Seneca Foods Corp

SENECA FOODS CORPORATION

Seneca Foods Corporation (the “Company”) is a leading provider of packaged fruits and vegetables with 26 facilities ineight states in support of its main operations. The Company’s product offerings include canned, frozen and jarred produce, and snack chips. The Company’s fruits and vegetables are sold nationwide by major grocery outlets, including supermarkets, mass merchandisers, limited assortment stores, club stores and dollar stores. The Company also sells its products to foodservice distributors, restaurant chains, industrial markets, other food processors, and export customers in approximately55 countries, as well as federal, state and local governments for school and other food programs. Additionally, the Company packs canned and frozen vegetables under contract packing agreements.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

The unaudited condensed consolidated financial statements included herein have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial statements. While these statements reflect all adjustments (consisting of items of a normal recurring nature) that are, in the opinion of management, necessary for a fair presentation of the results of the interim period, they donot include all of the information and footnotes required by generally accepted accounting principles in the United States (“GAAP”) for complete financial statement presentation. The condensed consolidated financial statements should be read in conjunction with the financial statement disclosures in the Company’s Annual Report on Form10-K for the fiscal year ended* March 31, 2024.*

Due to the seasonal nature of the business, quarterly operating results and cash flows arenot necessarily indicative of the results that* maybe expected for other interim periods or the full year. All references to years are fiscal years ended or ending March 31unless otherwise indicated. Certain percentage tables may**not* foot due to rounding.

In certain circumstances, the preparation of financial statements in conformity with GAAP requires management to use judgment to make certain estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of net sales and expenses during the reporting period. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors that management believes to be reasonable under the circumstances, including the current economic environment. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Actual results* may*differ from these estimates.

The Company uses the same accounting policies in preparing quarterly and annual financial statements. A summary of significant accounting policies followed by the Company are set forth in Note1 to the Consolidated Financial Statements in the Company’s Annual Report on Form10-K for the fiscal year ended* March 31, 2024.*

Reclassifications— Certain prior year amounts have been reclassified for consistency with the current year presentation within the condensed consolidated financial statements. There wasno impact to any totals or subtotals previously reported on the condensed consolidated financial statements as a result of the reclassifications. Beginning in fiscal year2024, the restricted cash line item was separately presented on the condensed consolidated balance sheets.

Cash, Cash Equivalents and Restricted Cash*** ***— The following table reconciles cash, cash equivalents and restricted cash as reported on the condensed consolidated balance sheets to the total amounts shown in the Company’s condensed consolidated statements of cash flows (in thousands):

Other Assets— Other assets is primarily comprised of non-current deposits. As of* June 29, 2024,there was $20.3 million of deposits paid to vendors for a new can manufacturing line located atone* of the Company's plant facilities.

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Recently Issued Accounting Pronouncements— In* December 2023,the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)2023-09, Income Taxes (Topic740): Improvements to Income Tax Disclosures*(“ASU2023-09”) related to income tax disclosures. The amendments in this update are intended to enhance the transparency and decision usefulness of income tax disclosures primarily through changes to the rate reconciliation and income taxes paid information. This update is effective for annual periods beginning after* December 15, 2024,though early adoption is permitted. The Company plans to adopt this pronouncement for its fiscal year beginning April 1, 2025,*and is in the process of analyzing the impact on its consolidated financial statements.

In* November 2023,the FASB issued ASU2023*-07, Segment Reporting (Topic280*): Improvements to Reportable Segment Disclosures*(“ASU2023-07”) to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This update is effective for annual periods beginning after* December 15, 2023,and interim periods within fiscal years beginning after December 15, 2024,and requires retrospective application to all prior periods presented in the financial statements. Early adoption is permitted. The Company will adopt this pronouncement when it becomes effective for the fiscal year ending March 31, 2025*annual reporting and is in the process of analyzing the impact on its consolidated financial statements.

All other newly issued accounting pronouncementsnot yet effective have been deemed eithernot applicable or were related to technical amendments or codification.

Revenue recognition is completed for most customers at a point in time when product control is transferred to the customer. In general, control transfers to the customer when the product is shipped or delivered to the customer based upon applicable shipping terms, as the customer can direct the use and obtain substantially all of the remaining benefits from the asset at this point in time. The Company does sell certain finished goods inventory for cash on a bill and hold basis. The terms of the bill and hold agreement(s) provide that title to the specified inventory is transferred to the customer(s) prior to shipment and the Company has the right to payment (prior to physical delivery) which results in recorded revenue as determined under the revenue recognition standard.

