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 September 30, 1995 - Commission File No. 0-17196
MIDWEST GRAIN PRODUCTS, INC.
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(Exact Name of Registrant as Specified in Its Charter)
KANSAS 48-0531200
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(State or Other Jurisdiction of IRS Employer
Incorporation or Organization) Identification No.
1300 Main Street, Atchison, Kansas 66002
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(Address of Principal Executive Offices and Zip Code)
(913) 367-1480
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(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
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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 November 1, 1995.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Independent Accountants' Review Report.......................... 2
Condensed Consolidated Balance Sheets as of
September 30, 1995 and June 30, 1995............................ 3
Condensed Consolidated Statements of Operations for
the Three Months Ended September 30, 1995 and 1994.............. 5
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended September 30, 1995 and 1994.............. 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.......................... 11
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{LOGO}
Independent Accountants' Review Report
Baird, Kurtz &
Dobson
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 September
Certified 30, 1995, and the related condensed consolidated statements
Public of operations for the three month periods ended September 30,
Accountants 1995 and 1994, and the related condensed consolidated statements
of cash flows for the three month periods ended September 30,
1995 and 1994. 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,
1995, 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 4, 1995, 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,
1995, 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
November 3, 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
September 30, June 30,
1995 1995
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(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 339 $ 460
Receivables 22,720 21,550
Notes receivable 748 919
Inventories 16,903 14,690
Prepaid expenses 890 560
Deferred income taxes 875 875
Income taxes receivable 5,114 2,338
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Total Current Assets 47,589 41,392
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PROPERTY AND EQUIPMENT, At cost 207,664 206,336
Less accumulated depreciation 74,686 71,424
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132,978 134,912
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OTHER ASSETS 445 445
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$181,012 $176,749
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See Accompanying Notes to Condensed Consolidated
Financial Statements
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MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(In Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, June 30,
1995 1995
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(Unaudited)
CURRENT LIABILITIES
Note payable-bank $ 2,000
Accounts payable 9,885 $ 7,807
Accrued expenses 3,048 6,630
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Total Current Liabilities 14,933 14,437
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LONG-TERM DEBT 44,908 38,908
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POST-RETIREMENT BENEFITS 5,593 5,449
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DEFERRED INCOME TAXES 5,327 5,327
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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 101,047 103,424
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110,251 112,628
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$181,012 $176,749
======== ========
See Accompanying Notes to Condensed Consolidated
Financial Statements
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MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
1995 1994
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(in thousands, except
per share amounts)
NET SALES $47,160 $45,984
COST OF SALES 48,097 38,334
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GROSS PROFIT (LOSS) (937) 7,650
SELLING, GENERAL AND ADMINIS-
TRATIVE EXPENSES 2,463 3,429
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(3,400) 4,221
OTHER OPERATING INCOME 1 4
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INCOME (LOSS) FROM OPERATIONS (3,401) 4,225
OTHER INCOME (EXPENSE) (524) 407
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INCOME (LOSS) BEFORE INCOME TAXES (3,925) 4,632
PROVISION (CREDIT) FOR INCOME TAXES (1,548) 1,876
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NET INCOME (LOSS) $ (2,377) $ 2,756
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EARNINGS (LOSS) PER COMMON SHARE $ (.24) $ .28
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See Accompanying Notes to Condensed Consolidated
Financial Statements
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MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
1995 1994
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(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (2,377) $ 2,756
Items not requiring (providing) cash:
Depreciation 3,292 1,732
Gain on sale of equipment (2) (49)
Changes in:
Accounts receivable (1,171) (2,717)
Inventories (2,213) 2,599
Prepaid expenses (330) (173)
Accounts payable 3,331 (1,474)
Accrued expenses (2,217) (2,068)
Income taxes receivable (2,776) (173)
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Net cash provided by (applied to)
operating activities (4,463) 433
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CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (2,631) (9,602)
Proceeds from sale of equipment 22 65
Sale of short-term investments 8,883
Payment received on note for sale of plant 172 135
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Net cash used in investing activities (2,437) (519)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net advances on notes payable 2,000
Net proceeds from issuance of
long-term debt 6,000
Dividends paid (1,221) (1,221)
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Net cash provided by (used in)
financing activities 6,779 (1,221)
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DECREASE IN CASH AND
CASH EQUIVALENTS (121) (1,307)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 460 3,832
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CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 339 $ 2,525
======= ========
See Accompanying Notes to Condensed Consolidated
Financial Statements
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MIDWEST GRAIN PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1995
(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 September 30, 1995, and the
condensed consolidated results of its operations and its cash flows for the
periods ended September 30, 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 ENDED SEPTEMBER 30, 1995
RESULTS OF OPERATIONS
GENERAL
The Company experienced a $3.9 million pre-tax loss in the first quarter of
fiscal 1996 compared to a $4.6 million pre-tax gain in the same quarter in
fiscal 1995. This was due primarily to unusually high raw material costs for
grain in the face of lower selling prices for wheat gluten and fuel alcohol.
Fuel alcohol prices were down slightly due to increased capacities and lower
gasoline prices. Wheat gluten prices not only failed to adjust to the rising
grain costs, as is normally the case, but actually declined due to
significantly increased gluten imports from the European Union. Profits from
their highly subsidized and protected wheat starch business have allowed
European producers to dump their surpluses of gluten, a co-product, in the
United States at prices below U. S. production costs. 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 is actively
seeking measures that would rectify this problem by creating a more level
playing field. The issue is presently being addressed by the office of the
U.S. Trade Representative as part of a comprehensive trade discussion with
European Union officials. The outcome of this discussion is uncertain and,
until the intensity of competitive conditions subsides and wheat costs
substantially decrease, the Company does not anticipate utilizing the 40%
increase in gluten production capacity that was completed at its Pekin,
Illinois plant in the latter part of the first quarter.
