<PAGE>
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.
------------------------------------------------------------
(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 November 1, 1995.
<PAGE>
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
------------- --------
(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
-------- -------
Total Current Assets 47,589 41,392
-------- -------
PROPERTY AND EQUIPMENT, At cost 207,664 206,336
Less accumulated depreciation 74,686 71,424
-------- --------
132,978 134,912
-------- ------
OTHER ASSETS 445 445
-------- --------
$181,012 $176,749
======== ========
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
------------- --------
(Unaudited)
CURRENT LIABILITIES
Note payable-bank $ 2,000
Accounts payable 9,885 $ 7,807
Accrued expenses 3,048 6,630
-------- ---------
Total Current Liabilities 14,933 14,437
-------- ---------
LONG-TERM DEBT 44,908 38,908
-------- ---------
POST-RETIREMENT BENEFITS 5,593 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
9,765,172 shares 6,715 6,715
Additional paid-in capital 2,485 2,485
Retained earnings 101,047 103,424
--------- --------
110,251 112,628
--------- --------
$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
--------- ---------
(in thousands, except
per share amounts)
NET SALES $47,160 $45,984
COST OF SALES 48,097 38,334
------- -------
GROSS PROFIT (LOSS) (937) 7,650
SELLING, GENERAL AND ADMINIS-
TRATIVE EXPENSES 2,463 3,429
------- -------
(3,400) 4,221
OTHER OPERATING INCOME 1 4
------- -------
INCOME (LOSS) FROM OPERATIONS (3,401) 4,225
OTHER INCOME (EXPENSE) (524) 407
------- -------
INCOME (LOSS) BEFORE INCOME TAXES (3,925) 4,632
PROVISION (CREDIT) FOR INCOME TAXES (1,548) 1,876
------- -------
NET INCOME (LOSS) $ (2,377) $ 2,756
======= =======
EARNINGS (LOSS) PER COMMON SHARE $ (.24) $ .28
======= =======
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
-------- ------
(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)
------- --------
Net cash provided by (applied to)
operating activities (4,463) 433
------- --------
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
------- -------
Net cash used in investing activities (2,437) (519)
------- -------
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)
------- --------
Net cash provided by (used in)
financing activities 6,779 (1,221)
------- --------
DECREASE IN CASH AND
CASH EQUIVALENTS (121) (1,307)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 460 3,832
-------- --------
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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<PAGE>
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
------------- ----------
(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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<PAGE>
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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<PAGE>
EXHIBIT 99
EXHIBIT INDEX
Exhibit
Number Description
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.
<PAGE>
Exhibit (4)(a)
SECOND AMENDED LINE OF CREDIT LOAN AGREEMENT
THIS SECOND AMENDED LINE OF CREDIT LOAN AGREEMENT (the "Agreement"),
executed this ------- day of September , 1995, by and between MIDWEST GRAIN
PRODUCTS, INC., a corporation organized under the laws of the state of Kansas
and having its principal place of business in Atchison, Kansas ("Borrower"),
and Commerce Bank, N.A., a national banking association, having its principal
place of business in Kansas City, Missouri ("Bank").
WHEREAS, Borrower desires to establish a line of credit with Bank to
provide working capital and capital expenditures; and
WHEREAS, Bank desires to extend such line of credit upon the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained in this Agreement, the parties agree as follows:
ARTICLE I
Line of Credit
Section 1.1. GENERAL TERMS. Subject to the terms of this Agreement, Bank will
lend Borrower, from time to time, until the termination hereof, such sums as
Borrower may request, in minimum increments of $100,000, which shall not exceed
in the aggregate principal amount at any one time outstanding the sum of Twenty
Seven Million and no/100 Dollars ($27,000,000.00) (the "Line of Credit Loan").
Bank's obligation to lend hereunder may be terminated by Bank at any time
in Bank's sole discretion, or if no such termination is made, then on October
1, 1997. Each advance under the Line of Credit Loan is at the option of Bank
and Bank has no obligation to make advances. In addition this Agreement shall
be deemed to automatically terminate if the occurrence of an event pursuant to
Section 4.1 causes the Line of Credit Note to become immediately due and
payable. The inclusion of monthly interest payments, events of default and an
alternate maturity date does not alter the discretionary nature of the line of
credit.
Section 1.2. COMMITMENT FEE. Borrower shall pay a fee equal to 1/4% per annum
on the unused portion of the Line of Credit Loan. Such fee shall be paid
quarterly in arrears.
