<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, 1999 - 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
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(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
9,566,393 shares outstanding
as of May 1, 1999.
<PAGE>
INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants' Review Report........................... 2
Condensed Consolidated Balance Sheets as of
March 31, 1999 and June 30, 1998................................. 3
Condensed Consolidated Statements of Income for
the Three Months and Nine Months Ended March 31, 1999 and 1998... 5
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended March 31, 1999 and 1998.................... 6
Note to Condensed Consolidated Financial Statements.............. 7
Item 2. Management's Discussion and Analysis of Financial
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Condition and Results of Operations................ 8
-----------------------------------
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...............................13
--------------------------------
1
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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 March 31, 1999, and the related
condensed consolidated statements of income for the three month and nine month
periods ended March 31, 1999 and 1998, and the related condensed consolidated
statements of cash flows for the nine month periods ended March 31, 1999 and
1998. 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
April 23, 1999
2
<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
ASSETS
March 31, June 30,
1999 1998
--------- --------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 7,490 $ 4,723
Receivables 24,589 26,369
Inventories 28,067 20,430
Prepaid expenses 1,144 753
Deferred income taxes 2,343 2,343
Income taxes receivable 1,334
------ ------
Total Current Assets 63,633 55,952
------ ------
PROPERTY AND EQUIPMENT, At Cost 223,397 218,590
Less accumulated depreciation 123,068 112,976
------- -------
100,329 105,614
------- -------
OTHER ASSETS 406 412
------- -------
TOTAL ASSETS $ 164,368 $ 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
March 31, June 30,
1999 1998
--------- --------
(Unaudited)
CURRENT LIABILITIES
Current maturities of long-term debt $ 2,273 $ 2,360
Notes payable 1,000
Accounts payable 10,048 9,072
Accrued expenses 3,798 3,695
Income taxes payable 1,187
----- -----
Total Current Liabilities 17,306 16,127
------ ------
LONG-TERM DEBT 26,301 25,536
------ ------
POST-RETIREMENT BENEFITS 6,342 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 100,241 97,913
------- ------
109,445 107,117
Treasury stock, at cost
Common; March 31, 1999 - 200,000 shares
June 30, 1998 - 65,000 shares (2,496) (792)
------ ----
Total Stockholders' Equity 106,949 106,325
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $164,368 $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 NINE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
Three Months Nine Months
------------------ --------------------
1999 1998 1999 1998
------- ------ -------- --------
NET SALES $56,958 $53,310 $162,813 $166,780
COST OF SALES 53,643 50,991 148,995 158,031
------ ------ ------- -------
GROSS PROFIT 3,315 2,319 13,818 8,749
SELLING, GENERAL AND ADMINIS-
TRATIVE EXPENSES 2,512 2,622 8,680 8,881
----- ----- ----- -----
803 (303) 5,138 (132)
OTHER OPERATING INCOME (LOSS) 40 46 145 56
----- ----- ----- -----
INCOME (LOSS) FROM OPERATIONS 843 (257) 5,283 (76)
OTHER INCOME (LOSS)
Interest (467) (486) (1,553) (1,381)
Other 7 24 117 526
----- ----- ----- -----
INCOME (LOSS) BEFORE INCOME TAXES 383 (719) 3,847 (931)
PROVISION (CREDIT) FOR INCOME TAXES 151 (281) 1,519 (365)
----- ----- ----- -----
NET INCOME (LOSS) $ 232 $ (438) $ 2,328 $ (566)
======= ======== ======== =========
EARNINGS (LOSS) PER COMMON SHARE $ .02 $ (.05) $ .24 $ (.06)
======= ======== ======== =========
See Accompanying Note to Condensed Consolidated
Financial Statements
5
<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
NINE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 2,328 (566)
Items not requiring (providing) cash:
Depreciation 10,197 10,408
Gain on sale of equipment (19)
Changes in:
Accounts receivable 1,780 3,670
Inventories (7,637) (8,739)
Prepaid expenses and other assets (385) (69)
Accounts payable 1,123 (280)
Accrued expenses (75) 736
Income taxes receivable/payable 2,521
Income taxes payable (187)
----- ----
Net cash provided by operating activities 9,833 4,973
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (5,071) (3,243)
Proceeds from sale of equipment 31
----- -----
Net cash used in investing activities (5,040) (3,243)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock (1,704)
Net payments on long-term debt (2,322) (4,000)
Net proceeds from issuance of long-term debt 2,000
----- -----
Net cash used in financing activities (2,026) (4,000)
----- -----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,767 (2,270)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,723 6,005
----- -----
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,490 $ 3,735
===== =====
See Accompanying Note to Condensed Consolidated
Financial Statements
6
<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1999
(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 March 31,
1999, and the condensed consolidated results of its operations and its cash
flows for the periods ended March 31, 1999 and 1998, 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 NINE MONTHS ENDED MARCH 31, 1999
RESULTS OF OPERATIONS
General
- -------
The Company's net income of $232,000 in the third quarter of fiscal 1999
represented a substantial improvement over the net loss of $438,000 that was
experienced in the third quarter of fiscal 1998. This improvement resulted
primarily from lower raw material costs for wheat, corn and milo, increased
productivity in the Company's wheat gluten processing operations and
strengthened sales of premium wheat starch. Reduced grain prices were due to
high grain carryovers from abundant harvests during the spring, summer and early
fall of 1998. 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.).
