<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 March 31, 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 May 1, 1996.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION Page
____
Item 1. Financial Statements
Independent Accountants' Review Report.............................2
Condensed Consolidated Balance Sheets as of
March 31, 1996 and June 30, 1995.................................3
Condensed Consolidated Statements of Operations for
the Three Months and Nine Months Ended March 31, 1996
and 1995.........................................................5
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended March 31, 1996 and 1995....................6
Note to Condensed Consolidated Financial Statements................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................11
- 1 -
<PAGE>
{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 March
Certified 31, 1996, and the related condensed consolidated statements
Public of operations for the three month and nine month periods ended
Accountants March 31, 1996 and 1995 and the related condensed
consolidated statements of cash flows for the nine month
periods ended March 31, 1996 and 1995. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with Statements on
Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants. A review
of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the condensed
consolidated financial statements referred to above for them
to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally
accepted auditing standards, the consolidated balance sheet as
of June 30, 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
14, 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
April 22, 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
- 2 -
<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
ASSETS
March 31, June 30,
1996 1995
___________ __________
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 832 $ 460
Receivables 23,979 21,550
Notes receivable 919
Inventories 17,114 14,690
Prepaid expenses 812 560
Deferred income taxes 875 875
Income taxes receivable 1,781 2,338
______ ______
Total Current Assets 45,393 41,392
______ ______
PROPERTY AND EQUIPMENT, At cost 209,714 206,336
Less accumulated depreciation 81,563 71,424
_______ _______
128,151 134,912
_______ _______
OTHER ASSETS 432 445
_______ _______
$173,976 $176,749
======= =======
See Accompanying Note to Condensed Consolidated Financial
Statements and Independent Accountants' Review Report
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<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(In Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, June 30,
1996 1995
___________ __________
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 7,521 $ 7,807
Accrued expenses 4,358 6,630
______ ______
Total Current Liabilities 11,879 14,437
______ ______
LONG-TERM DEBT 40,933 38,908
______ ______
POST-RETIREMENT BENEFITS 5,801 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 100,832 103,424
_______ _______
Total Stockholders' Equity 110,036 112,628
_______
$173,976 $176,749
======= =======
See Accompanying Note to Condensed Consolidated Financial
Statements and Independent Accountants' Review Report
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<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
Three Months Nine Months
_________________ _________________
1996 1995 1996 1995
____ ____ ____ ____
(in thousands, except per share amounts)
NET SALES $53,871 $42,005 $156,782 $132,477
COST OF SALES 52,567 39,032 152,796 115,120
______ ______ _______ _______
GROSS PROFIT 1,304 2,973 3,986 17,357
SELLING, GENERAL AND ADMINIS-
TRATIVE EXPENSES 2,012 2,298 6,852 8,624
_____ _____ _____ _____
(708) 675 (2,866) 8,733
OTHER OPERATING INCOME (LOSS) 34 (36) 87 (23)
_____ _____ _____ _____
INCOME (LOSS) FROM OPERATIONS (674) 639 (2,779) 8,710
OTHER INCOME (LOSS)
Interest (706) (1,413) (2,198) (1,428)
Other 701 1,275 692 1,610
_____ _____ _____ _____
INCOME (LOSS) BEFORE INCOME
TAXES (679) 501 (4,285) 8,892
PROVISION (CREDIT) FOR INCOME
TAXES (269) 203 (1,693) 3,601
_____ _____ _____ _____
NET INCOME (LOSS) $ (410) $ 298 $ (2,592) $ 5,291
===== ===== ===== =====
EARNINGS (LOSS) PER COMMON
SHARE $.(04) $0.03 $.(27) $0.54
==== ==== ==== ====
See Accompanying Note 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
NINE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
1996 1995
______ ______
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) (2,592) $ 5,291
Items not requiring (providing) cash:
Depreciation 10,244 5,623
Gain on sale of assets (30) (205)
Changes in:
Accounts receivable (2,429) 841
Inventories (2,424) (2,622)
Other assets (239) (204)
Disbursements in excess of demand
deposit cash 387
Accounts payable 891 (2,159)
Accrued expenses (699) (1,707)
Income taxes payable 557 (2,068)
_____ _____
Net cash provided by operating activities 3,279 3,177
_____ _____
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (4,699) (28,648)
Sale of short-term investments, net 14,505
Proceeds from sale of equipment 69 279
Payment received on note for sale of plant 919 518
_____ ______
Net cash used in investing activities (3,711) (13,346)
_____ ______
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 6,000 10,000
Principal payment on long-term debt (3,975)
Dividends paid (1,221) (3,663)
_____ _____
Net cash provided by financing activities 804 6,337
_____ _____
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 372 (3,832)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 460 3,832
_____ _____
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 832 $ 0
===== =====
See Accompanying Note 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
NINE MONTHS ENDED MARCH 31, 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 March 31,
1996, and the condensed consolidated results of its operations and its cash
flows for the periods ended March 31, 1996 and 1995, and are of a normal
recurring nature.
