<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, 1998 - 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
9,573,172 shares outstanding
as of February 1, 1999.
<PAGE>
INDEX
-----
Page
PART I. FINANCIAL INFORMATION ----
Item 1. Financial Statements
--------------------
Independent Accountants' Review Report............................ 2
Condensed Consolidated Balance Sheets as of
December 31, 1998 and June 30, 1998............................... 3
Condensed Consolidated Statements of Income for
the Three Months and Six Months Ended December 31, 1998
and 1997.......................................................... 5
Condensed Consolidated Statements of Cash Flows for
the Six Months Ended December 31, 1998 and 1997................... 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..........................12
--------------------------------
-1-
<PAGE>
Baird,
Kurtz &
Dobson
Certified Public City Center Square
Accountants 1100 Main Street, Suite 2700 http://www.bkd.com
Kansas City, MO 64105-2112 Member of Moores Rowland
816 221-6300 Fax 816 221-6380 International
-----------------------------------------------------------------------------
Independent Accountants' Review Report
--------------------------------------
Board of Directors and Stockholders
Midwest Grain Products, Inc.
Atchison, Kansas 66002
We have reviewed the condensed consolidated balance sheets of MIDWEST
GRAIN PRODUCTS, INC. and subsidiaries as of December 31, 1998, and the related
condensed consolidated statements of income for the three month and six month
periods ended December 31, 1998 and 1997, and the related condensed consolidated
statements of cash flows for the six month periods ended December 31, 1998 and
1997. 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 accompanying condensed consolidated financial statements
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, 1998, 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, 1998,
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, 1998, 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 26, 1999
-2-
<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
ASSETS
December 31, June 30,
1998 1998
------------ --------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 2,345 $ 4,723
Receivables 23,863 26,369
Inventories 32,298 20,430
Prepaid expenses 1,153 753
Deferred income taxes 2,343 2,343
Income taxes receivable 1,334
------ ------
Total Current Assets 62,002 55,952
------ ------
PROPERTY AND EQUIPMENT, At Cost 221,974 218,590
Less accumulated depreciation 119,762 112,976
------- -------
102,212 105,614
------- -------
OTHER ASSETS 406 412
--- ---
TOTAL ASSETS $ 164,620 $ 161,978
======== ========
See Accompanying Note to Condensed Consolidated
Financial Statements
-3-
<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(In Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, June 30,
1998 1998
------------ --------
(Unaudited)
CURRENT LIABILITIES
Current maturities of long-term debt $ 2,273 $ 2,360
Notes payable 1,000
Accounts payable 10,322 9,072
Accrued expenses 2,942 3,695
Income taxes payable 1,486
----- -----
Total Current Liabilities 17,023 16,127
------ ------
LONG-TERM DEBT 26,831 25,536
------ ------
POST-RETIREMENT BENEFITS 6,456 6,520
----- -----
DEFERRED INCOME TAXES 7,470 7,470
----- -----
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 100,009 97,913
------- ------
109,213 107,117
Treasury stock, at cost
Common; December 31, 1998 - 191,300 shares
June 30, 1998 - 65,000 shares (2,373) (792)
------ ----
Total Stockholders' Equity 106,840 106,325
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 164,620 $ 161,978
======= =======
See Accompanying Note to Condensed Consolidated
Financial Statements
-4-
<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
(Unaudited)
Three Months Six Months
-------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
NET SALES $53,917 $55,847 $105,855 $113,470
COST OF SALES 47,843 52,028 95,352 107,040
------- ------- ------- -------
GROSS PROFIT 6,074 3,819 10,503 6,430
SELLING, GENERAL AND ADMINIS-
TRATIVE EXPENSES 3,262 3,615 6,168 6,259
------ ----- ----- -----
2,812 204 4,335 171
OTHER OPERATING INCOME (LOSS) 64 (4) 105 10
----- ----- ----- ----
INCOME FROM OPERATIONS 2,876 200 4,440 181
OTHER INCOME (LOSS)
Interest (561) (440) (1,086) (895)
Other 48 424 110 502
---- --- ----- ---
INCOME (LOSS) BEFORE INCOME TAXES 2,363 184 3,464 (212)
PROVISION (CREDIT) FOR INCOME TAXES 933 77 1,368 (84)
----- ------ ----- ----
NET INCOME (LOSS) $1,430 $ 107 $ 2,096 $ (128)