Section 1.3. NOTE. Borrower agrees to execute and deliver to Bank the Line of
Credit Note to evidence the Line of Credit Loan. Each advance made thereunder,
together with each repayment made by Borrower, shall be evidenced by a notation
dated the date of the advance or repayment and recorded by Bank on the schedule
appearing on the reverse side of or attached to the Line of Credit Note. The
aggregate unpaid principal amount of the Line of Credit Note set forth on the
schedule shall be conclusively presumed to reflect the amounts advanced and
repaid, and the outstanding principal balance of the Line of Credit Loan.
Section 1.4. PRINCIPAL PAYMENT. In the event of a default as defined in
Section 4.1 or on October 1, 1997, the principal balance of the Line of Credit
Note together with all accrued interest shall become immediately due and
payable.
<PAGE>
Section 1.5. INTEREST. If the outstanding balance is less than $500,000, the
line of credit shall bear interest at a per annum rate equal to the Prime Rate.
If the outstanding balance is $500,000 or greater, the line of credit shall
bear interest at the greater of either (1) the Prime Rate, minus 1%, or (2) the
Federal Funds Rate plus 1.50%.
Interest will be payable monthly, in arrears, and at maturity, whether by
acceleration or otherwise. Interest will be computed on the actual days
outstanding based upon a year consisting of 360 days.
"Prime Rate" means the Prime Rate of interest established from time to time by
Commerce Bank and designated as such for its internal convenience, and no
representation is made that the Prime Rate is the best, the lowest or a favored
rate of interest. The rate of interest, if tied to the Prime Rate, shall
change with and be effective on the date of each change in the Prime Rate.
"Federal Funds Rate" means the effective Federal Funds Rate as quoted by the
Federal Reserve Bank of New York on a daily basis. The Federal Funds Rate is
adjusted daily.
Section 1.6. PURPOSE. Borrower represents the purpose of the Line of Credit
Loan is to provide short term working capital and capital expenditures.
Section 1.7. DISBURSEMENTS. Bank will credit the proceeds of any borrowing
hereunder to Borrower's deposit account maintained with Bank.
Section 1.8. CONDITION OF LOANS. Any advance under the Line of Credit Note is
subject to the condition precedent that no event of default described in
Section 4.1 shall have occurred, and that the Line of Credit has not been
terminated. Each request for a borrowing under the Line of Credit Note shall
be deemed to constitute a representation by Borrower at the time of the request
that no event of default as defined in Section 4.1 exists or is imminent and
that the representations and warranties of Borrower contained in this Agreement
are true in all material respects on or as of the date of borrowing.
ARTICLE II
Warranties and Representations
Section 2.1. GOOD STANDING. The Borrower is a corporation duly organized and
in good standing, under the laws of the state of Kansas, and has the power to
own its property and to carry on its business and is in good standing in each
jurisdiction in which the character of the properties owned by it or in which
the transaction of its business makes such qualifications necessary.
Section 2.2. AUTHORITY. The Borrower has full power and authority to enter
into this Agreement, to make the borrowing hereunder, and to execute and
deliver the Line of Credit Note, all of which has been duly authorized by all
proper and necessary corporate action. No consent or approval of stockholders
is required as a condition to the validity of this Agreement or the Line of
Credit Loan.
Section 2.3. BINDING AGREEMENT. This Agreement constitutes, and the Line of
Credit Note when issued and delivered pursuant hereto, for value received, will
constitute, the valid and legally binding obligations of the Borrower in
accordance with all stated terms.
Section 2.4. LITIGATION. There are no proceedings pending, or, so far as the
officers of the Borrower know threatened, which will materially adversely
affect the financial condition or operations of the Borrower or any subsidiary.
<PAGE>
Section 2.5. NO CONFLICTING AGREEMENTS. There are no charter, bylaw, or
preference stock provisions of the Borrower and no provision of any existing
mortgage, indenture, contract or agreement binding on the Borrower or affecting
its property, which would conflict with or in any way prevent the execution,
delivery, or carrying out of the terms of this Agreement and of the Line of
Credit Note.
Section 2.6. TAXES. The Borrower has filed all Federal, State and other tax
and similar returns and has paid or provided for the payment of all taxes and
assessments due thereunder including, without limitation, all withholding, FICA
and franchise taxes.
Section 2.7. FINANCIAL STATEMENTS. There have been no material changes in the
Borrower's financial statements dated June 30, 1995.
