SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10k-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2001 - Commission File No. 0-17196
MIDWEST GRAIN PRODUCTS, INC.
(Exact Name of Registrant as Specified in Its Charter)
KANSAS 48-0531200
(State or Other Jurisdiction of IRS Employer
Incorporation or Organization) Identification No.
1300 Main Street, Atchison, Kansas 66002
(Address of Principal Executive Offices and Zip Code)
(913) 367-1480
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to the filing
requirements for at least the past 90 days.
[X] YES [ ] NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, no par value
8,081,954 shares outstanding
as of November 1, 2001
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Independent Accountants' Review Report....................... 2
Condensed Consolidated Balance Sheets as of
September 30, 2001 and June 30, 2001........................ 3
Condensed Consolidated Statements of Operations for
the Three Months Ended September 30, 2001 and 2000....... 5
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended September 30, 2001 and 2000....... 6
Notes to Condensed Consolidated Financial Statements........ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.............15
Item 6. Exhibits and Reports on Form 8-K................................15
1
Independent Accountants' Report
Board of Directors and Stockholders
Midwest Grain Products, Inc.
Atchison, Kansas 66002
We have reviewed the accompanying condensed consolidated balance sheet of
MIDWEST GRAIN PRODUCTS, INC. and subsidiaries as of September 30, 2001, and the
related condensed consolidated statements of operations for the three-month
periods ended September 30, 2001 and 2000, and the related condensed
consolidated statements of cash flows for the three-month periods ended
September 30, 2001 and 2000. These financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of June 30, 2001, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
year then ended (not presented herein); and, in our report dated August 1, 2001,
we expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of June 30, 2001, is fairly stated in all material
respects in relation to the consolidated balance sheet from which it has been
derived.
/s/BKD, LLP
Kansas City, Missouri
October 29, 2001
2
MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
ASSETS
September 30, June 30,
2001 2001
------------- ----------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 25,917 $ 33,454
Receivables (less allowance for bad debts of $452 and $252 at
September 30, 2001 and June 30, 2001, respectively) 26,669 26,109
Inventories 19,499 18,230
Prepaid expenses 2,344 1,625
Deferred income taxes 2,723 2,451
Refundable income taxes 299
------ ------
Total Current Assets 77,152 82,168
------ ------
PROPERTY AND EQUIPMENT, At cost 247,282 245,305
Less accumulated depreciation 156,713 153,181
------- -------
90,569 92,124
------- -------
OTHER ASSETS 149 158
------- -------
$ 167,870 $ 174,450
========== ==========
See Accompanying Notes to Condensed Consolidated Financial
Statements and Independent Accountants' Review Report
3
MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(In Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, June 30,
2001 2001
------------- --------
(Unaudited)
CURRENT LIABILITIES
Current maturities of long-term debt $ 3,202 $ 4,273
Accounts payable 8,495 10,446
Accrued expenses 3,405 4,008
Deferred income 14,584 15,951
Income taxes payable 1,296
------ ------
Total Current Liabilities 30,982 34,678
LONG-TERM DEBT 19,129 22,420
------ ------
POST-RETIREMENT BENEFITS 6,026 6,034
------ ------
DEFERRED INCOME TAXES 10,769 10,774
------ ------
STOCKHOLDERS' EQUITY
Capital stock
Preferred, 5% noncumulative, $10 par value; authorized
1,000 shares; issued and outstanding 437 shares 4 4
Common, no par; authorized 20,000,000 shares; issued
9,765,172 shares 6,715 6,715
Additional paid-in capital 2,485 2,485
Retained earnings 107,100 105,878
Accumulated other comprehensive income (loss) -
Cash flow hedges (424) 15
------- -------
115,880 115,097
Treasury stock, at cost
Common;
September 30, 2001 - 1,626,018 shares
June 30, 2001 - 1,585,518 shares (14,916) (14,553)
------- -------
$ 100,964 100,544
------- -------
