the requirements of Rule 405 of Regulation S-T at this time.)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

 
Large accelerated filer          Accelerated filer    X       Non-accelerated filer              Smaller reporting company

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

 
Yes          No     X   

The aggregate market value of the Registrant’s voting and non-voting common equity held by non-affiliates based on the closing sales price per market reports by the NASDAQ Global Market System on October 2, 2010 was approximately $261,263,000.
 

As of May 21, 2011, there were 9,607,809 shares of Class A common stock and 2,127,822 shares of Class B common stock outstanding.

 
Documents Incorporated by Reference:

(1)  
Portions of the Annual Report to shareholders for fiscal year ended March 31, 2011 (the “2011 Annual Report”) applicable to Part I, Item 1, Part II, Items 5-9A and Part IV, Item 15 of Form 10-K.
 
(2)  
Portion of the Proxy Statement to be issued in connection with the Registrant’s annual meeting of stockholders (the “Proxy Statement”) applicable to Part III, Items 10-14 of Form 10-K.
 

 
 
 

TABLE OF CONTENTS
  
FORM 10-K ANNUAL REPORT FISCAL YEAR 2011
  
SENECA FOODS CORPORATION
  
 
 
  
 
  
 
 
  
 
  
 
 
  
 
  
PART I.
 
  
Pages
  
Item 1.
     1-4  
Item 1A.
     4-8  
Item 1B.
     8  
Item 2.
     8-9  
Item 3.
     9-10  
Item 4.
 [Removed and Reserved]
     10  
 
 
        
PART II.
 
        
Item 5.
     11  
 
 
        
Item 6.
     11  
Item 7.
     11  
Item 7A.
     11  
Item 8.
     11  
Item 9.
     12  
Item 9A.
     12-14  
Item 9B.
     14  
 
 
        
PART III.
 
        
Item 10.
     15  
Item 11.
     15  
Item 12.
     15  
Item 13.
     15  
Item 14.
     15  
 
 
        
 
 
        
PART IV.
 
        
Item 15.
     16-19  
 
 
        
 
     20  

 
 
 

Forward-Looking Statements

Certain of the statements contained in this annual report on Form 10-K are forward-looking statements made within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (Exchange Act).  Forward-looking statements involve numerous risks and uncertainties.  Forward-looking statements are not in the present or past tense and, in some cases, can be identified by the use of the words "will," "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "seeks," "should," "likely," "targets," "may", "can" and other expressions that indicate future trends and events. A forward-looking statement speaks only as of the date on which such statement is made and reflects management's analysis only as of the date thereof.  The Company undertakes no obligation to update any forward-looking statement. The following factors, among others discussed herein and in the Company's filings under the Exchange Act, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: costs and availability of raw materials, competition, cost controls, sales levels, governmental regulation, consumer preferences, industry trends, weather conditions, crop yields, natural disasters, recalls, litigation, reliance on third-parties, wage rates, and other factors.  See also the factors described in "Part I, Item 1A. Risk Factors" and elsewhere in this report, and those described in the Company's filings under the Exchange Act.

PART I
 
Item 1


 
History and Development of Seneca Foods Corporation

SENECA FOODS CORPORATION (the “Company”) is a leading low cost producer and distributor of high quality processed fruits and vegetables.  The Company’s product offerings include canned, frozen and bottled produce and snack chips and 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 Farm Kitchen, Stokely’s, Read and Diamond A.  The Company packs Green Giant, Le Sueur and other brands of canned vegetables as well as select Green Giant frozen vegetables for General Mills Operations, LLC (“GMOL”) under our long-term Alliance Agreement that was amended and restated during the second quarter of fiscal year 2010.

As of March 31, 2011, the Company’s facilities consisted of 21 processing plants strategically located throughout the United States, two can manufacturing plants, two seed processing operations, a small farming operation and a limited logistical support network.  The Company also maintains warehouses which are generally located adjacent to its processing plants.  The Company is a New York corporation and its headquarters is located at 3736 South Main Street, Marion, New York and its telephone number is (315) 926-8100.

The Company was founded in 1949 and during its 62 years of operation, the Company has made over 50 strategic acquisitions including the purchase of the long-term license for the Libby’s brand in 1983, the purchase of General Mills’ Green Giant processing assets and entry into the Alliance Agreement with GMOL in 1995 and the acquisition of Chiquita Processed Foods in 2003.  The Company believes that these acquisitions have enhanced the Company’s leadership position in the private label and foodservice canned vegetable markets in the United States and significantly increased its international sales.  In August 2006, the Company acquired Signature Fruit Company, LLC, a leading producer of canned fruits located in Modesto, California.  This acquisition allowed the Company to broaden its product offerings to become a leading producer and distributor of canned fruit and to achieve cost advantages through the realization of distribution and other synergies with the Company’s canned vegetable business.  In August 2010, the Company acquired 100% of the partnership interest in Lebanon Valley Cold Storage, LP and the assets of Unilink, LLC (collectively “Lebanon”) from Pennsylvania Food Group, LLC and related entities. The rationale for the acquisition was twofold: (1) to broaden the Company’s product offerings in the frozen food business; and (2) to take advantage of distribution efficiencies by combining shipments since the customer bases of the Company and Lebanon are similar.

 
Available Information

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

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

 
Financial Information about Industry Segments

The Company manages its business on the basis of two reportable segments – the primary segment is the processing and sale of fruits and vegetables and the secondary segment is the processing and sale of chip products.  These two segments constitute the food operation.  The food operation constitutes 99% of total sales, of which approximately 72% is canned vegetable processing, 16% is canned fruit processing, 11% is frozen fruit and vegetable processing and 1% is fruit chip processing.  The non-food operation, which is primarily related to the sale of cans and ends and outside revenue generated from our trucking and aircraft operations, represents 1% of the Company’s total sales.

 
Narrative Description of Business

 
Principal Products and Markets

 
Food Processing

The principal products include canned fruits and vegetables, frozen vegetables and other food products.  The products are sold nationwide by major grocery outlets, including supermarkets, mass merchandisers, limited assortment stores, club stores and dollar stores.  Additionally, products are sold to food service distributors, industrial markets, other food processors, export customers in 75 countries and federal, state and local governments for school and other feeding programs.  Food processing operations are primarily supported by plant locations in New York, California, Wisconsin, Washington, Idaho, Illinois, and Minnesota.  See Note 12 of Item 8, Financial Statements and Supplementary Data, for additional information about the Company’s segments.
 
 
 
 
1
 
 
The following table summarizes net sales by major product category for the years ended March 31, 2011, 2010, and 2009:
 

 
  
 
    
 
    
 
  
Classes of similar products/services:
  
2011
    
2010
    
2009
  
 
  
(In thousands)
  
Net Sales:
  
 
    
 
    
 
  
GMOL *
   $ 191,526     $ 239,622     $ 231,712  
Canned vegetables
     692,574       750,751       732,146  
Frozen *
     86,904       48,320       44,967  
Fruit
     195,427       200,391       233,897  
Snack
     10,604       21,287       15,498  
Other
     17,577       19,739       22,464  
    Total
   $ 1,194,612     $ 1,280,110     $ 1,280,684  
 
                        
* GMOL includes frozen vegetable sales exclusively for GMOL.
                        

 
Source and Availability of Raw Materials

The Company’s food processing plants are located in major vegetable producing states and in two fruit producing states.  Fruits and vegetables are primarily obtained through supply contracts with independent growers.

Intellectual Property

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

The Company is required to pay an annual royalty and Corlib Brands may terminate the license for non-payment of royalty, use of the trademark in sales outside the licensed territory, failure to achieve a minimum level of sales under the licensed trademark during any calendar year or a material breach or default by the Company under the agreement (which is not cured within the specified cure period).  With the purchase of Signature Fruit Company, LLC, which also uses the Libby’s® brand name, the Company re-negotiated the license agreement and created a new, combined agreement based on Libby’s® revenue dollars for fruits, vegetables, and dry beans.  A total of $238,000 was paid as a royalty fee for the year ended March 31, 2011.

The Company also sells canned fruits and vegetables, frozen vegetables and other food products under several other brands for which the Company has obtained registered trademarks, including Blue Boy®, Aunt Nellie’s Farm Kitchen®, Stokely®, Read®, Festal®, Seneca Farms™, and Seneca® and other regional brands.

 
Seasonal Business

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

These seasonal fluctuations, taking into account the Off Season Allowance, are illustrated in the following table, which presents certain unaudited quarterly financial information for the periods indicated:

 
 
2
 
 
  
First Quarter
    
Second Quarter
    
Third Quarter
    
Fourth Quarter
  
 
  
(In thousands)
  
Year ended March 31, 2011:
  
 
    
 
    
 
    
 
  
Net sales
   $ 219,942     $ 275,448     $ 446,250     $ 252,972  
Gross margin
     25,284       19,127       34,514       14,300  
Net earnings (loss)
     5,275       2,811       11,462       (1,877 )
Inventories
     467,569       757,783       545,072       455,236  
Revolver outstanding
     92,126       195,000       180,095       135,763  
 
                                
Year ended March 31, 2010:
                                
Net sales
   $ 230,528     $ 323,205     $ 447,027     $ 279,350  
Gross margin
     35,937       38,498       48,396       27,456  
Net earnings
     11,086       12,425       18,606       6,294  
Inventories
     415,755       728,120       544,694       446,464  
Revolver outstanding
     68,614       140,384       195,300       111,062  

 
Backlog

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

 
Competition and Customers

Competition in the food business is substantial with brand recognition and promotion, quality, service, and pricing being the major determinants in the Company’s relative market position. The Company believes that it is a major producer of canned fruits and vegetables, but some producers of canned, frozen and other forms of fruit and vegetable products have sales which exceed the Company's sales.  The Company is aware of approximately 16 competitors in the U.S. processed vegetable industry, many of which are privately held companies.   The Company is aware of approximately eight competitors in the U.S. processed fruit industry.  In addition, there are significant quantities of fruit that are imported from Europe, Asia and South America.

During the past year, approximately 10% of the Company’s processed foods sales were packed for retail customers under the Company’s branded labels of Libby’s®, Blue Boy®, Aunt Nellie’s Farm Kitchen®, Stokely®, Read®, Festal®, Seneca Farms™, and Seneca®.  About 21% of processed foods sales were packed for institutional food distributors and 53% were retail packed under the private label of our customers.  The remaining 16% was sold under the Alliance Agreement with GMOL (see note 12 of Item 8, Financial Statements and Supplementary Data).  Termination of the Alliance Agreement would substantially reduce the Company’s sales and profitability unless the Company was to enter into a new substantial supply relationship with GMOL or another major vegetable marketer.  The non-Alliance customers represent a full cross section of the retail, institutional, distributor, and industrial markets; and the Company does not consider itself dependent on any single sales source other than sales attributable to the Alliance Agreement.

The Company's principal branded products are its Libby’s canned fruit and vegetable products, which rate among the top five national brands according to a leading market research firm.

The information under the heading Results of Operations in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2011 Annual Report is incorporated by reference.

 
Environmental Regulation

Environmental Protection

Environmental protection is an area that has been worked on diligently at each food processing facility.  In all locations, the Company has cooperated with federal, state, and local environmental protection authorities in developing and maintaining suitable antipollution facilities.  In general, we believe our pollution control facilities are equal to or somewhat superior to those of our competitors and are within environmental protection standards.  The Company does not expect any material capital expenditures to comply with environmental regulations in the near future.

There has been a broad range of proposed and promulgated state, national and international regulations aimed at reducing the effects of climate change.  In the United States, there is a significant possibility that some form of regulation will be forthcoming at the federal level to address the effects of climate change.  Such regulation could result in the creation of additional costs in the form of taxes, the restriction of output, investments of capital to maintain compliance with laws and regulations, or required acquisition or trading of emission allowances.

Environmental Litigation and Contingencies

In the ordinary course of its business, the Company is made a party to certain legal proceedings seeking monetary damages, including proceedings involving product liability claims, worker’s compensation and other employee claims, tort and other general liability claims, for which it carries insurance as well as patent infringement and related litigation.  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.

 
 
3
 
 
Employment

At our fiscal year end 2011, the Company had approximately 3,400 employees of which 2,900 full time and 400 seasonal employees work in food processing and 100 full time employees work in other activities.  The number increases to approximately 10,000 due to an increase in seasonal employees during our peak pack season.

The Company has six collective bargaining agreements with three unions covering approximately 900 of its full-time employees.  The terms of these agreements result in wages and benefits which are substantially the same for comparable positions for the Company’s non-union employees.  Negotiations were recently completed for two collective bargaining agreements that were to expire in calendar 2011.  There are three agreements that will expire in calendar 2012 and one agreement that expires in 2015.

 
Domestic and Export Sales

The following table sets forth domestic and export sales:
  

 
 
Fiscal Year
 
 
 
2011 
 
2010 
 
2009 
 
 
 
(In thousands, except percentages)
 
Net Sales:
 
 
 
 
 
 
 
  United States
$
1,088,036 
$
1,178,553 
$
1,175,142 
 
  Export
 
106,576 
 
101,557 
 
105,542 
 
    Total Net Sales
$
1,194,612 
$
1,280,110 
$
1,280,684 
 
 
 
 
 
 
 
 
 
As a Percentage of Net Sales:
 
 
 
 
 
 
 
  United States
 
 91.1 
%
 92.1 
%
 91.8 
%
  Export
 
 8.9 
%
 7.9 
%
 8.2 
%
    Total
 
 100.0 
%
 100.0 
%
 100.0 
%

Item 1A


The following factors as well as factors described elsewhere in this Form 10-K or in other filings by the Company with the Securities and Exchange Commission, could adversely affect the Company’s consolidated financial position, results of operations or cash flows.  Other factors not presently known to us or that we presently believe are not material could also affect our business operations or financial results.  The Company refers to itself as “we”, “our” or “us” in this section.

Fruit and Vegetable Processing Risks

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

Our financial performance and growth are related to conditions in the United States’ fruit and vegetable processing industry which is a mature industry with a modest growth rate during the last 10 years.  Our net sales are a function of product availability and market pricing.  In the fruit and vegetable processing industry, product availability and market prices tend to have an inverse relationship:  market prices tend to decrease as more product is available and to increase if less product is available.  Product availability is a direct result of plantings, growing conditions, crop yields and inventory levels, all of which vary from year to year.  Moreover, fruit and vegetable production outside the United States, particularly in Europe, Asia and South America, is increasing at a time when worldwide demand for certain products, such as peaches, is being impacted by the global economic slowdown.  These factors may have a significant effect on supply and competition and create downward pressure on prices.  In addition, market prices can be affected by the planting and inventory levels and individual pricing decisions of our competitors.  Generally, market prices in the fruit and vegetable processing industry adjust more quickly to variations in product availability than an individual processor can adjust its cost structure; thus, in an oversupply situation, a processor’s margins likely will weaken.  We typically have experienced lower margins during times of industry oversupply.

In the past, the fruit and vegetable processing industry has been characterized by excess capacity, with resulting pressure on our prices and profit margins.  We have closed processing plants in past years in response to the downward pressure on prices.  There can be no assurance that our margins will improve in response to favorable market conditions or that we will be able to operate profitably during depressed market conditions.

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

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

 
 
4
 
We set our planting schedules without knowing the effect of the weather on the crops or on the entire industry’s production. Weather conditions during the course of each fruit and vegetable crop’s growing season will affect the volume and growing time of that crop.  As most of our vegetables are produced in more than one part of the U.S., this somewhat reduces the risk that our entire crop will be subject to disastrous weather.  The upper Midwest is the primary growing region for the principal vegetables which we pack, namely peas, green beans and corn, and it is also a substantial source of our competitors’ vegetable production.  California is the primary growing region for the fruits we pack, namely peaches, pears, apricots and grapes.  The adverse effects of weather-related reduced production may be partially mitigated by higher selling prices for the fruits and vegetables which are produced.

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

The materials that we use, such as fruits and vegetables, steel (used to make cans), ingredients and packaging materials as well as the electricity and natural gas used in our business, are commodities that may experience price volatility caused by external factors, including market fluctuations, availability, currency fluctuations and changes in governmental regulations and agricultural programs.  For example, demand for corn has been significantly affected by U.S. governmental policies designed to encourage the production of ethanol, which is diverting acreage previously used for the production of food for human consumption.  The Federal Farm Bill further restricts available acreage by prohibiting the planting of fruits and vegetables on “base” acres used for soybeans and field corn.  General inventory positions of major commodities, such as field corn, soybeans and wheat, all commodities with which we must compete for acreage, can have dramatic effects on prices for those commodities, which can translate into similar swings in prices needed to be paid for our contracted commodities.  These programs and other events can result in reduced supplies of these commodities, higher supply costs or interruptions in our production schedules.  If prices of these commodities increase beyond what we can pass along to our customers, our operating income will decrease.

Risks Association With Our Operations

The termination or non-renewal of the Alliance Agreement with GMOL could negatively affect our business and operations.

We have an Alliance Agreement with GMOL, whereby we process canned and frozen vegetables for GMOL, primarily under the Green Giant brand name.  GMOL continues to be responsible for all of the sales, marketing and customer service functions for the Green Giant products.  General Mills, Inc. guarantees various GMOL financial obligations under the Alliance Agreement.

The Alliance Agreement ends December 31, 2019 but may be extended indefinitely unless terminated by either party in accordance with the provisions of the Alliance Agreement.  We are subject to extensive covenants in the Alliance Agreement with respect to quality and delivery of products, maintenance of the Alliance Agreement production plants and other standards of our performance.  If we were to fail in our performance of these covenants, GMOL would be entitled to terminate the Alliance Agreement.  Upon virtually all of the causes of termination enumerated in the Alliance Agreement, GMOL will acquire legal title to three production plants and certain of the other assets which we acquired under the Alliance Agreement and various financial adjustments between the parties will occur.  If GMOL or the Company terminates the Alliance Agreement without cause, the terminating party must pay a substantial termination payment.

