EXHIBIT 20, LETTER TO STOCKHOLDERS
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EXHIBIT 20
LETTER TO STOCKHOLDERS
November 7, 1996
Dear Stockholder:
I am pleased to report that while our Company incurred a slight loss in net
earnings in the first quarter of fiscal 1997, our operating income moved back to
the plus side. This is consistent with strengthened conditions in the
marketplace, which indicate a return to profitability in the second quarter.
Our first quarter net loss of $346,000, or $0.04 per share on sales of
$53,173,000 represented a substantial improvement over the prior year's first
quarter net loss of $2,377,000, or $0.24 per share on sales of $47,160,000. It
also was better than our performance in the immediately preceeding fourth
quarter, when we experienced a net loss of $814,000, or $0.08 per share on sales
of $37,856,000. This improvement was realized as the result of a greater balance
between selling prices of our principal products and raw material costs for
grain together with our ability to exercise considerable flexibility in
targeting production levels and sales mixes. Those factors were complemented by
the continuation of our enhanced cash management program.
First quarter grain costs actually were much higher than during the same period
a year ago. Prices for corn and milo, which we use in our alcohol production
process, averaged 54% more per bushel, while prices for wheat, which we mill
into flour and then further process into vital wheat gluten and premium wheat
starch, averaged nearly 7% more per bushel. These increases were partially
offset by sales price adjustments in each of our markets.
The combination of higher grain costs and relatively flat prices for wheat
gluten and fuel alcohol in the opening weeks of the first quarter prompted our
decision to extend a maintenance and repair shutdown at our Pekin, Illinois
plant through the first half of July. Although production levels
declined as the result of this shutdown, the decision allowed us to minimize the
negative impact of the exceptionally high grain costs. Furthermore, as the
quarter progressed, demand for our fuel alcohol, as well as our food grade
alcohol for beverage and industrial applications strengthened. Conditions in
these markets remain favorable, and corn and milo prices have fallen from their
July record levels.
Conditions in the wheat gluten market, on the other hand, continue to be
severely affected by the growing presence of gluten imports from the European
Union (E.U.). Consultations between the United States and E.U., which are
expected to help level the playing field, have not yet been completed as we
previously had hoped. In the meantime, possibilities for a remedy through legal
action are being aggressively explored.
As previously reported, we are accelerating our development of specialty wheat
gluten products for both food and industrial applications. The growth of these
products will be gradual, as has been the case with our successful list of
modified and specialty wheat starches, which we began developing several years
ago.
Looking ahead, I am encouraged by the current onset of more favorable
conditions, both on the raw material side and in the majority of the markets we
serve. Our production capabilities and the higher efficiencies we expect to
attain should allow us to realize improved results as we go forward.
Sincerely,
s/Ladd M. Seaberg
Ladd M. Seaberg
President and CEO