Total liabilities and stockholders' equity $ 167,870 $ 174,450
============ ==========
See Accompanying Notes to Condensed Consolidated Financial
Statements and Independent Accountants' Review Report
4
MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Unaudited)
2001 2000
---- ----
(in thousands)
NET SALES $ 54,294 $ 58,297
COST OF SALES 47,304 55,532
------ ------
GROSS PROFIT 6,990 2,765
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 4,151 3,201
----- ------
2,839 (436)
OTHER OPERATING EXPENSE (21) (1)
------ ------
INCOME (LOSS) FROM OPERATIONS 2,818 (437)
OTHER INCOME (EXPENSE)
Interest (394) (344)
Other 1,616 128
------ ------
INCOME (LOSS) BEFORE INCOME TAXES 4,040 (653)
PROVISION (BENEFIT) FOR INCOME TAXES 1,596 (258)
------ ------
NET INCOME (LOSS) 2,444 (395)
------ ------
OTHER COMPREHENSIVE INCOME (LOSS) (439) 15
------ ------
COMPREHENSIVE INCOME (LOSS) $ 2,005 $ (380)
========== ==========
EARNINGS (LOSS) PER COMMON SHARE $ 0.30 $ (0.05)
========== ==========
DIVIDENDS PER COMMON SHARE $ 0.15 $ 0.10
========== ==========
See Accompanying Notes to Condensed Consolidated Financial
Statements and Independent Accountants' Review Report
5
MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Unaudited)
2001 2000
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 2,444 $ (395)
Items not requiring cash:
Depreciation 3,532 3,276
Loss on sale of equipment 10
Deferred income taxes (277)
Changes in:
Accounts receivable (560) 2,610
Inventories (1,708) 1,261
Accounts payable (3,490) (1,325)
Deferred revenue (1,367)
Income taxes (receivable) payable 1,595 (1,858)
Other (718) (772)
------ ------
Net cash provided by (used in) operating activities (549) 2,807
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (2,263) (1,985)
------ ------
Net cash used in investing activities (2,263) (1,985)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock (363) (323)
Net payments on long-term debt (10,785) (2,273)
Net proceeds from issuance of long-term debt 6,423
----- -----
Net cash used in financing activities (4,725) (2,596)
------ ------
DECREASE IN CASH AND CASH EQUIVALENTS (7,537) (1,774)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 33,454 7,728
------ -----
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 25,917 $ 5,954
========= ========
See Accompanying Notes to Condensed Consolidated Financial
Statements and Independent Accountants' Review Report
6
MIDWEST GRAIN PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
reflect all adjustments that are, in the opinion of the Company's management,
necessary to fairly present the financial position, results of operations and
cash flows of the Company. Those adjustments consist only of normal recurring
adjustments. The condensed consolidated balance sheet as of June 30, 2001 has
been derived from the audited consolidated balance sheet of the Company as of
that date. Certain information and note disclosures normally included in the
Company's annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto in the Company's Form 10-K
Annual Report for 2001 filed with the Securities and Exchange Commission. The
results of operations for the period are not necessarily indicative of the
results to be expected for the full year.
NOTE 2: BONDS PAYABLE
The Company has financed the new Wheatex production facility, acquired in
February 2001, through a capital lease financing involving the issuance on
August 22, 2001 of a $6.5 million industrial revenue bond by the Unified
Government of Wyandotte/Kansas City, Kansas. The bond bears interest at a rate
of 5.23% per annum and matures in September 2008. Under the lease, the Company
will make monthly payments declining from $114,200 in October 2001 to $77,700 in
September 2008. In connection with the financing, the Company must maintain
certain financial ratios, including a current ratio of 1.5 to 1, minimum
consolidated tangible net worth of $84 million and a debt service coverage ratio
of 1.5 to 1.
NOTE 3: CONTINGENCIES
There are various legal proceedings involving the Company and its
subsidiaries. Management considers that the aggregate liabilities, if any,
arising from such actions would not have a material adverse effect on the
consolidated financial position or operations of the Company.