Termination of the Alliance Agreement would, in most cases, entitle our principal lenders, including our long-term lenders, to declare a default under our loan agreements with them.  The principal lenders have a security interest in certain payments that we receive from GMOL both during and upon termination of the Alliance Agreement.  Unless we were to enter into a new substantial supply relationship with GMOL or another major vegetable marketer and acquire substantial production capacity to replace the GMOL production plants, any such termination would substantially reduce our sales and net income and the Company’s business, financial condition and results of operations may be materially and adversely affected.

We depend upon key customers.

Our products are sold in a highly competitive marketplace, which includes increased concentration and a growing presence of large-format retailers and discounters.  Dependence upon key customers could lead to increased pricing pressure by these customers.

Green Giant products packed by us in fiscal years 2011 and 2010 constituted approximately 16% and 19%, respectively, of our total sales.  Our sales of Green Giant product and financial performance under the Alliance Agreement depend to a significant extent on our success in producing quality Green Giant vegetables at competitive costs and GMOL’s success in marketing the products produced by us.  The ability of GMOL to successfully market these products will depend upon GMOL’s sales efforts as well as the factors described above under “Excess capacity in the fruit and vegetable industry has a downward impact on selling price.”  We cannot give assurance as to the volume of GMOL’s sales and cannot control many of the key factors affecting that volume.  Sales to GMOL declined $60 million, from $252 million to $192 million, between fiscal year 2003 and fiscal year 2011 based on changes in GMOL’s demand for the commodities we produce for them.

Additionally, purchases by the United Sates Department of Agriculture (“USDA”) in fiscal year 2011 represented approximately 4% of our total sales.  The purchase of our products by the USDA is done through the government’s competitive bid process.  We bid on stated product requirements and needs as presented by the USDA and, if we are the successful bidder, we fulfill the contract and deliver the product.  The government contracting process is complex and subject to numerous regulations and requirements.  Failure by us to comply with the regulations and requirements for government contracts could jeopardize our ability to contract with the government and could result in reduced sales or prohibition on submitting bids to the USDA.  The government procurement process could also change and result in our inability to meet the new requirements.  Additionally, the government’s need for our products could decrease, which would result in reduced sales to the USDA.

If we lose a significant customer or if sales to a significant customer materially decrease, our business, financial condition and results of operations may be materially and adversely affected.

 
 
5
 
If we do not maintain the market shares of our products, our business and revenues may be adversely affected.

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

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

Increases in logistics and other transportation-related costs could materially adversely impact our results of operations.

Our ability to competitively serve our customers depends on the availability of reliable and low-cost transportation.  We use multiple forms of transportation to bring our products to market.  They include trucks, intermodal, rail cars, and ships.  Disruption to the timely supply of these services or increases in the cost of these services for any reason, including availability or cost of fuel, regulations affecting the industry, or labor shortages in the transportation industry, could have an adverse effect on our ability to serve our customers, and could materially and adversely affect our business, financial condition and results of operations.

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

Food processors are subject to significant liability should the consumption of their products cause injury or illness.  We work with regulators, the industry and suppliers to stay abreast of developments.  A product liability judgment against us could also result in substantial and unexpected expenditures, affect consumer confidence in our products, and divert management’s attention from other responsibilities.  Product liability claims may also lead to increased scrutiny by federal and state regulatory agencies and could have a material adverse effect on our financial condition and results of operation.   Although we maintain product liability insurance coverage, there can be no assurance that this level of coverage is adequate or that we will be able to continue to maintain our existing insurance or obtain comparable insurance at a reasonable cost, if at all.  A product recall or a partially or completely uninsured judgment against us could materially and adversely affect our business, financial condition and results of operations.

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

As a food processor, we regularly dispose of produce wastes (silage) and processing water as well as materials used in plant operation and maintenance, and our plant boilers, which generate heat used in processing, produce generally small emissions into the air.  These activities and operations are regulated by federal and state laws and the respective federal and state environmental agencies.  Occasionally, we may be required to remediate conditions found by the regulators to be in violation of environmental law or to contribute to the cost of remediating waste disposal sites, which we neither owned nor operated, but in which, we and other companies deposited waste materials, usually through independent waste disposal companies.  Future possible costs of environmental remediation, contributions and penalties could materially and adversely affect our business, financial condition and results of operations.

Our production capacity for certain products and commodities is concentrated in a limited number of facilities, exposing us to a material disruption in production in the event that a disaster strikes.

We only have one plant that produces fruit products and one plant that produces pumpkin products.  We have two plants that manufacture empty cans, one with substantially more capacity than the other, which are not interchangeable since each plant cannot necessarily produce all the can sizes needed.  Although we maintain property and business interruption insurance coverage, there can be no assurance that this level of coverage is adequate in the event of a catastrophe or significant disruption at these or other Company facilities.  If such an event occurs, it could materially and adversely affect our business, financial condition and results of operations.

We may undertake acquisitions or product innovations and may have difficulties integrating them or may not realize the anticipated benefits.

In the future, we may undertake acquisitions of other businesses or introduce new products, although there can be no assurances that these will occur.  Such undertakings involve numerous risks and significant investments.  There can be no assurance that we will be able to identify and acquire acquisition candidates on favorable terms, to profitably manage or to successfully integrate future businesses it may acquire or new products it may introduce without substantial costs, delays or problems.  Any of these outcomes could materially and adversely affect our business, financial condition and results of operations.

We are dependent upon a seasonal workforce and our inability to hire sufficient employees may adversely affect our business.

At the end of our 2011 fiscal year, we had approximately 3,400 employees of which 2,900 full time and 400 seasonal employees worked in food processing and 100 employees worked in other activities.  During the peak summer harvest period, we hire approximately 6,800 seasonal employees to help process fruits and vegetables.  Many of our processing operations are located in rural communities that may not have sufficient labor pools, requiring us to hire employees from other regions.  An inability to hire and train sufficient employees during the critical harvest period could materially and adversely affect our business, financial condition and results of operations.

There may be increased governmental legislative and regulatory activity in reaction to consumer perception related to BPA.

 
 
6
 
There has been increased state and federal legislative activity to ban Bisphenol-A (BPA) from food contact packaging. These legislative decisions are predominantly driven by consumer perception that BPA may be harmful. These actions have been taken despite the scientific evidence and general consensus of United States and international government agencies that BPA is safe and does not pose a risk to human health. The legislative actions combined with growing public perception about food safety may require us to change some of the materials used as linings in our packaging materials. Failure to do so could result in a loss of sales as well as loss in value of the inventory utilizing BPA containing materials. The Company, in collaboration with other can makers as well as enamel suppliers, has decided to aggressively work to find BPA-free alternatives for its products. However, commercially acceptable alternatives are not immediately available for some applications and there can be no assurance that these steps will be successful.

The Company’s results are dependent on successful marketplace initiatives and acceptance by consumers of the Company’s products.

The Company’s product introductions and product improvements, along with its other marketplace initiatives, are designed to capitalize on new customer or consumer trends.  The United States Food and Drug Administration recently issued a statement on sodium which referred to an Institute of Medicine statement that too much sodium is a major contributor to high blood pressure. Some of our products contain a moderate amount of sodium per recommended serving, which is based on consumer’s preferences for taste.  In order to remain successful, the Company must anticipate and react to these new trends and develop new products or processes to address them. While the Company devotes significant resources to meeting this goal, we may not be successful in developing new products or processes, or our new products or processes may not be accepted by customers or consumers.

Financing Risks

Global economic conditions may materially and adversely affect our business, financial condition and results of operations.

Unfavorable economic conditions, including the impact of recessions in the United States and throughout the world, may negatively affect our business and financial results.  These economic conditions could negatively impact (i) consumer demand for our products, (ii) the mix of our products’ sales, (iii) our ability to collect accounts receivable on a timely basis, (iv) the ability of suppliers to provide the materials required in our operations and (v) our ability to obtain financing or to otherwise access the capital markets.  The strength of the U.S. dollar versus other world currencies could result in increased competition from imported products and decreased sales to our international customers.  A prolonged recession could result in decreased revenue, margins and earnings.  Additionally, the economic situation could have an impact on our lenders or customers, causing them to fail to meet their obligations to us.  The occurrence of any of these risks could materially and adversely affect our business, financial condition and results of operations.


Our ability to manage our working capital and our credit facility is critical to our success.

As of March 31, 2011, we had approximately $233.0 million of total indebtedness, including various debt agreements and a $136.0 million outstanding balance on our $250.0 million revolving credit facility (“credit facility”).  Scheduled debt service for fiscal 2012 is $142.7 million, which includes the $136.0 million credit facility amount since the credit facility expires in August 2011.   During our second and third fiscal quarters, our operations generally require more cash than is available from operations.  In these circumstances, it is necessary to borrow under our credit facility.  Our ability to obtain financing in the future through credit facilities will be affected by several factors, including our creditworthiness, our ability to operate in a profitable manner and general market and credit conditions.  Significant changes in our business or cash outflows from operations could create a need for additional working capital.  An inability to obtain additional working capital on terms reasonably acceptable to us or access the credit facility would materially and adversely affect our operations. Additionally, if we need to use a portion of our cash flows to pay principal and interest on our debt, it will reduce the amount of money we have for operations, working capital, capital expenditures, expansions, acquisitions or general corporate or other business activities. 

The Company is in the process of negotiating a replacement line of credit that is expected to be in place prior to the maturity of the existing Revolver.  Although subject to change, the agreement being negotiated provides for a five-year term, a $250.0 million facility amount that is seasonally adjusted to $350.0 million and interest based upon an agreed upon LIBOR-based spread.  Closing of the new credit facility is subject to normal and customary documentation and closing conditions.  Interest costs under the agreement being negotiated will be greater than under the maturing agreement.  As a result, we are and, expect to be, subject to the risks normally associated with debt financing including that interest rates may rise; that any refinancing will not be on terms as favorable as those of the existing debt; and that we may be unable to refinance or repay the debt as it becomes due.
 

Failure to comply with the requirements of our debt agreements and credit facility could have a material adverse effect on our business.

Our debt agreements and credit facility contain financial and other restrictive covenants which, among other things, limit our ability to borrow money, including with respect to the refinancing of existing indebtedness. These provisions may limit our ability to conduct our business, take advantage of business opportunities and respond to changing business, market and economic conditions. In addition, they may place us at a competitive disadvantage relative to other companies that may be subject to fewer, if any, restrictions. Failure to comply with the requirements of our credit facility and debt agreements could materially and adversely affect our business, financial condition and results of operations. We have pledged our accounts receivable, inventory and the capital stock or other ownership interests that we own in our subsidiaries to secure the credit facility. If a default occurred and was not cured, secured lenders could foreclose on this collateral.

 
Risks Relating to Our Stock
 
Our existing shareholders, if acting together, may be able to exert control over matters requiring shareholder approval.

Holders of our Class B common stock are entitled to one vote per share, while holders of our Class A common stock are entitled to one-twentieth of a vote per share. In addition, holders of our 10% Cumulative Convertible Voting Preferred Stock, Series A, our 10% Cumulative Convertible Voting Preferred Stock, Series B and, solely with respect to the election of directors, our 6% Cumulative Voting Preferred Stock, which we refer to  as our voting preferred stock, are entitled to one vote per share. As of March 31, 2011, holders of Class B common stock and voting preferred stock held 86.7% of the combined voting power of all shares of capital stock then outstanding and entitled to vote. These shareholders, if acting together, would be in a position to control the election of our directors and to effect or prevent certain corporate transactions that require majority or supermajority approval of the combined classes, including mergers and other business combinations. This may result in us taking corporate actions that you may not consider to be in your best interest and may affect the price of our common stock.

 
 
7
 
As of March 31, 2011, our current executive officers and directors, beneficially owned 9.2% of our outstanding shares of Class A common stock, 37.5% of our outstanding shares of Class B common stock and 82.4% of our voting preferred stock, or 46.2% of the combined voting power of our outstanding shares of capital stock. This concentration of voting power may inhibit changes in control of the Company and may adversely affect the market price of our common stock.
 
Our certificate of incorporation and bylaws contain provisions that discourage corporate takeovers.

Certain provisions of our certificate of incorporation and bylaws and provisions of the New York Business Corporation Law may have the effect of delaying or preventing a change in control. Various provisions of our certificate of incorporation and bylaws may inhibit changes in control not approved by our directors and may have the effect of depriving shareholders of any opportunity to receive a premium over the prevailing market price of our common stock in the event of an attempted unsolicited takeover. In addition, the existence of these provisions may adversely affect the market price of our common stock. These provisions include:
 
 
     
 
· a classified board of directors;
 
  
    
 
· a requirement that special meetings of shareholders be called only by our directors or holders of 25% of the voting power of all shares outstanding and entitled to vote at the meeting;
 
  
    
 
· our board of directors has the power to classify and reclassify any of our unissued shares of capital stock into shares of capital stock with such preferences, rights, powers and restrictions as the board of directors may determine;
 
  
    
 
· the affirmative vote of two thirds of the shares present and entitled to vote is required to amend our bylaws or remove a director; and
 
  
    
 
· under the New York Business Corporation Law, in addition to certain restrictions which may apply to “business combinations” involving us and an “interested shareholder”, a plan for our merger or consolidation must be approved by two-thirds of the votes of all outstanding shares entitled to vote thereon. See “Our existing shareholders, if acting together, may be able to exert control over matters requiring shareholder approval.”
 

We do not pay dividends on our common stock and do not expect to pay common dividends in the future.

We have not declared or paid any cash dividends on our common stock in more than 25 years and we have no intention to do so in the near future. In addition, payment of cash dividends on our common stock is not permitted by the terms of our revolving credit facility.

Other Risks

Tax legislation could impact future cash flows.

The Company uses the Last-In, First-Out (LIFO) method of inventory accounting.  As of March 31, 2011, we had a LIFO reserve of $89.9 million which, at the U.S. corporate tax rate, represents approximately $31.5 million of income taxes, payment of which is delayed to future dates based upon changes in inventory costs.  From time-to-time, discussions regarding changes in U.S. tax laws have included the potential of LIFO being repealed.  Should LIFO be repealed, the $31.5 million of postponed taxes, plus any future benefit realized prior to the date of repeal, would likely have to be repaid over some point of time.  Repayment of these postponed taxes will reduce the amount of cash that we would have available to fund our operations, working capital, capital expenditures, expansions, acquisitions or general corporate or other business activities. This could materially and adversely affect our business, financial condition and results of operation.

Item 1B


The Company does not have any unresolved comments from the SEC staff regarding its periodic or current reports under the Exchange Act.

 
Item 2

 
Properties

The following table details the Company’s manufacturing plants and warehouses:
 
 
 
8
 

Manufacturing Plants and Warehouses
  
 
    
 
  
 
  
 
    
 
  
 
  
Square
    
 
  
 
  
Footage
    
Acres
  
 
  
('000)
    
 
  
Food Group
  
 
    
 
  
Modesto, California
     2,123       114  
Buhl, Idaho
     489       141  
Payette, Idaho
     387       43  
Princeville, Illinois
     267       303  
Arlington, Minnesota
     264       541  
Blue Earth, Minnesota
     286       346  
Bricelyn, Minnesota
     57       7  
Glencoe, Minnesota
     646       783  
LeSueur, Minnesota
     181       71  
Montgomery, Minnesota
     549       1,010  
Rochester, Minnesota
     1,078       860  
Geneva, New York
     779       608  
Leicester, New York
     216       91  
Marion, New York
     348       181  
Lebanon, Pennsylvania
     120       13  
Dayton, Washington
     257       41  
Yakima, Washington
     122       8  
Baraboo, Wisconsin
     258       11  
Cambria, Wisconsin
     412       328  
Clyman, Wisconsin
     408       571  
Cumberland, Wisconsin
     228       304  
Gillett, Wisconsin
     303       105  
Janesville, Wisconsin
     1,106       302  
Mayville, Wisconsin
     294       367  
Oakfield, Wisconsin
     220       2,228  
Ripon, Wisconsin
     353       75  
 
                
Non-Food Group
                
Penn Yan, New York
     27       4  
 
                
  Total
     11,778       9,456  

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

The Company believes that these facilities are suitable and adequate for the purposes for which they are currently intended.  All locations, although highly utilized, have the ability to expand as sales requirements justify.  Because of the seasonal production cycles, the exact extent of utilization is difficult to measure.  In certain circumstances, the theoretical full efficiency levels are being reached; however, expansion of the number of production days or hours could increase the output by up to 20% for a season.

Certain of the Company’s facilities are mortgaged to financial institutions to secure long-term debt.  See Notes 3, 4 and 5 of Item 8, Financial Statements and Supplementary Data, for additional information about the Company’s long-term debt and lease commitments.

 
Item 3

 
Legal Proceedings

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

On August 2, 2007, the Company received two civil citations from CalOSHA (the California state agency responsible for enforcing occupational safety and health regulations), relating to the accidental death of a warehouse employee at the Company’s Modesto facility on February 5, 2007. The Company appealed the citations to the California Occupational Safety and Health Appeals Board, and a hearing was held in early June 2010.  The result of the hearing was that the citations were modified by agreement with CalOSHA and a civil penalty was imposed and paid by the Company during fiscal year 2011, thereby resolving the issue without a material adverse impact on the Company’s financial position, results of operations, or cash flows.

 
 
9
 
In June, 2010, the Company received a Notice of Violation of the California Safe Drinking Water and Toxic Enforcement Act of 1986, commonly known as Proposition 65, from the Environmental Law Foundation (ELF).  This notice was made to the California Attorney General and various other government officials, and to 49 companies including Seneca Foods Corporation whom ELF alleges manufactured, distributed or sold packaged peaches, pears, fruit cocktail and fruit juice that contain lead without providing a clear and reasonable warning to consumers.  Under California law, proper notice must be made to the State and involved firms at least 60 days before any suit under Proposition 65 may be filed by private litigants like ELF.  That 60-day period has expired and to date neither the California Attorney General nor any appropriate district attorney or city attorney, nor any private litigants like ELP, has initiated an action against the Company.  If an action is commenced under Proposition 65, the Company will defend itself vigorously.  As this matter is at a very early stage, we are not able to predict the probability of the outcome or estimate of loss, if any, related to this matter.  Additionally, in the ordinary course of its business, the Company is made party to certain legal proceedings seeking monetary damages, including proceedings invoking product liability claims, either directly or through indemnification obligations, and we are not able to predict the probability of the outcome or estimate of loss, if any, related to any such matter.

