<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, 1996 - 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, 1996.
<PAGE>
INDEX
-----
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
--------------------
Independent Accountants' Review Report.................... 2
Condensed Consolidated Balance Sheets as of
September 30, 1996 and June 30, 1996...................... 3
Condensed Consolidated Statements of Operations for
the Three Months Ended September 30, 1996 and 1995........ 5
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended September 30, 1996 and 1995........ 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 4. Submission of Matters to a Vote of Security Holders... 11
---------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K...................... 11
--------------------------------
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<PAGE>
[GRAPHIC OMITTED]
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 30,
1996, and the related condensed consolidated statements of
Certified operations for the three month periods ended September 30, 1996
Public and 1995, and the related condensed consolidated statements of cash
Accountants flows for the three month periods ended September 30, 1996 and
1995. 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, 1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then
ended (not presented herein); and, in our report dated August 9,
1996, 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, 1996, is fairly stated in all material respects in
relation to the consolidated balance sheet from which it has been
derived.
<PAGE>
City Center Square
Suite 2700
1100 Main /s/Baird Kurtz & Dobson
Kansas City,
Missouri 64105 BAIRD, KURTZ & DOBSON
816 221-6300
FAX: 816 221-6380
- -----------------
Kansas City, Missouri
October 23, 1996
With Offices In:
Arkansas
colorado
Kansas
Kentucky
Missouri
Nebraska
Oklahoma
- -----------------
Member of
Moores Rowland
International
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<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
ASSETS
September 30, June 30,
1996 1996
------------- --------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 3,452 $ 3,759
Receivables 24,718 18,365
Inventories 21,343 19,913
Prepaid expenses 1,025 573
Deferred income taxes 1,531 1,531
Income taxes receivable 2,909 3,063
------ ------
Total Current Assets 54,978 47,204
------ ------
PROPERTY AND EQUIPMENT, At cost 210,294 210,304
Less accumulated depreciation 88,600 85,155
------- -------
121,694 125,149
------- -------
OTHER ASSETS 432 432
------- -------
$177,104 $172,785
======= =======
See Accompanying Notes to Condensed Consolidated
Financial Statements
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<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(In Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, June 30,
1996 1996
------------- --------
(Unaudited)
CURRENT LIABILITIES
Note payable-bank $ 2,000
Accounts payable 7,510 $ 6,416
Accrued expenses 3,148 3,675
------ ------
Total Current Liabilities 12,658 10,091
------ ------
LONG-TERM DEBT 42,933 40,933
------ ------
POST-RETIREMENT BENEFITS 6,043 5,945
------ ------
DEFERRED INCOME TAXES 6,594 6,594
------ ------
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 99,672 100,018
------- -------
108,876 109,222
------- -------
$177,104 $172,785
======= =======
See Accompanying Notes to Condensed Consolidated
Financial Statements
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<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
1996 1995
-------- --------
(in thousands, except
per share amounts)
NET SALES $53,173 $47,160
COST OF SALES 51,110 48,097
------ ------
GROSS PROFIT (LOSS) 2,063 (937)
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 2,163 2,463
------ ------
(100) (3,400)
OTHER OPERATING INCOME (LOSS) 102 (1)
------ ------
INCOME (LOSS) FROM OPERATIONS 2 (3,401)
OTHER INCOME (EXPENSE)
Interest (725) (593)
Other 148 69
------ ------
LOSS BEFORE INCOME TAXES (575) (3,925)
PROVISION (CREDIT) FOR INCOME TAXES (229) (1,548)
------ ------
NET LOSS $ (346) $(2,377)
====== ======
EARNINGS (LOSS) PER COMMON SHARE $ (.04) $ (.24)
====== ======
See Accompanying Notes to Condensed Consolidated Financial
Statements and Independent Accountants' Review Report
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<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
1996 1995
-------- --------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (346) $ (2,377)
Items not requiring (providing) cash:
Depreciation 3,506 3,292
Gain on sale of equipment (20) (2)
Changes in:
Accounts receivable (6,353) (1,171)
Inventories (1,430) (2,213)
Prepaid expenses (452) (330)
Accounts payable 1,094 3,331
Accrued expenses (429) (2,217)
Income taxes receivable 154 (2,776)
----- -----
Net cash used in operating activities (4,276) (4,463)
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (62) (2,631)
Proceeds from sale of equipment 31 22
Payment received on note for sale of plant 172
----- -----
Net cash used in investing activities (31) (2,437)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Net advances on notes payable 2,000 2,000
Net proceeds from issuance of long-term debt 2,000 6,000
Dividends paid (1,221)
----- -----
Net cash provided by financing activities 4,000 6,779
----- -----
DECREASE IN CASH AND CASH EQUIVALENTS (307) (121)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,759 460
----- -----
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,452 $ 339
===== =====
See Accompanying Notes to Condensed Consolidated Financial
Statements and Independent Accountants' Review Report
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<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1996
(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 September
30, 1996, and the condensed consolidated results of its operations and its cash
flows for the periods ended September 30, 1996 and 1995, and are of a normal
recurring nature.
