<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, 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
---------------------------------
(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
9,000,572 shares outstanding
as of February 1, 2000.
<PAGE>
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants' Review Report.............................. 1
Condensed Consolidated Balance Sheets as of
December 31, 1999 and June 30, 1999................................. 2
Condensed Consolidated Statements of Income for
the Three Months and Six Months Ended December 31, 1999 and 1998.... 4
Condensed Consolidated Statements of Cash Flows for
the Six Months Ended December 31, 1999 and 1998..................... 5
Note to Condensed Consolidated Financial Statements................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................12
<PAGE>
[LOGO]
Baird, Kurtz & Dobson
City Center Square
1100 Main, Suite 2700
Kansas City, Missouri 64105
816 221-6300 FAX 816 221-6380
www.bkd.com
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, 1999, and the related
condensed consolidated statements of income for the three month and six month
periods ended December 31, 1999 and 1998, and the related condensed consolidated
statements of cash flows for the six month periods ended December 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, 1999, 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 July 30, 1999,
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, 1999, 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
Member of
Moores Rowland International
Kansas City, Missouri
January 26, 2000
Solutions for Success
<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
ASSETS
December 31, June 30,
1999 1999
------- -----
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 3,303 $ 4,054
Receivables 29,500 26,656
Inventories 22,365 24,450
Prepaid expenses 1,941 1,174
Deferred income taxes 3,034 3,034
----- -----
Total Current Assets 60,143 59,368
------ ------
PROPERTY AND EQUIPMENT, (At Cost) 227,247 224,381
Less accumulated depreciation 133,059 126,465
------- -------
94,188 97,916
------ ------
OTHER ASSETS 137 86
--- --
TOTAL ASSETS $ 154,468 $ 157,370
= ======= = =======
See Accompanying Notes 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
December 31, June 30,
1999 1999
------- -----
(Unaudited)
CURRENT LIABILITIES
Current maturities of long-term debt $ 2,357 $ 2,433
Accounts payable 10,617 9,129
Accrued expenses 3,267 4,296
Income taxes payable 1,942 457
----- ---
Total Current Liabilities 18,183 16,315
------ ------
LONG-TERM DEBT 18,681 21,099
------ ------
POST-RETIREMENT BENEFITS 6,294 6,312
----- -----
DEFERRED INCOME TAXES 8,199 8,199
----- -----
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 101,497 99,183
------- ------
110,701 108,387
Treasury stock, at cost
Common; December 31, 1999 - 764,600
shares June 30, 1999 - 239,100
shares (7,590) (2,942)
------ ------
Total Stockholders' Equity 103,111 105,445
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 154,468 $ 157,370
= ======= = =======
See Accompanying Notes to Condensed Consolidated
Financial Statements and Independent Accountants'
Review Report
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<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
------------------------- ---------------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET SALES $59,962 $53,917 $114,937 $ 105,855
COST OF SALES 54,007 47,843 104,757 95,352
------ ------ ------- ------
GROSS PROFIT 5,955 6,074 10,180 10,503
SELLING, GENERAL AND ADMINIS-
TRATIVE EXPENSES 3,001 3,262 5,681 6,168
----- ----- ----- -----
2,954 2,812 4,499 4,335
OTHER OPERATING INCOME 24 64 44 105
-- -- -- ---
INCOME FROM OPERATIONS 2,978 2,876 4,543 4,440
OTHER INCOME (LOSS)
Interest (372) (561) (761) (1,086)
Other (23) 48 42 110
---- -- -- ---
INCOME BEFORE INCOME TAXES 2,583 2,363 3,824 3,464
PROVISION FOR INCOME TAXES 1,020 933 1,510 1,368
----- --- ----- -----
NET INCOME $ 1,563 $ 1,430 $ 2,314 $ 2,096
= ===== = ===== = ===== = =====
EARNINGS PER COMMON SHARE $ .17 $ .15 $ .25 $ .22
= === = === = === = ===
</TABLE>
See Accompanying Notes to Condensed Consolidated
Financial Statements and Independent Accountants'
Review Report
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<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(Unaudited)
1999 1998
------------ --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,314 $ 2,096
Items not requiring (providing) cash:
Depreciation 6,743 6,801
Gain on sale of equipment 3 (3)
Changes in:
Accounts receivable (2,844) 2,506
Inventories 2,085 (11,868)
Prepaid expenses and other assets (818) (394)
Accounts payable 1,500 1,273
Accrued expenses (1,047) (817)
Income taxes receivable/payable 1,485 2,820
----- -----
Net cash provided by operating
activities 9,421 2,414
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (3,036) (3,424)
Proceeds from sale of equipment 6 5
- -
Net cash used in investing
activities (3,030) (3,419)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock (4,648) (1,581)
Net payments on long-term debt (2,494) (2,292)
Net proceeds from notes payable 2,500
-----
Net cash used in financing
activities (7,142) (1,373)
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS ( 751) (2,378)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,054 4,723
----- -----
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,303 $ 2,345
= ===== = =====
See Accompanying Notes to Condensed Consolidated
Financial Statements and Independent Accountants'
Review Report
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<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 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 December
31, 1999, and the condensed consolidated results of its operations and its cash
flows for the periods ended December 31, 1999 and 1998, and are of a normal
recurring nature.