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

 
Item 4

 
[Removed and Reserved]

 

 
 
10
 

 
PART II

 
Item 5


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

Each class of preferred stock receives preference as to dividend payment and declaration over any common stock. In addition, refer to the information in the 2011 Annual Report, “Shareholder Information and Quarterly Results”, which is incorporated by reference.

Securities Authorized for Issuance Under Equity Compensation Plans

On August 10, 2007, the 2007 Equity Incentive Plan (the “2007 Equity Plan”) was approved by shareholders at the Company’s annual meeting.  The 2007 Equity Plan has a 10-year term and authorized the issuance of up to 100,000 shares of either Class A Common Stock and Class B Common Stock or a combination of the two classes of stock.  A total of 3,834 shares were awarded in fiscal year 2008, 4,879 shares were awarded in fiscal year 2009, 3,744 shares were awarded in fiscal year 2010 and 3,760 were awarded in fiscal year 2011 under the terms of the 2007 Equity Plan.  As of March 31, 2011, there were 83,783 shares available for distribution as part of future awards under the 2007 Equity Plan.  No additional shares have been awarded under the 2007 Equity Plan through the date of this Form 10-K. 

Common Stock Performance Graph

Refer to the information in the 2011 Annual Report, “Shareholder Information and Quarterly Results”, which is incorporated by reference.

Issuer Purchases of Equity Securities

 
  
 
    
 
    
 
    
 
    
 
    
Maximum Number (or
  
 
  
 
    
 
    
 
    
 
    
 
    
Approximate Dollar
  
 
  
Total Number of Shares
    
Average Price Paid per
    
Total Number of Shares
    
Value) of Shares that
  
 
  
Purchased (1)
    
Share
    
Purchased as Part of
    
May Yet Be Purchased
  
 
  
Class A
    
Class B
    
Class A
    
Class B
    
Publicly Announced
    
Under the Plans or
  
Period
  
Common
    
Common
    
Common
    
Common
    
Plans or Programs
    
Programs
  
1/01/11 - 1/31/11
     11,500       -     $ 25.70       -       N/A       N/A  
2/01/11 - 2/28/11
     -       -     $ -       -       N/A       N/A  
3/01/11 - 3/31/11
     13,208       -     $ 28.05       -       N/A       N/A  
Total
     24,708       -     $ 26.95       -       N/A       486,500  
 
                                                
(1) These purchases were made in open market transactions by the Trustees of the Seneca Foods Corporation Employees' Savings Plan and
  
the Seneca Foods, L.L.C. 401(k) Retirement Savings Plan to provide employee matching contributions under the Plans.
  

Item 6

 
Selected Financial Data

Refer to the information in the 2011 Annual Report, “Five Year Selected Financial Data”, which is incorporated by reference.

 
Item 7

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

Refer to the information in the 2011 Annual Report, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, which is incorporated by reference.

Item 7A

 
Quantitative and Qualitative Disclosures about Market Risk

Refer to the information in the 2011 Annual Report, “Quantitative and Qualitative Disclosures about Market Risk”, which is incorporated by reference.

 
Item 8

 
Financial Statements and Supplementary Data

Refer to the information in the 2011 Annual Report, Consolidated Financial Statements and Notes thereto including Report of Independent Registered Public Accounting Firm, which is incorporated by reference.

 
 
11
 
 
Item 9

 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of March 31, 2011. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2011, the Company’s disclosure controls and procedures: (1) were designed to ensure that material information relating to the Company is made known to our Chief Executive Officer and Chief Financial Officer by others within those entities, particularly during the period in which this report was being prepared, so as to allow timely decisions regarding required disclosure and (2) were effective, in that they provide reasonable assurance that information required to be disclosed by the Company in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Management’s Annual Report on Internal Control Over Financial Reporting

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

Our management assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2011. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment, management believes that, as of March 31, 2011, our internal control over financial reporting is effective based on those criteria.  In conducting the Company’s evaluation of the effectiveness of its internal control over financial reporting, the Company has excluded the acquisition of Lebanon, which was completed on August 6, 2010.  The contribution from the Lebanon acquisition represents less than 5% of consolidated revenue for the year ended March 31, 2011 and approximately 4% of consolidated assets as of March 31, 2011.  Refer to Note 2, Acquisitions, to the consolidated financial statements for further discussion of the Lebanon acquisition and their impact on the Company’s consolidated financial statements.

The Company’s independent registered public accountant has issued its report on the effectiveness of the Company’s internal control over financial reporting.  The report appears on the next page.


 

 
 
12
 


Report of Independent Registered Public Accounting Firm

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

We have audited Seneca Foods Corporation’s internal control over financial reporting as of March 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

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

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

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
As indicated in Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Lebanon, which was acquired on August 6, 2010, and which is included in the consolidated balance sheets of Seneca Foods Corporation as of March 31, 2011, and the related consolidated statements of net earnings, stockholders’ equity, and cash flows for the year then ended. Lebanon constituted 4% of consolidated assets as of March 31, 2011, and less than 5% of consolidated revenues for the year then ended. Management did not assess the effectiveness of internal control over financial reporting of Lebanon because of the timing of the acquisition which was completed on August 6, 2010. Our audit of internal control over financial reporting of Seneca Foods Corporation also did not include an evaluation of the internal control over financial reporting of Lebanon.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2011, based on the COSO criteria.

We have also audited, in accordance with the standards of the Public Company Accounting Standards Board (United States), the consolidated balance sheets of Seneca Foods Corporation as of March 31, 2011 and 2010, and the related consolidated statements of net earnings, stockholders’ equity and cash flows for each of the three years in the period ended March 31, 2011 and our report dated May 26, 2011 expressed an unqualified opinion thereon.


/s/ BDO USA, LLP
Milwaukee, Wisconsin

May 26, 2011


 

 
 
13
 

Changes in Internal Control over Financial Reporting
 
There was no  change in our internal control over financial reporting (as defined in rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2011 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 


 
Item 9B

 
Other Information

 
None.

 

 
 
14
 

 
PART III
 
Item 10
 
Directors, Executive Officers and Corporate Governance
 
The information regarding directors is incorporated herein by reference from the section entitled “Proposal One: Election of Directors” in the Company’s definitive Proxy Statement (“Proxy Statement”) to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, for the Company’s Annual Meeting of Stockholders to be held on August 4, 2011.  The Proxy Statement will be filed within 120 days after the end of the Company’s fiscal year ended March 31, 2011.

The information regarding executive officers is incorporated herein by reference from the section entitled “Executive Officers” in the Proxy Statement.

The information regarding compliance with Section 16(a) of the Exchange Act is incorporated herein by reference from the section entitled “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement.

Information regarding the Company’s code of business conduct and ethics found in the subsection captioned “Available Information” in Item 1 of Part I hereof is also incorporated herein by reference into this Item 10.

The information regarding the Company’s audit committee, its members and the audit committee financial experts is incorporated herein by reference from the subsection entitled “Audit Committee” in the section entitled “Board Governance” in the Proxy Statement.

Item 11
 
Executive Compensation
 
The information included under the following captions in the Proxy Statement is incorporated herein by reference: “Compensation Discussion and Analysis,” “Summary Compensation Table,” “Grants of Plan-Based Awards in Fiscal Year 2011,” “Outstanding Equity Awards at 2011 Fiscal Year-End,” “Stock Vested in Fiscal Year 2011,” “Pension Benefits,” “Compensation of Directors” and “Compensation Committee Interlocks.”  The information included under the heading “Compensation Committee Report” in the Proxy Statement is incorporated herein by reference; however, this information shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act.
 

Item 12
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
Information regarding security ownership of certain beneficial owners and management is incorporated herein by reference from the sections entitled “Security Ownership of Certain Beneficial Owners” and “Security Ownership of Management and Directors” in the Proxy Statement.

Item 13
 
Certain Relationships and Related Transactions, and Director Independence
 
The information regarding transactions with related parties and director independence is incorporated herein by reference from the sections entitled “Independent Directors” and “Certain Transactions and Relationships” in the Proxy Statement.

Item 14
 
Principal Accountant Fees and Services
 
The information regarding principal accountant fees and services is incorporated herein by reference from the section entitled “Principal Accountant Fees and Services” in the Proxy Statement.

 

 
 
15
 

 
PART IV

 
Item 15

 
Exhibits and Financial Statement Schedule


 
A.
Exhibits, Financial Statements, and Supplemental Schedule

 
1.
Financial Statements - the following consolidated financial statements of the Registrant, included in the 2011 Annual Report, are incorporated by reference in Item 8:

 
Consolidated Statements of Net Earnings – Years ended March 31, 2011, 2010 and 2009

 
Consolidated Balance Sheets - March 31, 2011 and 2010

 
Consolidated Statements of Cash Flows – Years ended March 31, 2011, 2010 and 2009

 
Consolidated Statements of Stockholders’ Equity – Years ended March 31, 2011, 2010 and 2009

 
Notes to Consolidated Financial Statements – Years ended March 31, 2011, 2010 and 2009

 
Reports of Independent Registered Public Accounting Firm

 
Pages

 
2.
Supplemental Schedule:

 
 Report of Independent Registered Public Accounting Firm on Schedule
 18
 
 Schedule II—Valuation and Qualifying Accounts 
 19

Other schedules have not been filed because the conditions requiring the filing do not exist or the required information is included in the consolidated financial statements, including the notes thereto.
 
3.
Exhibits:
 
Exhibit Number
Description
 
 
3.1
The Company’s Restated Certificate of Incorporation, (incorporated by reference to the Company's Current Report on Form 8-K dated August 11, 2010).
 
 
3.7
The Company’s Bylaws (incorporated by reference to Exhibit 3.3 to the Company’s Quarterly Report on Form 10-Q/A filed August 18, 1995 for the quarter ended July 1, 1995)
 
 
3.8
Amendment to the Company’s Bylaws (incorporated by reference to Exhibit 3 to the Company’s Current Report on Form 8-K dated November 6, 2007)
 
 
10.1**Second Amended and Restated Alliance Agreement (incorporated by reference to Exhibit 10 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 5, 2009)
 
 
10.2**First Amendment to the Second Amended and Restated Alliance Agreement by and among Seneca Foods Corporation and General Mills Operations, LLC dated June 11, 2010 (incorporated by reference to Exhibit 10 to the Company’s Form 10-Q for the quarter ended July 3, 2010)
 
 
10.3
Amended and Restated Revolving Credit Agreement dated as of August 18, 2006 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated August 23, 2006)
 
 
10.4
First Amendment to Amended and Restated Revolving Credit Agreement dated as of November 20, 2006 (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-K for the fiscal year ended March 31, 2010)
 
 
10.5
Second Amendment to Amended and Restated Revolving Credit Agreement dated as of April 28, 2008 (incorporated by reference to Exhibit 10.4 to the Company’s Form 10-K for the fiscal year ended March 31, 2010)
 
 
10.6
Third Amendment to Amended and Restated Revolving Credit Agreement dated as of September 28, 2009 (incorporated by reference to Exhibit 10.5 to the Company’s Form 10-K for the fiscal year ended March 31, 2010)
 
 
10.7
Indemnification Agreement between the Company and the directors of the Company (incorporated by reference to Exhibit 10 to the Company’s Annual report on Form 10-K for the fiscal year ended March 31, 2002)
 
 
10.8*
Seneca Foods Corporation Executive Profit Sharing Bonus Plan (incorporated by reference to Exhibit 99.1to the Company’s Registration Statement on Form S-8 (No. 333-166846))
 
 
 
16
 
 
10.9*
Seneca Foods Corporation Manager Profit Sharing Bonus Plan (incorporated by reference to Exhibit 99.2 to the Company’s Registration Statement on Form S-8 (No. 333-166846)
 
 
13
The material contained in the 2011 Annual Report to Shareholders under the following headings: “Five Year Selected Financial Data”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, Consolidated Financial Statements and Notes thereto including Independent Auditors’ Report, “Quantitative and Qualitative Disclosures about Market Risk”, and “Shareholder Information and Quarterly Results” (filed herewith)
 
 
21
List of Subsidiaries (filed herewith)
 
 
23
Consent of BDO USA, LLP (filed herewith)
 
 
24
Powers of Attorney (filed herewith)
 
 
31.1
Certification of Kraig H. Kayser pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
 
 
31.2
Certification of Roland E. Breunig pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
 
 
32
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
 
 
*  Indicates management or compensatory agreement
 
**      Certain provisions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect of such omitted portions
 

 

 
 
17
 

Report of Independent Registered Public Accounting Firm
 



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

 
The audits referred to in our report dated May 26, 2011 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 stockholders for the year ended March 31, 2011, also included the audit of the financial statement schedule listed in the accompanying index.  This financial statement schedule is the responsibility of the Company's management.  Our responsibility is to express an opinion on this financial statement schedule based on our audits.
 
In our opinion, such 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/BDO USA, LLP
Milwaukee, Wisconsin

May 26, 2011

 

 
 
18
 

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, 2011:
  
 
    
 
    
 
  
 
  
 
  
 
  
 
  
Allowance for doubtful accounts
   $ 354     $ (81 )   $ 42  
 (b)
   $ (68 )
 (a)
   $ 247  
Income tax valuation allowance
   $ 1,737     $ 12     $ ¾  
 
   $ ¾  
 
   $ 1,749  
 
                        
 
        
 
        
Year-ended March 31, 2010:
                        
 
        
 
        
Allowance for doubtful accounts
   $ 426     $ 17     $ ¾  
 
   $ (89 )
 (a)
   $ 354  
Income tax valuation allowance
   $ 3,563     $ (1,826 )   $ ¾  
 
   $ ¾  
 
   $ 1,737  
 
                        
 
        
 
        
Year-ended March 31, 2009:
                        
 
        
 
        
Allowance for doubtful accounts
   $ 457     $ 31     $ ¾  
 
   $ (62 )
 (a)
   $ 426  
Income tax valuation allowance
   $ 3,446     $ 117     $ ¾  
 
   $ ¾  
 
   $ 3,563  
 
                        
 
        
 
        
(a) Accounts written off, net of recoveries.
                  
 
        
 
        
(b) Acquired via the Lebanon acquisition.
                  
 
        
 
        

 

 
 
19
 

 
SIGNATURES

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

SENECA FOODS CORPORATION
 
By /s/Jeffrey L. Van Riper
Jeffrey L. Van Riper
Vice President, Controller and Secretary
(Principal Accounting Officer)
May 26, 2011

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

Signature
  
Title
  
Date
         
/s/Arthur S. Wolcott
Arthur S. Wolcott
  
Chairman and Director
  
May 26, 2011
         
         
/s/Kraig H. Kayser
Kraig H. Kayser
  
President, Chief Executive Officer, and Director
  
May 26, 2011
         
/s/Roland E. Breunig
Roland E. Breunig
  
Senior Vice President, Chief Financial Officer, and Treasurer
  
May 26, 2011
         
/s/Jeffrey L. Van Riper
Jeffrey L. Van Riper
  
Vice President, Controller and Secretary (Principal Accounting Officer)
  
May 26, 2011
         
*                      
  
Director
  
May 26, 2011
Arthur H. Baer
        
         
*                      
  
Director
  
May 26, 2011
Robert T. Brady
        
         
 
*
    
Director
    
May 26, 2011
John P. Gaylord
  
 
  
 
 

*                       
  
Director
  
May 26, 2011
Susan A. Henry
        
         
*                      
  
Director
  
May 26, 2011
G. Brymer Humphreys
        
         
*                      
  
Director
  
May 26, 2011
Thomas Paulson
        
         
*                      
  
Director
  
May 26, 2011
Susan W. Stuart
 
/s/Roland E. Breunig
*By Roland E. Breunig,
Attorney-in-fact
 
        

 

 
 
20
 

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Five Year Selected Financial Data
 

   
 
    
 
    
 
    
 
    
 
  
Summary of Operations and Financial Condition
  
 
    
 
    
 
    
 
    
 
  
(In thousands of dollars, except per share data and ratios)
  
 
    
 
    
 
    
 
    
 
  
 
  
 
    
 
    
 
    
 
    
 
  
Years ended March 31,
  
2011(a)
    
2010
    
2009
    
2008
    
2007(b)
  
 
  
 
    
 
    
 
    
 
    
 
  
Net sales
   $ 1,194,612     $ 1,280,110     $ 1,280,684     $ 1,080,724     $ 1,024,853  
 
                                        
Operating income before interest (c)
   $ 32,294     $ 84,998     $ 48,188     $ 32,853     $ 65,878  
Interest expense, net
     8,827       9,638       14,103       18,143       20,936  
Net earnings (c)
     17,671       48,411       18,765       8,019       32,067  
 
                                        
Basic earnings per common share (c)
   $ 1.45     $ 3.98     $ 1.54     $ 0.66     $ 2.65  
Diluted earnings per common share (c)
     1.45       3.96       1.53       0.65       2.63  
 
                                        
Working capital
   $ 294,712     $ 404,610     $ 332,082     $ 370,102     $ 334,455  
Inventories
     455,236       446,464       392,955       395,686       380,487  
Goodwill
     -       -       -       -       -  
Net property, plant, and equipment
     188,012       178,113       179,245       183,051       172,235  
Total assets
     744,708       719,333       675,605       672,020       626,715  
Long-term debt and capital lease
                                        
  obligations, less current portion
     90,060       207,924       191,853       250,039       210,395  
Stockholders’ equity
     353,832       335,010       282,425       279,430       273,571  
 
                                        
Additions to property, plant, and equipment
   $ 19,473     $ 20,783     $ 23,198     $ 32,853     $ 21,627  
 
                                        
Net earnings/average equity
     5.1 %     15.7 %     6.7 %     2.9 %     13.1 %
Earnings before taxes/sales
     2.0 %     5.9 %     2.7 %     1.4 %     4.4 %
Net earnings/sales
     1.5 %     3.8 %     1.5 %     0.7 %     3.1 %
Long-term debt/equity (d)
     25.5 %     62.1 %     67.9 %     89.5 %     76.9 %
Total debt/equity ratio
  
1.1:1
    
1.2:1
    
1.4:1
    
1.4:1
    
1.3:1
  
Current ratio
  
2.1:1
    
4.0:1
    
3.1:1
    
4.2:1
    
3.9:1
  
 
                                        
Total stockholders’ equity per equivalent common share (e)
   $ 28.96     $ 27.43     $ 23.13     $ 22.86     $ 22.39  
Stockholders’ equity per common share
     29.61       28.37       28.10       27.66       26.93  
Class A Global Market System
                                        
    closing price range
     32.68-22.02       33.49-21.44       23.95-15.51       30.40-19.25       30.84-19.67  
Class B Global Market System
                                        
    closing price range
     32.99-22.30       33.17-20.86       24.00-16.61       30.96-20.50       32.25-20.00  
Common cash dividends declared per share
     -       -       -       -       -  
Price earnings ratio
     20.5       7.4       13.5       32.0       10.3  
 
 
 
 
 
 
 
 
 
 
 
 
(a) The fiscal 2011 financial results include eight months of operating activity related to the Lebanon acquisition.
(b) The fiscal 2007 financial results include eight months of operating activity related to the Signature Fruit acquisition.
(c) The effect of using the LIFO inventory valuation method in fiscal 2011 was to increase operating earnings by $7.9 million and net
     earnings by $5.1 million or $0.42 per share ($0.42 diluted). The effect of using the LIFO inventory valuation method in fiscal
     2010 was to reduce operating earnings by $11.2 million and net earnings by $7.3 million or $0.61 per share ($0.60 diluted).
    The effect of using the LIFO inventory valuation method in fiscal 2009 was to reduce operating earnings by $58.3 million and
     net earnings by $37.9 million or $3.12 per share ($3.09 diluted). The effect of using the LIFO inventory valuation method in fiscal
     2008 (first year of implementation) was to reduce operating earnings by $28.2 million and net earnings by $18.3 million or $1.50
     per share ($1.49 diluted).
(d) The long-term debt to equity percentage for fiscal 2010, 2009, 2008 and 2007 includes the Revolving Credit Facility as discussed in Note 4,
      Long-Term Debt. For the year 2011, the Revolving Credit Facility was included in current liabilities.  If calculated on a
      comparable basis to fiscal 2010, 2009, 2008 and 2007, the 2011 percentage would be 63.8%.
(e) Equivalent common shares are either common shares or, for convertible preferred shares, the number of common shares that the
     preferred shares are convertible into.  See Note 7 of the Notes to Consolidated Financial Statements for conversion details.

