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, 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 February 1, 1996.
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Independent Accountants' Review Report............ 2
Condensed Consolidated Balance Sheets as of
December 31, 1995 and June 30, 1995............. 3
Condensed Consolidated Statements of Income for
the Three Months and Six Months Ended December 31, 1995
and 1994........................................ 5
Condensed Consolidated Statements of Cash Flows for
the Six Months Ended December 31, 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.................. 13
{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 December 31,
Certified 1995, and the related condensed consolidated statements
Public of income for the three month and six month periods ended
Accountants December 31, 1995 and 1994, and the related condensed consolidated
statements of cash flows for the six month periods ended December
31, 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
January 25, 1996
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,
1995 1995
----------- --------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 3,011 $ 460
Receivables 23,680 21,550
Notes receivable 919
Inventories 15,737 14,690
Prepaid expenses 871 560
Deferred income taxes 875 875
Income taxes receivable 1,808 2,338
------ ------
Total Current Assets 45,982 41,392
------ ------
PROPERTY AND EQUIPMENT, At cost 208,894 206,336
Less accumulated depreciation 78,000 71,424
------ ------
130,894 134,912
------- -------
OTHER ASSETS 433 445
------- -------
$177,309 $176,749
======== ========
See Accompanying Note to Condensed Consolidated
Financial Statements
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MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(In Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, June 30,
1995 1995
------------ --------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 10,465 $ 7,807
Accrued expenses 4,398 6,630
---------- ---------
Total Current Liabilities 14,863 14,437
---------- ---------
LONG-TERM DEBT 40,933 38,908
---------- ---------
POST-RETIREMENT BENEFITS 5,740 5,449
---------- ---------
DEFERRED INCOME TAXES 5,327 5,327
---------- ---------
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 6,715 6,715
9,765,172 shares
Additional paid-in capital 2,485 2,485
Retained earnings 101,242 103,424
-------- --------
110,446 112,628
-------- --------
$177,309 $176,749
======== ========
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, 1995 AND 1994
(Unaudited)
Three Months Six Months
--------------- --------------
1995 1994 1995 1994
------ ------ ------ ------
(in thousands, except per share amounts)
NET SALES $55,751 $44,488 $102,911 $90,472
COST OF SALES 52,132 37,754 100,229 76,088
-------- -------- --------- --------
GROSS PROFIT 3,619 6,734 2,682 14,384
SELLING, GENERAL AND ADMINIS-
TRATIVE EXPENSES 2,377 2,897 4,840 6,326
--------- --------- --------- --------
1,242 3,837 (2,158) 8,058
OTHER OPERATING INCOME 54 9 53 13
-------- --------- --------- --------
INCOME (LOSS) FROM OPERATIONS 1,296 3,846 (2,105) 8,071
OTHER INCOME (LOSS)
Interest (797) (15) (1,492) (15)
Other (180) (72) (9) 335
--------- --------- --------- --------
INCOME (LOSS) BEFORE INCOME TAXES 319 3,759 (3,606) 8,391
PROVISION (CREDIT) FOR INCOME TAXES 124 1,522 (1,424) 3,398
--------- -------- --------- -------
NET INCOME (LOSS) $ 195 $ 2,237 $ (2,182) $ 4,993
========= ======== ========= ========
EARNINGS (LOSS) PER COMMON SHARE $.02 $.23 $(.22) $.51
==== ==== ====== ====
See Accompanying Note to Condensed Consolidated
Financial Statements
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MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(Unaudited)
1995 1994
-------- ---------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (2,182) $ 4,993
Items not requiring (providing) cash:
Depreciation 6,677 3,527
Gain on sale of assets (30) (248)
Changes in:
Accounts receivable (2,130) (1,999)
Inventories (1,047) (390)
Prepaid expenses and other assets (299) (167)
Disbursements in excess of demand
deposit cash 3,553
Accounts payable 4,054 (163)
Accrued expenses (720) (1,809)
Income taxes payable 530 (2,001)
-------- --------
Net cash provided by operating
activities 4,853 5,296
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (4,093) (21,824)
Purchase of short-term investments 14,531
Proceeds from sale of equipment 68 264
Payment received on note for sale of plant 919 343
-------- ---------
Net cash used in investing activities (3,106) (6,686)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt 6,000
Principal payments on long-term debt (3,975)
Dividends paid (1,221) (2,442)
-------- --------
Net cash provided by (used in) financing
activities 804 (2,442)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,551 (3,832)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 460 3,832
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,011 $ 0
======== ==========
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, 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 December 31, 1995, and
the condensed consolidated results of its operations and its cash flows for the
periods ended December 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 SIX MONTHS ENDED DECEMBER 31, 1995
RESULTS OF OPERATIONS
General
While the Company's earnings in the second quarter of fiscal 1996 decreased
compared to the same period a year ago, they represent a substantial improvement
over the current year's first quarter loss. The improvement was largely the
result of an intense cash management program to reduce costs and improve cash
flow, including reductions in management and administrative compensation and
benefits; strategies to maximize operating results; and increased sales of
premium wheat starch, alcohol products and alcohol by-products.