See Independent Accountants' Review Report
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<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1999
Item 2.
RESULTS OF OPERATIONS
General
The Company's net income of $1,563,000 in the second quarter of
fiscal 2000 represented an increase compared to the net income of $1,430,000
that was experienced in the second quarter of fiscal 1999. The increase was
principally due to the effects of heightened demand for the Company's vital
wheat gluten and specialty and modified wheat proteins and wheat starches,
together with lower raw material costs for grain. These conditions partially
offset the impact of reduced selling prices for the Company's alcohol products
resulting from the continuation of excess alcohol supplies throughout the
industry. To improve alcohol production efficiencies long-term, the Company is
proceeding with plans to install new distillation equipment at its Atchison
plant. The project is scheduled for completion by the end of fiscal 2000 and is
expected to further enhance the Company's high quality food grade alcohol.
The realization of even greater demand for wheat gluten in both
the second and first quarters was prevented mainly by a huge surge of
gluten imports from the European Union (E.U.) just before the start of
the quarter. During the month of June 1999, which marked the opening
of the second year of a three-year annual quota on imports of foreign
gluten, the E.U.'s entire second year allocation of 45 million pounds
entered the United States market. This situation reduced the Company's
potential to increase gluten sales at a more accelerated rate in the
first six months of fiscal 2000. However, conditions allowing the
Company to build a greater presence in the gluten market during the
latter half of fiscal 2000 should materialize. In addition, the
Company expects to realize continued growth in sales of its specialty
wheat proteins, which are derived from wheat gluten and marketed for
use in a variety of value-added food and non-food applications.
Second quarter sales of wheat starch were boosted largely by heightened
demand for the Company's modified and specialty starches. To further serve
customers' requirements for these unique ingredients, the Company recently
completed the installation of additional production capacity at its Atchison
plant.
Sales
Net sales in the second quarter of fiscal 2000 increased by slightly
more than $6.0 million above net sales in the second quarter of fiscal 1999. The
increase resulted principally from higher sales of wheat gluten and premium
wheat starch.
Growth in wheat gluten sales in the second quarter occurred as the result
of high unit sales of wheat gluten and specialty wheat proteins together with a
modest improvement in selling prices.
Sales of wheat starch increased as the result of higher unit sales, while
selling prices for this product remained unchanged compared to the second
quarter of fiscal 1999.
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<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, 1999
Sales (Continued)
Alcohol sales were just slightly above the level reached a year ago as
growth in unit sales were largely offset by lower selling prices for fuel grade
alcohol and food grade alcohol for beverage applications. The decline in
alcohol selling prices was due to reduced demand caused mainly by the
continuation of excess supplies throughout the industry. While fuel grade
alcohol selling prices have recently begun an upturn, the Company does not
expect to experience the possibility of any noticeable impact from this
situation until the final quarter of fiscal 2000. Sales of distillers feed, the
principal by-product of the alcohol production process, dropped below sales a
year ago. This was due to lower unit sales as the selling price was
approximately even with the same period the prior year.
Net sales for the first six months of fiscal 2000 increased by
approximately $9.1 million above net sales for the first six months of fiscal
1999. The majority of this increase occurred in the second quarter for the
reasons cited above.
