SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 31, 1994 -
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
9,765,172 shares outstanding
as of February 1, 1995.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants' Review Report 2
Condensed Consolidated Balance Sheets as of
December 31, 1994 and June 30, 1994 3
Condensed Consolidated Statements of Income
for the Three Months and Six Months Ended
December 31, 1994 and 1993 5
Condensed Consolidated Statements of
Cash Flows for the Six Months Ended
December 31, 1994 and 1993 6
Notes to Condensed Consolidated
Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
[Baird, Kurtz & Dobson LOGO]
Baird, Kurtz & Dobson
Certified Public Accountants
Independent Accountants' Review Report
Board of Directors and Stockholders
Midwest Grain Products, Inc.
Atchison, Kansas 66002
We have reviewed the condensed consolidated balance sheet of
MIDWEST GRAIN PRODUCTS, INC. and subsidiaries as of December 31,
1994, and the related condensed consolidated statements of income
for the three month and six month periods ended December 31, 1994
and 1993, and the related condensed consolidated statements of
cash flows for the six month periods ended December 31, 1994 and
1993. These financial statements are the responsibility of the
Company's management.
We conducted our reviews 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 reviews, we are not aware of any material
modifications that should be made to the condensed consolidated
financial statements referred to above 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, 1994, 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 11, 1994, 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,
1994, is fairly stated in all material respects in relation to
the consolidated balance sheet from which it has been derived.
S/Baird, Kurtz & Dobson
BAIRD, KURTZ & DOBSON
Kansas City, Missouri
January 26, 1995
City Center Square, Suite 2700, 1100 Main, 816 221-6300
Kansas City, Missouri 64105 FAX 816 221-6380
With Offices in: Arkansas, Colorado, Kansas, Kentucky, Missouri,
Nebraska, Oklahoma
Member of Moores Rowland International
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MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
ASSETS
December 31, June 30,
1994 1994
------------- --------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ $ 3,832
Short-term investments 339 339
Receivables 22,456 20,457
Notes receivable 814 814
Inventories 13,619 13,229
Prepaid expenses 743 576
Refundable income taxes 769
Deferred income taxes 876 876
------- -------
Total Current Assets 39,616 40,123
------- -------
INVESTMENTS 14,504
------- -------
LONG-TERM RECEIVABLES 591 961
------- -------
PROPERTY AND EQUIPMENT, At cost 200,498 182,446
Less accumulated depreciation 72,318 69,888
------- -------
128,180 112,558
------- -------
$168,387 $168,146
======== ========
See Accompanying Note to Condensed Consolidated
Financial Statements
-3-
MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(In Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, June 30,
1994 1994
------------- --------
(Unaudited)
CURRENT LIABILITIES
Disbursements in excess of
demand deposit cash $ 3,553 $
Accounts payable 5,729 8,551
Accrued expenses 6,077 8,189
Income taxes payable 1,232
-------- --------
Total Current Liabilities 15,359 17,972
-------- --------
LONG-TERM DEBT 25,000 25,000
-------- --------
POST-RETIREMENT BENEFITS 5,348 5,045
-------- --------
DEFERRED INCOME TAXES 5,956 5,956
-------- --------
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 107,520 104,969
-------- --------
116,724 114,173
-------- --------
$168,387 $168,146
======== ========
See Accompanying Note to Condensed Consolidated
Financial Statements
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MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1994 AND 1993
(Unaudited)
Three Months Six Months
------------------ ------------------
1994 1993 1994 1993
------ ------ ------- -------
(in thousands, except per share amounts)
NET SALES $44,488 $45,286 $90,472 $84,448
COST OF SALES 37,754 37,201 76,088 71,786
------- ------- ------- -------
GROSS PROFIT 6,734 8,085 14,384 12,662
SELLING, GENERAL
AND ADMINIS-
TRATIVE EXPENSES 2,897 2,670 6,326 5,501
------- ------- ------- -------
3,837 5,415 8,058 7,161
OTHER OPERATING INCOME
(LOSS) 9 (122) 13 (228)
------- ------- ------- -------
INCOME FROM OPERATIONS 3,846 5,293 8,071 6,933
OTHER INCOME (LOSS) (87) (188) 320 (80)
------- ------- ------- -------
INCOME BEFORE INCOME
TAXES 3,759 5,105 8,391 6,853
PROVISION FOR INCOME
TAXES 1,522 1,918 3,398 2,573
------- ------- ------- -------
NET INCOME $ 2,237 $ 3,187 $ 4,993 $ 4,280
======= ======= ======= =======
EARNINGS PER COMMON SHARE $.23 $.33 $.51 $.44
==== ==== ==== ====
See Accompanying Note to Condensed Consolidated
Financial Statements
-5-
MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1994 AND 1993
(Unaudited)
1994 1993
-------- --------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,993 $ 4,280
Items not requiring (providing) cash:
Depreciation 3,527 3,083
Gain on sale of assets (248) (29)
Deferred income taxes (79)
Changes in:
Accounts receivable (1,999) (2,244)
Inventories (390) 2,273
Prepaid expenses (167) (149)
Disbursements in excess of demand
deposit cash 3,553
Accounts payable (163) 362
Accrued expenses (1,809) (881)
Income taxes payable (2,001) 29
