<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 December 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 February 1, 1997.
<PAGE>
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants' Review Report 2
Condensed Consolidated Balance Sheets as of
December 31, 1996 and June 30, 1996 3
Condensed Consolidated Statements of Income for the
Three Months and Six Months Ended December 31, 1996
and 1995 5
Condensed Consolidated Statements of Cash Flows for
the Six Months Ended December 31, 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 6. Exhibits and Reports on Form 8-K 13
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<PAGE>
{LOGO}
Baird, Kurtz & Dobson
Certified Public Accountants
Independent Accountants' Review Report
Board of Directors and Stockholders
Midwest Grain Products, Inc.
Atchison, Kansas 66002
We have reviewed the condensed consolidated balance sheet of MIDWEST GRAIN
PRODUCTS, INC. and subsidiaries as of December 31, 1996, and the related
condensed consolidated statements of income for the three month and six month
periods ended December 31, 1996 and 1995, and the related condensed consolidated
statements of cash flows for the six month periods ended December 31, 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 income, 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.
S/BAIRD, KURTZ & DOBSON
BAIRD, KURTZ & DOBSON
Kansas City, Missouri
January 21, 1997
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
December 31, June 30,
1996 1996
------------- --------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 1,998 $ 3,759
Receivables 23,008 18,365
Inventories 24,148 19,913
Prepaid expenses 1,019 573
Deferred income taxes 1,531 1,531
Income taxes receivable 3,063
-------- -------
Total Current Assets 51,704 47,204
------- ------
PROPERTY AND EQUIPMENT, At cost 210,964 210,304
Less accumulated depreciation 92,088 85,155
------- -------
118,876 125,149
------- -------
OTHER ASSETS 432 432
-------- --------
$171,012 $172,785
======== ========
See Accompanying Note 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
December 31, June 30,
1996 1996
------------- --------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 9,726 $ 6,416
Accrued expenses 3,740 3,675
Income taxes payable 796
-------- ---------
Total Current Liabilities 14,262 10,091
-------- ---------
LONG-TERM DEBT 33,933 40,933
-------- ---------
POST-RETIREMENT BENEFITS 6,142 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 100,877 100,018
--------- --------
110,081 109,222
--------- --------
$171,012 $172,785
======== ========
See Accompanying Note to Condensed Consolidated
Financial Statements
-4-
<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1996
AND 1995
(Unaudited)
Three Months Six Months
1996 1995 1996 1995
----- ---- ---- ----
(in thousands, except per share amounts)
NET SALES $55,249 $55,751 108,422 $102,911
COST OF SALES 50,360 52,132 101,470 100,229
------- ------ ------- -------
GROSS PROFIT 4,889 3,619 6,952 2,682
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,379 2,377 4,542 4,840
------- ------- ------- -------
2,510 1,242 2,410 (2,158)
OTHER OPERATING INCOME 115 54 217 53
------ ------ ------- -------
INCOME (LOSS) FROM
OPERATIONS 2,625 1,296 2,627 (2,105)
OTHER INCOME (LOSS)
Interest (679) (797) (1,404) (1,492)
Other 46 (180) 194 (9)
------ ------- ------ -------
INCOME (LOSS) BEFORE
INCOME TAXES 1,992 319 1,417 (3,606)
PROVISION (CREDIT) FOR
INCOME TAXES 787 124 558 (1,424)
------- ------ ------- -------
NET INCOME (LOSS) $ 1,205 $ 195 $ 859 $(2,182)
======= ======= ======= =======
EARNINGS (LOSS) PER
COMMON SHARE $.12 $.02 $.09 $(.22)
==== ==== ==== =====
See Accompanying Note to Condensed Consolidated
Financial Statements
-5-
<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
(Unaudited)
1996 1995
-------- ------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 859 $(2,182)
Items not requiring (providing) cash:
Depreciation 7,008 6,677
Gain on sale of assets (6) (30)
Changes in:
Accounts receivable (4,643) (2,130)
Inventories (4,235) (1,047)
Prepaid expenses and other assets (446) (299)
Accounts payable 3,228 4,054
Accrued expenses 262 (720)
Income taxes payable 3,859 530
------- --------
Net cash provided by operating
activities 5,886 4,853
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (706) (4,093)
Proceeds from sale of equipment 59 68
Payment received on note for sale of plant 919
------- -------
Net cash used in investing
activities (647) (3,106)
CASH FLOWS FROM FINANCING ACTIVITIES
Net advances on notes payable 6,000
Net principal payments on long-term debt (7,000) (3,975)
Dividends paid (1,221)
------- -------
Net cash provided by (used in)
financing activities (7,000) 804
------- -------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,761) 2,551
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 3,759 460
-------- -------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 1,998 $ 3,011
======= ========
See Accompanying Note to Condensed Consolidated
Financial Statements
-6-
<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996
(Unaudited)
NOTE 1: GENERAL
In the opinion of management, the accompanying unaudited condensed financial
statements contain all adjustments necessary to present fairly the Company's
condensed consolidated financial position as of December 31, 1996, and the
condensed consolidated results of its operations and its cash flows for the
periods ended December 31, 1996 and 1995, and are of a normal recurring nature.