Increased wheat starch sales resulted from increased demand for the Company's
non-modified and modified starches.
A more sizeable earnings improvement in the Company's third quarter was
prevented by decreased alcohol selling prices, especially for food grade
alcohol, and the adverse effects of the E.U.'s breach of quota restrictions on
imported gluten.
On June 1, the White House implemented a three-year annual quota on imports of
foreign wheat gluten following 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. 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.
Under the quota, imports of E.U. wheat gluten were 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 approximately 24%
more gluten to the U.S. than allowed for the full quota year ending May 31,
1999. Although the available published data indicates that both proper and
improper 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 Office of the U.S.
Trade Representative is considering recommendations to the President to remedy
the E.U. quota violation. When appropriate action is taken, the E.U. quota for
the second year is expected to be lower than the first year quota and
substantially less than the actual amount of gluten imported from the E.U. since
last June. As a result, the Company should be more competitive in the U.S.
gluten market during fiscal 2000.
8
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MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1999
Although a level playing field has yet to be established, the Company has
experienced some strengthening in demand for its wheat gluten and continues to
realize gradual but steady growth in sales of its specialty wheat proteins.
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 third quarter of fiscal 1999 rose by approximately $3.6 million
compared to net sales in the third quarter of fiscal 1998. The increase resulted
from higher sales of fuel grade alcohol, vital wheat gluten and premium wheat
starch. The surge in fuel grade alcohol sales occurred as the result of a
significant jump in unit sales as the Company shifted more of its alcohol
production to this area due to decreased demand for food grade alcohol for
beverage and industrial applications. However, the impact of the increased unit
sales was softened by lower selling prices for fuel alcohol, which normally
track gasoline prices. The decline in demand for food grade alcohol was caused
mainly by the continuation of excess supplies throughout the industry. Sales of
distillers' feed, a by-product of the alcohol production process, were
essentially even with sales a year ago.
The increase in wheat gluten sales in the third quarter occurred as the Company
raised production levels in preparation for satisfying market requirements
resulting from the expected realization of a fair competitive environment.
Sales of wheat starch increased as the result of higher unit sales, while
selling prices for this product remained essentially unchanged compared to the
third quarter of fiscal 1998.
Net sales for the first nine months of fiscal 1999 decreased by approximately
$4.0 million compared to net sales for the first nine months of fiscal 1998. The
decrease was principally due to reduced alcohol selling prices in each of the
first three 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 in all three quarters, and increased unit sales of
wheat starch in the third quarter.
Cost of Sales
- -------------
The cost of sales in the third quarter of fiscal 1999 increased by approximately
$2.6 million compared to cost of sales in the third quarter of fiscal 1998. This
occurred principally as a result of higher volume sales, largely of alcohol and
wheat gluten. The cost increase was partially offset by lower raw material costs
combined with reduced energy costs, lower maintenance and repair costs and
decreased insurance costs.