In the following table, revenue is disaggregated by product category groups (in thousands):

As a result of certain contracts with customers, the Company has contract asset balances of $1.2 million, $0.6 million, and $0.4 million as of* June 29, 2024,** July 1, 2023,and March 31, 2024,*respectively, which are recorded as part of other current assets on the condensed consolidated balance sheets. The Company has contract liabilities in the form of deferred revenue representing payments received from certain of its co-pack customers in advance of completion of the Company's respective performance obligations. The majority of the balance is comprised of prepaid case and labeling and storage services which have been collected from bill and hold sales, as well as amounts invoiced in accordance with the terms of a co-pack agreement.

The deferred revenue activity is shown in the following table (in thousands):

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Earnings per share for thethree months ended* June 29, 2024and July 1, 2023*are as follows (in thousands, except per share amounts):

The Company uses the last-in,first-out (“LIFO”) method of valuing inventory as it believes this method allows for better matching of current production cost to current revenue. An actual valuation of inventory under the LIFO method is made at the end of each fiscal year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels, production pack yields, sales and the expected rate of inflation or deflation for the year. The interim LIFO calculations are subject to adjustment in the final year-end LIFO inventory valuation.

As of* June 29, 2024,** July 1, 2023,and March 31, 2024,first-in,first-out (“FIFO”) based inventory costs exceeded LIFO based inventory costs, resulting in a LIFO reserve of $321.9 million, $300.7 million, and $324.8 million, respectively. In order to state inventories at LIFO, the Company recorded a decrease to cost of products sold of $2.9 million and $1.7 million for thethree months ended June 29, 2024and July 1, 2023,*respectively.

The inventories by category and the impact of using the LIFO method are shown in the following table (in thousands):

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Property, plant and equipment is comprised of the following (in thousands):

Depreciation expense totaled $9.6 million and $8.8 million for thethree months ended* June 29, 2024and July 1, 2023,*respectively.

Note Payable— During fiscal year2024, the Company entered into an unsecured note payable with an individual lender which provides for an interim financing arrangement with an expiration date of* June 30, 2024,which was then extended to July 31, 2024.The balance of the note payable as of June 29, 2024was $13.9 million and is associated with certain deposits paid to vendors for a new can manufacturing line located atone* of the Company’s plant facilities. The note payable bears interest at a variable interest rate based upon the Secured Overnight Financing Rate (“SOFR”) plus 1.80%. Interest is payable monthly and the interest rate as of* June 29, 2024*was 7.13%.

Long-term debt is comprised of the following (in thousands):

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Revolving Credit Facility—*** **On March 24, 2021,*the Company entered into a Fourth Amended and Restated Loan and Security Agreement that provides for a senior revolving credit facility of up to $400.0 million that is seasonally adjusted (the “Revolver”).

On* September 14, 2022,the Company entered into a First Amendment to the Fourth Amended and Restated Loan and Security Agreement (the “Revolver Amendment”) which amended several provisions to replace the London Interbank Offered Rate (“LIBOR”) with the SOFR plus a spread adjustment as the interest rate benchmark on the Revolver. The transition to SOFR didnot* materially impact the interest rates applied to the Company’s borrowings.No other material changes were made to the terms of the Company’s Revolver as a result of the Revolver Amendment.

On* May 5, 2023,the Company entered into a Second Amendment to the Fourth Amended and Restated Loan and Security Agreement (the“2023* Revolver Amendment”) which updated certain provisions relating to permitted indebtedness.No other material changes were made as a result of the2023 Revolver Amendment.

On* March 8, 2024,the Company entered into a Third Amendment to the Fourth Amended and Restated Loan and Security Agreement (the“2024* Revolver Amendment”) which increased the seasonal borrowing amount for the period from* Aprilthrough Julyby $50.0 million.No other material changes were made as a result of the2024* Revolver Amendment.

Maximum borrowing availability under the Revolver totals $350.0 million from* Aprilthrough Julyand $400.0 million from Augustthrough March.In order to maintain availability of funds under the facility, the Company pays a commitment fee on the unused portion of the Revolver, which as of June 29,9024 was $133.9 million. The Revolver balance is included in Long-Term Debt in the accompanying condensed consolidated balance sheets due to the Revolver’s March 24, 2026*maturity.