ARTICLE III
Covenants
So long as this Agreement remains in effect or as long as there is any
principal or interest due on the Line of Credit Note, Borrower agrees as
follows:
Section 3.1. Comply with all Company Covenants as defined and contained in
Section 5 of the Note Agreement dated as of August 1, 1993, between Borrower
and the Principal Mutual Life Insurance Company (the "Principal Agreement")
including, but not limited to, the following:
(a) CURRENT RATIO. Maintain a Current Ratio of not less than 1.50 to
1.00.
(b) CONSOLIDATED TANGIBLE NET WORTH. Maintain Consolidated Tangible Net
Worth at an amount not less than THE GREATER OF (i) $70,000,000 and (ii) the
sum of $70,000,000 plus 50% of Consolidated Net Income for the period from and
after March 31, 1993 to the date of determination thereof (considered as a
single accounting period).
(c) FUNDED DEBT. Not permit Consolidated Funded Debt to exceed 60% of
total capitalization.
(d) DEBT/WORTH. Maintain a ratio of Debt to Tangible Net Worth of not
more than 2.50 to 1.00.
(e) FIXED CHARGES COVERAGE RATIO. Maintain a ratio of Net Income
Available for Fixed Charges to Fixed Charges of not less than 1.50 to 1.00.
The Company Covenants as of the date of this Agreement shall survive any
modification or termination of the Principal Agreement.
Section 3.2 Promptly pay all taxes, assessments and other government charges
(unless such payments are being contested in good faith).
Section 3.3 Maintain insurance on all its properties in such amounts and
against such hazards as is customary in Borrower's industry.
Section 3.4 Maintain its books and records and account for financial
transactions in accordance with generally accepted accounting principals.
Section 3.5 Borrower shall furnish Commerce Bank with the following
information:
<PAGE>
(a) Its annual audited financial statement within 90 days of its fiscal
year-end, in a form and prepared by a certified public accounting firm
acceptable to Commerce Bank;
(b) Its quarterly financial statements within 45 days after the end of
each quarter; and
(c) Such other information as Commerce Bank may reasonably request from
time to time.
ARTICLE IV
Defaults
Section 4.1. EVENTS OF DEFAULT. The entire unpaid balance of the Line of
Credit Note shall become immediately due and payable without demand,
presentment, notice or protest of any kind (all of which are expressly waived),
upon the happening of any of the following events of default:
(a) Nonpayment of any interest or any principal payment owing under the
Line of Credit Note whether at maturity or otherwise; or
(b) If any certificate, statement, representation, warranty or audit
furnished by or on behalf of the Borrower in connection with this Agreement,
including those contained herein, or as an inducement by Borrower to enter
into, modify, extend, or renew this Agreement shall prove to be false in any
material respect, or if Borrower shall have omitted the listing of a
substantial contingent or unliquidated liability or claim against Borrower or,
if on the date of execution of this Agreement there shall have been any
materially adverse change in any of the facts disclosed by any such
certificate, statement, representation, warranty or audit, which change shall
not have been disclosed by Borrower to Bank at or prior to the time of
execution; or
(c) If Borrower shall default in the due performance or observance of any
covenant undertaken by it under this Agreement; or
(d) Default in the performance of the obligations of Borrower pursuant to
any other note or agreement binding on Borrower including, but not limited to
the Principal Agreement; or
(e) Borrower shall be adjudicated a bankrupt, or make a general
assignment for the benefit of its creditors, or there are instituted by or
against Borrower any type of bankruptcy proceedings or any proceeding for the
liquidation or the termination of Borrower's affairs, or the appointment of a
receiver or trustee for Borrower or for any of Borrower's assets, or a properly
filed petition for Borrower's reorganization under the Bankruptcy Code or
otherwise is approved, or Borrower files a petition for arrangement under
Chapter 11 of the Bankruptcy Code or any similar statute.
(f) Any judgment or judgments, writ or writs, or warrant or warrants of
attachment, or any similar process or processes shall be entered or filed
against the Borrower or any Subsidiary or against any of their respective
property or assets and remain unstayed and undischarged for a period of 60 days
from the date of its entry.
<PAGE>
Section 4.2. REMEDIES. If any event of default occurs, Bank may resort to any
remedy existing at law or in equity for the collection of the Line of Credit
Note and enforcement of the covenants and provisions of this Agreement. Bank's
resort to any remedy shall not prevent the concurrent or subsequent employment
of any other remedy.
Section 4.3. WAIVER. Any waiver of an event of default by Bank shall not
extend to or affect any subsequent default. No failure or delay by Bank in
exercising any right hereunder shall operate as a waiver nor shall any single
or partial exercise of any right preclude any other right hereunder.