See Independent Accountants' Review Report
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<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996
RESULTS OF OPERATIONS
General
- -------
While the Company incurred a net loss of $346,000 in the first quarter of fiscal
1997, this performance represented a sizeable improvement over the prior year's
first quarter net loss of $2,377,000. It also was an improvement over the fourth
quarter of fiscal 1996, when the Company experienced a net loss of $814,000. The
improved performance primarily resulted from adjustments made in selling prices
for the Company's principal products to compensate for increased raw material
costs for grain. The Company's strategy to maximize operating results by
remaining highly flexible in targeting production levels and sales mix goals,
and the continuation of its intense cash management program to reduce costs and
enhance cash flow contributed to the improvement.
Due to the combination of higher grain costs and relatively flat prices for
wheat gluten and fuel alcohol at the beginning of the quarter, the Company
extended a maintenance and repair shutdown at its Pekin, Illinois plant through
the first two weeks of July. Although production levels declined as a result,
the Company was able to minimize the impact of the unusually high grain costs,
which were driven up by the continuation of a worldwide grain shortage. As the
quarter progressed, demand for the Company's fuel alcohol, as well as its food
grade alcohol for beverage and industrial applications, strengthened.
Additionally, based on predictions for a good fall harvest in the United States,
prices for corn and milo, which the Company uses in its alcohol production
process, gradually dropped below the record levels they had reached in July.
Throughout the quarter, competitive pressures in the wheat gluten market
continued to swell due to the expanding presence of cross-subsidized gluten
imports from the European Union (E.U.). As a result, the Company was unable to
adjust the selling price of its gluten enough to effectively offset increased
costs for wheat. Previously announced consultations between the U.S. and E.U.,
which are expected to help correct the lopsided trade advantages enjoyed by E.U.
gluten producers, are yet to be completed. While the Company waits for the
consultations to conclude, possibilities for a legal remedy are being explored.
In addition, efforts by the Company to develop specialty, value-added wheat
gluten products for both food and industrial applications are being accelerated.
The growth of these products, however, is expected to be gradual. Meanwhile,
demand for the Company's premium wheat starch remained strong throughout the
quarter. A 70% increase in Midwest Grain's starch production capacity in the
first quarter of fiscal 1996 has made it possible for the Company to satisfy
this and future increases in demand. Based on current indications, including a
decline in grain costs and steady demand for alcohol products and wheat starch,
the Company expects a return to profitability in the second quarter of fiscal
1997. In addition, new labor agreements have recently been ratified at both of
the Company's plants.
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<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
THREE MONTHS ENDED SEPTEMBER 30, 1996
Sales
- -----
Net sales in the first quarter of fiscal 1997 increased by approximately $6.0
million above sales in the first quarter of fiscal 1996. The increase
principally resulted from improved prices for all of the Company's principal
products, which only partially offset a significant rise in grain costs. An
increase in alcohol sales resulted from a 40% jump in the food grade industrial
category due largely to a substantial increase in units sold. Beverage alcohol
sales were approximately even with sales for the first quarter of the prior
year, while fuel alcohol sales showed a nearly 50% decline due to strategically
planned production decrease. Sales of distillers feeds, a by-product of the
alcohol production process, climbed 20%, as more feed was produced in tandem
with the increase in total alcohol units. Premium wheat starch sales rose almost
16% as the result of steady demand combined with a strengthening in price to
compensate for higher wheat costs. Wheat gluten sales, meanwhile, were nearly
equal to sales generated in the first quarter of fiscal 1996. Growth in this
market was held down by the Company's inability to adequately make price
adjustments reflective of increased raw material costs in the face of extreme
competitive pressures from the European Union.