The Company recently advised customers and the Food and Drug Administration
that certain products in one of its specialty protein lines required relabeling
because they contain sulfites, a potential allergen. The products represented
less than 1% of the Company's total wheat protein product sales during fiscal
year 2001. Certain customers have advised the Company that they will expect
indemnity against resulting losses allegedly incurred as a result of the
mislabeling. Although the Company is unable to estimate the costs that it might
incur if any claims are brought against it, after taking into account
anticipated insurance coverage the Company does not expect such costs would be
material to its financial condition or results of operations.
See Independent Accountants' Review Report
7
MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This section contains forward-looking statements as well as historical
information. Forward-looking statements are identified by or are associated with
such words as "intend," "believe," "estimate," "expect," "anticipate,"
"hopeful," "should" and "could" and similar expressions. They reflect
management's current beliefs and estimates of future economic circumstances,
industry conditions, Company performance and financial results and are not
guarantees of future performance. The forward-looking statements are based on
many assumptions and factors including those relating to grain prices, energy
costs, product pricing, competitive environment and related market conditions,
operating efficiencies, access to capital and actions of governments. Any
changes in the assumptions or factors could produce materially different results
than those predicted and could impact stock values.
RESULTS OF OPERATIONS
General
The Company had net income of $2,444,000 in the first quarter of fiscal
2002 compared to a net loss of $395,000 in the first quarter of fiscal 2001. The
improvement was primarily attributable to heightened demand for the Company's
fuel grade alcohol combined with lower energy costs and growth in sales of
specialty wheat proteins. The recognition of income from a United States
Department of Agriculture Commodity Credit Corporation program to support the
development of value-added wheat protein and wheat starch products also
contributed to the improvement. Details of this program are provided on the
following page.
The heightened demand for fuel grade alcohol, or ethanol as it is commonly
known, drove up first quarter sales of this product compared to sales in the
prior year's first quarter. The increased market interest was partially
attributable to the Environmental Protection Agency's proposal to phase out
MTBE, a competing fuel oxygenate that is synthetically derived and has been
shown to be harmful to groundwater supplies. In response to the increased
demand, the Company raised fuel alcohol production levels, while also
experiencing higher prices compared to the first quarter a year ago. The Company
also experienced improved selling prices for its food grade alcohol for beverage
and industrial applications. However, the unit volume of food grade alcohol for
beverage uses declined in the first quarter compared to a year ago due partially
to further reductions in sales for export purposes.
A program developed by the U.S. Department of Agriculture and initiated in
December 2000, provides a two-year cash incentive for ethanol producers who
increase their grain usage by specified amounts to raise fuel alcohol
production. The Company presently satisfies the program's eligibility
requirements and began receiving payments in the third quarter of fiscal 2001.
Also in fiscal 2001, the Company's Board of Directors approved a $2.1 million
distillery improvement project at the Atchison plant. Expected to be completed
early in the third quarter of fiscal 2002, this project is designed to enhance
food grade alcohol production, while also strengthening the Company's fuel grade
alcohol production capabilities. The Board has additionally approved plans for
the installation of a new feed drier at Midwest Grain's Pekin, Illinois plant.
Expected to be completed by the end of fiscal 2002 at a cost of $5 million, the
new drier should improve alcohol production efficiencies at that location.
Distillers feed is the principal by-product of the alcohol production process.
8
MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001
General (Continued)
Due principally to increased customer interest and expanded marketing
programs, demand for the Company's specialty wheat proteins continued to
strengthen in the first quarter of fiscal 2002. As a result, sales of these
products showed an improvement over the prior year's first quarter. Produced for
a variety of food and non-food applications, these value-added products include
dough enhancers, meat extenders and replacers, ingredients for hair care and
skin care systems, and biopolymers for producing pet treats as well as
degradable, plastic-like items.