ARTICLE V
Miscellaneous
Section 5.1. AMENDMENTS. This Agreement may be amended or modified in whole
or in part at anytime, if in writing and signed by the parties. Bank may
further consent in writing, or give written waiver to any covenant or event
which might otherwise create a default.
Section 5.2. DELAY, WAIVER. No omission or delay on the part of Bank in
exercising any right, power, or privilege hereunder shall impair or operate as
a waiver thereof; nor shall any single or partial exercise or any right, power,
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power, or privilege. No waiver by Bank will be
valid unless in writing and signed by Bank and then only to the extent
specified therein. The rights and remedies herein expressly specified are
cumulative and not exclusive of any rights or remedies which Bank would
otherwise have.
Section 5.3. BANK. Whenever in this Agreement reference is made to the Bank,
such term shall be deemed for the purpose of benefits, powers, and privileges
hereunder to include any firm, person, or corporation who may be the holder
from time to time of the Note issued hereunder or a participation therein.
Section 5.4. GOVERNING LAW. This Agreement and the Line of Credit Note shall
be construed and interpreted in accordance with the laws of the State of
Missouri.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
BORROWER:
MIDWEST GRAIN PRODUCTS, INC.
By: /s/ Ladd M. Seaberg
Title: President & C.E.O.
By: /s/ Robert G. Booe
Title: V.P. C.F.O.
BANK:
COMMERCE BANK, N.A.
By: /s/ Frederick J. Marston
Title: Vice President
<PAGE>
<PAGE>
Exhibit (4)(b)
LINE OF CREDIT NOTE
$27,000,000 September _______, 1995
FOR VALUE RECEIVED, the undersigned, MIDWEST GRAIN PRODUCTS, INC., a Kansas
corporation ("Borrower") hereby promises to pay to the order of Commerce Bank
of Kansas City, N.A. ("Bank") at its offices in Kansas City, Missouri, the
aggregate unpaid principal amount and accrued interest of all borrowings
hereunder. The aggregate unpaid principal amount shall also become immediately
due and payable, without demand or further action on the part of Bank upon the
occurrence of an event of default as set forth in Section 4.1 of the Line of
Credit Loan Agreement, as amended, dated November 30, 1993 (the "Agreement").
Interest on this note shall be calculated on the actual number of days on the
basis of a year of 360 days. If the outstanding balance is less than $500,000,
the line of credit shall bear interest at a per annum rate equal to the Prime
Rate. If the outstanding balance is $500,000 or greater, the line of credit
shall bear interest at the greater of either (1) the Prime Rate, minus 1%, or
(2) the Federal Funds Rate plus 1.50%.
Interest will be payable monthly, in arrears, and at maturity, whether by
acceleration or otherwise, beginning October 1,1995, and on the first day of
each month thereafter. Interest will be computed on the actual days
outstanding based upon a year consisting of 360 days. If any interest payment
on this note shall become due and payable on a day which is not a business day
of Bank, payment shall be made on the next succeeding business day of Bank.
"Prime Rate" means the Prime Rate of interest established from time to time by
Commerce Bank and designated as such for its internal convenience, and no
representation is made that the Prime Rate is the best, the lowest or a favored
rate of interest. The rate of interest, if tied to the Prime Rate, shall
change with and be effective on the date of each change in the Prime Rate.
"Federal Funds Rate" means the effective Federal Funds Rate as quoted by the
Federal Reserve Bank of New York on a daily basis. The Federal Funds Rate is
adjusted daily.
So long as the Agreement has not been terminated, Borrower may, from the date
of this note through October 1, 1997 borrow, repay and reborrow sums, at any
one time outstanding, not to exceed $27,000,000. All advances and repayments
hereunder shall be endorsed on the reverse hereof (or an attached schedule) by
the Bank or holder, and between the undersigned and Bank, such endorsements and
the balances derived from such endorsements shall be conclusively presumed to
reflect the amounts advanced and repaid hereunder and the then outstanding and
unpaid balance of sums advanced or readvanced hereunder.
The undersigned hereby waives presentment, protest, demand and notice of
dishonor or default.
This note is issued pursuant to the terms of the Agreement, to which Agreement,
and any amendments thereto, reference is hereby made for a statement of the
terms and conditions under which this borrowing was made, and is to be repaid.
MIDWEST GRAIN PRODUCTS, INC.