See Independent Accountants' Review Report
- 7 -
<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1996
RESULTS OF OPERATIONS
General
The Company experienced a $410,000 net loss in the third quarter of fiscal 1996
compared to net income of $298,000 in the same quarter of fiscal 1995. The
decline was due primarily to unusually high raw material costs for grain in the
face of depressed selling prices for fuel alcohol and vital wheat gluten. Fuel
alcohol prices remained flat due to increased capacities throughout the industry
and lower gasoline prices. Wheat gluten prices failed to adjust to the rising
grain costs, as is normally the case, while gluten imports from the European
Union (E.U.) continued to flood the U.S. market. 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 n a grains agreement being negotiated between the U.S. and
E.U. It states that "If the market share of European Community origin wheat
gluten exports into the United 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." While the
agreement is still awaiting final ratification, officials with the U.S.
Department of Agriculture were recently directed to begin preparations for the
consultations. Until the intensity of competitive conditions subside, pursuant
to the grains agreement negotiations or otherwise, and wheat costs substantially
decrease, the Company does not anticipate utilizing a substantial portion of its
gluten production capacity.
Unit sales of alcohol products in the third quarter rose significantly above the
prior year's third quarter amount. The increase occurred in unit sales of food
grade alcohol, which is sold for beverage and industrial applications. This more
than offset a decline in unit sales of fuel grade alcohol, which is sold as an
octane additive and oxygenate commonly known as ethanol. Although demand for
food grade alcohol has declined since the third quarter, market conditions for
this product generally remain healthy. Therefore, the Company plans to continue
to focus production on this category, while minimizing its production of fuel
alcohol until selling prices and raw material costs achieve greater balance.
The Company's unit sales of wheat starch in the third quarter increased
substantially above the prior year's third quarter. The increase resulted from
higher volumes of unmodified, modified and specialty wheat starches.
While the Company expects higher raw material costs for grain and intense
foreign competition to have a negative impact on results during the remainder 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.
This belief is based on the Company's recently expanded production capabilities,
combined with its solid working capital and equity positions.
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<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1996
Sales
Net sales for the third quarter of fiscal 1996 increased by approximately $11.9
million above sales in the third quarter of fiscal 1995. The increase was
principally due to increased sales of alcohol products and alcohol by-products,
the latter consisting mainly of distiller feeds, and higher sales of premium
wheat starch. A 46% increase in total alcohol sales resulted from strong demand
for food grade beverage and industrial alcohol. Sales of distiller feeds climbed
74% compared to a year ago. The rise in wheat starch sales resulted form
strengthened market demand. These increases were partially offset by a 19%
decrease in sales of wheat gluten due to intense competitive pressures from
European gluten producers. Net sales for the first nine months of fiscal 1996
increased by approximately $24 million. The vast majority of this increase
occurred in the second and third quarters for the reasons cited above.