Cost of Sales
The cost of sales in the second quarter of fiscal 2000 increased by
approximately $6.2 million compared to cost of sales in the second quarter of
fiscal 1999. This occurred principally as the result of higher energy and
manufacturing costs together with costs associated with increased volume sales,
largely of gluten and alcohol products. Lower per unit grain prices partially
offset the higher costs resulting from increased volumes.
The cost of sales for the first six months of fiscal 2000 rose by
approximately $9.4 million above the cost of sales for the first six months of
the prior year. This was due to the increase in energy and manufacturing 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 second quarter
of fiscal 2000, raw material costs included a net hedging loss of $530,000 on
contracts settled during the quarter compared to $1,037,000 for the second
quarter of fiscal 1999. For the first six months of fiscal 2000, raw material
costs included a net hedging loss of $1,204,000 on contracts compared to
$2,073,000 for the first six months the prior year.
-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, 1999
Selling, General and Administrative Expenses
Selling, general and administrative expenses in the second quarter of fiscal
2000 decreased by slightly more than $260,000 below selling, general and
administrative expenses in the second quarter of fiscal 1999. The decrease was
due largely to a reduction in expenses related to bad debt, more than offsetting
increased costs related to research and marketing activities to strengthen the
Company's development and sales of value- added specialty products made from
wheat. These same factors resulted in a reduction of approximately $487,000 in
selling, general and administrative costs for the first six months of fiscal
2000 compared to the first six months of fiscal 1999.
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
$1,563,000 in the second quarter of fiscal 2000 compared to net income of
$1,430,000 in the first quarter of fiscal 1999. For the first six months of
fiscal 2000, the Company had net income of $2,314,000 versus net income of
$2,096,000 for the first six months of fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
The following table is presented as a measure of the Company's liquidity and
financial condition:
December 31, June 30,
1999 1999
---- ----
(in thousands)
Cash and cash equivalents $ 3,303 $ 4,054
Working capital 41,960 43,053
Amounts available under lines of credit 23,000 33,000
Notes payable and long-term debt 21,038 23,532
Stockholders= equity 103,111 105,445
Short-term liquidity continues to be impacted by the high inventory requirements
to meet anticipated customer needs for wheat gluten. While still at high levels,
gluten inventories have moderated somewhat during the second quarter due to
higher sales volumes and lower costs. As expected, the increased customer
requirements result from the three-year import quota to create a more fair and
stable competitive environment. The Company anticipates maintaining this high
level to satisfy customer needs throughout fiscal 2000. Additionally, high
alcohol inventories have declined somewhat as sales have exceeded production,
but excess supplies still exist throughout the industry.
-9-
<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, 1999
LIQUIDITY AND CAPITAL RESOURCES (Continued)
Short-term liquidity was also impacted by open market purchases of 525,500
shares of the Company's common stock. These purchases were made to fund the
Company's stock option plans and for other corporate purposes.
At December 31, 1999, the Company had $7.0 million committed to improvements in
production efficiencies and replacements of existing equipment, which includes
the equipment described in the first and third paragraphs on page 8.
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
The Company successfully implemented its internal Year 2000 Readiness Plan prior
to December 31, 1999, and has experienced no material failures or interruptions
since that date. It also does not expect any material internal Year 2000
readiness failures to occur in the future. The Company is also not aware of any
significant Year 2000 readiness failures that have been experienced by any third
party with which the Company deals.
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"
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, energy costs, product pricing, competitive
environment and related market conditions, operating efficiencies, access to
capital and actions of governments. Any changes in the assumptions or factors
could produce materially different results than those predicted and could impact
stock values.
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<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, 1999
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company produces its products from wheat, corn and milo and, as such,
is sensitive to changes in commodity prices. Grain futures and/or options are
used as a hedge to protect against fluctuations in the market. The information
regarding inventories and futures contracts at June 30, 1999, as presented in
the annual report, is not significantly different from December 31, 1999.
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<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Copy of Sixth Amended Line of Credit Loan Agreement providing for the
Issuance of a Line of Credit Note in the amount of $20,000,000. This
exhibit supercedes exhibit 4(c) to the Company's form 10-K for the
year ended June 30, 1999.
4.2 Copy of Line of Credit Note Under Sixth Amended Line of Credit Loan
Agreement. This exhibit supercedes exhibit 4(d) to the Company's form
10-K for the year ended June 30, 1999.
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.