As a result of the Company's recent distillery expansion in Pekin, its unit
sales of alcohol products in the first quarter rose noticeably compared to the
prior year's first quarter amount. Increases occurred in unit sales of both
food grade alcohol, which is sold for beverage, industrial and commercial
applications, and fuel grade alcohol, which is sold as an octane additive and
oxygenate commonly known as ethanol. The increase in the food grade category
resulted from higher unit sales of beverage alcohol. Unit sales of industrial
alcohol were approximately even with last year's first quarter amount. Demand
in the food grade markets remains strong. Therefore, the Company plans to
continue to maximize production in this category, as market prices for fuel
grade alcohol remain depressed in spite of higher grain costs.
The Company's unit sales of wheat starch in the first quarter increased
substantially above the prior year's first quarter. The increase resulted from
higher volumes of unmodified, modified and specialty wheat starches, which was
made possible by a 70% increase in the Company's total starch production
capacity. Completion of the additional capacity occurred this past July in
Pekin and greatly improves the Company's ability to meet current and future
increases in demand for wheat starch.
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MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
THREE MONTHS ENDED SEPTEMBER 30, 1995
While the Company expects higher raw material costs for grain and intense
foreign competition to continue having a negative impact on results during much
of fiscal 1996, it believes it is in an excellent position to realize
significant growth with a return to more favorable market conditions and lower
grain prices. Additionally, the Company has implemented widespread measures to
reduce costs and improve cash flow in response to the negative conditions it
currently is experiencing.
SALES
Net sales for the first quarter of fiscal 1996 increased by approximately
$1,176,000 above sales in the first quarter of fiscal 1995. The increase was
principally due to a 14% jump in sales of premium wheat starch, and substantial
increases in sales of alcohol products and alcohol by-products, the latter
consisting mainly of distillers feeds. The rise in wheat starch sales resulted
from strengthened market demand and the Company's ability to meet this demand
with its increased production capacity. A 22% increase in total alcohol sales
resulted from strengthened demand for food grade beverage and industrial
alcohol and higher sales of fuel grade alcohol. Sales of distillers feed
climbed 31% compared to a year ago. These increases were partially offset by a
33% decrease in sales of wheat gluten due to intense competitive pressures from
European gluten producers. Changes in selling prices of the Company's vital
wheat gluten normally 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. In the first quarter of fiscal 1996,
grain costs increased to exceptionally high levels in the face of competition
from foreign exporters of vital wheat gluten and relatively flat markets for
fuel grade alcohol and poor markets for distillers feeds. The combination of
these factors significantly restricted the ability of the Company to adjust the
price of its gluten, fuel grade alcohol and distillers feeds to compensate for
the high grain costs.
COST OF SALES
The cost of sales in the first quarter of fiscal 1996 increased by
approximately $9,763,000 above the cost of sales in the first quarter of fiscal
1995. The principal cause was a $10.6 million increase in raw material costs
for grain. Other manufacturing costs increases were due to higher maintenance
and repair costs which were associated mainly with work on expanded production
facilities at the Company's Pekin, Illinois plant, equipment rental and
depreciation of buildings and equipment.
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MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
THREE MONTHS ENDED SEPTEMBER 30, 1995
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses in the first quarter of fiscal
1996 were down approximately $966,000 compared to the same period the prior
year. This principally was due to a decrease of almost $800,000 resulting from
reductions in compensation, commissions and accruals for the Company's
management and employee incentive programs. These and other reductions helped
to more than offset increases which were incurred in a minor segment of the
expense categories.
The consolidated effective income tax rates were consistent for the periods.
The general effects of inflation were minimal.
NET INCOME
As a result of the foregoing factors, the Company experienced a pre-tax loss of
$3,925,000 in the first quarter of fiscal 1996. After a credit of $1,548,000
for income taxes, the resulting net loss was $2,377,000 compared to net income
of $2,756,000 in the first quarter of fiscal 1995.
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MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995
LIQUIDITY AND CAPITAL RESOURCES
The following table is presented as a measure of the Company's liquidity and
financial condition:
September 30, June 30,
1995 1995
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(in thousands)
Cash, cash equivalents $ 339 $ 460
Note payable and long-term debt 46,908 38,908
Working capital 32,656 26,955
The Company's improvement in working capital is primarily due to increased
borrowings of long-term debt. The loss for the current quarter combined with
increased inventories caused a negative cash flow from operations. The
increased inventories were caused by a high level of fuel grade alcohol to be
sold over the late fall and winter months and higher unit costs for raw
materials in inventory. Due to the current downturn in operations and cash flow
needs, dividends for the first quarter were suspended.
At September 30, 1995, the Company has only $2.0 million to spend on capital
improvement projects, primarily relating to improvements and replacements of
existing equipment.
The Company has approximately $10 million available under existing lines of
credit.
Management believes the available lines of credit, combined with existing
working capital and working capital to be generated from future operations,
will allow the Company to complete its capital improvement projects and meet
its 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 Second Amended Line of Credit Loan Agreement
providing for the Issuance of a Line of Credit Note in the
amount of $27,000,000.
4(b) Copy of Line of Credit Note Under Second 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 three months ended
September 30, 1995 (without financial statements).
(27) Financial Data Schedule for the quarter ended September
30, 1995.
(b) Reports on Form 8-K
The Company has filed no reports on Form 8-K during the quarter
ended September 30, 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.
November 13, 1995 /s/Ladd M. Seaberg
- ---------------------------------------- By --------------------------------
Date Ladd M. Seaberg
President and
Chief Executive Officer
November 13, 1995 /s/Robert G. Booe
- ---------------------------------------- By --------------------------------
Date Robert G. Booe, Vice President
and Chief Financial Officer
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