====== ======= ======== ========
EARNINGS (LOSS) PER COMMON SHARE $ .15 $ .01 $ .22 $ (.01)
====== ======= ======== =========
See Accompanying Note to Condensed Consolidated
Financial Statements
-5-
<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
(Unaudited)
1998 1997
------- ------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 2,096 $ (128)
Items not requiring (providing) cash:
Depreciation 6,801 6,923
Gain on sale of equipment (3)
Changes in:
Accounts receivable 2,506 (1,143)
Inventories (11,868) (10,264)
Prepaid expenses and other assets (394) (289)
Accounts payable 1,273 6,864
Accrued expenses (817) 66
Income taxes receivable/payable 2,820 (834)
----- ------
Net cash provided by
operating activities 2,414 1,195
----- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (3,424) (2,518)
Proceeds from sale of equipment 5
------ ------
Net cash used in
investing activities (3,419) (2,518)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock (1,581)
Net payments on long-term debt (2,292) (4,000)
Net proceeds from notes payable 2,500
------ ------
Net cash used in
financing activities (1,373) (4,000)
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS (2,378) (5,323)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,723 6,005
------ ------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,345 $ 682
======== ========
See Accompanying Note to Condensed Consolidated
Financial Statements
-6-
<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1998
(Unaudited)
NOTE 1: 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 December
31, 1998, and the condensed consolidated results of its operations and its cash
flows for the periods ended December 31, 1998 and 1997, 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 AND SIX MONTHS ENDED DECEMBER 31, 1998
RESULTS OF OPERATIONS
General
- -------
The Company's net income of $1,430,000 in the second quarter of fiscal 1999 was
significantly higher than the net income of $107,000 that was experienced in the
second quarter of fiscal 1998. This improvement resulted primarily from lower
raw material costs for wheat, corn and milo, and increased productivity in the
Company's wheat gluten processing operations. Reduced grain prices were due to
excellent growing conditions and abundant harvests during the spring, summer and
early fall. Gluten production levels were raised partially in response to
heightened market interest, but mainly in preparation to effectively satisfy
future customer requirements resulting from an expected reduction in imports of
subsidized and artificially priced wheat gluten from the European Union (E.U.).
On June 1, the White House implemented a three-year quota on imports of foreign
wheat gluten following a unanimous recommendation from the United States
International Trade Commission (ITC). The White House additionally announced
that international negotiations would be pursued to address the underlying cause
of the increase in imports of wheat gluten, particularly from the E.U., or to
otherwise alleviate injury to the domestic industry,
During the first year of the quota, which ends May 31, 1999, wheat gluten
imports were to be restricted to 126 million pounds. That figure represents a
reduction of approximately 30% compared to the amount of gluten imported by the
U.S. during the Company's 1998 fiscal year. In each of the two following years,
imports are to be allowed to increase by 6%. Within the quota, separate quotas
for the E.U., Australia and all other non-excluded countries were assessed.
Countries excluded from the quota are Canada, Mexico, Israel and the beneficiary
countries of the Caribbean Basin Economic Recovery Act or the Andean Trade
Preferences Act.
The quota on imported gluten is consistent with the type of remedy requested by
the Company and the Wheat Gluten Industry Council (WGIC) of the U.S. That
request was made in a petition that was filed by the WGJC on September 19, 1997
under Section 201 of the Trade Act of 1974. The petition was filed on the
grounds that the U.S. wheat gluten industry has been seriously injured by the
surge in low priced wheat gluten imports from the E.U. Profits from their highly
subsidized and protected wheat starch business have allowed E.U. producers to
unload huge surpluses of wheat gluten, a co-product, in the U.S. market at
prices below U.S. production costs. In recent years, this has forced domestic
producers to drastically under-utilize production capacities and relinquish
sizeable percentages of market share.