Costs of Sales
- --------------
The cost of sales in the first quarter of fiscal 1997 increased by approximately
$3.0 million above the cost of sales in the first quarter of fiscal 1996. A
principal cause was a $5.0 million surge in raw material costs for grain. The
increase was partially offset by a nearly $1.2 million decrease in maintenance
and repair costs, which returned to more normal levels following the completion
of the Company's major expansion project at its Pekin, Illinois plant in the
first quarter of fiscal 1996. Other costs, which vary with production, were
lower due to planned production decline.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses in the first quarter of fiscal 1997
were down approximately $300,000 compared to the prior year's first quarter.
This decrease was spread through most expense categories as part of the
Company's cash management program.
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 a net loss of
$346,000 in the first quarter of fiscal 1997 compared to a net loss of
$2,377,000 in the first quarter of fiscal 1996.
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<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
THREE MONTHS ENDED SEPTEMBER 30, 1996
LIQUIDITY AND CAPITAL RESOURCES
The following table is presented as a measure of the Company's liquidity and
financial condition:
September 30, June 30,
1996 1996
------------- --------
(in thousands)
Cash and cash equivalents $ 3,452 $ 3,759
Working capital 42,320 37,113
Amounts available under lines of credit 15,000 18,600
Note payable and long-term debt 44,933 40,933
Stockholders' equity 108,876 109,222
During this period of adversity, the Company has continued to generate positive
cash flows, improve its working capital position and maintain a relatively low
debt-to-equity ratio. The measures instituted a year ago, including stringent
cost reductions, suspension of quarterly cash dividends to stockholders and
changes in production, purchasing and marketing strategies remain in effect.
Improved operations started to be felt during this quarter causing expected
reductions in short-term liquidity as evidenced by increased levels of
receivables and inventories.
Although the Company has completed major capital improvement projects at both
plants, management continues to evaluate its plants to maintain and improve
operating efficiencies. At September 30, 1996, the Company had $2.2 million
committed to improvements and replacements of existing equipment.
While the Company partially experienced improved operations during the first
quarter due to the decline in grain prices, it expects to more fully feel these
improvements during the second quarter. Management believes that the strategies
which continue to be implemented, together with the Company's strong working
capital and available lines of credit position it to take advantage of a return
to more favorable conditions.
- 10 -
<PAGE>
PART II
OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The annual meeting of stockholders of the Company was held on
October 10, 1996. The following actions were taken at the meeting:
1. Eleanor B. Schwartz, D.B.A. was elected to the office of Group A
Director for a term expiring in 1999 with 8,238,888 votes for her election and
336,634 votes withheld.
2. Randall M. Schrick was elected to the office of Group B Director for
a term expiring in 1999 with 410 votes for his election and 13 votes withheld.
3. Laidacker M. Seaberg was elected to the office of Group B Director
for a term expiring in 1999 with 423 votes for his election and 0 votes
withheld.
4. The Midwest Grain Products, Inc. Stock Incentive Plan of 1996 was
approved with 6,481,100 votes for, 400,997 votes against and 825,795 votes
abstaining.
5. The Midwest Grain Products, Inc. 1996 Stock Option Plan for Outside
Directors was approved with 6,238,619 votes for, 641,872 votes against and
827,401 votes abstaining.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
(15) Letter from independent public accountants pursuant to
paragraph (d) of Rule 10-01 of Regulation S-X (incorporated
by reference to Independent Accountants' Review Report at page
2 hereof).
(20) Letter to stockholders for the three months ended
September 30, 1996.
(27) Financial data schedule.
(b) Reports on Form 8-K
The Company has filed no reports on Form 8-K during the quarter
ended September 30, 1996.
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.