While first quarter sales of specialty wheat proteins increased, sales of
vital wheat gluten, the protein portion of flour that is principally used in
many types of bread, decreased. This occurred because the Company elected to
curtail production due to pricing pressures from artificially low priced gluten
imports from the European Union (E.U.). Competitive pressures from the E.U.
intensified following the expiration of a three-year-long quota on gluten
imports in early June 2001. Unless future conditions warrant otherwise, the
Company plans to maintain a reduced presence in the more traditional, commodity
related gluten and concentrate its efforts on specialty, value-added markets.
In lieu of extending the gluten quota when it expired in June 2001, the
White House approved a funding program to support the development of value-added
wheat gluten and starches. Administered by the U.S. Department of Agriculture's
Commodity Credit Corporation, the program began in June 2001 and is scheduled to
end May 31, 2003. Under the program, the Company is eligible for approximately
$26 million of the program total of $40 million. For the first 12 months of the
program, approximately $17.3 million has been allocated to the Company. The
remaining amount is expected to become available to the Company starting in June
2002. The funds are to be used for capital, research, marketing and promotional
costs related to value-added wheat protein and starch products. Funds received
will be recognized in income during the period during which they are expended
for a permitted purpose. However, funds that are used for capital expenditure
projects will be recognized in income over the periods during which those
projects are depreciated. They are not intended to be used to reduce production
and marketing-related costs for commodity vital wheat gluten and wheat starches
which could extend the U.S. industry's participation in these markets.
On October 10, 2001, Midwest Grain's Board approved plans for an $8.3
million expansion project that is expected to substantially strengthen
production and sales capabilities for certain of the Company's specialty wheat
proteins. The expansion will occur at the Company's Atchison plant and is
scheduled for completion by July 2002. The project will involve the installation
of additional processing and drying equipment for the production of ingredients
for bakery, pasta and noodle and related food markets both domestic and foreign.
The cost of the project is expected to be offset by funds provided through the
USDA program described above.
9
MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001
General (Continued)
Last February, Midwest Grain was named the successful bidder on a
state-of-the-art manufacturing facility owned by a Kansas City, Kansas firm that
entered Chapter 11 bankruptcy proceedings. The Company is using the facility,
which is operated by its subsidiary, Kansas City, Ingredient Technologies, Inc.,
primarily for the production of Wheatex, Midwest Grain's unique line of textured
wheat proteins that are sold to enhance the flavor and texture of vegetarian and
extended meat products, as well as wheat-based biopolymers. Finalized in the
third quarter of fiscal 2001 at a cost of approximately $6.5 million, the
purchase replaces the Company's earlier plan to build a Wheatex plant at a
similar cost. The Company expects the acquisition will allow it to increase the
production of textured wheat proteins and biopolymers at a more accelerated
rate. Also, the Company anticipates that, in addition to providing more space
than was incorporated into the design for a new plant, the facility will provide
greater flexibility for producing other lines of value-added specialty wheat
proteins.
The Company's wheat starch sales in the first quarter of fiscal 2002 were
down due to factors related to transitions in the starch sales and marketing
staff. Responsibilities in this area have recently been restructured and
additional personnel have been added to strengthen sales and marketing
capabilities. Based on current indications, the Company expects that starch
sales should show an improvement over first quarter sales as fiscal 2002
progresses.
Although moderately higher than they were during the first quarter of the
prior fiscal year, per unit raw material costs for grain continued to remain
relatively low in the first quarter of fiscal 2002. With the continuation of
more normal energy costs combined with reasonable grain costs, continued
strength in alcohol demand and growth in sales of specialty-wheat-based
products, the Company should experience favorable conditions for growth going
forward.
Sales
Net sales in the first quarter of fiscal 2002 decreased by approximately
$4.0 million below net sales in the first quarter of fiscal 2001. The decrease
resulted mainly from reduced sales of vital wheat gluten, premium wheat starch
and food grade alcohol for beverage applications. These decreases were partially
offset by increased fuel alcohol sales, higher sales of food grade alcohol for
industrial uses and higher sales of specialty wheat proteins compared to a year
ago.