 
 
1
 
Management’s Discussion and Analysis of
Financial Condition and Results of Operations


OVERVIEW

Our Business

Seneca Foods believes it is one of the world’s leading producers and distributors of canned vegetables. Canned vegetables are sold nationwide in all channels serving retail markets and to certain export markets, the food service industry, and other food processors including General Mills Operation, LLC (GMOL) under an Alliance Agreement. During 2011, canned vegetables represented 68% of the Company’s sales. The Company maintains a number one share in the private label, food service and export canned vegetable markets and a number three position in the branded canned vegetable market. In addition, the Company is the supplier of frozen fruit and vegetable products, principally to private label retail, GMOL, and the food service industry, and fruit and snack chip products, principally serving retail markets and other food processors.

During 2011, the Company acquired 100% of the partnership interest in Lebanon Valley Cold Storage, LP and the assets of Unilink, LLC (collectively “Lebanon”) from Pennsylvania Food Group, LLC and related entities, which is a re-processor of frozen vegetable and fruit products. In 2011, frozen products represented 11% of the Company’s sales including eight months of Lebanon's sales and a small existing frozen business.

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 processed fruit and vegetable industry; 2) provide low cost, high quality processed fruits and vegetables to consumers through the elimination of costs from the Company’s supply chain and investment in state-of-the-art production and logistical technology; 3) focus on growth opportunities to capitalize on higher expected returns; and 4) pursue strategic acquisitions that leverage the Company’s core competencies.

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

Restructuring

During 2011, the Company implemented workforce reductions at its plants in Buhl, Idaho and Mayville, Wisconsin and certain other locations that resulted in a restructuring charge of $1,354,000 for severance costs.  This charge is included under Plant Restructuring in the Consolidated Statements of Net Earnings.  Under the Alliance Agreement, GMOL shares in the cost of these restructurings, plus future depreciation and lease costs.  GMOL's portion of these restructuring costs was paid to the Company during 2011.  The Company deferred a portion of this payment to match the depreciation and lease costs that will be incurred in the future.  As of March 31, 2011, this deferral totaled $8,428,000, comprised of $2,407,000 included in other accrued expenses and $6,021,000 included in other long-term liabilities on the Consolidated Balance Sheets.

During 2010, there were no material adjustments to Plant Restructuring.

During the third quarter of 2009, the Company announced a Voluntary Workforce Reduction Program at its plant in Modesto, California which resulted in a restructuring charge for severance costs of $899,000. This program, which resulted in a more efficient operation, was completed in January 2009. This charge is included under Plant Restructuring in the Consolidated Statements of Net Earnings.

Divestitures and Other Charges

During 2011, there was a gain from the reversal of an environmental reserve of $250,000, a gain of $249,000 from the sale of certain fixed assets and a loss of $391,000 from the disposal of certain fixed assets which are included in Other Operating (Income) Expense in the Consolidated Statements of Net Earnings.

During 2010, there were no material divestures or other charges.
 
During 2009, the Company took a non-cash charge of $714,000 related to some excess equipment at our Yakima, Washington processing plant which is included in Other Operating (Income) Expense in the Consolidated Statements of Net Earnings.

 
 
2
 
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 August 18, 2006, in connection with the Signature Fruit acquisition, the Company entered into a $250.0 million five-year floating rate secured revolving credit facility (the “Revolver”) with several lenders, under which $99.3 million was initially borrowed to pay off the prior revolver balance. The Company has historically included its Revolver as a long-term liability due to its five year maturity and the fact that it meets the criteria required by the accounting standards for this classification. Due to its August 18, 2011 maturity, however, the outstanding balance is now classified as a short term liability.  As of March 31, 2011, the outstanding balance on the Revolver was $135.8 million and letters of credit supported by the Revolver totaled $8.8 million, leaving $105.4 million available. In order to maintain availability of funds under the facility, the Company pays a commitment fee on the unused portion of the Revolver. The Revolver is secured by the Company’s accounts receivable and inventory and contains financial covenants and borrowing base requirements. The Revolver is used to fund capital expenditures, acquisitions, the Company’s seasonal working capital needs, which are affected by the growing cycles of the vegetables and fruits the Company processes, and to pay debt principal and interest obligations. The vast majority of fruit and vegetable inventories are produced during the harvesting and packing months of June through November and are then sold over the following year. Payment terms for raw fruit and vegetables are generally three months but can vary from a few days to seven months. Accordingly, the Company’s need to draw on the Revolver may fluctuate significantly throughout the year.

The Company is in the process of negotiating a replacement line of credit that is expected to be in place prior to the maturity of the existing Revolver.  Although subject to change, the agreement being negotiated provides for a five-year term, a $250.0 million facility amount that is seasonally adjusted to $350.0 million and interest based upon an agreed upon LIBOR-based spread.  Closing of the new credit facility is subject to normal and customary documentation and closing conditions.

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

Seasonality

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

 
 
3
 
Management’s Discussion and Analysis of
Financial Condition and Results of Operations



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

 
  
First Quarter
    
Second Quarter
    
Third Quarter
    
Fourth Quarter
  
 
  
(In thousands)
  
Year ended March 31, 2011:
  
 
    
 
    
 
    
 
  
Net sales
   $ 219,942     $ 275,448     $ 446,250     $ 252,972  
Gross margin
     25,284       19,127       34,514       14,300  
Net earnings (loss)
     5,275       2,811       11,462       (1,877 )
Inventories
     467,569       757,783       545,072       455,236  
Revolver outstanding
     92,126       195,000       180,095       135,763  
 
                                
Year ended March 31, 2010:
                                
Net sales
   $ 230,528     $ 323,205     $ 447,027     $ 279,350  
Gross margin
     35,937       38,498       48,396       27,456  
Net earnings
     11,086       12,425       18,606       6,294  
Inventories
     415,755       728,120       544,694       446,464  
Revolver outstanding
     68,614       140,384       195,300       111,062  

Short-Term Borrowings
 
The Company utilizes its Revolver for general corporate purposes, including seasonal working capital needs, to pay debt principal and interest obligations, and to fund capital expenditures and acquisitions.  Seasonal working capital needs are affected by the growing cycles of the vegetables and fruits the Company processes.  The majority of vegetable and fruit inventories are produced during the months of June through November and are then sold over the following year.  Payment terms for vegetable and fruit produce are generally three months but can vary from a few days to seven months.  Accordingly, the Company’s need to draw on the Revolver may fluctuate significantly through the year.
 
The maximum level of short-term borrowings during 2011 was affected by the acquisition of Lebanon Valley Cold Storage, LP and the assets of Unilink, LLC.  Details of this acquisition are outlined in Note 2 of the Notes to Consolidated Financial Statements.
 
General terms of the Revolver include payment of interest at LIBOR plus an agreed upon spread.
 
The following table documents the quantitative data for Short-Term Borrowing during 2011 and 2010:
 

 
  
Fourth Quarter
    
Year Ended
  
 
  
2011
    
2010
    
2011
    
2010
  
 
  
(In thousands)
  
Reported end of period:
  
 
    
 
    
 
    
 
  
  Revolver outstanding
   $ 135,763     $ 111,062     $ 135,763     $ 111,062  
  Weighted average interest rate
     1.25 %     1.24 %     1.25 %     1.24 %
Reported during period:
                                
  Maximum Revolver
   $ 191,852     $ 195,300     $ 207,262     $ 213,265  
  Average Revolver outstanding
   $ 173,173     $ 167,909     $ 150,827     $ 126,381  
  Weighted average interest rate
     1.36 %     1.23 %     1.47 %     1.29 %

Long-Term Debt

The Company has a $48.4 million secured note payable to John Hancock Life Insurance Company, with an 8.03% interest rate, that is payable in installments through 2014, In addition, the Company has two mortgages, totaling $24.7 million, and several industrial revenue bonds, totaling $23.4 million. As discussed in Note 4 Long-Term Debt, the Company classified its Revolver balance as short-term debt at March 31, 2011. The Company did not issue any significant long-term debt in 2011 or 2010.
 
 
 
 
4
 
As of March 31, 2011, scheduled maturities of long-term debt in each of the five succeeding fiscal years and thereafter are presented below. The March 31, 2011 Revolver balance of $135.8 million is presented as being due in fiscal 2012, based upon the Revolver’s August 18, 2011 maturity date.
 
2012
  
$
142,559
  
2013
    
12,397
  
2014
    
40,305
  
2015
    
2,321
  
2016
    
2,490
  
Thereafter
    
  32,547
  
Total
  
$
232,619
  
       

Restrictive Covenants

The Company’s debt agreements, including the Revolver, contain covenants that restrict the Company’s ability to incur additional indebtedness, pay dividends on and redeem the Company’s capital stock, make other restricted payments, including investments, sell the Company’s assets, incur liens, transfer all or substantially all of the Company’s assets and enter into consolidations or mergers. The Company’s debt agreements also require it to meet certain financial covenants, including EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), minimum fixed charge coverage, minimum interest coverage and maximum total debt ratios. The Revolver also contains borrowing base requirements related to accounts receivable and inventory. These financial requirements and ratios generally become more restrictive over time and are subject to allowances for seasonal fluctuations. The most restrictive financial covenant in the debt agreements is the adjusted debt to total capitalization ratio. In connection with the Company’s decision to adopt the last-in, first-out (“LIFO”) method of inventory accounting, effective December 30, 2007, the Company executed amendments to its debt agreements, which enable the Company to compute its financial covenants as if the Company were on the first-in, first-out (“FIFO”) method of inventory accounting. The Company was in compliance with all such financial covenants as of March 31, 2011.

Capital Expenditures

Capital expenditures in 2011 totaled $19.5 million and included $3.4 million towards the completion of a warehouse project in Cumberland, Wisconsin, $1.6 million to complete a warehouse project in Princeville, Illinois started in 2010, $0.9 million for a bean expansion project in Geneva, New York, equipment replacements and other improvements, and cost saving projects. Capital expenditures in 2010 totaled $20.8 million and included $2.0 million for a coater oven for a can line in Baraboo, Wisconsin, $2.0 million towards the partial completion of a warehouse project in Princeville, Illinois, $1.2 million for a bean expansion project in Ripon, Wisconsin, equipment replacements and other improvements, and cost saving projects. Capital expenditures in 2009 totaled $23.2 million and included a $1.8 million frozen warehouse expansion in Rochester, Minnesota, a $1.5 million fruit cup project in Modesto, California, equipment replacements and other improvements, and cost saving projects.

Accounts Receivable

In 2011, accounts receivable increased by $5.1 million or 6.9% versus 2010, due to higher United States Department of Agriculture (USDA) receivables at year end in the current year than the prior year, which have longer collection terms, partially offset by decreased per unit selling prices and decreased sales volume, together resulting in an 6.7% sales decrease compared to 2010. In 2010, accounts receivable decreased by $3.3 million or 4.4% versus 2009, due to lower USDA sales in the current year than the prior year.

Inventories

In 2011, inventories increased by $8.8 million primarily reflecting the effect of higher steel raw material quantities and higher work in process quantities, partially offset by the effect of lower finished goods in spite of the inventory acquired from the Lebanon acquisition. The LIFO reserve balance was $89.9 million versus $97.7 million at the prior year end.

In 2010, inventories increased by $53.5 million primarily reflecting a $68.4 million increase in finished goods due to the large 2010 pack and decreased unit sales volume, partially offset by the effect of lower work in process quantities. The LIFO reserve balance was $97.7 million versus $86.5 million at the prior year end.

The Company believes that the use of the LIFO method better matches current costs with current revenues.
 
 
 
 
5
 
Critical Accounting Policies

During the year ended March 31, 2011, the Company sold for cash, on a bill and hold basis, $180.3 million of Green Giant finished goods inventory to GMOL. As of March 31, 2011, $116.0 million of this product, included in 2011 sales, remained unshipped. At the time of the sale of the Green Giant vegetables to GMOL, title of the specified inventory transferred to GMOL. The Company believes it has met the criteria required by the accounting standards for bill and hold treatment.

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

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

Obligations and Commitments

As of March 31, 2011, the Company was obligated to make cash payments in connection with its debt and operating leases. The effect of these obligations and commitments on the Company’s liquidity and cash flows in future periods are listed below. All of these arrangements require cash payments over varying periods of time. Certain of these arrangements are cancelable on short notice and others require additional payments as part of any early termination.

 
  
Contractual Obligations
    
 
  
 
  
March 31, 2011
    
 
  
 
  
 
    
 
    
 
    
 
    
 
  
 
  
 
    
 
    
 
    
2017
    
 
  
 
  
2012
       2013-14       2015-16    
and beyond
    
Total
  
 
  
 
                    
 
    
 
  
Long-term debt
   $ 142,559     $ 52,702     $ 4,811     $ 32,547     $ 232,619  
Interest
     6,810       8,706       3,344       7,187       26,047  
Operating lease obligations
     29,892       44,917       30,430       20,515       125,754  
Purchase commitments
     249,355       —       —       —       249,355  
Total
   $ 428,616     $ 106,325     $ 38,585     $ 60,249     $ 633,775  

In addition, the Company’s defined benefit plan has an unfunded pension liability of $18.7 million which is subject to certain actuarial assumptions. The funded status increased by $3.5 million during 2011 reflecting the current unfunded liability based on the projected benefit obligation and actual fair value of plan assets as of March 31, 2011. This increase was recognized via an increase to accumulated other comprehensive income of $1.2 million after the income tax benefit of $0.8 million. Plan assets increased from $94.4 million as of March 31, 2010 to $100.1 million as of March 31, 2011 due to a continuing recovery from extremely difficult market conditions two years ago.

During 2011, the Company entered into new operating leases of approximately $38.4 million, based on the if-purchased value, including $26.4 million of agricultural and processing equipment and $12.0 million of can manufacturing equipment.

Due to uncertainties related to FASB Accounting Standards Codification (“ASC”) 740, Income Taxes, the Company is not able to reasonably estimate the cash settlements required in future periods.

 
 
6
 
Purchase commitments represent estimated payments to growers for crops that will be grown during the calendar 2011 season.

The Company has no off-balance sheet debt or other unrecorded obligations other than the items noted above.

Standby Letters of Credit

The Company has standby letters of credit for certain insurance-related requirements. The majority of the Company’s standby letters of credit are automatically renewed annually, unless the issuer gives cancellation notice in advance. On March 31, 2011, the Company had $8.8 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 2011, the Company’s cash and cash equivalents decreased by $2.7 million, which is due to the net impact of $17.0 million provided by operating activities, $38.5 million used in investing activities, and $19.0 million provided by financing activities.

Operating Activities

Cash provided by operating activities decreased to $17.0 million 2011 from $38.1 million in 2010. The decrease is primarily attributable to decreased net earnings exclusive of LIFO in 2011 versus 2010 partially offset by decreased inventory. The 2011 LIFO credit of $7.9 million resulted in a tax cash payment of $2.7 million.

Cash provided by operating activities decreased to $38.1 million in 2010 from $47.3 million in 2009. The decrease is primarily attributable to increased inventory in 2010 versus 2009 partially offset by increased net earnings exclusive of LIFO.  The current year LIFO impact of $11.2 million provided a tax cash benefit of $3.9 million.

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

Investing Activities

Cash used in investing activities was $38.5 million for 2011, principally reflecting the Lebanon acquisition and capital expenditures. The Lebanon acquisition was $20.3 million in 2011. Capital expenditures aggregated $19.5 million in 2011 versus $20.8 million in 2010.  The decrease was primarily attributable to an increase in leased projects. There were three major projects in 2011; 1) $3.4 million towards the completion of a warehouse project in Cumberland, Wisconsin, 2) $1.6 million to complete a warehouse project in Princeville, Illinois started in 2010, and 3) $0.9 million for a bean expansion project in Geneva, New York.