The Company expects the import quota to eventually result in the establishment
of a more level playing field in the U.S. wheat gluten market by offsetting
lopsided trade advantages provided by the E.U. to E.U. producers. As a result,
the Company increased gluten production levels to effectively supply future
customer needs. In addition, the Company has intensified efforts to develop and
market specialty wheat gluten products in niches that will be less affected by
foreign competition.
-8-
<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1998
Under the quota, imports of E.U. wheat gluten are limited to 54 million pounds
for the year ending May 31, 1999. However, Department of Commerce data
indicates that from June 1 through November 30, 1998, the E.U. exported 26%
more gluten to the U.S. than allowed for the full quota year ending May 31,
1999. Although the available published data indicates that shipments from the
E.U. have stopped after November, the violations have delayed the relief that
the U.S. wheat gluten industry expected during the first year of the three-year
quota. As a consequence, the U.S. Customs Department is presently investigating
these apparent E.U. violations and the Office of the U.S. Trade Representative
is considering the imposition of sanctions, which hopefully could provide the
industry with the kind of relief contemplated by the quota in the first
instance.
Although a level playing field was not established in the first half of the
current fiscal year, the Company is now experiencing indications of
strengthened demand for its wheat gluten, and continues to realize gradual but
steady growth in sales of its specialty wheat proteins, especially in the
cosmetics and personal care products markets.
With consistently lower grain costs, improved conditions in the wheat gluten
market, a realization of stable energy costs and improved production
efficiencies, the Company expects to strengthen its competitive abilities and
maintain the improved profitability going forward.
Sales
- -----
Net sales in the second quarter of fiscal 1999 were down approximately
$1.9million compared to net sales in the second quarter of fiscal 1998. The
decrease resulted mainly from lower selling prices for food grade and fuel grade
alcohol and reduced wheat starch volume. The drop in selling prices for fuel
grade alcohol tracked a decline in gasoline prices. The price decrease for food
grade alcohol reflected both a decline in demand and a reduction in raw material
prices for corn and milo, the latter affecting prices mainly in the beverage
category. Sales of distillers feed, a by-product of the alcohol production
process, were also down compared to sales a year ago due to decreased unit sales
and prices.
Wheat gluten sales in the second fiscal quarter of 1999 were higher than sales
during the second quarter of fiscal 1998 as the Company increased production in
preparation for satisfying market requirements resulting from the expected
realization of a fair competitive environment. An increase in wheat gluten
selling prices compared to the prior year's second quarter contributed to the
sales improvement.
Sales of wheat starch decreased as the result of lower unit sales, while selling
prices for this product remained essentially unchanged compared to the second
quarter of fiscal 1998.
Net sales for the first six months of fiscal 1999 decreased by approximately
$7.6 million compared to net sales for the first six months of fiscal 1998. The
<PAGE>
decrease was principally due to reduced alcohol selling prices in both the first
and second quarters, and lower unit sales of alcohol in the first quarter. Lower
unit sales of wheat starch in the first and second quarters also contributed to
the decline in sales. These decreases were partially offset by higher wheat
gluten sales. -9-
MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1998
Cost of Sales
- -------------
The cost of sales in the second quarter of fiscal 1999 decreased by
approximately $4.2 million compared to cost of sales in the second quarter of
fiscal 1998. This occurred principally as the result of lower raw material costs
for grain. Reduced energy costs, lower maintenance and repair costs and
decreased insurance costs were other major items which contributed to the
reduction in total cost of sales.
Cost of sales for the first six months of fiscal 1999 fell approximately $11.5
million below cost of sales for the first six months of fiscal 1998. Reasons for
this decrease were primarily the same as those given above.
