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 March 31, 1995 -
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 May 1, 1995.
INDEX
PART I. FINANCIAL INFORMATION Page
____
Item 1. Financial Statements
____________________
Independent Accountants' Review Report 2
Condensed Consolidated Balance Sheets as of
March 31, 1995 and June 30, 1994 3
Condensed Consolidated Statements of Income
for the Three Months and Nine Months Ended
March 31, 1995 and 1994 5
Condensed Consolidated Statements of
Cash Flows for the Nine Months Ended
March 31, 1995 and 1994 6
Note 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 12
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[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 March 31,
1995, and the related condensed consolidated statements of income
for the three month and nine month periods ended December 31,
1995 and 1994, and the related condensed consolidated statements
of cash flows for the nine month periods ended March 31, 1995 and
1994.
These financial statements are the responsibility of the
Company's management.
We conducted our reviews in accordance with STATEMENTS ON
STANDARDS FOR ACCOUNTING AND REVIEW SERVICES issued 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
April 25, 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
March 31, June 30,
1995 1994
___________ ________
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 3,832
Short-term investments 339 339
Receivables 19,616 20,457
Notes receivable 814 814
Inventories 15,851 13,229
Prepaid expenses 780 576
Refundable income taxes 836
Deferred income taxes 876 876
_______ ______
Total Current Assets 39,112 40,123
_______ _______
INVESTMENTS 14,504
_______
LONG-TERM RECEIVABLES 442 961
_______ _______
PROPERTY AND EQUIPMENT, At cost 207,368 182,446
Less accumulated depreciation 73,944 69,888
_______ _______
133,424 112,558
_______ _______
$172,978 $168,146
======== ========
See Accompanying Note to Condensed Consolidated Financial
Statements and Independent Accountants' Review Report
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MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(In Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, June 30,
1995 1994
__________ ________
(Unaudited)
CURRENT LIABILITIES
Disbursements in excess of
demand deposit cash $ 387
Accounts payable 4,307 $ 8,551
Accrued expenses 6,014 8,189
Income taxes payable 1,232
________ ________
Total Current Liabilities 10,708 17,972
________ ________
LONG-TERM DEBT 35,000 25,000
________ ________
POST-RETIREMENT BENEFITS 5,513 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 106,597 104,969
_________ ________
115,801 114,173
_________ ________
$172,978 $168,146
======== ========
See Accompanying Note to Condensed Consolidated Financial
Statements and Independent Accountants' Review Report
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MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1995 AND 1994
(Unaudited)
Three Months Nine Months
_________ _________ _________ ________
1995 1994 1995 1994
_________ _________ _________ ________
(in thousands, except per share amounts)
NET SALES $42,005 $50,652 $132,477 $135,100
COST OF SALES 39,032 38,011 115,120 109,797
_______ _______ _______ ________
GROSS PROFIT 2,973 12,641 17,357 25,303
SELLING, GENERAL
AND ADMINIS-
TRATIVE EXPENSES 2,298 2,886 8,624 8,387
_______ _______ _______ _______
675 9,755 8,733 16,916
OTHER OPERATING LOSS (36) (118) (23) (346)
_______ _______ _______ _______
INCOME FROM OPERATIONS 639 9,637 8,710 16,570
OTHER INCOME (LOSS) (138) 92 182 12
_______ _______ _______ _______
INCOME BEFORE INCOME
TAXES 501 9,729 8,892 16,582
PROVISION FOR INCOME
TAXES 203 3,645 3,601 6,218
_______ _______ _______ _______
NET INCOME $ 298 $ 6,084 $ 5,291 $10,364
======= ======= ======= =======
EARNINGS PER COMMON SHARE $.03 $.62 $.54 $1.06
==== ==== ==== =====
See Accompanying Note to Condensed Consolidated Financial
Statements and Independent Accountants' Review Report
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MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1995 AND 1995
(Unaudited)
1995 1994
______ ______
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,291 $ 10,364
Items not requiring (providing) cash:
Depreciation 5,623 4,819
Gain on sale of assets (205) (36)
Deferred income taxes (120)
Changes in:
Accounts receivable 841 (3,295)
Inventories (2,622) (796)
Prepaid expenses (204) (153)
Disbursements in excess of
demand deposit 387
Accounts payable (2,159) 178
Accrued expenses (1,707) (635)
Income taxes payable (2,068) 1,512
_______ ________
Net cash provided by
operating activities 3,177 11,838
_______ ________
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (28,648) (32,995)
(Purchase) sale of short-term
investments, net 14,505 (19,891)
Proceeds from sale of equipment 279 59
Proceeds from notes receivable 814
Payment received on note for sale of plant 518 5
_______ _______
Net cash used in
investing activities (13,346) (52,008)
_______ ________
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of
long-term debt 10,000 25,000
Principal payment on long-term debt (50)
Dividends paid (3,663) (3,663)
_______ ________
Net cash provided by
financing activities 6,337 21,287
_______ ________
DECREASE IN CASH AND CASH
EQUIVALENTS (3,832) (18,883)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 3,832 20,074
_______ ________
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 0 $ 1,191
======= ========
See Accompanying Note to Condensed Consolidated
Financial Statements and Independent Accountants' Review Report
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MIDWEST GRAIN PRODUCTS, INC.