------- --------
Net cash provided by
operating activities 5,296 6,645
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (21,824) (22,995)
Purchase (sale) of short-term
investments 14,531 (21,585)
Proceeds from sale of equipment 264 47
Payment received on note for sale of plant 343 4
------- -------
Net cash used in
investing activities (6,686) (44,529)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of
long-term debt 25,000
Dividends paid (2,442) (2,442)
------- --------
Net cash provided by (used in)
financing activities (2,442) 22,558
------- --------
DECREASE IN CASH AND
CASH EQUIVALENTS (3,832) (15,326)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 3,832 20,074
-------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 0 $ 4,748
======= ========
See Accompanying Note to Condensed Consolidated
Financial Statements
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MIDWEST GRAIN PRODUCTS, INC.
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1994
(Unaudited)
NOTE 1: GENERAL
In the opinion of management, the accompanying unaudited
condensed financial statements contain all adjustments necessary
to present fairly the Company's condensed consolidated financial
position as of December 31, 1994, and the condensed consolidated
results of its operations and its cash flows for the periods
ended December 31, 1994 and 1993, and are of a normal recurring
nature.
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MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1994
RESULTS OF OPERATIONS
General
- - - -------
Results of sales and earnings for the second quarter of fiscal
1995 decreased compared to these same results for the second
quarter of fiscal 1994. Lower unit sales of vital wheat gluten
combined with reduced efficiencies associated with the start-up
of new distillery equipment at the Company's Pekin, Illinois
plant were principal causes for the decline. The drop in wheat
gluten volume was due to a severe tightening of marketing
opportunities brought on by a barrage of gluten imports from
Europe. Profits from their highly subsidized and protected wheat
starch business allow European producers to easily place their
gluten surpluses in the United States market. Low U.S. tariff
rates on wheat gluten provide little deterrence to this practice,
while high tariffs in Europe effectively prohibit non-European
Union member countries from competing in the wheat gluten and
wheat starch markets there. The Company's competitive abilities
were further constricted in the second quarter by higher per
bushel costs for wheat than were experienced during the same
quarter the prior year. Although the Company, with the
assistance of certain U.S. legislators and trade officials, is
actively seeking measures that would create a more level playing
field, gluten imports from Europe continue to come into this
country at a record pace.
The Company's unit sales of alcohol products in the second
quarter remained approximately even with the prior year's second
quarter amount. An increase in unit sales of fuel grade alcohol,
which is sold as an octane additive commonly known as ethanol,
offset a decrease in unit sales of food grade alcohol, which is
sold for beverage, industrial and commercial applications. The
reduction in food grade alcohol volume resulted from a change in
the Company's alcohol production mix, which was required to
satisfy heightened customer needs in the fuel market. Demand in
both the food grade and fuel grade markets has remained strong,
however. With completion of the distillery expansion in Pekin,
which is designed to double Midwest Grain's total alcohol
production capacity, the Company expects to improve its ability
to satisfy demand in all of its alcohol markets more effectively.
This expansion was scheduled to be on line by January 1995.
However, the completion has been delayed until later in the
current quarter due to unanticipated mechanical problems with two
new distillery feed driers. As a result, the Company anticipates
a continuation of lower efficiencies that will adversely affect
results in the remaining months of fiscal 1995.
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MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1994
The Company's unit sales of wheat starch in the second quarter
surged above the prior year's second quarter level. The increase
resulted mainly from higher volumes of modified wheat starches
which are sold in a variety of special market niches. A planned
70% increase in wheat starch production capacity, that was
originally slated for completion at the Pekin plant toward the
end of this year's third quarter, has been tentatively
rescheduled for completion in the fourth quarter. The
postponement was prompted by the delay in the distillery
expansion. A planned 40% increase in total gluten production
capacity also has been tentatively moved from the third quarter
to the fourth quarter, principally due to weakened unit sales
caused by increased foreign competition. While the Company
believes unfavorable conditions, namely reduced efficiencies and
intense foreign competition, may have significant negative impact
on results for the third quarter and for all of fiscal 1995, it
expects gradual improvements to occur from its projected higher
alcohol capacities, and a continuance of strong demand for its
alcohol products and wheat starch.