Cost of Sales
The cost of sales in the third quarter of fiscal 1996 increased by approximately
$13.5 million above the cost of sales in the third quarter of fiscal 1995. The
principal cause was a nearly $13 million increase in raw material costs for
grain. Other manufacturing cost increases principally included depreciation and
higher operating costs associated with increased energy requirements 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 nine months of fiscal 1996 increased by approximately
$38 million over cost of sales for the first nine months of fiscal 1995. This
was due largely to an increase of approximately $34 million in raw material
costs. Other factors included increases in the same costs referred to in the
preceding paragraph, which were partially offset by lower maintenance and repair
costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses in the third quarter of fiscal 1996
were down approximately $286,000 compared to the same period the prior year.
This principally was due to a decrease of almost $249,000 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 nine
months of fiscal 1996 decreased by approximately $1.8 million, largely as the
result of compensation and benefit reductions.
The consolidated effective income tax rate is consistent for all periods.
The general effects of inflation were minimal.
- 9 -
<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1996
Net Income
As the result of the foregoing factors, the Company experienced a net loss of
$410,000 in the third quarter of fiscal 1996 compared to net income of $298,000
in the third quarter of fiscal 1995. Combined with a first quarter net loss of
$2,377,000, this more than offset the Company's second quarter net income of
$195,000, resulting in a net loss of $2,592,000 for the first nine months of
fiscal 1996. For the first nine months of fiscal 1995, the Company had net
income of $5,291,000.
LIQUIDITY AND CAPITAL RESOURCES
The following table is presented as a measure of the Company's liquidity and
financial condition:
March 31, June 30,
1996 1995
_________ ________
(in thousands)
Cash and cash equivalents $ 832 $ 460
Working capital 33,514 26,955
Amounts available under lines of credit 18,600 12,000
Note payable and long-term debt 40,933 38,908
Stockholders' equity 110,036 112,628
Although the Company's income statement reflects losses due to factors
previously mentioned, a number of actions have enabled the Company to continue
to generate positive cash flows, maintain a strong working capital position and
a relatively low debt-to-equity ratio during this period of adversity. These
include stringent cost reduction measures, reductions in capital expenditures
due to the completion of the Pekin Plant expansion program, the suspension of
quarterly cash dividends to stockholders and changes in production, purchasing
and marketing strategies.
Due to the recent completion of major capital improvement projects at both
plants, there will not be significant capital improvement requirements in the
near future. At March 31, 1996, the Company has $800,000 committed to
improvements and replacements of existing equipment.
The continued high cost of grain and low selling prices are expected to continue
to negatively impact the Company's liquidity in the near term. However,
management believes that the strategies which continue to be implemented,
together with the Company's strong working capital and available lines of
credit, should enable the Company to weather current adversities and remain well
positioned for a return to more normal conditions.
- 10 -
<PAGE>
PART II
OTHER INFORMATION
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) Report to stockholders for the nine months ended March 31,
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 March 31, 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.
MIDWEST GRAIN PRODUCTS, INC.
s/Ladd M. Seaberg
By
5/14/96 Ladd M. Seaberg, President
_______________________ and Chief Executive Officer
Date
s/Robert G. Booe
5/14/96 By
_______________________ Robert G. Booe, Vice President
Date and Chief Financial Officer
- 11 -
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
_______ ___________
(15) Letter from independent public accountants pursuant to
paragraph (d) of Rule 10.01 of Regulation S-X (incorporated
by reference to Independent Accountants' Review Report at
page 2 hereof)
(20) Report to stockholders for the nine months ended March 31,
1996
(27) Financial data schedule
<PAGE>
Exhibit (20)
LETTER TO STOCKHOLDERS
THIRD QUARTER
PERIOD ENDED MARCH 31, 1996
May 9, 1996
Dear Stockholder:
While our earnings in the third quarter of fiscal 1996 were negatively affected
by a combination of greatly increased raw material costs for grain, extreme
competitive pressures in the vital wheat gluten market and softness in the fuel
alcohol market, our operational cash flow remained positive. Our solid financial
footing has allowed us to withstand the intense impact these factors have had
during what is proving to be one of the most challenging times in Midwest
Grain's 55-year history. With a return to more normal conditions, we will be
prepared to show significantly improved results.