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1995
(Unaudited)
NOTE: GENERAL
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements contain all
adjustments necessary to present fairly the Company's condensed
consolidated financial position as of March 31, 1995, and the
condensed consolidated results of its operations and its cash
flows for the periods ended March 31, 1995 and 1994, 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 NINE MONTHS ENDED MARCH 31, 1995
RESULTS OF OPERATIONS
General
_______
Sales and earnings for the third quarter of fiscal 1995 declined
significantly compared to these same results for the third
quarter of fiscal 1994. Lower 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 decrease. The drop in wheat
gluten volume resulted from reduced marketing opportunities due
to increased gluten imports from Europe. The high sales of wheat
gluten the Company experienced in the third quarter of fiscal
1994 resulted from an exceptionally large increase in demand
during that period. This situation was principally caused by
greatly increased requirements for gluten for use in fortifying
flour due to poor protein levels in domestic and non-domestic
wheat supplies. After a return to more normal crop conditions
this past summer, the U.S. market began experiencing a
substantial rise in imported wheat gluten from the European
Union, where wheat starch and gluten capacities underwent
sizeable increases. 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. Although the
Company 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 third quarter
were up significantly compared to the prior year's third quarter
amount. A significant 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. While market opportunities for food grade alcohol
have remained strong, the lower unit sales of this product in the
third quarter resulted from a change in the Company's alcohol
production mix, which was required to satisfy heightened customer
needs in the fuel market. The Company expects growth
opportunities in the fuel grade market to continue, but at a more
gradual rate due to the recent reversal of an Environmental
Protection Agency regulation requiring that renewable fuel
oxygenates such as grain-based ethanol play a larger role in
satisfying future Clean Air Act requirements in certain areas of
the country. The EPA regulation was rescinded by the U. S.
Circuit Court of Appeals for the District of Columbia on
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MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1995
April 28, several months after a suit contesting the EPA's
authority to issue the regulation was filed by two groups
representing the petroleum industry. 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 was
delayed by unanticipated mechanical equipment problems with two
new distillery feed driers. At the end of the quarter,
intermediate repairs to the driers were completed by the
equipment supplier. Since then, the Company has experienced
increased alcohol production levels. Production is expected to
improve further when final repairs to the equipment are completed
late this summer. Substantial improvements in operational
efficiencies should occur as a result.
The Company's unit sales of wheat starch in the third quarter
rose above the prior year's third 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, was rescheduled for completion
at the end of the fourth quarter. The postponement was prompted
by the delay in the distillery expansion. A planned 40% increase
in total gluten production capacity also was postponed from the
third quarter, principally due to weakened unit sales caused by
increased foreign competition. The rescheduling of this project
will be based on a return to greater stability in the gluten
market. While the Company believes unfavorable conditions,
namely reduced efficiencies and intense foreign competition, will
continue to have significant negative impact on results for the
current quarter, it expects gradual improvements to occur from
its projected higher alcohol capacities, and assuming a
continuance of strong demand for its alcohol products and wheat
starch.