Sales of vital wheat gluten dropped due to reductions in both unit sales
and selling prices. This decrease was partially offset by increased unit sales
of the Company's specialty wheat proteins. Wheat starch sales declined primarily
due to lower unit sales, but also due partially to a small decrease in the
average selling price compared to the prior year's first quarter. Sales of food
grade alcohol fell as the result of decreased unit sales in the beverage market.
This offset a slight increase in unit sales of food grade alcohol for industrial
uses, as well as improved selling prices in both the beverage and industrial
markets. Sales of fuel grade alcohol rose compared to the first quarter of
fiscal 2001 as the result of higher unit sales and substantially higher prices
caused by increased demand. Sales of distillers feed, the principal by-product
of the alcohol production process, rose substantially due to increased unit
sales.
10
MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001
Cost of Sales
The cost of sales in the first quarter of fiscal 2002 decreased by
approximately $8.2 million below the cost of sales in the first quarter of the
prior fiscal year. This principally was due to lower raw material costs for
grain and a decrease in energy costs resulting from lower natural gas prices.
The lower grain costs were mainly due to decreased requirements for wheat
resulting from reduced production of vital wheat gluten. Costs were further
reduced by cash incentive credits from the U.S. Department of Agriculture for
ethanol producers as previously discussed. Additionally, the higher cost of
sales in the first quarter of fiscal 2001 included nonrecurring costs related to
the final installation of new distillation equipment at the Company's Atchison
plant during that period.
In connection with the purchase of raw materials, principally corn and
wheat, for anticipated operating requirements, the Company enters into commodity
contracts to reduce or hedge the risk of future grain price increases.
Additionally, the Company uses gasoline futures to hedge fuel alcohol sales
contractually sold at prices fluctuating with gasoline futures. In the first
quarter of fiscal 2002, raw material costs included a net hedging gain of
$210,000 compared to a net hedging loss of $96,000 on contracts in fiscal 2001.
Selling, General and Administrative Expenses
Selling, general and administrative expenses in fiscal 2002 were
approximately $950,000 higher than selling, general and administrative expenses
in fiscal 2001. The increase was due largely to a $310,000 bad debt and a
combination of various other factors, including increased marketing-related
expenses, costs associated with employee-related benefits and higher research
and development costs.
Other Income
The increase in other income relates to the recognition of $1.37 million of
income from the previously discussed USDA Commodity Credit Corporation program
for value-added wheat gluten and wheat starch products.
Net Income
The consolidated effective income tax rate is consistent for all periods.
The general effects of inflation were minimal.
As the result of the foregoing factors, the Company experienced net income
of $2,444,000 in fiscal 2002 compared to a net loss of $395,000 in fiscal 2001.
11
MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001
LIQUIDITY AND CAPITAL RESOURCES
The following table is presented as a measure of the Company's liquidity
and financial condition:
September 30, June 30,
2001 2001
(in thousands)
Cash and cash equivalents $ 25,917 $ 33,454
Working capital 46,170 47,490
Amounts available under lines of credit 14,000 5,500
Notes payable and long-term debt 22,331 26,693
Stockholders' equity 100,964 100,544
Cash generated from operations were offset by increased working capital
requirements through increased inventories and decreased payables. Payments for
equipment additions, debt reductions and treasury stock purchases reduced cash
balances. The comparatively high cash balances resulted from cash flows
generated during fiscal 2001 combined with $17.3 million received in June 2001
as a result of the program administered by the U.S. Department of Agriculture's
Commodity Credit Corporation.
The Company made open market purchases of 40,400 shares of its common stock
during the quarter. These purchases were made to fund the Company's stock option
plans and for other corporate purposes. As of September 30, 2001, the Board has
authorized the purchase of an additional 374,082 shares of the Company's common
stock.
At September 30, 2001, the Company had $15.7 million committed to capital
improvements including the $8.3 million expansion project in Atchison, that is
designed to strengthen production and sales capabilities for the Company's
specialty wheat proteins and the acquisition of a new feed dryer at the Pekin,
Illinois facility intended to improve alcohol production efficiencies at that
location. The Company is also developing plans for other additions relating to
value-added wheat gluten and wheat starch products.
