LETTER TO STOCKHOLDERS
Published on
Exhibit 20
LETTER TO OUR STOCKHOLDERS
February 10, 1997
Dear Stockholder:
We have begun to turn the corner and move in a more positive direction as
indicated by our earnings performance in the second quarter of fiscal 1997. In
addition, we have reduced our long-term debt by $7 million as the result of cash
flows generated from operations during the first two quarters of the year.
Our second quarter net income of $1,205,000, or $0.12 per share was considerably
higher than the net income of $195,000, or $0.02 per share that we experienced
in the second quarter of fiscal 1996. Our sales in this year's second quarter
amounted to $55,249,000, down just slightly from the same period the prior year,
when we had sales of $55,751,000.
Due to a first quarter net loss of $346,000, our net income for the first six
months of fiscal 1997 totaled $859,000, or $0.09 per share on sales of
$108,422,000. For the first six months of fiscal 1996, we had a net loss of
$2,182,000, or $0.22 per share on sales of $102,911,000.
Our second quarter earnings improvement resulted primarily from a decline in
grain prices compared to both the second quarter of fiscal 1996 and the first
quarter of fiscal 1997, and strengthened demand for our premium wheat starch,
beverage alcohol and distillers feed. The realization of an even greater
improvement was partially prevented by a carryover of higher priced grain from
the first quarter, and a dramatic rise in energy costs in the latter part of the
second quarter due to greatly increased prices for natural gas. These factors
contributed to a reduction in operational efficiencies. Since the end of the
quarter, grain prices have continued to ease down toward more normal levels.
Prices for natural gas have also tapered off, but remain above where they were
at this time a year ago.
Demand for our vital wheat gluten continues to be suppressed by a heavy
flow of gluten imports from the European Union (E.U.). In addition to seeking a
negotiated solution to this problem, the Wheat Gluten Industry Council of the
United States recently filed a Section 301 petition requesting that the U.S.
Trade Representative investigate subsidies and other measures which allow E.U.
gluten producers lopsided competitive advantages. The petition, if fav orably
acted on by the Trade Representative, calls for an international panel of the
World Trade Organization to examine the protectionist and predatory practices of
the E.U. and could ultimately provide the U.S. with the right to implement
retaliatory measures. The Wheat Gluten Council is prepare d to seek additional
legal action should a satisfactory remedy not appear forthcoming. In the
meantime, we are experiencing increased interest in our specialty wheat gluten
products, which are being developed for value-added niche markets.
As I have previously reported, growth in the specialty gluten markets is
expected to be gradual and, therefore, will not have a significant impact on our
results in the near term. It was with this same understanding that we launched
the development of our modified and specialty wheat starches seve ral years ago.
Today, these starches account for a sizeable portion of our total starch output.
While conditions in our alcohol markets generally remain healthy, prices
for food grade alcohol for beverage and industrial applications have declined
since the end of the second quarter due to a combination of seasonal factors and
the start-up of new production capacities throughout the industry. Increased
supplies of fuel grade alcohol have caused prices in that market to soften some
as well. We are prepared to meet this new competition by strengthening our
operational efficiencies as grain prices continue to reach more normal levels.
Sincerely,
s/Ladd M. Seaberg
Ladd M. Seaberg
President and CEO