Sales
_____
Grain products sales for the third quarter of fiscal 1995
decreased by approximately $8,647,000 below sales in the third
quarter of fiscal 1994. The decrease was principally due to
lower sales of vital wheat gluten, which fell nearly 50% as the
result of reduced marketing opportunities caused by a large
increase in gluten imports from Europe. An 18% increase in sales
of alcohol products compared to the prior year's third quarter
resulted from a significant jump in fuel alcohol volume. Sales
of food grade alcohol for beverage, industrial and commercial
applications declined, as a sizeable percentage of the Company's
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MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1995
alcohol production was shifted to the fuel category in response
to pre-established customer requirements. Sales of distillers'
feeds, a by-product of the alcohol production process, remained
approximately even with levels experienced in the third quarter
of fiscal 1994. A continued increase in sales of modified wheat
starches pushed total wheat starch sales in this year's third
quarter almost 7% above the prior year's third quarter level.
The majority of the decrease in grain products sales for the
first nine-month period of fiscal 1995, amounting to
approximately $2,623,000, was experienced in the third quarter.
This mainly resulted from decreased volume sales of vital wheat
gluten due to increased foreign competition and a reduction in
market demand compared to the extraordinary demand experienced
during the same period a year ago. Changes in selling prices of
the Company's vital wheat gluten 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 third quarter of fiscal 1995 rose by
approximately $1 million above cost of sales in the same period
the preceding year. Increased maintenance and repair costs,
amounting to approximately $832,000, and increased energy costs
amounting to $410,000 were offset by decreased raw material costs
for grain. The higher maintenance and repair costs were mainly
due to work associated with the distillery expansion at the
Company's Pekin plant. Other manufacturing cost increases were
due to 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 nine
months of fiscal 1995 increased by approximately $5.3 million
over costs for the first nine months of fiscal 1994. The
majority of this increase was primarily due to volume increases
in the first quarter, as well as increased maintenance and repair
costs in the second and third quarters.
Selling, General and Administrative Expenses
____________________________________________
Selling, general and administrative expenses in the third quarter
of fiscal 1995 were down approximately $588,000 compared to the
same period the prior year. This principally was due to a
decrease of approximately $302,000 in the Company's management
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MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1995
bonus program accrual, and a decrease of approximately $265,000
in sales subject to commissions. The $237,000 increase of
expenses for the nine month period was primarily experienced
during the first quarter and was incurred generally throughout
the expense categories. 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 the result of the foregoing factors, net income in
the third quarter of fiscal 1995 declined to $298,000 from
$6,084,000 realized in the third quarter of fiscal 1994. Net
income for the first nine months of fiscal 1995 decreased to
$5,291,000 from $10,364,000 in the first nine months of fiscal
1994.
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MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1995
LIQUIDITY AND CAPITAL RESOURCES
The following table is presented as a measure of the Company's
liquidity and financial condition:
March 31, June 30,
1995 1994
_________ _________
(in thousands)
Cash, cash equivalents and
short-term investments $ 339 $ 4,171
Long-term liquid investments 14,504
Long-term debt 35,000 25,000
Working capital 28,404 22,151
While the Company's working capital position improved during the
nine month period, expenditures for plant additions, including
the Pekin expansion, totalled $28.6 million resulting in reduced
investments held for this purpose and operating cash balances and
increased borrowings. Higher inventory balances, primarily
increased quantities of milo, and increased income tax payments
during the first nine months also impacted short-term liquidity.
At March 31, 1995, the Company has amounts remaining to spend
under capital improvement projects totalling approximately $10.9
million. The expenditures in Pekin primarily relate to the new
wheat starch facilities and expansion of the gluten facilities.
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.
After borrowing $10 million on its lines of credit during the
third quarter, remaining available balances total $15 million.
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.
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PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
________________________________
(a) Exhibits
4(a) Copy of First Amended Line of Credit Loan
Agreement providing for the Issuance of a
Line of Credit Note in the amount of
$20,000,000.
4(b) Copy of Line of Credit Note Under First
Amended Line of Credit Loan Agreement
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 nine months
ended March 31, 1995.
27 Financial Data Schedule for the nine
months ended March 31, 1995.
(b) Reports on Form 8-K
The Company has filed no reports on Form 8-K
during the quarter ended March 31, 1995.
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.
5-9-95 By /s/ Ladd M. Seaberg
__________________________ ______________________________
Date Ladd M. Seaberg
President and Chief Executive
Officer
5-9-95 By /s/ Robert G. Booe
__________________________ ______________________________
Date Robert G. Booe, Vice President
and Chief Financial Officer
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