-7-
<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996
RESULTS OF OPERATIONS
General
- -------
The Company's net income of $1,205,000 in the second quarter of fiscal 1997
represented a considerable increase above both the prior year's second quarter
net income of $195,000 and the current year's first quarter net loss of
$346,000. In addition, the Company's long-term debt was reduced by $7 million as
the result of cash flows generated from operations during the first half of the
year. The improved second quarter earnings primarily resulted from a decrease in
raw material costs for grain on a per bushel basis, together with strengthened
demand for the Company's premium wheat starch, beverage alcohol and distillers'
feed. The continuation of the Company's intense cash management program to
reduce costs and enhance cash flow contributed to the improvement. The
realization of a larger earnings increase was partially blocked by the carryover
of a fractional amount of higher priced grain from the first quarter, and
soaring energy costs in late November and all through December. Lower
operational efficiencies were affected by both of these factors. The increased
energy costs resulted from a significant jump in natural gas prices due to
periods of extreme cold weather throughout much of the U.S. While natural gas
prices have since come down, they remain at levels higher than were experienced
during this time a year ago.
Competitive pressures in the wheat gluten market continued to grow throughout
the second quarter 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 production
costs. Previously announced consultations between the U.S. and E.U. to address
this problem are still pending. As such, the Wheat Gluten Industry Council of
the United States recently filed a Section 301 Petition requesting that the U.S.
Trade Representative investigate subsidies and other measures which allow E.U.
gluten producers lopsided competitive advantages. If favorably acted on by the
Trade Representative, the petition calls for an international panel of the World
Trade Organization to examine the protectionist and predatory practices of the
E.U. and could ultimately provide the U.S. with the right to implement
retaliatory measures. The Wheat Gluten Council, of which the Company is a
member, is prepared to seek additional legal action should a satisfactory remedy
not materialize. In the meantime, efforts by the Company to develop specialty
wheat gluten products for niche markets to continue to attract increased, but
gradual interest.
Demand for the Company's premium wheat starch remains strong, and should
continue to result in increased utilization of capacity at the Pekin plant,
where a new starch production facility was completed in the first quarter of
fiscal 1996. While conditions in the Company's alcohol markets generally remain
healthy, prices for food grade alcohol for beverage and industrial applications
have declined since the end of the second quarter due partially to seasonal
factors, but mainly to the start up of new distillation capacities throughout
the industry. Increased supplies of fuel grade alcohol have lowered selling
prices in that market as well. With consistently lower grain costs and improved
production efficiencies, the Company expects to strengthen its competitive
abilities and remain profitable in the third quarter of fiscal 1997.
