# Dear Fellow Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/consumer-defensive-packaged-foods/NASDAQ_SENEA_2019/NASDAQ_SENEA_2019.mmd` · pages 3-9_

---

Dear Fellow Shareholders,

Fiscal year 2019 was a busy one as we took steps to exit some unprofitable lines of business and reduce future operating costs through plant consolidations. The company posted net earnings of \(5,747,000 or \)0.59 per diluted share mostly generated by the sale of assets associated with discontinued operations. This compares to a loss of \( (8,480,000) \)  or \( (0.87) \)  per diluted share in the prior fiscal year. The company posted a loss from continuing operations of \( (36,483,000) \)  or \( (3.77) \)  per diluted share on continuing sales of \(1,199,581,000 \)  versus a profit of \(10,049,000 \)  or \(1.02 \)  per diluted share on continuing sales of \(1,162,894,000 \)  in fiscal 2018. The current year results include a non-cash pre-tax charge of \(40,548,000 \)  to increase our Last In First Out (LIFO) inventory accounting reserves primarily due to the impact of import steel tariffs imposed by the U.S. Government as well the impact of a less than budget production pack due to poor weather in upstate New York and the Upper Midwest.

As we entered the year, we had already announced the decision to exit our California canned fruit business due to worsening trends. The operating losses for fiscal year 2019, plant closure costs, and the subsequent profit from the sale of the real estate and machinery and equipment resulted in a pre-tax profit for the company of \(55,726,000 from the California fruit business, which is reported on our statements as discontinued operations. After year end, due to similar dynamics as those in California, we also announced our decision to exit our canned fruit business located in Washington State, consisting of pear and apple products.

In our core vegetable business, we had one of the roughest growing seasons in memory. Extremely wet weather during critical planting, growing and harvesting periods in the upper Midwest and extreme dry weather in parts of upstate New York combined to have a negative impact on our overall case production of canned and frozen vegetables. These issues were particularly acute in Minnesota where the wet weather resulted in our pea production being halved and our corn production down almost 20 percent. Our production, being primarily seasonal in nature, requires that our plants operate fully during the relatively short harvest windows in summer and early fall. When Mother Nature intervenes with poor weather, the production shortfalls have a substantial impact on our costs.

Overall, our earnings were also negatively impacted by a rapid increase in both truck and rail rates during the year as a result of transportation industry capacity issues related to the strong economy, shortages of equipment and drivers, and some weather related events. Logistics costs play a big role at Seneca and the rapidly increasing rates last year impacted our margins. We see this leveling off this coming year as demand and supply have become more balanced.

This past year, we also took the opportunity to make some strategic plant rationalization decisions in our canned and frozen vegetable and can-making operations through the closure of two facilities and the sale of another. Much of the volume from the plant closures are being moved into facilities that had capacity available and will result in improved costs in the years to come.

Because a significant portion of our canned and frozen vegetable business is subject to annual bid cycles, our results can be impacted by a time lag from when we recognize higher costs to when we are in a position to raise our selling prices to our customers. This is precisely what happened this year with poor weather, steel tariffs and higher freight rates all reducing margins. The positive news going forward is that we are implementing price increases to our customers to reflect these costs as well as future expected costs. When combined with the exit of the money losing canned fruit, the plant rationalization moves, and the divestitures, we expect significant improvements in our operating margins after the annual bids cycle through this fall in our core seasonal processing operations.

Moving to other parts of our company, Seneca, in the past few years, has acquired three companies in the candied fruit business. We stand as the largest processor of candied fruit in North America. We also recently announced a fourth acquisition of the candied fruit business of Paradise Fruit Inc., which is expected to close shortly. As part of the integration process, we are moving through heavy inventory positions of cherries which have depressed short term margins; however, the prospects are excellent as we have recently expanded our Michigan facility to handle the production of all of the acquired businesses which will lower the costs going forward.

Truitt Brothers, our prepared shelf stable meal operation, is also in a period of transition. Last July, its President and Co-Founder, David Truitt passed away unexpectedly, which was a shock to all who knew him. His quiet and professional leadership of Truitt over 45 years is sorely missed. In the intervening months since his death, we lost some momentum and sales dropped for a variety of reasons; however, we are now beginning to regain traction with some exciting new product launches for customers in the plant protein, medical foods, organic foods and baby food that lead us to believe that sales and margins will once again be growing.

<--- Page Split --->

Looking forward, we remain confident regarding our future prospects. Overall debt, including operating leases, which are not on our balance sheet, has been reduced by \(183,456,000 year over year, as we took the opportunity to use the proceeds from our asset sales to further reduce the leverage of our already strong balance sheet. Meanwhile, our substantial and ongoing investment in vertical integration such as seed development, as well as the self-manufacturing of cans, provides a point of difference that is hard to duplicate. We have also led the way in innovation in our category over the past five years as we launched many new products in cups, pouches and trays as alternatives to the traditional can. This year, we launched new vegetable side dish products in both shelf stable trays and frozen pouches to our private label customers as well as a premium cocktail cherry to compete on the high end of the market against import competition.

In addition, we have carved out a nice niche in the organic prepared produce markets. Growing organic produce comes with its own challenges, and our field department has done an excellent job of improving field yields over time to make sure that this produce is as affordable as possible. Over the past few years, we launched a broad line of branded organic products under the Green Valley label in vegetables, beans, pumpkin and rice. Our line of Green Valley organic canned vegetable already has the leading market share among brands in the market. This coming year, we are planning on rolling out a line of organic vegetables in cups in conjunction with a license arrangement with a popular children's television show to encourage parents to feed their toddlers healthy vegetables at a young age.

In conclusion, while fiscal 2019 was a busy and challenging one, we are optimistic about our prospects going forward and for good reason. Despite the ups and downs that come with being in agriculture, we have a long and consistent track record of improving the tangible net worth per share of our company. At the end of fiscal 2007, we foresaw a protracted period of inflation coming and we made the decision to switch our inventory accounting to Last In, First Out (LIFO) in order to align costs more closely with selling prices. This prediction proved correct for during the intervening 12 years, we have built up a \(161,300,000 LIFO reserve on our balance sheet. Our tangible net worth per share has increased every year for the last 12 years, when adjusted for the non-cash LIFO charges/credits. This increase equals a compounded annual growth rate of 7.9% from \)22.39 per share to $55.81 per share. Inasmuch as our publicly traded shares have not followed suit, the company continues to buy back its shares through a Board approved share repurchase plan.

As we celebrate our 70 \( ^{th} \)  year, we believe that our progress and long term success would not have been possible without the commitment and hard work of the nearly 2,500 employees of Seneca, a number that swells to over 7,000 during the production season. Their dedication, as well as that of the thousands that preceded them has made it possible for us to succeed in seasonal fruit and vegetables for over seven decades. We very much look forward to an improved year ahead as well as in the years to come.

Sincerely,

![](images/4_0.jpg)

Chairman

![](images/4_1.jpg)

President & Chief Executive Officer