27 Financial Data schedule for the quarter ending December 31, 1999
99 Press Release dated February 7, 2000 (w/o financial statements).
(b) Reports on Form 8-K
The Company has filed no reports on Form 8-K during the quarter ended December
31, 1999.
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<PAGE>
MIDWEST GRAIN PRODUCTS, INC.
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, 2000 By
Ladd M. Seaberg, President
and Chief Executive Officer
s/Robert G. Booe
Date: February 11, 2000 By
Robert G. Booe, Vice President
and Chief Financial Officer
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<PAGE>
EXHIBIT INDEX
Exhibit No Description
- ---------- -----------
4.1 Copy of Sixth Amended Line of Credit Loan Agreement providing for the
Issuance of a Line of Credit Note in the amount of $20,000,000. This
exhibit supercedes exhibit 4(c) to the Company's form 10-K for the year
ended June 30, 1999.
4.2 Copy of Line of Credit Note Under Sixth Amended Line of Credit Loan
Agreement. This exhibit supercedes exhibit 4(d) to the Company's form 10-K
for the year ended June 30, 1999.
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.
27 Financial Data schedule for the quarter ending December 31, 1999
99 Press Release dated February 7, 2000 (w/o financial statements).
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<PAGE>
Exhibit 4.1
SIXTH AMENDED LINE OF CREDIT LOAN AGREEMENT
-------------------------------------------
THIS SIXTH AMENDED LINE OF CREDIT LOAN AGREEMENT (the "Agreement"), executed as
of this 20th day of December, 1999, by and between MIDWEST GRAIN PRODUCTS, INC.,
a corporation organized under the laws of the state of Kansas and having its
principal place of business in Atchison, Kansas ("Borrower"), and Commerce Bank,
N.A., a national banking association, having its principal place of business in
Kansas City, Missouri ("Bank").
WHEREAS, Borrower desires to establish a line of credit with Bank to provide
working capital; and
WHEREAS, Bank desires to extend such line of credit upon the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual agreements contained
in this Agreement, the parties agree as follows:
ARTICLE I
Line of Credit
Section 1.1. General Terms. Subject to the terms of this Agreement, Bank will
lend Borrower, from time to time, until the termination hereof, such sums as
Borrower may request, in minimum increments of $100,000, which shall not exceed
in the aggregate principal amount at any one time outstanding the sum of Twenty
Million and no/100 Dollars ($20,000,000.00) (the "Line of Credit Loan").
Bank's obligation to lend hereunder may be terminated by Bank at any time in
Bank's sole discretion, or if no such termination is made, then on November 1,
2001. Each advance under the Line of Credit Loan is at the option of Bank and
Bank has no obligation to make advances. In addition this Agreement shall be
deemed to automatically terminate if the occurrence of an event pursuant to
Section 4.1 causes the Line of Credit Note to become immediately due and
payable. The inclusion of monthly interest payments, events of default and an
alternate maturity date does not alter the discretionary nature of the line of
credit.
Section 1.2. Commitment Fee. Borrower shall pay a fee equal to 1/4% per annum on
the unused portion of the Line of Credit Loan. Such fee shall be paid quarterly
in arrears.
Section 1.3. Note. Borrower agrees to execute and deliver to Bank the Line of
Credit Note to evidence the Line of Credit Loan. Each advance made thereunder,
together with each repayment made by Borrower, shall be evidenced by a notation
dated the date of the advance or repayment and recorded by Bank on the schedule
appearing on the reverse side of or attached to the Line of Credit Note. The
-1-
aggregate unpaid principal amount of the Line of Credit Note set forth on the
schedule shall be conclusively presumed to reflect the amounts advanced and
repaid, and the outstanding principal balance of the Line of Credit Loan.
Section 1.4. Principal Payment. In the event of a default as defined in Section
4.1 or on November 1, 2001, the principal balance of the Line of Credit Note
together with all accrued interest shall become immediately due and payable.
<PAGE>
Section 1.5. Interest. If the outstanding balance is less than $500,000, the
line of credit shall bear interest at a per annum rate equal to the Prime Rate.
If the outstanding balance is $500,000 or greater, the line of credit shall bear
interest at the greater of either (1) the Prime Rate, minus 1%, or (2) the
Federal Funds Rate plus 1.50%. Interest will be payable monthly, in arrears, and
at maturity, whether by acceleration or otherwise. Interest will be computed on
the actual days outstanding based upon a year consisting of 360 days.