In connection with the purchase of raw materials, principally corn and wheat,
for anticipated operating requirements, the Company enters into commodity
contracts to reduce the risk of future grain price increases. The contracts are
accounted for as hedges and, accordingly, gains and losses are deferred and
recognized in cost of sales as part of contract costs when contract positions
are settled and as related products are sold. For the second quarter of fiscal
1999, raw material costs included a net loss of $1,037,000 on contracts settled
during the quarter compared to a net loss of $27,000 for the second quarter of
fiscal 1998. Raw material costs for the first six months of fiscal 1999 included
a net loss of $2,073,000. For the first six months of fiscal 1998, those costs
included a net gain of $578,000.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses in the second quarter of fiscal
1999 decreased by approximately $353,000 below selling, general and
administrative expenses in the second quarter of fiscal 1998. This decrease
resulted mainly from a reduction of approximately $945,000 in commissions and
professional services. Other sizeable reductions occurred in costs associated
with industry-related organizational fees and the Company's employee benefit
plans. These decreases were partially offset by an additional reserve of
approximately $637,000 for bad debts and costs related to research activities to
strengthen the Company's development and sales of value-added specialty products
made from wheat.
For the first six months of fiscal 1999, selling, general and administrative
expenses were down approximately $91,000 compared to selling, general and
administrative expenses for the first six months of fiscal 1998.
<PAGE>
The consolidated effective income tax rate is consistent for all periods. The
general effects of inflation were minimal.
Net Income
- ----------
As the result of the foregoing factors, the Company experienced net income of
$1,430,000 in the second quarter of fiscal 1999 compared to net income of
$107,000 in the first quarter of fiscal 1998. For the first six months of fiscal
1999, the Company experienced net income of $2,096,000 versus a net loss of
$128,000 that was incurred in the first six months of fiscal 1998.
-10-
<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1998
LIQUIDITY AND CAPITAL RESOURCES
The following table is presented as a measure of the Company's liquidity and
financial condition:
December 31, June 30,
1998 1998
------------ --------
(in thousands)
Cash and cash equivalents $ 2,345 $ 4,723
Working capital 44,979 39,825
Amounts available under lines of credit 27,500 30,000
Notes payable and long-term debt 29,104 28,896
Stockholders' equity 106,840 106,325
The first half of fiscal 1999 saw the Company raise its production levels,
building its inventories to meet anticipated customer needs for wheat gluten.
The increased customer requirements are expected to result from the three-year
import quota to create a more fair and stable competitive environment. The
planned inventory buildup, together with ongoing capital improvements, has
impacted short-term liquidity. The Company anticipates reducing inventory levels
during the third quarter as well to meet customer needs.
Short-term liquidity was also impacted by open market purchases of 126,300
shares of the Company's common stock during the second fiscal quarter. These
purchases were made pursuant to a 1997 authorization by the Company's Board of
Directors to purchase up to 200,000 total shares to fund the Company's stock
option plans and for other corporate purposes.
At December 31, 1998, the Company had $3.7 million committed to improvements and
replacements of existing equipment.
The Company continues to maintain a strong working capital position and a low
debt-to-equity ratio while generating strong earnings before interest, taxes and
depreciation. Management believes this strong financial position and available
lines of credit will allow the Company to effectively supply the increased
customer needs for vital wheat gluten as market demand increases due to the
effects of the quotas on imports of foreign wheat gluten, as well as its other
products.
YEAR 2000 READINESS DISCLOSURE
Since 1996, the Company has recognized the need to configure its operations so
that they will not be adversely impacted by internal Year 2000 software
failures. New hardware and software have been acquired and installed for the
core financial applications. All core financial modules, except order entry,
have been tested successfully. The order entry module is in final modification
and testing. The total costs incurred to date approximate $225,000. Conversion
to the new system is expected to be completed during fiscal 1999. The Company
expects no additional significant costs to achieve Year 2000 compliance for
these applications.