Sales
- - - -----
Grain products sales for the second quarter of fiscal 1995
decreased by approximately $798,000 below sales in the second
quarter of fiscal 1994. The decrease was principally due to
lower sales of vital wheat gluten, which fell by 14% as the
result of reduced marketing opportunities caused by a large
influx of gluten imports from Europe. A 2.5% increase in sales
of alcohol products compared to the prior year's second quarter
resulted from a significant jump in fuel alcohol volume. Sales
of food grade alcohol for beverage, industrial and commercial
application declined as a sizeable percentage of the Company's
alcohol production was shifted to the fuel category in response
to preestablished customer requirements. Sales of distillers'
feeds, a by-product of the alcohol production process, rose
almost 4% due to increased volumes resulting from the
distillation of larger amounts of alcohol. A continued increase
in sales of modified wheat starches pushed total wheat starch
sales in the second quarter of 15% above the prior year's second
quarter level. The increase in grain products sales for the
first six-month period of fiscal 1995, amounting to approximately
$6,024,000, was experienced in the first quarter. This mainly
resulted from increased volume sales of all of the Company's
principal products. The higher volumes were generated by
increased demand in each principal product market compared to the
first quarter of fiscal 1994, which suffered from the effects of
record rain and floods in the Midwest. Changes in selling prices
of the Company's vital wheat gluten
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MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1994
generally are due to fluctuations in grain costs and competition.
Wheat starch prices traditionally track corn starch prices, with
the exception of the Company's specialty modified starches. Fuel
alcohol prices traditionally follow the movement of gasoline
prices. Prices for food grade alcohol for beverage applications
normally follow the movement of corn prices, while prices for
food grade alcohol for industrial and commercial applications are
normally consistent with prices for industrial alcohol derived
from synthetic products such as petroleum.
Cost of Sales
- - - -------------
The cost of sales in the second quarter of fiscal 1995 rose by
approximately $553,000 above cost of sales in the same period of
the preceding year. Increased raw material costs for grain,
amounting to approximately $.3 million, and increased maintenance
and repair costs, amounting to approximately $1.1 million, were
offset by volume declines from those realized in the second
quarter of fiscal 1994. The higher maintenance and repair costs
were mainly due to work associated with the distillery expansion
at the Company's Pekin plant and repairs of wheat starch driers
at the Atchison plant. Other manufacturing cost increases were
principally due to higher energy costs, higher costs for
chemicals and additives resulting from increased production of
modified wheat starches, and depreciation of buildings and
equipment. The cost of sales for the first six months of fiscal
1995 increased by approximately $4.3 million over costs for the
first half of fiscal 1994. The vast majority of this increase
occurred in the first quarter and was primarily due to volume
increases as well as the increased costs referred to above in the
second quarter.
Selling, General and Administrative Expenses
- - - --------------------------------------------
Selling, general and administrative expenses in the second
quarter of fiscal 1995 were up approximately $227,000 compared to
the same period the prior year. This increase was experienced
generally throughout the expense categories with no major
contribution to the increase. For the first six months of fiscal
1995, expenses rose by approximately $825,000 above expenses for
the first half of fiscal 1994. Of the nearly $600,000 increase
that occurred in the first quarter of fiscal 1995, over $200,000
was due to an increase in sales subject to commissions. An
additional expense of over $200,000 resulted from an increase in
the management bonus program, which is designed to recognize the
accomplishment of specific, pre-established Company goals. The
remainder of the increase during the first half of the year was
experienced generally throughout the expenses categories.
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MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1994
The consolidated effective income tax rate increased as a result
of federal and state tax rates.
The general effects of inflation were minimal.
Net Income
- - - ----------
Primarily as a result of the foregoing factors, net income in the
second quarter of fiscal 1995 declined to $2,237,000 from
$3,187,000 realized in the second quarter of fiscal 1994.
Combined with a first quarter increase of $1,663,000, net income
for the first six months of fiscal 1995 increased to $4,993,000
from $4,280,000 in the first six months of fiscal 1994.