Cash used in investing activities was $20.6 million for 2010, principally reflecting capital expenditures. Capital expenditures aggregated $20.8 million in 2010 versus $23.2 million in 2009. The decrease was primarily attributable to fewer large projects in 2010 and an increase in leased projects. There were three major projects in 2010; 1) a $2.0 million coater oven for a can line in Baraboo, Wisconsin; 2) $2.0 million towards the partial completion of a warehouse project in Princeville, Illinois and 3) a $1.2 million bean expansion project in Ripon, Wisconsin.

Financing Activities

Cash provided by financing activities was $19.0 million in 2011 principally consisting of the additional Revolver borrowings to finance the Lebanon acquisition.

Cash used by financing activities was $15.9 million in 2010. During 2010, the Company repaid the GMOL subordinated promissory note of $32.1 million.  The effect of this repayment was partially offset by additional borrowings which exceeded repayments on the Revolver.

 
 
7
 
Management’s Discussion and Analysis of
Financial Condition and Results of Operations



RESULTS OF OPERATIONS

Classes of similar products/services:
  
2011
    
2010
    
2009
  
 
  
(In thousands)
  
Net Sales:
  
 
  
GMOL *
   $ 191,526     $ 239,622     $ 231,712  
Canned vegetables
     692,574       750,751       732,146  
Frozen *
     86,904       48,320       44,967  
Fruit
     195,427       200,391       233,897  
Snack
     10,604       21,287       15,498  
Other
     17,577       19,739       22,464  
Total
   $ 1,194,612     $ 1,280,110     $ 1,280,684  
 
                        
* GMOL includes frozen vegetable sales exclusively for GMOL.
  

Fiscal 2011 versus Fiscal 2010

Net sales for 2011 decreased $85.5 million, or 6.7%, from $1,280.1 million to $1,194.6 million. The decrease primarily reflects a $58.2 million decrease in canned vegetable sales, a $48.1 million decrease in GMOL sales, and a $10.7 decrease in Snack sales, partially offset by an increase in frozen sales of $38.6 million. Lower net selling prices and a less favorable sales mix represented $59.2 million of the decrease while sales volume accounted for $26.3 million of the decrease. The decrease in selling prices/change in sales mix was primarily due to canned vegetable and fruit products. The decrease in sales volume was primarily due to Green Giant Alliance and Snack reductions, offset in part by increased frozen product volume due to the Company's Lebanon acquisition.

Cost of product sold as a percentage of sales increased from 88.3% in 2010 to 92.2% in 2011, as lower selling prices more than offset decreased costs, including a $19.2 million LIFO credit in 2011 versus prior year.

Selling, general and administrative expense was 5.1% of sales in 2011 and 2010.

Plant restructuring costs increased from zero in 2010 to $1.4 million in 2011 and are described in detail in the Restructuring section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Interest expense, net, decreased from $9.6 million in 2010 to $8.8 million in 2011 due to the pay-off of a $32.1 million note balance to GMOL in 2010 partially offset by higher average Revolver borrowings.

Other operating income in 2011 included of a gain of $0.7 million as a result of the estimated fair market value of the assets acquired exceeding the purchase price of Lebanon.  The Company also recorded a gain from the reversal of an environmental reserve of $0.3 million, a gain of $0.2 million from the sale of certain fixed assets and a loss of $0.4 million from the disposal of certain fixed assets in 2011.

As a result of the aforementioned factors, pre-tax earnings decreased from $75.4 million in 2010 to $23.5 million in 2011. The effective tax rate was 24.7% in 2011 and 35.8% in 2010. The decrease in the 2011 effective tax rate is primarily due to the settlement of an IRS audit for the 2006, 2007 and 2008 tax years.

Fiscal 2010 versus Fiscal 2009

Net sales for 2010 decreased $0.6 million, from $1,280.7 million to $1,280.1 million. The decrease primarily reflects a $33.5 million decrease in fruit sales, partially offset by an $18.6 million increase in canned vegetable sales and a $7.9 million increase in GMOL sales. The reduction in sales is predominately due to decreased sales to the U.S. Department of Agriculture. The decrease in sales is attributable to a sales volume reduction of $36.2 million partially offset by increased selling prices/improved sales mix of $35.6 million. The sales volume reduction is primarily due to $22.8 million decrease in canned fruit sales and a $17.6 million decrease in canned vegetable sales.

 
 
8
 
Cost of product sold as a percentage of sales decreased from 90.6% in 2009 to 88.3% in 2010 primarily as a result of higher selling prices and a $47.1 million LIFO charge decrease in 2010 versus 2009.

Selling, general and administrative expense decreased from 5.5% of sales in 2009 to 5.1% of sales in 2010 due to lower brokerage rates on certain sales.

Plant restructuring costs, which are described in detail in the Restructuring section of Management’s Discussion and Analysis of Financial Condition and Results of Operations, decreased from $0.9 million in 2009 to zero in 2010.
 
Interest expense, net, decreased from $14.1 million in 2009 to $9.6 million in 2010 primarily reflecting lower average borrowing rates on long-term and short-term variable rate debt and lower overall debt balances in the current year than the prior year.

Other operating expense, net, of $0.2 million in 2010 primarily reflects a net loss on the sale of some unused fixed assets. Other operating expense, net, of $0.6 million in 2009 primarily reflects the effect of a non-cash loss of $0.7 million on the disposal of property, plant and equipment partially offset by a gain of $0.1 million on the disposal of property, plant and equipment.

As a result of the aforementioned factors, pre-tax earnings increased from $34.1 million in 2009 to $75.4 million in 2010. The effective tax rate was 35.8% in 2010 and 44.9% in 2009. The decrease in the 2010 effective tax rate is primarily due to an addition to uncertain tax positions in 2009, a charge related to research and development credit in 2009 and the settlement of an IRS audit during 2009.

Recently Issued Accounting Standards

In January 2010, the Financial Accounting Standards Board ('FASB") issued Accounting Standards Update ("ASU") No. 2010-06, “Improving Disclosures about Fair Value Measurements,” which requires additional disclosures about the amounts of and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements. This standard also clarifies existing disclosure requirements related to the level of disaggregation of fair value measurements for each class of assets and liabilities and disclosures about inputs and valuation techniques used to measure fair value for both recurring and non-recurring Level 2 and Level 3 measurements. Since this new accounting standard only required additional disclosure, the adoption of the standard in the first quarter of 2011 did not impact the Company’s consolidated financial statements. Additionally, effective for interim and annual periods beginning after December 15, 2010, this standard will require additional disclosure and require an entity to present disaggregated information about activity in Level 3 fair value measurements on a gross basis, rather than one net amount.

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” (“ASU 2011-04”) which results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between accounting principles generally accepted in the United States (“GAAP”) and IFRS. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011. The Company is currently assessing the potential impact that the adoption of ASU 2011-04 may have on the Company’s financial position and results of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

The Company maintained $4.8 million in cash equivalents as of March 31, 2011. As a result of its regular borrowing activities, the Company’s operating results are exposed to fluctuations in interest rates, which it manages primarily through its regular financing activities. The Company uses a revolving credit facility with variable interest rates to finance capital expenditures, acquisitions, seasonal working capital requirements and to pay debt principal and interest obligations. In addition, long-term debt includes secured notes payable. Long-term debt bears interest at fixed and variable rates. With $173.5 million in average variable-rate debt during fiscal 2011, a 1% change in interest rates would have had a $1.7 million effect on interest expense. The following table provides information about the Company’s financial instruments that are sensitive to changes in interest rates. The table presents principal cash flows and related weighted average interest rates by expected maturity date. Weighted average interest rates on long-term variable-rate debt are based on rates as of March 31, 2011.

 
 
9
 
Management’s Discussion and Analysis of
Financial Condition and Results of Operations



Interest Rate Sensitivity of Long-Term Debt and Short-Term Investments
  
March 31, 2011
  
(In thousands)
  
 
  
 
    
 
    
 
    
 
    
 
    
 
    
 
    
 
  
 
  
P A Y M E N T S B Y Y E A R
    
 
    
 
  
 
  
 
    
 
    
 
    
 
    
 
    
 
    
Total/
    
Estimated
  
 
  
 
    
 
    
 
    
 
    
 
    
 
    
Weighted
    
Fair
  
 
  
2012
    
2013
    
2014
    
2015
    
2016
    
Thereafter
    
Average
    
Value
  
 
  
 
    
 
    
 
    
 
    
 
    
 
    
 
    
 
  
Fixed-rate L/T debt:
  
 
    
 
    
 
    
 
    
 
    
 
    
 
    
 
  
  Principal cash flows
   $ 6,796     $ 7,337     $ 40,305     $ 2,321     $ 2,490     $ 14,977     $ 74,226     $ 71,844  
  Average interest rate
     7.65 %     7.64 %     7.47 %     6.96 %     6.96 %     7.12 %     7.44 %        
Variable-rate L/T debt:
                                                                
  Principal cash flows
   $ 135,763     $ 5,060     $ -     $ -     $ -     $ 17,570     $ 158,393     $ 158,393  
  Average interest rate
     1.25 %     3.20 %     - %     - %     - %     3.20 %     1.53 %        
Average Revolver debt:
                                                                
  Principal cash flows
                                                   $ 150,827     $ 150,827  
  Average interest rate
                                                     1.47 %        
Short-term investments:
                                                                
  Average balance
                                                   $ 354     $ 354  
  Average interest rate
                                                     0.23 %        

Commodity Risk

The materials that the Company uses, such as vegetables, fruits, steel, ingredients, and packaging materials, as well as the electricity and natural gas used in the Company’s business, are commodities that may experience price volatility caused by external factors including market fluctuations, availability, weather, currency fluctuations, and changes in governmental regulations and agricultural programs. These events may result in reduced supplies of these materials, higher supply costs, or interruptions in the Company’s production schedules. If prices of these raw materials increase and the Company is not able to effectively pass such price increases along to its customers, operating income will decrease. With $249.0 million in produce costs expected during 2012, a 1% change would have a $2.5 million effect on inventory costs. A 1% change in steel unit costs would equate to a $1.0 million cost impact.

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

 
 
10
 
Consolidated Statements of Net Earnings
 

Seneca Foods Corporation and Subsidiaries
  
 
    
 
    
 
  
(In thousands of dollars, except per share amounts)
  
 
    
 
    
 
  
 
  
 
    
 
    
 
  
Years ended March 31,
  
2011
    
2010
    
2009
  
 
  
 
    
 
    
 
  
 
  
 
    
 
    
 
  
Net sales
   $ 1,194,612     $ 1,280,110     $ 1,280,684  
 
                        
Costs and expenses:
                        
  Cost of products sold
     1,101,387       1,129,823       1,161,137  
  Selling, general, and administrative expense
     60,421       65,133       69,836  
  Other operating (income) expense, net
     (844 )     156       624  
  Plant restructuring
     1,354       -       899  
    Total costs and expenses
     1,162,318       1,195,112       1,232,496  
 
                        
Operating income
     32,294       84,998       48,188  
Interest expense, net of interest income of
                        
  $1, $2, and $14, respectively
     8,827       9,638       14,103  
 
                        
Earnings before income taxes
     23,467       75,360       34,085  
Income taxes
     5,796       26,949       15,320  
    Net earnings
   $ 17,671     $ 48,411     $ 18,765  
 
                        
  Basic earnings per common share
   $ 1.45     $ 3.98     $ 1.54  
 
                        
  Diluted earnings per common share
   $ 1.45     $ 3.96     $ 1.53  
 
                        
See notes to consolidated financial statements.
                        

 
 
11
 
Consolidated Balance Sheets
 

Seneca Foods Corporation and Subsidiaries
  
 
    
 
  
(In thousands)
  
 
    
 
  
 
  
 
    
 
  
March 31,
  
2011
    
2010
  
 
  
 
    
 
  
Assets
  
 
    
 
  
Current Assets:
  
 
    
 
  
  Cash and cash equivalents
   $ 4,762     $ 7,421  
  Accounts receivable, less allowance for doubtful accounts
                
    of $247 and $354, respectively
     78,536       73,460  
  Inventories:
                
    Finished products
     331,771       338,891  
    In process
     13,745       8,176  
    Raw materials and supplies
     109,720       99,397  
 
     455,236       446,464  
  Deferred income taxes
     7,623       10,032  
  Other current assets
     10,110       2,850  
    Total Current Assets
     556,267       540,227  
Other assets
     429       993  
Property, Plant, and Equipment:
                
  Land
     30,875       16,317  
  Building & Improvements
     158,204       148,441  
  Equipment
     313,828       312,149  
 
     502,907       476,907  
Less accumulated depreciation and amortization
     314,895       298,794  
  Net Property, Plant, and Equipment
     188,012       178,113  
    Total Assets
   $ 744,708     $ 719,333  
 
                
Liabilities and Stockholders’ Equity
                
Current Liabilities:
                
  Accounts payable
   $ 64,369     $ 67,674  
  Accrued vacation
     10,215       10,059  
  Accrued payroll
     6,685       12,798  
  Other accrued expenses
     37,238       32,608  
  Current portion of long-term debt
     142,559       6,356  
  Income taxes
     489       6,122  
    Total Current Liabilities
     261,555       135,617  
Long-term debt, less current portion
     90,060       207,924  
Other liabilities
     36,084       37,697  
Deferred income taxes
     3,177       3,085  
    Total Liabilities
     390,876       384,323  
Commitments and contingencies  (Note 13)
                
Stockholders’ Equity:
                
  Preferred stock
     6,325       31,325  
  Common stock
     4,118       3,861  
  Additional paid-in capital
     90,778       65,910  
  Treasury stock, at cost
     (257 )     (257 )
  Accumulated other comprehensive loss
     (13,981 )     (15,030 )
  Retained earnings
     266,849       249,201  
  Total Stockholders’ Equity
     353,832       335,010  
    Total Liabilities and Stockholders’ Equity
   $ 744,708     $ 719,333  
 
                
See notes to consolidated financial statements.
                

 
 
12
 
Consolidated Statements of Cash Flows
 

Seneca Foods Corporation and Subsidiaries
  
 
    
 
    
 
  
(In thousands)
  
 
    
 
    
 
  
 
  
 
    
 
    
 
  
Years ended March 31,
  
2011
    
2010
    
2009
  
 
  
 
    
 
    
 
  
Cash flows from operating activities:
  
 
    
 
    
 
  
  Net earnings
   $ 17,671     $ 48,411     $ 18,765  
    Adjustments to reconcile net earnings to
                        
      net cash provided by operations:
                        
        Depreciation and amortization
     22,581       22,415       22,026  
        Deferred income tax expense
     1,717       4,247       4,680  
        Loss on the sale of assets
     142       153       676  
        Changes in operating assets and liabilities (net of acquisitions):
                        
            Accounts receivable
     (1,661 )     3,253       (14,701 )
            Inventories
     1,519       (53,509 )     2,731  
            Other current assets
     (7,117 )     3,116       884  
            Accounts payable, accrued expenses,
                        
              and other liabilities
     (12,369 )     5,593       2,346  
            Income taxes
     (5,519 )     4,433       9,872  
       Net cash provided by operating activities
     16,964       38,112       47,279  
 
                        
Cash flows from investing activities:
                        
    Additions to property, plant, and equipment
     (19,473 )     (20,783 )     (23,198 )
    Cash paid for acquisitions (net of cash acquired)
     (20,348 )     -       -  
    Proceeds from the sale of assets
     1,245       168       611  
      Net cash used in investing activities
     (38,576 )     (20,615 )     (22,587 )
 
                        
Cash flows from financing activities:
                        
    Proceeds from issuance of long-term debt
     343,755       415,727       442,315  
    Payments of long-term debt
     (325,416 )     (432,249 )     (471,712 )
    Borrowings on notes payable
     168       -       -  
    Change in other assets
     469       620       512  
    Purchase treasury stock
     -       -       (257 )
    Preferred dividends paid
     (23 )     (23 )     (23 )
      Net cash provided by (used in) financing activities
     18,953       (15,925 )     (29,165 )
 
                        
Net (decrease) increase in cash and cash equivalents
     (2,659 )     1,572       (4,473 )
Cash and cash equivalents, beginning of year
     7,421       5,849       10,322  
Cash and cash equivalents, end of year
   $ 4,762     $ 7,421     $ 5,849  
 
                        
Supplemental disclosures of cash flow information:
                        
    Cash paid (refunded) during the year for:
                        
        Interest
   $ 8,395     $ 8,989     $ 13,894  
        Income taxes
     14,275       18,813       (613 )
 
                        
See notes to consolidated financial statements.
                        