<PAGE>
Due to the stage of completion and testing of these applications, as well as the
non-complexity of the systems, the Company fully anticipates that these systems
will be compliant far in advance of December 31, 1999.
-11-
MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1998
The Company also has surveyed its plant operations to determine which electrical
and other instrumentation equipment relies on date-sensitive software and
hardware. For those applications which have been identified, the Company has
received bids to modify the equipment. In some cases, testing of certain
equipment has already been completed. The cost to convert and test the
identified processes is expected to be less than $100,000, of which $22,000 has
been spent. The Company anticipates having the conversions completed and tested
during fiscal 1999. Should these conversions not be completed on a timely basis,
the Company should be able to produce all products without interruption except
specialty and modified wheat glutens and starches.
The Company is also in the process of surveying key vendors and customers
regarding their abilities to achieve Year 2000 compliance. Results of the
surveys continue to indicate these companies are knowledgeable of Year 2000
issues and are in the process of complying or have already complied.
Although the Company believes that it is taking appropriate steps to address the
Year 2000 readiness issue internally, there can be no assurance that its
operations will not be negatively impacted in the year 2000 by the lack of Year
2000 readiness by others.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements as well as historical
information. Forward-looking statements are identified by or are associated with
such words as "intend," "believe," "estimate," "expect," "anticipate," "hopeful"
"should," "may" and similar expressions. They reflect management's current
beliefs and estimates of future economic circumstances, industry conditions,
Company performance and financial results and are not guarantees of future
performance. The forward-looking statements are based on many assumptions and
factors including those relating to grain prices, gasoline prices, energy costs,
product pricing, competitive environment and related market conditions,
operating efficiencies, access to capital, Year 2000 readiness and actions of
governments. Any changes in the assumptions or factors could produce materially
different results than those predicted and could impact stock values.
-12-
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
15.1 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.)
15.2 Letter from independent public accountants concerning the use of its
Review Report in the Company's Registration statement No. 333-51849.
20 Letter to stockholders for the six months ended December 31, 1998.
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, 1998
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
Date: February 11, 1999 By___________________________
Ladd M. Seaberg, President
and Chief Executive Officer
s/Robert G. Booe
Date: February 11, 1999 By_______________________________
Robert G. Booe, Vice President
and Chief Financial Officer
-13-
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
15.1 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).
15.2 Letter from independent public accountants concerning the
use of its Review Report in the Company's Registration
Statement No. 333-51849.
20 Letter to stockholders for the six months ended
December 31, 1998.
27 Financial data schedule.
<PAGE>
Exhibit 15.2
Baird,
Kurtz &
Dobson
Certified Public City Center Square
Accountants 1100 Main Street, Suite 2700 http://www.bkd.com
Kansas City, MO 64105-2112 Member of Moores Rowland
816 221-6300 Fax 816 221-6380 International
-----------------------------------------------------------------------------
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
We are aware that our report dated January 26, 1999, on our review of the
interim financial information of Midwest Grain Products, Inc. for the periods
ended December 31, 1998 and 1997 is incorporated by reference in this
registration statement. Pursuant to Rule 436(c) under the Securities Act of
1933, this report should not be considered a part of the registration statement
prepared or certified by us within the meaning of Sections 7 and 11 of that Act.
BAIRD, KURTZ & DOBSON
January 26, 1999
<PAGE>
February 10, 1999 Exhibit 20
Dear Stockholder:
Our results for the second quarter of fiscal 1999 showed a sizeable increase
in earnings compared to the same period the prior year. We finished the quarter
with net income of $1,430,000, or $0.15 per share, on sales of $53,917,000
versus net income of $107,000, or $0.01 per share, on sales of $55,847,000 for
the second quarter of fiscal 1998. Our total net income for the first six months
of fiscal 1999 was $2,096,000, or $0.22 per share, on sales of $105,855,000.
That compares to a net loss of $128,000, or $0.01 per share, on sales of
$113,470,000 that we experienced in the first six months of fiscal 1998.