-8-
<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996
Sales
- -----
Net sales in the second quarter of fiscal 1997 were approximately $502,000 lower
than sales in the second quarter of fiscal 1996. The decrease principally
resulted from lower sales of fuel grade alcohol products, due to a 43% drop in
units sold. Fuel alcohol unit sales in the second quarter of fiscal 1996
included the depletion of a sizeable inventory which had been produced in the
immediately preceding quarter. Sales of beverage alcohol increased a little more
than 2% in this year's second quarter compared to the same period the prior
year. The increase resulted from adjustments made to selling prices, as unit
sales in this category were down slightly. Sales of food grade alcohol for
industrial applications fell 11% due to a decline in production volume. Sales of
distillers' feeds, a by-product of the alcohol production process, rose
approximately 24% due to improved selling prices and a nearly 9% increase in
units sold. Wheat gluten sales were up approximately 9% compared to the second
quarter of fiscal 1996 as the result of a small increase in unit sales. However,
selling prices for this product fell slightly in the face of extreme competitive
pressures from the European Union. Sales of wheat starch increased 20% as the
result of both higher volumes and selling prices. Net sales for the first six
months of fiscal 1997 increased by approximately $5,511,000 over sales for the
first six months of fiscal 1996. The increase occurred in the first quarter as
the result of higher sales of wheat starch, food grade industrial alcohol, fuel
grade alcohol and alcohol by-products compared to the prior year's first
quarter.
Cost of Sales
- -------------
The cost of sales in the second quarter of fiscal 1997 decreased by
approximately $1.8 million compared to the cost of sales in the second quarter
of fiscal 1996. This occurred primarily as the result of a $4.4 million
reduction in raw material costs for grain. These decreases were partially offset
by an increase of approximately $1.5 million in energy costs, due mainly to
higher prices for natural gas, and an increase of slightly more than $423,000 in
maintenance and repair costs. The cost of sales for the first six months of
fiscal 1997 increased by approximately $1.2 million above the cost of sales in
the first six months of fiscal 1996. Raw material cost decreases during the
second quarter offset most of the $5.0 million increase in these costs
experienced in the first quarter. The increased energy costs for the six months
were experienced entirely during the second quarter. These increases were
partially offset by a decrease in maintenance and repair costs for the six month
period amounting to approximately $.8 million.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses in the second quarter of fiscal
1997 were approximately even with selling, general and administrative expenses
in the second quarter of fiscal 1996. For the first six months of fiscal 1997,
these costs decreased by approximately $298,000 compared to the first six months
of fiscal 1996. 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.
-9-
<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996
Net Income
- ----------
As the result of the foregoing factors, the Company experienced net income of
$1,205,000 in the second quarter of fiscal 1997 compared to net income of
$195,000 in the second quarter of fiscal 1996. A first quarter net loss of
$346,000 partially offset the second quarter net income, resulting in net income
of $859,000 for the first six months of fiscal 1997. For the first six months of
fiscal 1996, the Company had a net loss of $2,182,000.
-10-
<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1996
LIQUIDITY AND CAPITAL RESOURCES
The following table is presented as a measure of the Company's liquidity and
financial condition:
December 31, June 30,
1996 1996
------------ ----------
(in thousands)
Cash and cash equivalents $ 1,998 $ 3,759
Working capital 37,442 37,113
Amounts available under lines of credit 26,000 18,600
Note payable and long-term debt 33,933 40,933
Stockholders' equity 110,081 109,222
The Company continues 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
offset by increased level of inventories and receivables produce the cash flow
necessary to reduce borrowings by $7,000,000.
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 December 31, 1996, the Company had $1.9 million
committed to improvements and replacements of existing equipment.
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.
-11-
<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) Letter Report to Stockholders for the three months ended December
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
December 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.
February 10, 1997 s/Ladd M. Seaberg
- ------------------------ By---------------------------------
Date Ladd M. Seaberg
President and Chief Executive
Officer
February 10, 1997 s/Robert G. Booe
- ------------------------ By---------------------------------
Date Robert G. Booe, Vice President
and Chief Financial Officer
-12-
<PAGE>
Exhibit 20
LETTER TO OUR STOCKHOLDERS
February 10, 1997
Dear Stockholder:
We have begun to turn the corner and move in a more positive direction as
indicated by our earnings performance in the second quarter of fiscal 1997. In
addition, we have reduced our long-term debt by $7 million as the result of cash
flows generated from operations during the first two quarters of the year.