The Revolver is secured by substantially all of the Company’s accounts receivable and inventories and contains borrowing base requirements as well as a financial covenant, if certain circumstances apply. The Company utilizes its Revolver for general corporate purposes, including seasonal working capital needs, to pay debt principal and interest obligations, and to fund capital expenditures and acquisitions. Seasonal working capital needs are affected by the growing cycles of the vegetables the Company packages. The majority of vegetable inventories are produced during the months of* Junethrough Novemberand are then sold over the following year. Payment terms for vegetable produce are generally three months but mayvary and range from approximatelyone toseven months. Accordingly, the Company’s need to draw on the Revolver may*fluctuate significantly throughout the year.

The following table summarizes certain quantitative data for Revolver borrowings during fiscal year2025 and fiscal year2024 (in thousands):

Term Loans— On* May 28, 2020,the Company entered into an Amended and Restated Loan and Guaranty Agreement with Farm Credit East, ACA that provides for a $100.0 million unsecured term loan (the “Term Loan”). The amended and restated agreement has a maturity date of June 1, 2025 and converted the Term Loan to a fixed interest rate of 3.3012% until maturity rather than a variable interest rate in addition to requiring quarterly principal payments of $1.0 million, which commenced during fiscal year2021.* This agreement contains certain covenants, including maintaining a minimum EBITDA and minimum tangible net worth.

On* January 20, 2023,the Company entered into a Second Amended and Restated Loan and Guaranty Agreement with Farm Credit East, ACA (the “Agreement”) which governstwo* term loans, as summarized below:

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Term Loan A-1: The Agreement continues certain aspects of the $100.0 million term loan described above, namely Term Loan A-1 will continue to bear interest at a fixed interest rate of 3.3012%, mature on* June 1, 2025,and remain unsecured. The Company’s historical practice is to hold term debt until maturity. The Company expects to maintain or have access to sufficient liquidity to retire or refinance long-term debt at maturity or otherwise, from operating cash flows, access to the capital markets, and its Revolver. The Company continuously evaluates opportunities to refinance its debt; however, any refinancing is subject to market conditions and other factors, including financing options that maybe available to the Company from time to time, and there can beno* assurance that the Company will be able to successfully refinance any debt on commercially acceptable terms at all.

Term Loan A-2: The Agreement adds an additional term loan in the amount of $175.0 million that will mature on* January 20, 2028,and is secured by a portion of the Company’s property, plant and equipment. Term Loan A-2 bears interest at a variable interest rate based upon SOFR plus an additional margin determined by the Company’s leverage ratio. Quarterly payments of principal outstanding on Term Loan A-2 in the amount of $1.5 million commenced on March 1, 2023.*

On* May 23, 2023,the Agreement was amended by the Second Amended and Restated Loan and Guaranty Agreement Amendment which amends, restates and replaces in its entirety Term Loan A-2 (the “Amendment”). The Amendment provides a single advance term facility in the principal amount of $125.0 million to be combined with the outstanding principal balance of $173.5 million on Term Loan A-2 intoone* single $298.5 million term loan (“Amended Term Loan A-2”). Amended Loan Term A-2 is secured by a portion of the Company’s property, plant and equipment and bears interest at a variable interest rate based upon SOFR plus an additional margin determined by the Company’s leverage ratio. Quarterly payments of principal outstanding on Amended Term Loan A-2 in the amount of $3.75 million commenced on* June 1, 2023.The Amendment continues all aspects of Term Loan A-1 as defined in the Agreement. As of June 29, 2024,*the interest rate on Amended Term Loan A-2 was 7.35%.

The Amendment for Term Loan A-1 and Term Loan A-2 (collectively, the “Term Loans”) contains restrictive covenants usual and customary for loans of its type, in addition to financial covenants including minimum EBITDA and minimum tangible net worth which apply to both Terms Loans described above. In connection with the Amended Term Loan A-2, the Company incurred $1.1 million of financing costs which will be deferred and amortized over the life of the term loan.

As of* June 29, 2024,*the Company was in compliance with all covenants for its revolving credit facility and term loan agreements.

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* June 29, 2024,*the Company had $7.0 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.

The Company determines whether an arrangement is a lease at inception of the agreement. Presently, the Company leases land, machinery and equipment under various operating and financing leases.

Right-of-Use (“ROU”) assets represent the Company’s right to use the underlying assets for the lease term, and lease obligations represent the net present value of the Company’s obligation to make payments arising from these leases. ROU assets and lease obligations are recognized at commencement date based on the present value of lease payments over the lease term using the implicit lease interest rate or, when unknown, an incremental borrowing rate based on the information available at commencement date or* April 1, 2019*for leases that commenced prior to that date. ROU assets and lease obligations for the Company’s operating and financing leases are disclosed separately in the Company’s condensed consolidated balance sheets.