9
<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, 1999
Cost of sales for the first nine months of fiscal 1999 fell approximately $9.0
million below cost of sales for the first nine months of fiscal 1998 due to the
lower raw material and operating costs discussed 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 or hedge 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 third quarter of
fiscal 1999, raw material costs included a net hedging loss of $835,000 on
contracts settled during the quarter compared to a net hedging loss of $20,400
for the third quarter of fiscal 1998. Raw material costs for the first nine
months of fiscal 1999 included a net hedging loss of $2,908,000. For the first
nine months of fiscal 1998, those costs included a net hedging gain of $427,000.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses in the third quarter of fiscal 1999
decreased by approximately $110,000 below selling, general and administrative
expenses in the third quarter of fiscal 1998. Reductions occurred in costs
associated with industry-related fees and the Company's employee benefit plans.
These decreases were partially offset by increased costs related to research and
marketing promotional activities to strengthen the Company's development and
sales of value-added specialty products made from wheat.
For the first nine months of fiscal 1999, selling, general and administrative
expenses were down approximately $201,000 compared to selling, general and
administrative expenses for the first nine months of fiscal 1998. In addition to
the effects of the expenses discussed above, the nine-month amount was also
impacted by reduced commissions and professional services offset by increased
bad debt expense relating to one customer.
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
$232,000 in the third quarter of fiscal 1999 compared to a net loss of $438,000
in the third quarter of fiscal 1998. For the first nine months of fiscal 1999,
the Company experienced net income of $2,328,000 versus a net loss of $566,000
that was incurred in the first nine 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 NINE MONTHS ENDED MARCH 31, 1999
LIQUIDITY AND CAPITAL RESOURCES
The following table is presented as a measure of the Company's liquidity and
financial condition:
March 31, June 30,
1999 1998
--------- --------
(in thousands)
Cash and cash equivalents $ 7,490 $ 4,723
Working capital 46,327 39,825
Amounts available under lines of credit 28,000 30,000
Notes payable and long-term debt 28,574 28,896
Stockholders= equity 106,949 106,325
Fiscal 1999 had seen 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 reduced its inventory levels during the third quarter and
anticipates continuing the reduction of inventory levels during the fourth
quarter as well to meet customer needs.
Short-term liquidity was also impacted by open market purchases of 8,700 and
126,300 shares of the Company's common stock during the third and second fiscal
quarters, respectively. 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 March 31, 1999, the Company had $3.1 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 have been tested
successfully, installed and are currently in use at the Atchison location. The
total costs incurred to date approximate $225,000. Conversion to the new system
<PAGE>
is expected to be completed during fiscal 1999. The Company expects no
additional significant costs to achieve Year 2000 compliance for these
applications. Due to the stage of completion and testing of these applications,
as well as the non-
11
MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1999
complexity of the systems, the Company fully anticipates that these systems
will be compliant far in advance of December 31, 1999.
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 external 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 nine months ended March 31, 1999.
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, 1999
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 ____________________________
Date: May 12, 1999 Ladd M. Seaberg, President
and Chief Executive Officer
S/Robert G. Booe
By _____________________________
Date: May 12, 1999 Robert G. Booe, Vice President
and Chief Financial Officer
13
<PAGE>
EXHIBIT INDEX
Exhibit No. 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 nine months ended
March 31, 1999.
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 April 23, 1999, on our review of the interim
financial information of Midwest Grain Products, Inc. for the periods ended
March 31, 1999 and 1998 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.
s/BAIRD, KURTZ & DOBSON
BAIRD, KURTZ & DOBSON
April 23, 1999
<PAGE>
Exhibit 20
May 7, 1999
Dear Stockholder:
Our results for the third quarter of fiscal 1999 showed a good improvement
over results for the same period the prior year. This occurred despite a sharp
decline in selling prices for our food grade alcohol and in the face of adverse
competitive conditions caused by the European Union's breach of the first-year
quota on wheat gluten imports.
Our net income for this year's third quarter was $232,000, or $0.02 per
share, on sales of $56,958,000 versus the net loss of $438,000, or $0.05 per
share, on sales of $53,310,000 that we experienced in the third quarter of
fiscal 1998. For the first nine months of fiscal 1999, we had total net income
of $2,328,000, or $0.24 per share, on sales of $162,813,000. That compares to a
net loss of $566,000, or $0.06 per share, on sales of $166,780,000 for the first
nine months of fiscal 1998. Furthermore, our earnings before interest, taxes and
depreciation in the first nine months of fiscal 1999 totaled $15,597,000, a
substantial increase over the earnings of $10,858,000 that we had before
interest, taxes and depreciation in the first nine months the year before.
