# To Our Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/consumer-defensive-packaged-foods/NASDAQ_SENEA_2020/NASDAQ_SENEA_2020.mmd` · pages 3-9_

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To Our Shareholders,

The Company recorded net earnings of \(52,335,000 or \)5.58 per diluted share on sales of \(1,335,769,000 versus net earnings of \)5,747,000 or \(0.59 per diluted share on sales of \)1,199,581,000 in fiscal 2019. The company's closure of its Modesto, California fruit operations and the subsequent sale of the plant, property, and equipment during fiscal 2019 are recorded as discontinued operations in our financial statements.

Fiscal 2020 began with higher expectations as we were in the process of completing two long years of plant consolidations and the exit from the canned fruit business. As is always the case in our agriculturally based business, our expectations were tempered by the uncertainty of the upcoming growing season. While it turned out to be a very challenging growing season, the performance of the company did greatly improve as the steps that we took resulted in higher net margins. This improvement was also due in part to an unexpected sales lift in the last month of the fiscal year as consumers pantry loaded ahead of the coronavirus pandemic sweeping across the country.

The Company recorded earnings from continuing operations of \(51,188,000 or \)5.46 per diluted share versus a loss of \(36,483,000 or (\)3.77) per diluted share in the prior year. Our canned vegetable business showed improving margins as a result of higher selling prices that were implemented across our businesses. Our frozen business benefited from improved costs as a result of our divestiture of a frozen repackaging facility in Pennsylvania during the prior year. Our Truitt Brothers business benefited from gains in retail pouches business as well as stronger sales in its pet and diet food segments. Our Seneca Snack business benefited from growth in our branded apple chip sales as a result of new packaging and more frequent promotional activity. The only area that did not show improvement was in the candied fruit business, where we continue to be challenged by heavy inventories and high costs associated with a plant expansion and the integration of an acquisition which is mentioned below.

It is also important to note that a portion of the current year earnings were due to non-operating income and a non-cash credit to earnings from our inventory accounting methodology. The sale of property, plant and equipment associated with three previously closed plants partially offset by restructuring charges associated with those plants added pre-tax non-operating income of \(5,607,000. A non-cash credit derived from our Last In, First Out (LIFO) inventory accounting methodology added another \)17,075,000 to pre-tax profits as strong sales coming on the heels of a smaller than anticipated pack resulted in lower overall inventory levels.

We would also like to call to your attention the impact of the pandemic on our defined benefit pension plan. Our unfunded pension liability and other post-retirement benefits increased by \(60,935,000, net of income taxes which is reflected in our balance sheet as "other comprehensive loss" and reduced our net worth. The timing of our fiscal year end corresponded with the rapid decline in stock valuations and lower interest rates as the market reacted to the expected economic fallout from the pandemic. We decided to contribute \)25,000,000 to the plan just prior to year-end to partially offset these losses and help enhance its long term financial health. The company also closed its defined benefit pension plan to new hires and rehires as of January 1, 2020.

As mentioned previously, the growing season was challenging from the start to finish. A difficult planting season was the result of cold wet weather which delayed by weeks our ability to get our seed planted. It remained cold throughout the early part of the summer further delaying the maturation of the crops. When we finally got enough heat to get in the harvesting period, heavy rains plagued our efforts to harvest the crops and reduced our plant throughput as we dealt with water management issues. In order to get to the end of the season successfully, we needed a warm dry late season. Instead we endured more heavy rains and finally the season was brought to an abrupt end by cold snowy weather in early October across the Midwest. The net effect was that our company was only able to can or freeze about 91% of the crops we had originally planned for.

This was our second consecutive year of challenging growing conditions; therefore we did not have an abundance of inventories in our warehouses coming into the season. As a result, our sales force had to work with our customers to manage limited inventories in order to stay in supply to reach our goal of being a 52 week supplier to our customers.

It was a strategy that was generally working until the last month of our fiscal year, when the Coronavirus pandemic struck and the ensuing stay at home orders motivated consumers to pantry load over the course of a four week period. Inasmuch as our company was designated as critical infrastructure by the Federal Government, our operations worked long hours in shipping record quantities of product to our customers to attempt to keep grocery shelves stocked. Our customers provided many grateful comments in meeting such unprecedented demand; however this will lead to many out of stock situations heading into the new production season. This surge in demand was also true in our other businesses such as candied fruits and Truitt Brothers which ended the year on strong notes.

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Prior to the onset of the pandemic, Seneca had already been very busy with a number of major strategic projects. Last July, we acquired the business of Paradise Fruit Company, the leading processor of candied fruit sold for the holiday baking season. We have been in the process of relocating this business from the former Paradise manufacturing facility in Florida into our Michigan cherry facility which included a multi-million dollar expansion of the facility to store fruit and production equipment necessary to support the business.

In November, we completed an agreement with Del Monte Foods to purchase a plant in Wisconsin, and as part of that agreed to process certain quantities of canned vegetables for them on a contractual basis. At the same time, we acquired equipment from two already closed facilities, and have been busy during this off-season moving equipment into our facilities to improve efficiencies or expand our production capacities.

Finally in February, the company completed the contribution of the Sunnyside, Washington plant as well as a $10 million cash investment in exchange for a 49% stake in CraftAg LLC, a start-up hemp business with its own seed infrastructure. Its purpose is to work in various aspects of the hemp business ranging from seed to finished goods to participate in one of the fastest growing agricultural related segments in America. The rules and regulations regarding growing and processing hemp have been evolving since the 2018 Farm Bill in which hemp was removed as a controlled substance, and permitted to be grown. We are excited to repurpose a closed pear and apple cannery into a new opportunity with CraftAg, LLC led by a proven entrepreneur and a team of industry experts.

Those projects, when combined with the myriad of other capital investments, continuous improvement projects and product work would normally have been viewed as a busy year; however, the pandemic added an entirely new dimension to our business. The challenge of putting up an annual crop of products into canned or frozen finished goods has been further complicated by the need to be able to attempt to keep the virus at bay within our facilities, and allow for production across our facilities.

This challenge for Seneca is magnified by the fact that we produce much of our product in very short harvest windows with lots of seasonal labor. We have been working very closely with governmental authorities in developing guidelines that we should be operating under that deal with the specific challenges of seasonal fruits and vegetables. Keeping our employees safe and our plants operating is a major endeavor which has been and will continue to be consuming most of our time and effort over the coming months. We believe that we are up to the task.

While last year's results were encouraging, it is frankly old news in the current environment where so much has changed in a matter of months. The company has a strong balance sheet, and the financial wherewithal to ride out whatever challenges lie ahead, but it is our people who will make the difference. We are fortunate to have such a team whose experience, strength and capabilities have been clearly demonstrated in the months since the pandemic started. As shareholders, we should all be proud of their efforts in the face of what is an unprecedented period in our 72 year history.

Sincerely,

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Chairman

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President & Chief Executive Officer