 
 
13
 
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
    
Comprehensive
  
 
  
Stock
    
Stock
    
Capital
    
Stock
    
Loss
    
Earnings
    
Income
  
 
  
 
    
 
    
 
    
 
    
 
    
 
    
 
  
Balance March 31, 2008
   $ 69,448     $ 3,079     $ 28,460     $ -     $ (3,628 )   $ 182,071    
 
  
  Net earnings
     -       -       -       -       -       18,765     $ 18,765  
  Cash dividends paid
                                                        
    on preferred stock
     -       -       -       -       -       (23 )     -  
  Equity incentive program
     -       -       42       -       -       -       -  
  Preferred stock conversion
     (45 )     1       44       -       -       -       -  
  Purchase treasury stock
     -       -       -       (257 )     -       -       -  
  Change in pension and post retirement
                                                        
    benefits adjustment (net of tax $9,930)
     -       -       -       -       (15,532 )     -       (15,532 )
Balance March 31, 2009
     69,403       3,080       28,546       (257 )     (19,160 )     200,813     $ 3,233  
  Net earnings
     -       -       -       -       -       48,411     $ 48,411  
  Cash dividends paid
                                                        
    on preferred stock
     -       -       -       -       -       (23 )     -  
  Equity incentive program
     -       -       67       -       -       -       -  
  Preferred stock conversion
     (38,078 )     781       37,297       -       -       -       -  
  Change in pension and post retirement
                                                        
    benefits adjustment (net of tax $2,640)
     -       -       -       -       4,130       -       4,130  
Balance March 31, 2010
     31,325       3,861       65,910       (257 )     (15,030 )     249,201     $ 52,541  
  Net earnings
     -       -       -       -       -       17,671     $ 17,671  
  Cash dividends paid
                                                        
    on preferred stock
     -       -       -       -       -       (23 )     -  
  Equity incentive program
     -       -       125       -       -       -       -  
  Preferred stock conversion
     (25,000 )     257       24,743       -       -       -       -  
  Change in pension and post retirement
                                                        
    benefits adjustment (net of tax $671)
     -       -       -       -       1,049       -       1,049  
Balance March 31, 2011
   $ 6,325     $ 4,118     $ 90,778     $ (257 )   $ (13,981 )   $ 266,849     $ 18,720  
 
                                                        

 
  
 
    
 
    
 
    
 
    
 
    
 
    
 
  
 
  
 
    
 
    
 
    
 
    
 
    
 
    
 
  
 
  
Preferred Stock
    
Common Stock
  
 
     6 %     10 %  
 
    
 
    
 
    
 
    
 
  
 
Cumulative Par
  
Cumulative Par
    
 
    
2003 Series
    
2006 Series
    
 
    
 
  
 
  
Value $.25
    
Value $.025
    
Participating
    
Participating
    
Participating
    
Class A
    
Class B
  
 
Callable at Par
    
Convertible
  
Convertible Par
  
Convertible Par
  
Convertible Par
  
Common Stock
  
Common Stock
  
 
  
Voting
    
Voting
    
Value $.025
    
Value $.025
    
Value $.025
    
Par Value $.25
    
Par Value $.25
  
Shares authorized and designated:
                  
 
    
 
    
 
    
 
    
 
  
March 31, 2011
     200,000       1,400,000       102,047       313,304       -       20,000,000       10,000,000  
Shares issued and outstanding:
                                                        
March 31, 2009
     200,000       807,240       2,982,094       552,976       1,025,220       4,820,080       2,760,903  
March 31, 2010
     200,000       807,240       102,047       313,304       1,025,220       8,528,745       2,176,836  
March 31, 2011
     200,000       807,240       102,047       313,304       -       9,607,809       2,127,822  
Stock amount
   $ 50     $ 202     $ 1,217     $ 4,856     $ -     $ 2,405     $ 1,713  
 
                                                        
See notes to consolidated financial statements.
                                          

 
 
14
 
Notes to Consolidated Financial Statements
 

Seneca Foods Corporation and Subsidiaries

1. Summary of Significant Accounting Policies
 
 
Nature of Operations — Seneca Foods Corporation and subsidiaries (the “Company”) conducts its business almost entirely in food processing, operating 23 plants and 29 warehouses in eight states. The Company markets private label and branded processed foods to retailers and institutional food distributors.

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

Revenue Recognition — Sales and related cost of product sold are recognized when legal title passes to the purchaser, which is primarily upon shipment of products. When customers, under the terms of specific orders, request that the Company invoice but hold the goods (“Bill and Hold”) for future shipment, the Company recognizes revenue when legal title to the finished goods inventory passes to the purchaser. Generally, the Company receives cash from the purchaser when legal title passes. During the years ended 2011 and 2010, the Company sold for cash, on a bill and hold basis, $180.3 million and $213.3 million, respectively, of Green Giant finished goods inventory to General Mills Operations, LLC (“GMOL”). At the time of the sale of the Green Giant vegetables to GMOL, title of the specified inventory transferred to GMOL. The Company believes it has met the criteria required by the accounting standards for Bill and Hold treatment. As of March 31, 2011, $116.0 million of 2011 product remained unshipped.

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

Concentration of Credit Risk — Financial instruments that potentially subject the Company to credit risk consist of trade receivables and interest-bearing investments. Wholesale and retail food distributors comprise a significant portion of the trade receivables; collateral is generally not required. A relatively limited number of customers account for a large percentage of the Company’s total sales. GMOL sales represented 16%, 19% and 18% of net sales in 2011, 2010 and 2009, respectively. The top ten customers represented approximately 49%, 52% and 53%, of net sales for 2011, 2010 and 2009, respectively. The Company closely monitors the credit risk associated with its customers. The Company places substantially all of its interest-bearing investments with financial institutions and monitors credit exposure. Cash and short-term investments in certain accounts exceed the federal insured limit; however, the Company has not experienced any losses in such accounts.

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

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

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

Inventories — Effective in fiscal 2008 substantially all inventories are stated at the lower of cost; determined under the last-in, first-out (“LIFO”) method; or market. Prior to fiscal 2008, the Company used the first-in, first-out (“FIFO”) inventory valuation method.

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 evaluates the realizability of its 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.

 
 
15
 
As disclosed in Note 6, Income Taxes, the Company adopted the provisions of ASC 740 Income Taxes (formerly Statement of Financial Accounting Standards ("SFAS") Interpretation No. 48 “Accounting for Uncertain Income Taxes — an Interpretation of SFAS Statement No. 109”), on April 1, 2007. The Company has elected to retain its existing accounting policy with respect to the treatment of interest and penalties attributable to income taxes and continues to reflect any change for such, to the extent it arises, as a component of its income tax provision or benefit.

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

Advertising Costs — Advertising costs are expensed as incurred.

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

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

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

Years ended March 31,
  
2011
    
2010
    
2009
  
 
  
(In thousands, except per share amounts)
  
Basic
  
 
    
 
    
 
  
Net earnings
   $ 17,671     $ 48,411     $ 18,765  
Deduct preferred stock dividends
     23       23       23  
Undistributed earnings
     17,648       48,388       18,742  
Earnings attributable to participating
                        
   preferred
     851       8,996       7,038  
Earnings attributable to common
                        
   shareholders
   $ 16,797     $ 39,392     $ 11,704  
Weighted average common shares
                        
   outstanding
     11,564       9,887       7,587  
Basic earnings per common share
   $ 1.45     $ 3.98     $ 1.54  
Diluted
                        
Earnings attributable to common
                        
   shareholders
   $ 16,797     $ 39,392     $ 11,704  
Add dividends on convertible
                        
   preferred stock
     20       20       20  
Earnings attributable to common
                        
   stock on a diluted basis
   $ 16,817     $ 39,412     $ 11,724  
Weighted average common shares
                        
   outstanding-basic
     11,564       9,887       7,587  
Additional shares to be issued related to
                        
   the equity compensation plan
     5       3       -  
Additional shares to be issued under
                        
   full conversion of preferred stock
     67       67       67  
Total shares for diluted
     11,636       9,957       7,654  
Diluted earnings per share
   $ 1.45     $ 3.96     $ 1.53  

 
 
16
 
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 $22,000,000, $21,594,000, and $21,286,000 in 2011, 2010, and 2009, respectively. The estimated useful lives are as follows: buildings — 30 years; machinery and equipment — 10-15 years; computer software — 3-5 years; vehicles — 3-7 years; and land improvements — 10-20 years. The Company assesses its long-lived assets for impairment whenever there is an indicator of impairment. Impairment losses are evaluated if the estimated undiscounted cash flows from using the assets are less than carrying value. A loss is recognized when the carrying value of an asset exceeds its fair value. There were no significant impairment losses in 2011, 2010 or 2009.

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

Recently Issued Accounting Standards — In January 2010, the Financial Accounting Standards Board ('FASB") issued Accounting Standards Update ("ASU") No. 2010-06, “Improving Disclosures about Fair Value Measurements,” which requires additional disclosures about the amounts of and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements. This standard also clarifies existing disclosure requirements related to the level of disaggregation of fair value measurements for each class of assets and liabilities and disclosures about inputs and valuation techniques used to measure fair value for both recurring and non-recurring Level 2 and Level 3 measurements. Since this new accounting standard only required additional disclosure, the adoption of the standard in the first quarter of 2011 did not impact the Company’s consolidated financial statements. Additionally, effective for interim and annual periods beginning after December 15, 2010, this standard will require additional disclosure and require an entity to present disaggregated information about activity in Level 3 fair value measurements on a gross basis, rather than one net amount.

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” (“ASU 2011-04”) which results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between accounting principles generally accepted in the United States (“GAAP”) and IFRS. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011. The Company is currently assessing the potential impact that the adoption of ASU 2011-04 may have on the Company’s financial position and results of operations.

2. Acquisitions

On August 6, 2010, the Company completed its acquisition of 100% of the partnership interest in Lebanon Valley Cold Storage, LP and the assets of Unilink, LLC (collectively “Lebanon”) from Pennsylvania Food Group, LLC and related entities. The rationale for the acquisition was twofold: (1) to broaden the Company’s product offerings in the frozen food business and (2) to take advantage of distribution efficiencies by combining shipments since the customer bases of the Company and Lebanon are similar. The purchase price totaled $20.3 million plus the assumption of certain liabilities. This acquisition was financed with proceeds from our revolving credit facility.  The purchase price to acquire Lebanon was allocated based on the internally developed fair value of the assets acquired and liabilities assumed and the independent valuation of property, plant, and equipment.  The purchase price of $20.3 million has been allocated as follows (in millions):

Purchase Price (net of cash received)
   $ 20.3  
 
        
Allocated as follows:
        
Current assets
   $ 13.8  
Property, plant and equipment
     13.9  
Bargain purchase gain
     (0.7 )
Current liabilities
     (6.7 )
Total
   $ 20.3  

The Company recorded a $736,000 gain as a result of the estimated fair market value of the net assets acquired exceeding the purchase price.  This gain is included in other operating income on the Consolidated Statements of Net Earnings.

 
 
17
 
Notes to Consolidated Financial Statements
 

3.  Line of Credit
 
The Company primarily funds its capital expenditures, acquisitions and working capital requirements through bank borrowings. On August 18, 2006, in connection with the acquisition of Signature Fruit, the Company entered into a $250,000,000 five-year floating rate secured revolving credit facility (the “Revolver”) with various banks. The maturity date for the revolver is August 18, 2011. As of March 31, 2011, the outstanding balance of the Revolver was $135,763,000, with a weighted average interest rate of 1.25%, and is included in the current portion of long-term debt on the Consolidated Balance Sheet. The Revolver is secured by accounts receivable and inventories with a carrying value of $534,019,000. There were $111,062,000 in bank borrowings under the Revolver at March 31, 2010. The Company had $8,848,000 and $7,728,000 of outstanding standby letters of credit as of March 31, 2011 and 2010, respectively, that reduce borrowing availability under the Revolver. See Note 4, Long-Term Debt, for additional comments related to the Revolver.

The Company is in the process of negotiating a replacement line of credit that is expected to be in place prior to the maturity of the existing Revolver.  Although subject to change, the agreement being negotiated provides for a five-year term, a $250.0 million facility amount that is seasonally adjusted to $350.0 million and interest based upon an agreed upon LIBOR-based spread.  Closing of the new credit facility is subject to normal and customary documentation and closing conditions.

4.  Long-Term Debt
            
             
   
2011
    
2010
  
   
(In thousands)
  
Revolving credit facility,
            
  1.25% and 1.24%, due through 2012
   $ 135,763     $ 111,062  
Secured note payable to insurance company,
                
  8.03%, due through 2014
     48,360       52,893  
Secured Industrial Revenue Development Bonds,
                
  3.20%, and 3.21%, due through 2029
     22,630       22,630  
Secured promissory note,
                
  6.98%, due through 2022
     19,349       20,518  
Secured promissory note,
                
  6.35%, due through 2020
     5,343       5,822  
Secured Industrial Revenue Development Bond,
                
  8.10%, due through 2017
     775       881  
Other
     399       474  
      232,619       214,280  
Less current portion
     142,559       6,356  
    $ 90,060     $ 207,924  

The Company has historically included the Revolver as a long-term liability due to its five year maturity and the fact that it meets the criteria required by the accounting standards for this classification.  Due to its August 18, 2011 maturity, however, the outstanding balance has been classified as a short term liability.  As of March 31, 2011, the outstanding balance on the Revolver was $135.8 million and letters of credit supported by the Revolver totaled $8.8 million, leaving $105.4 million available.

The Company is in the process of negotiating a replacement line of credit that is expected to be in place prior to the maturity of the existing Revolver.  Although subject to change, the agreement being negotiated provides for a five-year term, a $250.0 million facility amount that is seasonally adjusted to $350.0 million and interest based upon an agreed upon LIBOR-based spread.  Closing of the new credit facility is subject to normal and customary documentation and closing conditions.
 
The Company’s debt agreements, including the Revolver, contain covenants that restrict the Company’s ability to incur additional indebtedness, pay dividends on and redeem the Company’s capital stock, make other restricted payments, including investments, sell the Company’s assets, incur liens, transfer all or substantially all of the Company’s assets and enter into consolidations or mergers. The Company’s debt agreements also require the Company to meet certain financial covenants, including EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), minimum fixed charge coverage, minimum interest coverage and maximum total debt ratios. The Revolver also contains borrowing base requirements related to accounts receivable and inventory. These financial requirements and ratios generally become more restrictive over time and are subject to allowances for seasonal fluctuations. The most restrictive financial covenant in the debt agreements is the adjusted debt to total capitalization ratio. In connection with the Company’s decision to adopt the LIFO method of inventory accounting, effective December 30, 2007, the Company executed amendments to its debt agreements, which enable the Company to compute its financial covenants as if the Company were on the FIFO method of inventory accounting. The Company was in compliance with all such financial covenants as of March 31, 2011.

 
 
18
 
The Company's credit agreement limits the payment of dividends and other distributions, such as purchases of shares.  There is an annual total distribution limitation of $500,000, less aggregate annual dividend payments totaling $23,000 that the Company presently pays on two outstanding classes of preferred stock.
 
The Company has five outstanding Industrial Revenue Development Bonds (“IRBs”), including four IRBs totaling $22,630,000 that are secured by direct pay letters of credit, and one IRB for $775,000 payable to GE Commercial Finance. The interest rates shown for these IRBs in the table above reflect the costs of the direct pay letters of credit and amortization of other related costs of those IRBs.  A Master Reimbursement Agreement ("Agreement") with GE Commercial Finance, which provides for the direct pay letters of credit, expires in August 2011.  The Company is in the process of negotiating a revised agreement and expects to have a new agreement in place prior to the maturity of the existing agreement.

The carrying value of assets pledged for secured debt, including the Revolver, is $666,490,000.

Debt repayment requirements for the next five fiscal years ended March 31, are:

(In thousands)
 
2012 
 
$
142,559 
 
2013 
 
 
12,397 
 
2014 
 
 
40,305 
 
2015 
 
 
2,321 
 
2016 
 
 
2,490 
 
Thereafter
 
 
32,547 
 
Total
 
$
232,619 
 

5. Leases

The Company had no capital leases as of March 31, 2011 and 2010. The Company has operating leases expiring at various dates through 2031. Operating leases generally provide for early purchase options one year prior to expiration.

The following is a schedule, by year, of minimum operating lease payments due as of March 31, 2011 (in thousands):

Years ending March 31:
 
  
2012
 $ 29,892  
2013
   25,003  
2014
   19,914  
2015
   17,061  
2016
   13,369  
2017-2031   20,515  
Total minimum payment required
 $ 125,754  
         
Lease expense in fiscal 2011, 2010, and 2009 was $37,781,000, $32,551,000, and $32,088,000, respectively.
  

 
 
19
 
Notes to Consolidated Financial Statements
 

6.  Income Taxes
 
  
 
  
 
  
 
 
  
 
  
 
  
The Company files a consolidated federal income tax return. The provision for income taxes is as follows:
  
 
 
  
 
  
 
  
 
2011
  
2010
  
2009
  
 
(In thousands)
  
Current:
 
  
 
  
 
  
  Federal
 $ 2,854   $ 19,049   $ 8,867  
  State
   1,225     3,653     1,773  
 
   4,079     22,702     10,640  
Deferred:
                  
  Federal
   1,791     3,873     5,378  
  State
   (74 )   374     (698 )
 
   1,717     4,247     4,680  
Total income taxes
 $ 5,796   $ 26,949   $ 15,320  
 
 
                
A reconciliation of the expected U.S. statutory rate to the effective rate follows:
  
 
                
 
   2011   2010     2009  
Computed (expected tax rate)
     35.0 %   35.0   %   35.0 %
State income taxes (net of federal tax benefit)
     2.5     2.9       2.9  
State tax credits
     (1.4  )   (0.1 )     -  
Research and development credit charge (benefit)
     (0.6  )   -       3.9  
Manufacturer’s deduction
     (3.7  )   (2.1 )     (1.7 )
Addition to (reversal of) uncertain tax positions
     (7.3  )   (0.8 )     2.8  
IRS audit adjustment
     1.5     -       1.8  
Other permanent differences not (taxable) deductible
     (0.1  )   0.2       0.5  
Other
     (1.2  )   0.7       (0.3 )
   Effective income tax rate
     24.7 %   35.8   %   44.9 %

The effective tax rate was 24.7% in 2011 and 35.8% in 2010. The decrease in the 2011 effective tax rate was primarily due to a reversal of uncertain tax positions in 2011 mostly due to the settlement of an Internal Revenue Service (IRS) audit that year discussed below.

The effective tax rate was 35.8% in 2010 and 44.9% in 2009. The decrease in the 2010 effective tax rate was primarily due to an addition to uncertain tax positions in 2009, a charge related to research and development credit in 2009 and the settlement of an IRS audit during 2009.

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

 
  
2011
    
2010
  
 
  
(In thousands)
  
Deferred income tax assets:
  
 
    
 
  
  Future tax credits
   $ 3,862     $ 3,519  
  Inventory valuation
     1,130       1,056  
  Employee benefits
     2,618       3,108  
  Insurance
     3,572       5,673  
  Other comprehensive loss
     8,948       9,733  
  Interest
     56       583  
  Deferred gain on sale/leaseback
     110       138  
  Prepaid revenue
     1,035       -  
  Other
     239       338  
  Severance
     178       -  
 
     21,748       24,148  
Deferred income tax liabilities:
                
  Property basis and depreciation difference
     14,230       12,016  
  Pension
     1,323       3,448  
 
     15,553       15,464  
  Valuation allowance - non-current
     1,749       1,737  
    Net deferred income tax asset
   $ 4,446     $ 6,947  

 
 
20
 
Net current deferred income tax assets of $7,623,000 and $10,032,000 as of March 31, 2011 and 2010, respectively, are recognized in the Consolidated Balance Sheets. Also recognized are net non-current deferred income tax liabilities of $3,177,000 as of March 31, 2011 and $3,085,000 as of March 31, 2010.