RFG Program
- - - -----------
Effective March 18, 1994, the Environmental Protection Agency
("EPA") adopted final rules under the Amended Clean Air Act of
1990 requiring that gasoline sold in certain areas of the Country
after 1994 be reformulated to reduce vehicle emissions of toxic
and ozone-forming compounds (the "RFG Rule"). Included in that
Act and rule are requirements that the reformulated gasoline
("RFG") contain at least 2% oxygen by weight and that emissions
of ozone-forming volatile organic compounds ("VOCs") be reduced
to certain specified levels. RFG is required to be sold in nine
of the smoggiest metropolitan areas in the United States.
Although the addition of ethanol to gasoline will enable the
gasoline formulation to satisfy the 2% oxygen requirement, its
addition is expected to make it more difficult for the
formulation to satisfy the VOC requirements during the summer
months. This may encourage refiners and blenders to use
alternative petroleum-based oxygenates in the RFG program, at
least during the summer months.
Due, among other things, to the EPA's desire to permit the RFG
program to reduce the United States' reliance on nonrenewable
fossil fuels and to reduce the emission of greenhouse gasses,
effective September 1, 1994, the EPA adopted additional
regulations which generally require that "renewable oxygenates"
such as ethanol be used in RFG to satisfy 15% of the required
oxygen content from December 1, 1994 through December 31, 1995,
and 30% for each calendar year thereafter (the "Renewable
Oxygenate Rule" or "ROR"). Subsequently, two groups representing
the petroleum industry filed suit against the EPA seeking to have
the ROR set aside on the grounds that the EPA lacked the
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MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1994
legal authority necessary to issue the Rule. On September 13,
1994, the U.S. Court of Appeals for the District of Columbia
Circuit issued an order staying implementation of the Rule in
order to permit the parties and other interested parties time to
brief and orally argue the issues raised in the suit. Final
briefs have been submitted and oral arguments have been scheduled
for February 16, 1995. It is uncertain as to when the court will
reach a decision following the hearing and whether the stay will
ultimately be lifted.
The preambles to the RFG Rule and the ROR indicate a belief by
the EPA that the RFG Rule will increase demand for ethanol and
that the ROR will further increase that demand. Accordingly, the
Company believes that the RFG Rule, whether or not the ROR is
implemented, will likely increase to some extent the demand for
ethanol and that we will continue to have opportunities to market
additional fuel alcohol from the distillery expansion currently
under construction. In either case, the Company's total ethanol
production is expected to be a relatively small part of a very
large fuel ethanol market.
LIQUIDITY AND CAPITAL RESOURCES
The following table is presented as a measure of the Company's
liquidity and financial condition:
December 31, June 30,
1994 1994
------------ --------
(in thousands)
Cash, cash equivalents and
short-term investments $ 339 $ 4,171
Long-term liquid investments 14,504
Long-term debt 25,000 25,000
Working capital 24,257 22,151
While the Company's working capital position improved during the
first six months, expenditures for the Pekin plant expansion, which
totalled $21.8 million, reduced investments held for this purpose
and operating cash balances. Higher receivable balances at
December 31, 1994 and increased income tax payments during the
first six months also impacted short-term liquidity. As
anticipated, the Company did not begin utilizing its available
lines of credit until January, 1995.
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MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1994
At December 31, 1994, the Company has amounts remaining to spend
under capital improvement projects totalling approximately $14.0
million. As previously discussed, the distillery project at Pekin
is now scheduled to be completed during the third quarter.
Additionally, the gluten expansion and new wheat starch facilities
at Pekin, which will increase gluten and starch capacities by 40%
and 70%, respectively, are now scheduled to come on line sometime
during the fourth quarter. Capital improvement projects in
Atchison include normal improvements and expansions primarily in
the gluten and starch processes and expanded storage facilities for
gluten and starch.
While there were no borrowings at December 31, 1994 on available
lines of credit totalling $25 million, the Company began utilizing
the lines in January 1995.
Midwest Grain Products believes the above borrowings, existing
working capital and working capital to be generated from future
operations, will allow it to complete its expansion projects and
meet expanded working capital needs.
-13-
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
(15) 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)
(20) Report to stockholders for the six months
ended December 31, 1994 (without financial
statements).
(b) Reports on Form 8-K
The Company has filed no reports on Form 8-K during
the quarter ended December 31, 1994.
SIGNATURES
Pursuant to the requirements of 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.
2-8-95 By /s/ Ladd M. Seaberg
- - - -------------------------------- -------------------------------
Date Ladd M. Seaberg
President and Chief Executive
Officer
2-8-95 By /s/ Robert G. Booe
- - - ------------------------------- -------------------------------
Date Robert G. Booe, Vice President
and Chief Financial Officer
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