Lease terms* mayinclude options to extend or terminate the lease, and the impact of these options are included in the calculation of the ROU asset and lease obligation only when the exercise of the option is at the Company’s sole discretion and it is reasonably certain that the Company will exercise that option. The Company willnot* separate lease and non-lease components for its leases when it is impractical to separate the two. In addition, the Company* mayhave certain leases that have variable payments based solely on output or usage of the leased asset. These variable operating lease assets are excluded from the Company’s condensed consolidated balance sheet presentation and expensed as incurred. Leases with an initial term of12* months or less, or short-term leases, arenot recorded on the accompanying condensed consolidated balance sheets and are expensed as incurred.

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The components of lease cost were as follows (in thousands):

Undiscounted future lease payments under non-cancelable operating and financing leases, along with a reconciliation of undiscounted cash flows to operating and financing lease obligations, respectively, as of* June 29, 2024*were as follows (in thousands):

The Company’s effective tax rate was 23.3% and 23.6% for thethree months ended* June 29, 2024and July 1, 2023,*respectively. The effective tax rate decreased in the current interim period as compared to the prior year quarter driven by interest received on a federal income tax refund which reduced the effective tax rate by 0.7%, partially offset by the impact of state rate changes driven by apportionment which increased the effective rate by 0.4%.

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The net periodic benefit cost for the Company’s pension plan consisted of (in thousands):

There wereno pension contributions made during thethree months ended* June 29, 2024and July 1, 2023.*

During thethree months ended* June 29, 2024,the Company repurchased 117,262 shares of its Class A Common Stock at a cost of $6.6 million, which are included in treasury stock in the condensed consolidated balance sheets. During thethree* months ended* July 1, 2023,the Company repurchased 43,600 shares of its Class A Common Stock at a cost of $2.2 million. The Company didnot repurchase any of its Class B Common Stock in eitherthree* month interim period. As of* June 29, 2024,there are 5,262,680 shares or $206.7 million of repurchased stock being held as treasury stock. These shares arenot* considered outstanding and the Company accounts for treasury stock under the cost method.

Cash and cash equivalents, restricted cash, accounts receivable, accounts payable, note payable, and accrued expenses are reflected in the condensed consolidated balance sheets at carrying value, which approximates fair value due to the short-term maturity of these instruments.

On a quarterly basis, the Company estimates the fair values for financial instruments that are recorded at carrying value on the consolidated condensed balance sheets. The estimated fair value for long-term debt (classified as Level2 in the fair value hierarchy) 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. The fair value and carrying value of the Company’s long-term debt are as follows (in thousands):

The Company conducts its business almost entirely in food packaging withtwo reportable segments: Vegetable and Fruit/Snack. The reportable segments reflect how the Company's Chief Executive Officer, who is the Chief Operating Decision Maker (“CODM”), allocates resources and evaluates performance, and how the Company's internal management financial reporting is structured. The Company's CODM evaluates the performance of these reportable segments with a focus on earnings (loss) before income taxes as the measure of segment profit or loss.

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The Other category consists of the Company's non-food operations including revenue derived from the sale of cans, ends, seed, outside revenue from the Company's trucking and aircraft operations, and certain corporate items. These ancillary activities donot qualify as an operating segment and arenot eligible for aggregation withone of the identified operating segments; therefore they are combined and presented within the “Other” category.

Segment information is provided on a FIFO basis which is consistent with how financial information is prepared internally and provided to the CODM. The LIFO impact on earnings (loss) before income taxes and total assets is shown separately for purposes of reconciling to the GAAP financial statement measure shown on the condensed consolidated statements of net earnings and condensed consolidated balance sheets.

The following table summarizes certain financial data for the Company’s reportable segments (in thousands):

In the ordinary course of its business, the Company is made a party to certain legal proceedings seeking monetary damages, including proceedings involving product liability claims, workers’ compensation along with other employee claims, tort and other general liability claims, for which it carries insurance, as well as patent infringement and related litigation. The Company is in a highly regulated industry and is also periodically involved in government actions for regulatory violations and other matters surrounding the manufacturing of its products, including, butnot limited to, environmental, employee, and product safety issues. While it isnot feasible to predict or determine the ultimate outcome of these matters, the Company doesnot believe that an adverse decision in any of these legal proceedings would have a material impact on its financial position, results of operations, or cash flows.

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