Current rules on the accounting for uncertainty on income taxes prescribe a minimum recognition 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, 2011 and 2010 consists of the following:

 
  
2011
    
2010
  
 
  
(In thousands)
  
Beginning Balance
   $ 5,537     $ 5,297  
 
                
Tax positions related to current year:
                
Additions
     294       86  
 
                
Tax positions related to prior years:
                
Additions
     232       372  
Reductions
     -       (12 )
Settlements
     (3,767 )     (206 )
Lapses in statues of limitations
     (122 )     -  
Balance as of March 31,
   $ 2,174     $ 5,537  

Included in the balances at March 31, 2011 and 2010 are $1,628,000 and $4,145,000, respectively, of tax positions that are highly certain but for which there is uncertainty about the timing. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of these positions would not impact the annual effective tax rate but would accelerate the payment of cash to the tax authority to an earlier period.

The Company recognizes interest and penalties accrued on unrecognized tax benefits as well as interest received from favorable settlements within income tax expense. During the years ended March 31, 2011 and 2010, the Company recognized an approximate $1,387,000 decrease and $995,000 increase, respectively, in interest and penalties. As of March 31, 2011 and 2010, the Company had approximately $144,000 and $1,531,000, respectively, of interest and penalties accrued associated with unrecognized tax benefits.

The Company files income tax returns in the U.S. federal jurisdiction and various states.

During the years ended March 31, 2011 and 2010, the Company was audited by the IRS for tax years 2006, 2007 and 2008 as well as by one state taxing authority for the 2006, 2007 and 2008 fiscal years. The Company reached a settlement with the IRS for the 2006-2008 fiscal years during the year ended March 31, 2011. As a result, the Company was able to record the tax benefits of those settlements as reductions to the ASC 740 liability amounting to $3,767,000 for the year ended March 31, 2011.

During the year ended March 31, 2008, the Company was being audited by the IRS for tax years 2004 and 2005 as well as by one state taxing authority for the 2004, 2005 and 2006 fiscal years. The Company reached a settlement with the IRS for the 2004 and 2005 fiscal years during the year ended March 31, 2009. As a result, the Company was able to record the tax benefits of those settlements as reductions to the ASC 740 liability amounting to $1,242,000 for the year ended March 31, 2009.

Although management believes that an adequate provision 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. It is anticipated that audit settlements will be reached during 2012 with the state taxing authority that could have an impact on earnings. Due to the uncertainty of amounts and in accordance with its accounting policies, the Company has not recorded any potential impact of these settlements.
 
 
 
21
 
The Company has State tax credit carryforwards amounting to $1,749,000 (New York, net of Federal impact), $1,095,000 (California, net of Federal impact) and $1,018,000 (Wisconsin, net of Federal impact), which are available to reduce future taxes payable in each respective state through 2023 (Wisconsin), 2025 (New York) and no expiration (California). The Company has performed the required assessment regarding the realization of deferred tax assets in accordance with ASC 740. At March 31, 2011, the Company has recorded a valuation allowance amounting to $1,749,000, which relates primarily to tax credit carryforwards which management has concluded it is more likely than not these will not be realized in the ordinary course of operations. Although realization is not assured, management has concluded that it is more likely than not that the deferred tax assets for which a valuation allowance was determined to be unnecessary will be realized in the ordinary course of operations. The amount of net deferred tax assets considered realizable, however, could be reduced if actual future income or income taxes rates are lower than estimated or if there are differences in the timing or amount of future reversals of existing taxable or deductible temporary differences.

7. Stockholders’ Equity

Preferred Stock — The Company has authorized three classes of preferred stock consisting of 200,000 shares of Six Percent (6%) Voting Cumulative Preferred Stock, par value $0.25 (“6% Preferred”); 30,000 shares of Preferred Stock Without Par Value to be issued in series by the Board of Directors, none of which are currently designated or outstanding; and 8,200,000 shares of Preferred Stock with $.025 par value, Class A, to be issued in series by the Board of Directors (“Class A Preferred”). The Board of Directors has designated four series of Class A Preferred including 10% Cumulative Convertible Voting Preferred Stock—Series A (“Series A Preferred”); 10% Cumulative Convertible Voting Preferred Stock—Series B (“Series B Preferred”); Convertible Participating Preferred Stock; Convertible Participating Preferred Stock, Series 2003.  A fifth series of Class A Preferred designated Convertible Participating Preferred Stock, Series 2006, was issued as part of consideration of the purchase price in the Signature Fruit acquisition and was converted to Class A Common Stock in May 2010.

The Convertible Participating Preferred Stock and Convertible Participating Preferred Stock, Series 2003 are convertible at the holders’ option on a one-for-one basis into shares of Class A Common Stock, subject to antidilution adjustments. These series of preferred stock have the right to receive dividends and distributions at a rate equal to the amount of any dividends and distributions declared or made on the Class A Common Stock. No dividends were declared or paid on this preferred stock in fiscal 2011, 2010 or 2009. In addition, these series of preferred stock have certain distribution rights upon liquidation. Upon conversion, shares of these series of preferred stock become authorized but unissued shares of Class A Preferred and may be reissued as part of another series of Class A Preferred. As of March 31, 2011, the Company has an aggregate of 6,384,649 shares of non-designated Class A Preferred authorized for issuance.

The Convertible Participating Preferred Stock has a liquidation preference of $12 per share and has 102,047 shares outstanding as of March 31, 2011; there were no conversions during fiscal 2011. The Convertible Participating Preferred Stock, Series 2003 was issued as partial consideration of the purchase price in the CPF acquisition. The 967,742 shares issued in that 2003 acquisition were valued at $16.60 per share which represented the then market value of the Class A Common Stock into which the preferred shares were immediately convertible. This series has a liquidation preference of $15.50 per share and has 313,304 shares outstanding as of March 31, 2011; there were no conversions during fiscal 2011. The Convertible Participating Preferred Stock, Series 2006 was issued as partial consideration of the purchase price in the Signature acquisition. The 1,025,220 shares issued in that acquisition were valued at $24.385 per share which represented the then market value of the Class A Common Stock into which the preferred shares were immediately convertible.  All 1,025,200 shares were converted into Class A Common Stock in May 2010.

On July 21, 2009, certain shareholders of the Company closed on the sale of 3,756,332 shares of Class A Common Stock (including the shares sold pursuant to the underwriters’ overallotment option) pursuant to an Underwriting Agreement among the Company, the selling shareholders, Merrill Lynch Pierce Fenner & Smith Inc. and Piper Jaffray & Co. The Company received none of the proceeds of the offering. During the second quarter of fiscal 2010, 2,607,156 shares, or $31,104,000, of Convertible Participating Preferred Stock and 556,088 shares, or $139,000, of Class B Common Stock (at par), were converted to Class A Common Stock in connection with this secondary stock offering.

There are 407,240 shares of Series A Preferred outstanding as of March 31, 2011 which are convertible into one share of Class A Common Stock and one share of Class B Common stock for every 20 shares of Series A Preferred. There are 400,000 shares of Series B Preferred outstanding as of March 31, 2011 which are convertible into one share of Class A Common Stock and one share of Class B Common Stock for every 30 shares of Series B preferred. There are 200,000 shares of 6% Preferred outstanding as of March 31, 2011 which are callable at their par value at any time at the option of the Company. The Company paid dividends of $20,181 on the Series A and Series B Preferred and $3,000 on the 6% Preferred during each of fiscal 2011, 2010 and 2009.

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

 
 
22
 
Unissued shares of common stock reserved for conversion privileges of designated non-participating preferred stock were 33,695 of both Class A and Class B as of March 31, 2011 and 2010. Additionally, there were 415,351 and 1,440,571 shares of Class A reserved for conversion of the Participating Preferred Stock as of March 31, 2011 and 2010, respectively.

Treasury Stock — During 2009, the Company repurchased $257,000 or 13,500 shares of its Class A Common Stock. These shares are not considered outstanding.

8. Retirement Plans

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

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, 2011 and a statement of the funded status as of March 31, 2011 and 2010:

 
  
2011
    
2010
  
 
  
(In thousands)
  
Change in Benefit Obligation
  
 
    
 
  
 
  
 
    
 
  
Benefit obligation at beginning of year
   $ 109,603     $ 84,088  
Service cost
     5,141       3,813  
Interest cost
     6,455       6,174  
Actuarial loss
     2,046       19,524  
Benefit payments and expenses
     (4,424 )     (3,996 )
Benefit obligation at end of year
   $ 118,821     $ 109,603  
 
                
Change in Plan Assets
                
 
                
Fair value of plan assets at beginning of year
   $ 94,427     $ 49,864  
Actual gain on plan assets
     10,098       27,559  
Employer contributions
     -       21,000  
Benefit payments and expenses
     (4,424 )     (3,996 )
Fair value of plan assets at end of year
   $ 100,101     $ 94,427  
 
                
Unfunded Status
   $ (18,720 )   $ (15,176 )

The unfunded status increased by $3.5 million during 2011 reflecting the current unfunded liability based on the projected benefit obligation and actual fair value of plan assets as of March 31, 2011. This increase was recognized via an increase to accumulated other comprehensive income of $1.2 million after the income tax benefit of $0.8 million. Plan assets increased from $94.4 million as of March 31, 2010 to $100.1 million as of March 31, 2011 due to a continuing recovery from extremely difficult market conditions two years ago. The unfunded liability is reflected in other liabilities in the Consolidated Balance Sheets.

 
  
2011
    
2010
  
 
  
(In thousands)
  
Amounts Included in Accumulated Other
  
 
    
 
  
Comprehensive Pre-Tax Loss
  
 
    
 
  
 
  
 
    
 
  
Transition asset
   $ 227     $ 504  
Net loss
     (22,738 )     (24,941 )
Accumulated other comprehensive pre-tax loss
   $ (22,511 )   $ (24,437 )

 
 
23
 
Notes to Consolidated Financial Statements
 


The following table provides the components of net periodic benefit cost for the Plan for fiscal years 2011, 2010, and 2009:
  
 
  
 
    
 
    
 
  
 
  
2011
    
2010
    
2009
  
 
  
(In thousands)
  
Service cost
   $ 5,141     $ 3,813     $ 3,585  
Interest cost
     6,455       6,174       5,667  
Expected return on plan assets
     (7,347 )     (3,801 )     (5,802 )
Amortization of net loss
     1,497       2,630       -  
Amortization of transition asset
     (276 )     (276 )     (276 )
Net periodic benefit cost
   $ 5,470     $ 8,540     $ 3,174  

The Plan’s accumulated benefit obligation was $106,542,000 at March 31, 2011, and $95,416,000 at March 31, 2010.

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

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

 
  
2011
    
2010
  
 
  
 
    
 
  
Discount rate - benefit obligation
     5.85 %     6.10 %
Discount rate - pension expense
     6.10 %     7.35 %
Expected return on plan assets
     8.00 %     8.00 %
Rate of compensation increase
     3.00 %     4.00 %

The Company's plan assets consist of the following:
  
 
  
 
    
 
    
 
  
 
  
Target
    
Percentage of Plan
  
 
  
Allocation
    
Assets at March 31,
  
 
  
2012
    
2011
    
2010
  
 
  
 
    
 
    
 
  
Plan Assets
  
 
    
 
    
 
  
 
  
 
    
 
    
 
  
Equity securities
     99 %     99 %     99 %
Debt securities
     -       -       -  
Real estate
     -       -       -  
Cash
     1       1       1  
Total
     100 %     100 %     100 %

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

The expected long-term rate of return on Plan assets is 8.00%. The Company expects 8.00% to fall within the 40-to-50 percentile range of returns on investment portfolios with asset diversification similar to that of the Plan’s target asset allocation.

Investment Policy and Strategy

The Company maintains an investment policy designed to achieve a long-term rate of return, including investment income through dividends and equity appreciation, sufficient to meet the actuarial requirements of the Plan. The Company seeks to accomplish its return objectives by prudently investing in a diversified portfolio of public company equities with broad industry representation seeking to provide long-term growth consistent with the performance of relevant market indices, as well as maintain an adequate level of liquidity for pension distributions as they fall due. The strategy of being fully invested in equities has historically provided greater rates of return over extended periods of time although the Company’s gain on plan assets during 2011 was 10.8% as compared to the S&P 500 unaudited gain of 13.4%. Plan assets include Company common stock with a fair market value of $8,907,000 as of March 31, 2011 and $8,784,000 as of March 31, 2010.

 
 
24
 
Cash Flows

Expected contributions for fiscal year ending March 31, 2012 (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):
  
 
  
 
  
  2012
   $ 4,648  
  2013
     4,965  
  2014
     5,216  
  2015
     5,718  
  2016
     5,957  
  2017-2021
     38,584  

The Company also has employees’ savings 401(k) plans covering all employees who meet certain age-entry requirements and work a stated minimum number of hours per year. Participants may make contributions up to the legal limit. The Company’s matching contributions are discretionary. Costs charged to operations for the Company’s matching contributions amounted to $1,572,000, $1,706,000, and $1,576,000, in fiscal 2011, 2010, and 2009, respectively.

9. Fair Value of Financial Instruments
 
 
 
 
 
 
 
 
The carrying amount and estimated fair values of the Company's debt are summarized as follows:
 
 
 
 
 
 
 
 
 
2011 
 
2010 
 
Carrying
 
Estimated
 
Carrying
 
Estimated
 
Amount
 
Fair Value
 
Amount
 
Fair Value
 
    (In thousands)
Long-term debt, including
 
 
 
 
 
 
 
  current portion
 $232,619   $230,237   $214,280   $212,035

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.
 

10. Inventories

Effective December 30, 2007 (beginning of 4th quarter of Fiscal Year 2008), 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 net earnings by $5,104,000 in 2011 and reduce net earnings by $7,307,000 and $37,917,000 in 2010 and 2009, respectively, compared to what would have been reported using the FIFO inventory method. The increase in earnings per share was $0.42 ($0.42 diluted) in 2011 and the reduction in earnings per share was $0.61 ($0.60 diluted) and $3.12 ($3.09 diluted) in 2010 and 2009, respectively. The inventories by category and the impact of implementing the LIFO method are shown in the following table:

 
 
25
 
Notes to Consolidated Financial Statements
 


 
  
2011
    
2010
    
2009
  
 
  
(In thousands)
  
 
  
 
    
 
    
 
  
Finished products
   $ 390,754     $ 407,403     $ 325,549  
In process
     21,680       14,813       29,864  
Raw materials and supplies
     132,690       121,988       124,040  
 
     545,124       544,204       479,453  
Less excess of FIFO cost over LIFO cost
     89,888       97,740       86,498  
Total inventories
   $ 455,236     $ 446,464     $ 392,955  

11. Other Operating Income and Expense

Other operating income in 2011 included a gain of $736,000 as a result of the estimated fair market value of the assets acquired exceeding the purchase price of Lebanon (see note 2 Acquisitions).  The Company also recorded a gain from the reversal of an environmental reserve of $250,000, a gain of $249,000 from the sale of certain fixed assets and a loss of $391,000 from the disposal of certain fixed assets.

Other operating expense in 2010 of $156,000 is from the loss on disposal of certain fixed assets.

Other operating expense in 2009 consisted of a gain of $150,000 from the sale of an aircraft and a loss of $774,000 on other items including the disposal of certain fixed assets.

12. Segment Information
 
 
The Company manages its business on the basis of two reportable segments — the primary segment is the processing and sale of fruits and vegetables and secondarily, the processing and sale of snack products. The Company markets its product almost entirely in the United States. Export sales represented 8.9%, 7.9%, and 8.2% of total sales in 2011, 2010, and 2009, respectively. In 2011, 2010, and 2009, the sale of Green Giant vegetables accounted for 16%, 19%, and 18% of net sales, respectively. “Other” in the table below represents activity related to can sales, trucking, seed sales, and flight operations.

 
  
Fruit and
    
 
    
 
    
 
  
 
  
Vegetable
    
Snack
    
Other
    
Total
  
 
  
(In thousands)
  
2011:
  
 
    
 
    
 
    
 
  
Net sales
   $ 1,166,431     $ 10,604     $ 17,577     $ 1,194,612  
Operating income (loss)
     32,641       (731 )     384       32,294  
Identifiable assets
     736,982       5,891       1,835       744,708  
Capital expenditures
     18,733       740       -       19,473  
Depreciation and amortization
     21,632       509       440       22,581  
 
                                
2010:
                                
Net sales
   $ 1,239,084     $ 21,287     $ 19,739     $ 1,280,110  
Operating income (loss)
     85,106       327       (435 )     84,998  
Identifiable assets
     711,058       6,293       1,982       719,333  
Capital expenditures
     20,714       69       -       20,783  
Depreciation and amortization
     21,502       484       429       22,415  
 
                                
2009:
                                
Net sales
   $ 1,242,722     $ 15,498     $ 22,464     $ 1,280,684  
Operating income (loss)
     51,184       (1,856 )     (1,140 )     48,188  
Identifiable assets
     667,211       6,009       2,385       675,605  
Capital expenditures
     22,929       211       58       23,198  
Depreciation and amortization
     20,805       645       576       22,026  

The fruit and vegetable segment, consisting of GMOL, canned fruit and vegetables and frozen products, represented 99%, 99% and 99% of assets and 105%, 101% and 107% of pre-tax earnings in 2011, 2010 and 2009, respectively.
 
 
 
26
 

Classes of similar products/services:
  
2011
    
2010
    
2009
  
 
  
(In thousands)
  
Net sales:
  
 
    
 
    
 
  
GMOL *
   $ 191,526     $ 239,622     $ 231,712  
Canned vegetables
     692,574       750,751       732,146  
Frozen*
     86,904       48,320       44,967  
Fruit
     195,427       200,391       233,897  
Snack
     10,604       21,287       15,498  
Other
     17,577       19,739       22,464  
Total
   $ 1,194,612     $ 1,280,110     $ 1,280,684  
 
                        
* GMOL includes frozen vegetables exclusively for GMOL.
  