The improvement in the second quarter, as well as the entire first half of
fiscal 1999, primarily was due to lower prices for wheat, corn and milo, our
principal raw materials. A rise in productivity, resulting mainly from increased
production of vital wheat gluten, contributed to the upturn. This increase
occurred as we continued to make preparations to effectively satisfy customer
needs resulting from the expected reduction in imports of subsidized and
artificially-priced wheat gluten from the European Union (E.U.).
As previously announced, a three-year quota on imports of foreign wheat gluten
became effective on June 1, 1998. Under the quota, imports from the E.U. are
limited to 54 million pounds for the 12-month period ending May 31, 1999.
However, Department of Commerce data indicates that from June 1 through November
30, 1998, the E.U. had shipped approximately 26% more gluten into the U.S. than
allowed for the full quota year. Although the available published data indicates
that shipments from the E.U. have stopped after November, the violations have
stalled the relief that the U.S. wheat gluten industry has expected during the
first year of the quota. As a consequence, U.S. Customs officials are presently
investigating these apparent E.U. violations, and the Office of the U.S. Trade
Representative is considering the imposition of sanctions, which could provide
the industry with the kind of relief intended by the quota.
Although the tilt in the playing field was not corrected in the first half of
the current fiscal year, we are now experiencing indications of strengthened
demand for our wheat gluten and continue to realize gradual but steady growth in
sales of our specialty wheat proteins, especially in the cosmetics and personal
care markets.
While our production of wheat starch underwent a modest decline compared to a
year ago, sales of our value-added modified wheat starches increased as a
percentage of total starch sales. This strategically planned growth in modified
starch sales currently continues to build momentum.
Production of our food grade alcohol for beverage and industrial applications
remained essentially consistent with levels produced during the prior year's
second quarter. Selling prices fell, however, following the decline in raw
material costs for grain. Prices were also affected by a flattening in demand
due to the continuation of increased alcohol supplies throughout the industry.
Production of our fuel grade alcohol climbed compared to a year ago. While
selling prices for this product improved compared to this year's first quarter,
they were down from levels experienced during last year's second quarter as the
result of lower gasoline prices. Conditions in all of our alcohol markets remain
unchanged at this time. As such, we continue to focus on internal methods to
better optimize our distillery operations to achieve improved efficiencies.
Overall, I am pleased and encouraged by the upward direction our results have
taken, and excited about our ability to maintain improved profitability going
forward.
Sincerely,
s/Ladd M. Seaberg
Ladd M. Seaberg
President and CEO
<PAGE>
<TABLE> <S> <C>
<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, 1998 AND CONSOLIDATED BALANCE
SHEET AS AT DECEMBER 31, 1998, 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-30-1999
<PERIOD-START> JUL-1-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,345
<SECURITIES> 0
<RECEIVABLES> 23,863<F1>
<ALLOWANCES> 1,285
<INVENTORY> 32,298
<CURRENT-ASSETS> 62,002
<PP&E> 221,974
<DEPRECIATION> 119,762
<TOTAL-ASSETS> 164,620
<CURRENT-LIABILITIES> 17,023
<BONDS> 26,831
<COMMON> 6,715
0
4
<OTHER-SE> 100,121<F2>
<TOTAL-LIABILITY-AND-EQUITY> 164,620
<SALES> 105,855
<TOTAL-REVENUES> 105,855
<CGS> 95,352
<TOTAL-COSTS> 101,520<F3>
<OTHER-EXPENSES> 105<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,086)
<INCOME-PRETAX> 3,464
<INCOME-TAX> 1,368
<INCOME-CONTINUING> 2,096
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,096
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
<FN>
<F1> Reflects Receivables less Allowances.
<F2> Reflects retained earnings and additional paid in captial
less cost of Treasury Stock.
<F3> Reflects cost of sales and selling, general &
administrative expenses.
<F4> Reflects other operating income (loss)
</FN>
</TABLE>