Our second quarter net income of $1,205,000, or $0.12 per share was considerably
higher than the net income of $195,000, or $0.02 per share that we experienced
in the second quarter of fiscal 1996. Our sales in this year's second quarter
amounted to $55,249,000, down just slightly from the same period the prior year,
when we had sales of $55,751,000.
Due to a first quarter net loss of $346,000, our net income for the first six
months of fiscal 1997 totaled $859,000, or $0.09 per share on sales of
$108,422,000. For the first six months of fiscal 1996, we had a net loss of
$2,182,000, or $0.22 per share on sales of $102,911,000.
Our second quarter earnings improvement resulted primarily from a decline in
grain prices compared to both the second quarter of fiscal 1996 and the first
quarter of fiscal 1997, and strengthened demand for our premium wheat starch,
beverage alcohol and distillers feed. The realization of an even greater
improvement was partially prevented by a carryover of higher priced grain from
the first quarter, and a dramatic rise in energy costs in the latter part of the
second quarter due to greatly increased prices for natural gas. These factors
contributed to a reduction in operational efficiencies. Since the end of the
quarter, grain prices have continued to ease down toward more normal levels.
Prices for natural gas have also tapered off, but remain above where they were
at this time a year ago.
Demand for our vital wheat gluten continues to be suppressed by a heavy
flow of gluten imports from the European Union (E.U.). In addition to seeking a
negotiated solution to this problem, the Wheat Gluten Industry Council of the
United States recently filed a Section 301 petition requesting that the U.S.
Trade Representative investigate subsidies and other measures which allow E.U.
gluten producers lopsided competitive advantages. The petition, if fav orably
acted on by the Trade Representative, calls for an international panel of the
World Trade Organization to examine the protectionist and predatory practices of
the E.U. and could ultimately provide the U.S. with the right to implement
retaliatory measures. The Wheat Gluten Council is prepare d to seek additional
legal action should a satisfactory remedy not appear forthcoming. In the
meantime, we are experiencing increased interest in our specialty wheat gluten
products, which are being developed for value-added niche markets.
As I have previously reported, growth in the specialty gluten markets is
expected to be gradual and, therefore, will not have a significant impact on our
results in the near term. It was with this same understanding that we launched
the development of our modified and specialty wheat starches seve ral years ago.
Today, these starches account for a sizeable portion of our total starch output.
<PAGE>
While conditions in our alcohol markets generally remain healthy, prices
for food grade alcohol for beverage and industrial applications have declined
since the end of the second quarter due to a combination of seasonal factors and
the start-up of new production capacities throughout the industry. Increased
supplies of fuel grade alcohol have caused prices in that market to soften some
as well. We are prepared to meet this new competition by strengthening our
operational efficiencies as grain prices continue to reach more normal levels.
Sincerely,
s/Ladd M. Seaberg
Ladd M. Seaberg
President and CEO
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MIDWEST
GRAIN PRODUCTS, INC. CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED
DECEMBER 31, 1996 AND CONSOLIDATED BALANCE SHEET AS AT DECEMBER 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
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-1-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,998
<SECURITIES> 0
<RECEIVABLES> 23,008
<ALLOWANCES> 0
<INVENTORY> 24,148
<CURRENT-ASSETS> 51,704
<PP&E> 210,964
<DEPRECIATION> 92,088
<TOTAL-ASSETS> 171,012
<CURRENT-LIABILITIES> 14,262
<BONDS> 33,933
0
4
<COMMON> 6,715
<OTHER-SE> 103,362<F1>
<TOTAL-LIABILITY-AND-EQUITY> 171,012
<SALES> 108,422
<TOTAL-REVENUES> 108,422
<CGS> 101,470
<TOTAL-COSTS> 106,012<F2>
<OTHER-EXPENSES> 194
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,404)
<INCOME-PRETAX> 1,417
<INCOME-TAX> 558
<INCOME-CONTINUING> 859
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 859
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
<FN>
<F1> Reflects retained earnings and additional paid in captial.
<F2> Reflects cost of sales and selling, general &
administrative expenses.
</FN>
</TABLE>