<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
s/Ladd M. Seaberg
By _________________________________
Date: November 11, 1996 Ladd M. Seaberg, President
and Chief Executive Officer
s/Robert G. Booe
By _________________________________
Date: November 11, 1996 Robert G. Booe, Vice President
and Chief Financial Officer
- 11 -
<PAGE>
<PAGE>
EXHIBIT 20
LETTER TO STOCKHOLDERS
November 7, 1996
Dear Stockholder:
I am pleased to report that while our Company incurred a slight loss in net
earnings in the first quarter of fiscal 1997, our operating income moved back to
the plus side. This is consistent with strengthened conditions in the
marketplace, which indicate a return to profitability in the second quarter.
Our first quarter net loss of $346,000, or $0.04 per share on sales of
$53,173,000 represented a substantial improvement over the prior year's first
quarter net loss of $2,377,000, or $0.24 per share on sales of $47,160,000. It
also was better than our performance in the immediately preceeding fourth
quarter, when we experienced a net loss of $814,000, or $0.08 per share on sales
of $37,856,000. This improvement was realized as the result of a greater balance
between selling prices of our principal products and raw material costs for
grain together with our ability to exercise considerable flexibility in
targeting production levels and sales mixes. Those factors were complemented by
the continuation of our enhanced cash management program.
First quarter grain costs actually were much higher than during the same period
a year ago. Prices for corn and milo, which we use in our alcohol production
process, averaged 54% more per bushel, while prices for wheat, which we mill
into flour and then further process into vital wheat gluten and premium wheat
starch, averaged nearly 7% more per bushel. These increases were partially
offset by sales price adjustments in each of our markets.
The combination of higher grain costs and relatively flat prices for wheat
gluten and fuel alcohol in the opening weeks of the first quarter prompted our
decision to extend a maintenance and repair shutdown at our Pekin, Illinois
plant through the first half of July. Although production levels
declined as the result of this shutdown, the decision allowed us to minimize the
negative impact of the exceptionally high grain costs. Furthermore, as the
quarter progressed, demand for our fuel alcohol, as well as our food grade
alcohol for beverage and industrial applications strengthened. Conditions in
these markets remain favorable, and corn and milo prices have fallen from their
July record levels.
Conditions in the wheat gluten market, on the other hand, continue to be
severely affected by the growing presence of gluten imports from the European
Union (E.U.). Consultations between the United States and E.U., which are
expected to help level the playing field, have not yet been completed as we
previously had hoped. In the meantime, possibilities for a remedy through legal
action are being aggressively explored.
As previously reported, we are accelerating our development of specialty wheat
gluten products for both food and industrial applications. The growth of these
products will be gradual, as has been the case with our successful list of
modified and specialty wheat starches, which we began developing several years
ago.
<PAGE>
Looking ahead, I am encouraged by the current onset of more favorable
conditions, both on the raw material side and in the majority of the markets we
serve. Our production capabilities and the higher efficiencies we expect to
attain should allow us to realize improved results as we go forward.
Sincerely,
s/Ladd M. Seaberg
Ladd M. Seaberg
President and CEO
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MIDWEST
GRAIN PRODUCTS, INC. CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 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-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,452
<SECURITIES> 0
<RECEIVABLES> 24,718
<ALLOWANCES> 0
<INVENTORY> 21,343
<CURRENT-ASSETS> 54,978
<PP&E> 210,294
<DEPRECIATION> 85,600
<TOTAL-ASSETS> 177,104
<CURRENT-LIABILITIES> 12,658
<BONDS> 42,933
<COMMON> 6,715
0
4
<OTHER-SE> 102,157<F1>
<TOTAL-LIABILITY-AND-EQUITY> 177,104
<SALES> 53,173
<TOTAL-REVENUES> 53,173
<CGS> 51,110
<TOTAL-COSTS> 53,273<F2>
<OTHER-EXPENSES> 148
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (725)
<INCOME-PRETAX> (575)
<INCOME-TAX> (229)
<INCOME-CONTINUING> (346)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (346)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
<FN>
<F1> Reflects retained earnings and additional paid in captial.
<F2> Reflects cost of sales and selling, general &
administrative expenses.
</FN>
<PAGE>
</TABLE>