"Prime Rate" means the Prime Rate of interest established from time to time by
Bank and designated as such for its internal convenience, and no representation
is made that the Prime Rate is the best, the lowest or a favored rate of
interest. The rate of interest, if tied to the Prime Rate, shall change with and
be effective on the date of each change in the Prime Rate.
"Federal Funds Rate" means the effective Federal Funds Rate as quoted by the
Federal Reserve Bank of New York on a daily basis. The Federal Funds Rate is
adjusted daily.
Section 1.6. Purpose. Borrower represents the purpose of the Line of Credit Loan
is to provide short term working capital.
Section 1.7. Disbursements. Bank will credit the proceeds of any borrowing
hereunder to Borrower's deposit account maintained with Bank.
Section 1.8. Condition of Loans. Any advance under the Line of Credit Note is
subject to the condition precedent that no event of default described in Section
4.1 shall have occurred, and that the Line of Credit has not been terminated.
Each request for a borrowing under the Line of Credit Note shall be deemed to
constitute a representation by Borrower at the time of the request that no event
of default as defined in Section 4.1 exists or is imminent and that the
representations and warranties of Borrower contained in this Agreement are true
in all material respects on or as of the date of borrowing.
ARTICLE II
Warranties and Representations
Section 2.1. Good Standing. The Borrower is a corporation duly organized and in
good standing, under the laws of the state of Kansas, and has the power to own
its property and to carry on its business and is in good standing in each
jurisdiction in which the character of the properties owned by it or in which
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the transaction of its business makes such qualifications necessary.
Section 2.2. Authority. The Borrower has full power and authority to enter into
this Agreement, to make the borrowing hereunder, and to execute and deliver the
Line of Credit Note, all of which has been duly authorized by all proper and
necessary corporate action. No consent or approval of stockholders is required
as a condition to the validity of this Agreement or the Line of Credit Loan.
Section 2.3. Binding Agreement. This Agreement constitutes, and the Line of
Credit Note when issued and delivered pursuant hereto, for value received, will
constitute, the valid and legally binding obligations of the Borrower in
accordance with all stated terms.
Section 2.4. Litigation. There are no proceedings pending, or, so far as the
officers of the Borrower know threatened, which will materially adversely affect
the financial condition or operations of the Borrower or any subsidiary.
<PAGE>
Section 2.5. No Conflicting Agreements. There are no charter, bylaw, or
preference stock provisions of the Borrower and no provision of any existing
mortgage, indenture, contract or agreement binding on the Borrower or affecting
its property, which would conflict with or in any way prevent the execution,
delivery, or carrying out of the terms of this Agreement and of the Line of
Credit Note.
Section 2.6. Taxes. The Borrower has filed all Federal, State and other tax and
similar returns and has paid or provided for the payment of all taxes and
assessments due thereunder including, without limitation, all withholding, FICA
and franchise taxes.
Section 2.7. Financial Statements. There have been no material changes in the
Borrower's financial statements dated June 30, 1999.
ARTICLE III
Covenants
So long as this Agreement remains in effect or as long as there is any principal
or interest due on the Line of Credit Note, Borrower agrees as follows:
Section 3.1. Comply with all Company Covenants as defined and contained in
Section 5 of the Note Agreement dated as of August 1, 1993, between Borrower and
the Principal Mutual Life Insurance Company (the "Principal Agreement")
including, but not limited to, the following:
(a) Current Ratio. Maintain a Current Ratio of not less than 1.50
to 1.00.
-3-
(b) Consolidated Tangible Net Worth. Maintain Consolidated
Tangible Net Worth at an amount not less than THE GREATER OF (i)
$81,631,000 or (ii) the sum of $81,631,000 plus 50% of Consolidated
Net Income for the period from and after September 30, 1999 to the
date of determination thereof (considered as a single accounting
period).
(c) Funded Debt. Not permit Consolidated Funded Debt to exceed
60% of total capitalization.
(d) Debt/Worth. Maintain a ratio of Debt to Tangible Net Worth of
not more than 2.50 to 1.00.
(e) Fixed Charges Coverage Ratio. Maintain at the end of each
fiscal quarter a ratio of Net Income Available for Fixed Charges to
Fixed Charges for the 4 consecutive quarters then ending of not less
than 1.50 to 1.00.