The decline in earnings compared to the prior year's second quarter was due
primarily to unusually high raw material costs for grain in the face of lower
selling prices for wheat gluten and low prices for fuel alcohol. Fuel alcohol
prices remained flat due to increased capacities throughout the industry 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 compared to a
year ago 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. A measure that
should help rectify this problem has been included in a grains agreement being
negotiated between the U.S. and E.U. The agreement is expected to be fully
ratified during the third quarter of fiscal 1996. It states that "If the market
share of European Community origin wheat gluten exports into the Untied States
increases in comparison to their average 1990-1992 market share, the European
Commission and the United States government shall consult with a view to finding
a mutually acceptable solution." Until the intensity of competitive conditions
subside, pursuant to the grains agreement or otherwise, 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 second quarter rose significantly above the
prior year's second 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. 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 second quarter increased
substantially above the prior year's second quarter. The increase resulted from
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MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1995
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.
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.
Sales
Net sales for the second quarter of fiscal 1996 increased by approximately $11.3
million above sales in the second quarter of fiscal 1995. The increase was
principally due to a higher sales of premium wheat starch, and significant
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 56% 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 54%
compared to a year ago. These increases were partially offset by a 23% decrease
in sales of wheat gluten due to intense competitive pressures from European
gluten producers. Net sales for the first six months of fiscal 1996 increased by
approximately $12.4 million. The vast majority of this increase occurred in the
second quarter for the reasons cited above.
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 and second quarters of fiscal 1996, grain costs
increased to exceptionally high levels in the face of competition from foreign
exporters of vital wheat gluten and a relatively flat market for fuel grade
alcohol. The combination of these factors significantly restricted the ability
of the Company to adjust the price of its gluten and fuel grade alcohol to
compensate for the high grain costs in the first six months of fiscal 1996.
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MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1995
Cost of Sales
The cost of sales in the second quarter of fiscal 1996 increased by
approximately $14.4 million above the costs of sales in the second quarter of
fiscal 1995. The principal cause was a $10.2 million increase in raw material
costs for grain. Other manufacturing cost increases principally included higher
operating costs associated with increased energy requirements and depreciation
resulting from the Company's expanded production facilities at its Pekin,
Illinois plant. These increases were partially offset by lower maintenance and
repair costs, which returned to more normal levels following the completion of
the expansion project in this year's first quarter.
The cost of sales for the first six months of fiscal 1996 increased by
approximately $24 million over cost of sales for the first six months of fiscal
1995. This was due largely to an increase of approximately $20.8 million in raw
material costs. Other factors included the increased operating costs as
experienced in the second quarter partially offset by decreased repair and
maintenance costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses in the second quarter of fiscal
1996 were down approximately $520,000 compared to the same period the prior
year. This principally was due to a decrease of almost $457,000 resulting from
reductions in compensation, 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. Selling, general and administrative expenses for the first six
months of fiscal 1996 decreased by approximately $1.5 million, largely as the
result of compensation and benefit reductions.
Other Expense
Interest expense increased substantially as the capital expansion at the Pekin
plant came on line during the second half of fiscal 1995. Prior to that time,
the interest incurred was primarily capitalized as a part of that expansion.
The consolidated effective income tax rate is consistent for all periods.
The general effects of inflation were minimal.
Net Income
As the result of the foregoing factors, the Company experienced net income of
$195,000 in the second quarter of fiscal 1996 compared to net income of
$2,237,000 in the second quarter of fiscal 1995. A first quarter net loss of
$2,377,000 more than offset the first quarter income, resulting in a net loss of
$2,182,000 for the first six months of fiscal 1996. For the first six months of
fiscal 1995, the Company had net income of $4,993,000.
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MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1995
LIQUIDITY AND CAPITAL RESOURCES
The following table is presented as a measure of the Company's liquidity and
financial condition:
December 31, June 30,
1995 1995
----------- --------
(in thousands)
Cash and cash equivalents $ 3,011 $ 460
Note payable and long-term debt 40,933 38,908
Working capital 31,119 26,955
The cost management program implemented by the Company at the end of the first
quarter bore fruit during the second quarter, resulting in a positive cash flow.
Cash provided by operations and increased borrowings on long-term debt improved
working capital. Increased inventory requirements caused by a high level of fuel
grade alcohol to be sold over the remaining winter months and the escalation of
grain costs continued to impact cash flow. Due to the current downturn in
operations and cash flow needs, dividends for the first and second quarters were
suspended.
At December 31, 1995, the Company has only $1.2 million to spend on capital
improvement projects, primarily relating to improvements and replacements of
existing equipment.
The Company had approximately $18.6 million available under existing lines of
credit at December 31, 1995.
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 Consent and Waiver Agreement between Principal
Mutual Life Insurance Company and the Company dated as
of January 20, 1996.
4(b) Copy of Consent and Waiver Agreement between Commerce
Bank of Kansas City, N.A., and the company dated as of
February 2, 1996.
11(a) Copy of Midwest Grain Products, Inc. Stock Incentive
Plan of 1996.
11(b) Copy of Midwest Grain Products, Inc. 1996 Stock Option
Plan for Outside Directors.
(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, 1995 (without financial statements).
(27) Financial Data Schedule for the six months ended
December 31, 1995.
(b) Reports on Form 8-K
The Company has filed no reports on Form 8-K during the quarter
ended December 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.
February 14, 1996 S/Ladd M. Seaberg
_______________________________________ By____________________________
Date Ladd M. Seaberg
President and Chief Executive Officer
February 14, 1996 s/Robert G. Booe
_______________________________________ By_____________________________
Date Robert G. Booe, Vice
President and Chief Financial Officer
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