During the third quarter, we incurred a net loss of $410,000, or $0.04 per share
on sales of $53,871,000. During the same period the prior year, we had net
income of $298,000, or $0.03 per share on sales of $42,005,000.
For the first nine months of fiscal 1996, we experienced a net loss of
$2,592,000, or $0.27 per share on sales of $156,782,000. This compares to net
income of $5,291,000, or $0.54 per share on sales of $132,477,000 for the first
nine months of fiscal 1995.
For the past several months, we have been confronted with unusually high grain
prices. In the third quarter, our average per bushel cost for corn and milo rose
approximately 54% above the average we paid during the same period the year
before. Our wheat costs averaged 34% more per bushel compared to a year ago.
Grain prices have continued to climb during the current quarter, driven by a
worldwide shortage of grain supplies and concerns about planting and growing
conditions for this year's crops. In response, we have strengthened our risk
management program to adjust grain procurement strategies daily if necessary. As
has been the case for practically all of fiscal 1996, the higher wheat costs
compound the severe negative effects caused by European Union (E.U.) wheat
gluten producers, who continue to dump their excess gluten in the United States.
Final ratification of a grains agreement between our government and the E.U.,
which includes a measure to curb excess shipments of gluten to the U.S., did not
occur in the third quarter as expected. Nevertheless, Dan Glickman, Secretary of
the U.S. Department of Agriculture, has directed his staff to begin preparations
for consultations on this issue with E.U. officials. The start of consultations
is uncertain at this time, but, according to the grains agreement, they are to
focus on "finding a mutually acceptable solution" to the problem.
Prices for fuel grade alcohol thus far have not reflected increased production
costs resulting from the substantially higher corn prices. Neither have they
kept pace with recent hikes in gasoline prices. As a result, our production of
fuel alcohol is being minimized until selling prices and raw material costs
achieve greater balance. While demand for our food grade alcohol for beverage
and industrial applications has declined since the third quarter, conditions in
those markets generally remain healthy.
<PAGE>
Demand continues to be strong for our premium wheat starch, as well as for our
distillers feeds, a by-product of our alcohol production process.
During this exceptionally challenging time, we are continuing to position
ourselves to be highly flexible in determining our production and product sales
mix to optimize operational efficiency and cash flow.
Sincerely,
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 NINE
MONTHS ENDED MARCH 31, 1996, AND CONDENSED CONSOLIDATED BALANCE SHEET AS AT
MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000835011
<NAME> MIDWEST GRAIN PRODUCTS, INC.
<MULTIPLIER> 1,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 832
<SECURITIES> 0
<RECEIVABLES> 23,979<F1>
<ALLOWANCES> 0<F2>
<INVENTORY> 17,114
<CURRENT-ASSETS> 45,393
<PP&E> 209,714
<DEPRECIATION> 81,563
<TOTAL-ASSETS> 173,976
<CURRENT-LIABILITIES> 11,879
<BONDS> 40,933
<COMMON> 6,715
0
4
<OTHER-SE> 103,317<F3>
<TOTAL-LIABILITY-AND-EQUITY> 173,976
<SALES> 156,782
<TOTAL-REVENUES> 156,869<F4>
<CGS> 152,796
<TOTAL-COSTS> 152,796
<OTHER-EXPENSES> 6,852<F5>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,198
<INCOME-PRETAX> (4,285)
<INCOME-TAX> (1,693)
<INCOME-CONTINUING> (2,592)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,592)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
<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 Income.
<F5>Consists of Selling, General and Administrative Expenses.
</FN>
</TABLE>