The Company has financed the new Wheatex production facility, acquired in
February 2001, through a capital lease financing involving the issuance on
August 22, 2001 of a $6.5 million industrial revenue bond by The Unified
Government of Wyandotte/Kansas City, Kansas. The bond bears interest at a rate
of 5.23% per annum and matures in September 2008. Under the lease, the Company
will make monthly payments declining from $114,200 in October 2001 to $77,700 in
September 2008. In connection with the financing, the Company must maintain
certain financial ratios, including a current ratio of 1.5 to 1, minimum
consolidated tangible net worth of $84 million and a debt service coverage ratio
of 1.5 to 1.
The Company has added to its normally strong equity and working capital
positions while continuing to generate strong earnings before interest, taxes
and depreciation. Management believes the Company is well positioned to
effectively expand its production of specialty products as well as supply
customer needs for all its other products.
12
MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001
FUTURE CHANGES IN ACCOUNTING PRINCIPLES
The Financial Accounting Standards Board ("FASB") has issued four new
accounting pronouncements that will become effective in the fiscal year
commencing July 1, 2002.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and
No. 142, "Goodwill and Other Intangible Assets," effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill (and tangible
assets deemed to have indefinite lives) will no longer be amortized but will be
subject to annual impairment tests in accordance with the Statements. Other
intangible assets will continue to be amortized over their useful lives. SFAS
No. 143, "Accounting for Asset Retirement Obligations," was issued in August
2001 and deals with the recognition and remeasurement of obligations associated
with the retirement of tangible long-lived assets. SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets," was issued in October 2001 and
applies to all long-lived assets, other than goodwill, and discontinued
operations and develops one accounting model for long-lived assets that are to
be disposed of by sale. The adoption of these statements is not expected to have
a material impact on the Company's financial statements.
13
MIDWEST GRAIN PRODUCTS, INC.
SEPTEMBER 30, 2001
Item 3. Quantitative And Qualitative Disclosures About Market Risk
The Company produces its products from wheat, corn and milo and, as such,
is sensitive to changes in commodity prices. Grain futures and/or options are
used as a hedge to protect against fluctuations in the market. The information
regarding inventories and futures contracts at June 30, 2001, as presented in
the annual report, is not significantly different from September 30, 2001.
14
MIDWEST GRAIN PRODUCTS, INC.
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of the Company was held on September 14,
2001. The following actions were taken at the meeting:
1. James A. Schlindwein was elected to the office of Group A Director for a
term expiring in 2004 with 7,294,996 common share votes for his election
and 14,198 votes withheld.
2. Cloud L. Cray, Jr. was elected to the office of Group B Director for a
term expiring in 2004 with 405 preferred share votes for his election
and no votes withheld.
3. Robert J. Reintjes was elected to the office of Group B Director for a
term expiring in 2004 with 405 preferred share votes for his election
and no votes withheld.
In addition, the terms of Michael R. Haverty, Linda E. Miller and Daryl
R.Schaller, Ph.D., as Group A Directors continued after the annual meeting and
the terms of Michael Braude, Randall M. Schrick and Laidacker M. Seaberg as
Group B Directors continued after the annual meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
15.1 Letter from independent public accountants pursuant to paragraph
(d) of Rule 10-01 of Regulation S-X (incorporated by reference to
Independent Accountants' Review Report at page 2 hereof).
15.2 Letter from independent public accountants concerning the use of
its Review Report in the Company's Registration Statement No.
333-51849.
99 Press Release dated November 6, 2001 (w/o financial statements).
(b) Reports on Form 8-K
The Company has filed no reports on Form 8-K during the quarter ended
September 30, 2001.
15
SIGNATURES
Pursuant to the requirements on the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MIDWEST GRAIN PRODUCTS, INC.
Date: November 12, 2001 By /s/ Ladd M. Seaberg
Ladd M. Seaberg, President
and Chief Executive Officer
Date: November 12, 2001 By /s/ Robert G. Booe
Robert G. Booe, Vice President
and Chief Financial Officer