13. Legal Proceedings and Other Contingencies

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

The Company is one of a number of business and local government entities which contributed waste materials to a landfill in Yates County in upstate New York, which was operated by a party unrelated to the Company primarily in the 1970’s through the early 1980’s. The Company’s wastes at the landfill were primarily food and juice products. The landfill contained some hazardous materials and was remediated by the State of New York. In 2004, the New York Attorney General advised the Company and other known non-governmental waste contributors that New York has sustained a total remediation cost of $4.9 million and sought recovery of half that cost from the non-governmental waste contributors. The Company was one of four identified contributors who cooperatively investigated the history of the landfill so as to identify other responsible parties. This claim was settled during 2009 and did not have a material impact on the Company’s financial position or results of operations.

On August 2, 2007, the Company received two civil citations from CalOSHA (the California state agency responsible for enforcing occupational safety and health regulations), relating to the accidental death of a warehouse employee at the Company’s Modesto facility on February 5, 2007. The Company appealed the citations to the California Occupational Safety and Health Appeals Board, and a hearing was held in early June 2010.  The result of the hearing was that the citations were modified by agreement with CalOSHA and a civil penalty was imposed and paid by the Company during fiscal year 2011, thereby resolving the issue without a material adverse impact on the Company’s financial position, results of operations, or cash flows.

On February 8, 2008, a subsidiary of the Company was named as a defendant in a criminal action in Stanislaus County, California, relating to the above accident at the Modesto facility. The complaint alleged a felony violation of sec. 6425(a) of the California Labor Code by a subsidiary of the Company. The criminal charges were dropped and a civil settlement was reached during fiscal year 2009 without a material adverse impact on the Company’s financial position, results of operations, or cash flows.

In June, 2010, the Company received a Notice of Violation of the California Safe Drinking Water and Toxic Enforcement Act of 1986, commonly known as Proposition 65, from the Environmental Law Foundation (ELF).  This notice was made to the California Attorney General and various other government officials, and to 49 companies including Seneca Foods Corporation whom ELF alleges manufactured, distributed or sold packaged peaches, pears, fruit cocktail and fruit juice that contain lead without providing a clear and reasonable warning to consumers.  Under California law, proper notice must be made to the State and involved firms at least 60 days before any suit under Proposition 65 may be filed by private litigants like ELF.  That 60-day period has expired and to date neither the California Attorney General nor any appropriate district attorney or city attorney, nor any private litigants like ELP, has initiated an action against the Company.  If an action is commenced under Proposition 65, the Company will defend itself vigorously.  As this matter is at a very early stage, we are not able to predict the probability of the outcome or estimate of loss, if any, related to this matter.  Additionally, in the ordinary course of its business, the Company is made party to certain legal proceedings seeking monetary damages, including proceedings invoking product liability claims, either directly or through indemnification obligations, and we are not able to predict the probability of the outcome or estimate of loss, if any, related to any such matter.

 
 
27
 
Notes to Consolidated Financial Statements
 

14. Plant Restructuring

During fiscal 2011, the Company implemented workforce reductions at its plants in Buhl, Idaho and Mayville, Wisconsin and certain other locations that resulted in a restructuring charge of $1,354,000 for severance costs.  This charge is included under Plant Restructuring in the Consolidated Statements of Net Earnings.  Under the Alliance Agreement, GMOL shares in the cost of these restructurings, plus future depreciation and lease costs.  GMOL's portion of these restructuring costs was paid to the Company during 2011.  The Company deferred a portion of this payment to match the depreciation and lease costs that will be incurred in the future.  As of March 31, 2011, this deferral totaled $8,428,000 comprised of $2,407,000 included in other accrued expenses and $6,021,000 included in other long-term liabilities on the Consolidated Balance Sheets.

During 2010, there were no material adjustments to Plant Restructuring.

During the third fiscal quarter of 2009, the Company announced a Voluntary Workforce Reduction Program at its plant in Modesto, California which resulted in a restructuring charge for severance costs of $899,000. This program, which resulted in a more efficient operation, was completed in January 2009. This charge is included under Plant Restructuring in the Consolidated Statements of Net Earnings.

The other costs relate to outstanding lease payments which will be paid over the remaining lives of the corresponding lease terms, which are up to two years.

The following table summarizes the restructuring and related asset impairment charges recorded and the accruals established during 2009, 2010 and 2011:

 
  
 
    
Long-Lived
    
 
    
 
  
 
  
 
    
Asset
    
Other
    
 
  
 
  
Severance
    
Charges
    
Costs
    
Total
  
 
  
(In thousands)
  
 
  
 
    
 
    
 
    
 
  
Balance March 31, 2008
   $ -     $ 250     $ 1,286     $ 1,536  
Third-quarter charge (credit) to expense
     904       -       (3 )     901  
Cash payments/write offs
     (904 )     -       (246 )     (1,150 )
Fourth-quarter credit to expense
     -       -       (2 )     (2 )
Balance March 31, 2009
     -       250       1,035       1,285  
Second-quarter charge to expense
     -       -       19       19  
Cash payments/write offs
     -       -       (258 )     (258 )
Third-quarter credit to expense
     -       -       (2 )     (2 )
Balance March 31, 2010
     -       250       794       1,044  
First-quarter charge to expense
     -       -       1       1  
Second-quarter charge to expense
     1,210       -       -       1,210  
Cash payments/write offs
     (889 )     (250 )     (283 )     (1,422 )
Third-quarter charge to expense
     109       -       -       109  
Fourth-quarter charge to expense
     26       -       8       34  
Balance March 31, 2011
   $ 456     $ -     $ 520     $ 976  
 
                                

 
 
28
 
Report of Independent Registered Public Accounting Firm





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

We have audited the accompanying consolidated balance sheets of Seneca Foods Corporation as of March 31, 2011and 2010 and the related consolidated statements of net earnings, stockholders’ equity, and cash flows for each of the three years in the period ended March 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Seneca Foods Corporation at March 31, 2011 and 2010, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2011 in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Seneca Foods Corporation’s internal control over financial reporting as of March 31, 2011, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated May 26, 2011 expressed an unqualified opinion thereon.

/s/BDO USA, LLP
Milwaukee, Wisconsin

May 26, 2011

 
 
29
 
Report of Independent Registered Public Accounting Firm on
Internal Control Over Financial Reporting



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

We have audited Seneca Foods Corporation’s internal control over financial reporting as of March 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the Form 10-K, Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

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

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

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
As indicated in Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Lebanon, which was acquired on August 6, 2010, and which is included in the consolidated balance sheets of Seneca Foods Corporation as of March 31, 2011, and the related consolidated statements of net earnings, stockholders’ equity, and cash flows for the year then ended. Lebanon constituted 4% of consolidated assets as of March 31, 2011, and less than 5% of consolidated revenues for the year then ended. Management did not assess the effectiveness of internal control over financial reporting of Lebanon because of the timing of the acquisition which was completed on August 6, 2010. Our audit of internal control over financial reporting of Seneca Foods Corporation also did not include an evaluation of the internal control over financial reporting of Lebanon.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2011, based on the COSO criteria.

We have also audited, in accordance with the standards of the Public Company Accounting Standards Board (United States), the consolidated balance sheets of Seneca Foods Corporation as of March 31, 2011 and 2010, and the related consolidated statements of net earnings, stockholders’ equity and cash flows for each of the three years in the period ended March 31, 2011 and our report dated May 26, 2011 expressed an unqualified opinion thereon.


/s/ BDO USA, LLP
Milwaukee, Wisconsin

May 26, 2011

 
 
30
 
Shareholder Information and Quarterly Results


The Company’s common stock is traded on The NASDAQ Global Stock Market. The 9.6 million Class A outstanding shares and 2.1 million Class B outstanding shares are owned by 246 and 233 shareholders of record, respectively. The high and low closing prices of the Company’s common stock during each quarter of the past two years are shown below:
 

Class A:
 
2011 
 
2010 
Quarter
 
High
 
Low
 
High
 
Low
First
$
32.68 
$
28.89 
$
31.97 
$
21.44 
Second
 
32.19 
 
23.89 
 
33.49 
 
22.14 
Third
 
28.57 
 
22.02 
 
28.90 
 
21.95 
Fourth
 
29.87 
 
24.75 
 
30.10 
 
22.90 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Class B:
 
2011 
 
2010 
Quarter
 
High
 
Low
 
High
 
Low
First
$
32.99 
$
29.22 
$
32.46 
$
20.86 
Second
 
32.74 
 
24.10 
 
33.17 
 
21.79 
Third
 
28.61 
 
22.30 
 
28.69 
 
21.40 
Fourth
 
29.64 
 
23.12 
 
30.15 
 
22.82 

Common Stock Performance Graph

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

Performance data assumes that $100.00 was invested on March 31, 2006, in the Company’s Class A Common Stock, the NASDAQ Market, and the peer groups. The data assumes the reinvestment of all cash dividends and the cash value of other distributions. Stock price performance shown in the graph is not necessarily indicative of future stock price performance. The companies in the former peer group are, Del Monte Foods Company, Hanover Foods Corporation, Ralcorp Holdings, Inc., Treehouse Foods, Inc. and Hain Celestial Group, Inc. The new peer group removes Del Monte since they are no longer a publicly traded company and adds John B. Sanfilippo & Son Inc.
 

 
 
 
31
 
Quarterly Results

As of March 31, 2011, the most restrictive credit agreement limitation on the Company’s payment of dividends and other distributions, such as purchases of shares, to holders of Class A or Class B Common Stock is an annual total limitation of $500,000, reduced by aggregate annual dividend payments totaling $23,000 that the Company presently pays on two outstanding classes of preferred stock. Payment of dividends to common stockholders is made at the discretion of the Company’s Board of Directors and depends, among other factors, on earnings; capital requirements; and the operating and financial condition of the Company. The Company has not declared or paid a common dividend in many years.

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

 
  
First
    
Second
    
Third
    
Fourth
  
 
  
(In thousands, except per share data)
  
Year ended March 31, 2011:
  
 
    
 
    
 
    
 
  
Net sales
   $ 219,942     $ 275,448     $ 446,250     $ 252,972  
Gross margin
     25,284       19,127       34,514       14,300  
Net earnings
     5,275       2,811       11,462       (1,877 )
Basic earnings per common share
     0.43       0.23       0.94       (0.15 )
Diluted earnings per common share
     0.43       0.23       0.94       (0.15 )
 
                                
Year ended March 31, 2010:
                                
Net sales
   $ 230,528     $ 323,205     $ 447,027     $ 279,350  
Gross margin
     35,937       38,498       48,396       27,456  
Net earnings
     11,086       12,425       18,606       6,294  
Basic earnings per common share
     0.91       1.02       1.53       0.52  
Diluted earnings per common share
     0.91       1.02       1.52       0.51  
 
                                

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


 
 
32
 

EX-21 4 ex2110k033111.htm LIST OF SUBSIDIARIES ex2110k033111.htm

 
 
Exhibit 21

 
LIST OF SUBSIDIARIES

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


Name
State
Lebanon Valley Cold Storage, LLC
Pennsylvania
Lebanon Valley Cold Storage, LP
Pennsylvania
Marion Foods, Inc.
New York
Seneca Foods L.L.C.
Delaware
Seneca Snack Company
 
Washington
 
EX-23 5 ex2310k033111.htm BDO CONSENT ex2310k033111.htm

 
Exhibit 23
 
Consent of Independent Registered Public Accounting Firm
 

 
Seneca Foods Corporation
Marion, New York

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-166844) and Form S-8 (Nos. 333-12365, 333-145916, and 333-166846) of Seneca Foods Corporation of our reports dated May 26, 2011, relating to the consolidated financial statements, and the effectiveness of Seneca Foods Corporation’s internal control over financial reporting, which appear in the Annual Report to Shareholders which is incorporated by reference in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated May 26, 2011 relating to the financial statement schedule which appears in this Form 10-K.


/s/BDO USA, LLP
Milwaukee, Wisconsin
 
May 26, 2011

 EX-24 6 ex2410k033111.htm POWERS OF ATTORNEY ex2410k033111.htm

 
EXHIBIT 24
 

POWERS OF ATTORNEY




SENECA FOODS CORPORATION
POWER OF ATTORNEY

The undersigned Director of Seneca Foods Corporation, a New York corporation, hereby constitutes and appoints Roland E. Breunig or Jeffrey L. Van Riper as the true and lawful Attorney-in-fact and Agent of the undersigned to sign on behalf of the undersigned: (a) the Annual Report of the Company on Form 10-K (or such other form as may be required) for the year ended March 31, 2011 to be filed with the Securities and Exchange Commission (“SEC”); and (b) any and all amendments to such Report as may be required to be filed with the SEC.

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



SENECA FOODS CORPORATION
POWER OF ATTORNEY

The undersigned Director of Seneca Foods Corporation, a New York corporation, hereby constitutes and appoints Roland E. Breunig or Jeffrey L. Van Riper as the true and lawful Attorney-in-fact and Agent of the undersigned to sign on behalf of the undersigned: (a) the Annual Report of the Company on Form 10-K (or such other form as may be required) for the year ended March 31, 2011 to be filed with the Securities and Exchange Commission (“SEC”); and (b) any and all amendments to such Report as may be required to be filed with the SEC.

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


SENECA FOODS CORPORATION
POWER OF ATTORNEY

The undersigned Director of Seneca Foods Corporation, a New York corporation, hereby constitutes and appoints Roland E. Breunig or Jeffrey L. Van Riper as the true and lawful Attorney-in-fact and Agent of the undersigned to sign on behalf of the undersigned: (a) the Annual Report of the Company on Form 10-K (or such other form as may be required) for the year ended March 31, 2011 to be filed with the Securities and Exchange Commission (“SEC”); and (b) any and all amendments to such Report as may be required to be filed with the SEC.

/s/John P. Gaylord                                         
John P. Gaylord
Director



SENECA FOODS CORPORATION
POWER OF ATTORNEY

The undersigned Director of Seneca Foods Corporation, a New York corporation, hereby constitutes and appoints Roland E. Breunig or Jeffrey L. Van Riper as the true and lawful Attorney-in-fact and Agent of the undersigned to sign on behalf of the undersigned: (a) the Annual Report of the Company on Form 10-K (or such other form as may be required) for the year ended March 31, 2011 to be filed with the Securities and Exchange Commission (“SEC”); and (b) any and all amendments to such Report as may be required to be filed with the SEC.

/s/Susan A. Henry                                         
Susan A. Henry
Director





 
 
 


SENECA FOODS CORPORATION
POWER OF ATTORNEY

The undersigned Director of Seneca Foods Corporation, a New York corporation, hereby constitutes and appoints Roland E. Breunig or Jeffrey L. Van Riper as the true and lawful Attorney-in-fact and Agent of the undersigned to sign on behalf of the undersigned: (a) the Annual Report of the Company on Form 10-K (or such other form as may be required) for the year ended March 31, 2011 to be filed with the Securities and Exchange Commission (“SEC”); and (b) any and all amendments to such Report as may be required to be filed with the SEC.

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


SENECA FOODS CORPORATION
POWER OF ATTORNEY

The undersigned Director of Seneca Foods Corporation, a New York corporation, hereby constitutes and appoints Roland E. Breunig or Jeffrey L. Van Riper as the true and lawful Attorney-in-fact and Agent of the undersigned to sign on behalf of the undersigned: (a) the Annual Report of the Company on Form 10-K (or such other form as may be required) for the year ended March 31, 2011 to be filed with the Securities and Exchange Commission (“SEC”); and (b) any and all amendments to such Report as may be required to be filed with the SEC.

/s/Thomas Paulson                                         
Thomas Paulson
Director


SENECA FOODS CORPORATION
POWER OF ATTORNEY

The undersigned Director of Seneca Foods Corporation, a New York corporation, hereby constitutes and appoints Roland E. Breunig or Jeffrey L. Van Riper as the true and lawful Attorney-in-fact and Agent of the undersigned to sign on behalf of the undersigned: (a) the Annual Report of the Company on Form 10-K (or such other form as may be required) for the year ended March 31, 2011 to be filed with the Securities and Exchange Commission (“SEC”); and (b) any and all amendments to such Report as may be required to be filed with the SEC.

/s/Susan W. Stuart                                         
Susan W. Stuart
Director

 
 
 

EX-31.1 7 ex31110k033111.htm CERTIFICATION CEO ex31110k033111.htm

 
EXHIBIT 31.1
 

CERTIFICATION


I, Kraig H. Kayser, certify that:
 

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

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

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

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


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

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

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

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

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

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

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



Dated: May 26, 2011
By: /s/Kraig H. Kayser
 
 
 
 
Kraig H. Kayser
President and Chief Executive Officer
EX-31.2 8 ex31210k033111.htm CERTIFICATION CFO ex31210k033111.htm
EXHIBIT 31.2

 
CERTIFICATION
 
 


I, Roland E. Breunig, certify that:

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

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

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

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

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

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

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

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

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

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



Dated: May 26, 2011
By: /s/Roland E. Breunig
 
 
 
Roland E. Breunig
Senior Vice President, Chief Financial Officer, and Treasurer
EX-32 9 ex3210k033111.htm CERTIFICATION SECTION 1350 ex3210k033111.htm

 
EXHIBIT 32
 


CERTIFICATION PURSUANT TO
18. U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
 
In connection with the Annual Report of Seneca Foods Corporation (the "Registrant") on Form 10-K for the period ended March 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Kraig H. Kayser, Chief Executive Officer and Roland E. Breunig, Chief Financial Officer of the Registrant, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that, to our knowledge:

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

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


 
By: /s/Kraig H. Kayser
 
 
 
Kraig H. Kayser
President and Chief Executive Officer
May 26, 2011



 
By: /s/Roland E. Breunig
 
 
 
Roland E. Breunig
Senior Vice President, Chief Financial Officer, and Treasurer
May 26, 2011