The third quarter drop in food grade alcohol selling prices mainly was due
to lower demand resulting from the continuation of excess supplies throughout
the industry. As a result, a greater portion of our distillery production mix
was shifted to the fuel grade area. Currently, we are experiencing indications
that conditions in the food grade market are improving.
To strengthen our alcohol production efficiencies, we just recently
completed a series of modifications to equipment at our Atchison distillery.
Going forward, we will be exploring additional possibilities for reducing
distillery production costs while maintaining the highest quality at both our
Atchison and Pekin, Illinois operations.
As previously reported, the E.U.'s violation of the gluten quota, which
became effective June 1, 1998 and extends over a three-year period, has delayed
the onset of a more equitable competitive environment in the United States
market. As a result, while our gluten sales have improved some over the prior
year, growth in this market has been limited.
The Office of the U.S. Trade Representative presently is working on
recommendations to President Clinton to remedy the E.U. quota violation. With
appropriate action, we expect the E.U. quota for the second year will be lower
than the first year quota and substantially less than the actual amount of
gluten the E.U. has funneled into the U.S. since last June. As a result, we
should be more competitive in the U.S. gluten market during fiscal 2000.
Meanwhile, sales of our specialty wheat proteins have continued to
experience steady growth compared to a year ago. Increases have occurred
gradually, which should be expected considering the formalized marketing
programs for many of these unique products have been in place only since the
beginning of the current fiscal year. Based on their outstanding functional
qualities and the positive feedback we are receiving from the marketplace, I
remain highly optimistic about the substantial contributions these ingredients
can ultimately make to our bottom line.
Our third quarter sales of premium wheat starch experienced a good increase
in comparison to the prior year's third quarter, and showed an even more
significant gain in comparison to this year's second quarter. Growth in this
area occurred partially as the result of higher sales of our value-added
modified wheat starches. In preparation to satisfy more long-range needs in the
market, we are planning to install additional drying capacity for our modified
starches in Atchison within the next six months.
<PAGE>
To place even greater focus on increasing our presence in the many new and
diverse markets for which our specialty wheat proteins and starches have been
developed, and to serve all of our customers more effectively, our marketing
operations have recently undergone a reorganization. Marketing functions and
responsibilities are now better aligned to help shape Midwest Grain Products
into a more market-driven, value-added producer. In closing, I invite you to
visit our Company's recently launched website, www.midwestgrain.com. Prepared
principally as a tool to assist our marketing and promotional efforts, I hope
you will find the website to be both convenient and informative.
Sincerely,
s/Ladd M. Seaberg
Ladd M. Seaberg
President and CEO
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
MIDWEST GRAIN PRODUCTS, INC. CONSOLIDATED STATEMENT OF INCOME FOR
THE NINE MONTHS ENDED MARCH 31, 1999 AND CONSOLIDATED BALANCE
SHEET AS AT MARCH 31, 1999, 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> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-1-1998
<PERIOD-END> MAR-31-1999
<CASH> 7,490
<SECURITIES> 0
<RECEIVABLES> 24,589<F1>
<ALLOWANCES> 1,285
<INVENTORY> 28,067
<CURRENT-ASSETS> 63,633
<PP&E> 223,397
<DEPRECIATION> 123,068
<TOTAL-ASSETS> 164,368
<CURRENT-LIABILITIES> 17,306
<BONDS> 26,301
<COMMON> 6,715
0
4
<OTHER-SE> 100,230<F2>
<TOTAL-LIABILITY-AND-EQUITY> 164,368
<SALES> 162,813
<TOTAL-REVENUES> 162,813
<CGS> 148,995
<TOTAL-COSTS> 157,675<F3>
<OTHER-EXPENSES> 145<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,553)
<INCOME-PRETAX> 3,847
<INCOME-TAX> 1,519
<INCOME-CONTINUING> 2,328
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,328
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
<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>