By: /s/ Ladd M. Greenberg
Title: President & CEO
By: /s/ Robert G. Booe
Title: VP - CFO
<PAGE>
<PAGE>
EXHIBIT 20
Letter To Our Stockholders
November 9, 1995
Dear Stockholder:
I am encouraged by improvements we currently are experiencing in our
operational cash flow as the result of widespread cost-saving measures and
strategies. However, as anticipated in a previous announcement, our earnings
performance in the beginning months of fiscal 1996 has been severely affected
by a combination of exceptionally high raw material costs for grain, stiff
competition from European wheat gluten producers and softness in the fuel
alcohol market. As a result, we experienced a first quarter pre-tax loss of
almost $4,000,000. After the credit for income taxes, the resulting net loss
was $2,377,000, or $0.24 per share on sales of $47,160,000. For the first
quarter of fiscal 1995, we had net income of $2,756,000, or $0.28 per share on
sales of $45,984,000.
Prices for wheat, which we mill into flour and then process into vital
wheat gluten and premium wheat starch, have reached their highest levels since
1974. Our cost for wheat in this year's first quarter averaged $1.10 more per
bushel compared to the prior year's first quarter. Our costs for corn and
milo, which are used in our distillery operations, increased an average of 42
cents per bushel compared to a year ago.
The higher wheat prices put an additional squeeze on our ability to
compete cost effectively in the wheat gluten market, which continues to be
flooded by gluten imports from the European Union (E.U.). This tide of imports
is being sustained by a lopsided tariff structure and government incentive
programs which greatly benefit E.U. wheat gluten and wheat starch producers.
These inequities presently are being addressed by the office of U.S. Trade
Representative Mickey Kantor. To help keep this issue a priority, I ask you to
assist the efforts of our employees and many others, including several U.S.
Senators and Representatives, by writing to Ambassador Kantor and urging him to
level the playing field. His address is: Office of the U.S. Trade
Representative, 600 17th Street N.W., Washington, D.C. 20506.
In the meantime, as we reported in our recent Annual Report to
Stockholders, we will continue to place emphasis on the development of
specialty wheat gluten and wheat starch products for value-added market niches.
This approach in the wheat starch area has been especially successful and has
increasingly contributed to our steady growth in total wheat starch sales.
Demand for our food grade alcohol for beverage, industrial and commercial
applications remains strong, while conditions in our fuel grade market remain
flat in the face of high grain costs. As a result, we will continue to gear
our distillery operations toward maximizing the production of food grade
alcohol.
These strategies complement an intense cash management plan we have in
place to trigger a turnaround, both short term and long-term. The recent
decision by our Board of Directors not to declare a cash dividend on the
Company's common stock for the first quarter coincides with multiple measures
we have implemented to improve cash flow.
In closing, I would like to reiterate that we are seeing strong
indications that these measures and strategies are working. When grain costs
and selling prices return to more normal levels, we will be prepared to
increase production and sales in all three of our principal product areas and
<PAGE>
to realize significant long-term growth.
Sincerely,
/s/ Ladd M. Seaberg
Ladd M. Seaberg
President and CEO
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MIDWEST
GRAIN PRODUCTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 1996 AND CONDENSED CONSOLIDATED BALANCE SHEET AS AT
SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000835011
<NAME> MIDWEST GRAIN PRODUCTS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 339
<SECURITIES> 0
<RECEIVABLES> 23,468<F1>
<ALLOWANCES> 0<F2>
<INVENTORY> 16,903
<CURRENT-ASSETS> 47,589
<PP&E> 207,664
<DEPRECIATION> 74,686
<TOTAL-ASSETS> 181,012
<CURRENT-LIABILITIES> 14,933
<BONDS> 44,908
<COMMON> 6,715
0
4
<OTHER-SE> 103,532<F3>
<TOTAL-LIABILITY-AND-EQUITY> 181,012
<SALES> 47,160
<TOTAL-REVENUES> 47,160<F4>
<CGS> 48,097
<TOTAL-COSTS> 48,097
<OTHER-EXPENSES> 2,463<F5>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0<F6>
<INCOME-PRETAX> (3,401)
<INCOME-TAX> (1,548)
<INCOME-CONTINUING> (2,377)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,377)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
<FN>
<F1>After deduction of allowances and addition of Notes Receivable.
<F2>See Note F1.
<F3>Reflects Retained Earnings and Additional Paid In Capital.
<F4>Reflects net sales plus Other Operating Loss and Other Income.
<F5>Consists of Selling, General and Administrative Expenses.
<F6>Total revenues includes "Other Income." Other Income reflects excess Other
Income after deducting interest expense.
</FN>
<PAGE>
</TABLE>