The Company Covenants shall survive any amendment, modification or termination
of the Principal Agreement.
Section 3.2 Taxes, etc. Promptly pay all taxes, assessments and other government
charges (unless such payments are being contested in good faith).
Section 3.3 Insurance. Maintain insurance on all its properties in such amounts
and against such hazards as is customary in Borrower's industry.
Section 3.4 Books and Records. Maintain its books and records and account for
financial transactions in accordance with generally accepted accounting
principals.
<PAGE>
Section 3.5 Financial Reporting. Borrower shall furnish Bank with the following
information:
(a) Its annual audited financial statement within 90 days of its
fiscal year-end, in a form and prepared by a certified public
accounting firm acceptable to Bank;
(b) Its quarterly financial statements within 45 days after the
end of each quarter; and
(c) Such other information as Bank may reasonably request from
time to time.
Section 3.6 Notification. Notify Bank immediately if it becomes aware of the
occurrence of any Event of Default (as defined under Section 4.1 hereof) or of
any fact, condition, or event that, only with the giving of notice or passage of
time or both, would become an Event of Default, or if it becomes aware of a
material adverse change in the business prospects, financial condition
(including, without limitation, proceedings in bankruptcy, insolvency,
-4-
reorganization, or the appointment of a receiver or trustee), or results of
operations of Company, or the failure of Company to observe any of its
undertakings under this Agreement of any other note or agreement binding on
Borrower including, but not limited to, the Principal Agreement.
ARTICLE IV
Defaults
Section 4.1. Events of Default. The entire unpaid balance of the Line of Credit
Note shall become immediately due and payable without demand, presentment,
notice or protest of any kind (all of which are expressly waived), upon the
happening of any of the following events of default:
(a) Nonpayment of any interest or any principal payment owing
under the Line of Credit Note whether at maturity or otherwise; or
(b) If any certificate, statement, representation, warranty or
audit furnished by or on behalf of the Borrower in connection with
this Agreement, including those contained herein, or as an inducement
by Borrower to enter into, modify, extend, or renew this Agreement
shall prove to be false in any material respect, or if Borrower shall
have omitted the listing of a substantial contingent or unliquidated
liability or claim against Borrower or, if on the date of execution of
this Agreement there shall have been any materially adverse change in
any of the facts disclosed by any such certificate, statement,
representation, warranty or audit, which change shall not have been
disclosed by Borrower to Bank at or prior to the time of execution; or
(c) If Borrower shall default in the due performance or
observance of any covenant undertaken by it under this Agreement; or
(d) Default in the performance of the obligations of Borrower
pursuant to any other note or agreement binding on Borrower including,
but not limited to, the Principal Agreement; or
<PAGE>
(e) Borrower shall be adjudicated a bankrupt, or make a general
assignment for the benefit of its creditors, or there are instituted
by or against Borrower any type of bankruptcy proceedings or any
proceeding for the liquidation or the termination of Borrower's
affairs, or the appointment of a receiver or trustee for Borrower or
for any of Borrower's assets, or a properly filed petition for
Borrower's reorganization under the Bankruptcy Code or otherwise is
approved, or Borrower files a petition for arrangement under Chapter
11 of the Bankruptcy Code or any similar statute.
(f) Any judgment or judgments, writ or writs, or warrant or
warrants of attachment, or any similar process or processes shall be
entered or filed against the Borrower or any Subsidiary or against any
-5-
of their respective property or assets and remain unstayed and
undischarged for a period of 60 days from the date of its entry.
Section 4.2. Remedies. If any event of default occurs, Bank may resort to any
remedy existing at law or in equity for the collection of the Line of Credit
Note and enforcement of the covenants and provisions of this Agreement. Bank's
resort to any remedy shall not prevent the concurrent or subsequent employment
of any other remedy.
Section 4.3. Waiver. Any waiver of an event of default by Bank shall not extend
to or affect any subsequent default. No failure or delay by Bank in exercising
any right hereunder shall operate as a waiver nor shall any single or partial
exercise of any right preclude any other right hereunder.
ARTICLE V
Miscellaneous
Section 5.1. Amendments. This Agreement may be amended or modified in whole or
in part at anytime, if in writing and signed by the parties. Bank may further
consent in writing, or give written waiver to any covenant or event which might
otherwise create a default.
Section 5.2. Delay, Waiver. No omission or delay on the part of Bank in
exercising any right, power, or privilege hereunder shall impair or operate as a
waiver thereof, nor shall any single or partial exercise or any right, power, or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power, or privilege. No waiver by Bank will be
valid unless in writing and signed by Bank and then only to the extent specified
therein. The rights and remedies herein expressly specified are cumulative and
not exclusive of any rights or remedies which Bank would otherwise have.
Section 5.3. Bank. Whenever in this Agreement reference is made to the Bank,
such term shall be deemed for the purpose of benefits, powers, and privileges
hereunder to include any firm, person, or corporation who may be the holder from
time to time of the Note issued hereunder or a participation therein.
Section 5.4. Governing Law. This Agreement and the Line of Credit Note shall be
construed and interpreted in accordance with the laws of the State of Missouri.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
as of the date first above written.
<PAGE>
ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM
ENFORCING REPAYMENT OF A DEBT, INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT,
ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER) AND US (CREDITOR) FROM
-6-
MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH
MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE
STATEMENT OF THE AGREEMENT BETWEEN US EXCEPT AS WE MAY LATER AGREE IN WRITING.
MIDWEST GRAIN PRODUCTS, INC. COMMERCE BANK, N.A.
By: s/Ladd M. Seaberg____________ By: s/Frederick J. Marston__________
Title: President - CEO____________ Title: VP__________________________
By: s/Robert G. Booe________________
Title: VP-CFO_____________________
-7-
<PAGE>
Exhibit 4.2
LINE OF CREDIT NOTE
-------------------
$20,000,000 December 20, 1999
FOR VALUE RECEIVED, the undersigned, MIDWEST GRAIN PRODUCTS, INC., a Kansas
corporation ("Borrower") hereby promises to pay to the order of Commerce Bank,
N.A. ("Bank") at its offices in Kansas City, Missouri, the aggregate unpaid
principal amount and accrued interest of all borrowings hereunder. The aggregate
unpaid principal amount shall also become immediately due and payable, without
demand or further action on the part of Bank upon the occurrence of an event of
default as set forth in Section 4.1 of the Sixth Amended Line of Credit Loan
Agreement, as amended, dated as of December 20, 1999 (the 'Agreement").
Interest on this note shall be calculated on the actual number of days on the
basis of a year of 360 days. If the outstanding balance is less than $500,000,
the line of credit shall bear interest at a per annum rate equal to the Prime
Rate. If the outstanding balance is $500,000 or greater, the line of credit
shall bear interest at the greater of either (1) the Prime Rate, minus 1 %, or
(2) the Federal Funds Rate plus 1.50%.
Interest will be payable monthly, in arrears, and at maturity, whether by
acceleration or otherwise, beginning January 1, 2000, and on the first day of
each month thereafter. Interest will be computed on the actual days outstanding
based upon a year consisting of 360 days. If any interest payment on this note
shall become due and payable on a day which is not a business day of Bank,
payment shall be made on the next succeeding business day of Bank.
"Prime Rate" means the Prime Rate of interest established from time to time by
Commerce Bank and designated as such for its internal convenience, and no
representation is made that the Prime Rate is the best, the lowest or a favored
rate of interest. The rate of interest, if tied to the Prime Rate, shall change
with and be effective on the date of each change in the Prime Rate.
"Federal Funds Rate" means the effective Federal Funds Rate as quoted by the
Federal Reserve Bank of New York on a daily basis. The Federal Funds Rate is
adjusted daily.
So long as the Agreement has not been terminated, Borrower may, from the date of
this note through November 1, 2001 borrow, repay and reborrow sums, at any one
time outstanding, not to exceed $20,000,000. All advances and repayments
hereunder shall be endorsed on the reverse hereof (or an attached schedule) by
the Bank or holder, and between the undersigned and Bank, such endorsements and
the balances derived from such endorsements shall be conclusively presumed to
reflect the amounts advanced and repaid hereunder and the then outstanding and
unpaid balance of sums advanced or readvanced hereunder.
The undersigned hereby waives presentment, protest, demand and notice of
dishonor or default.
<PAGE>
This note is issued pursuant to the terms of the Agreement, to which Agreement,
and any amendments thereto, reference is hereby made for a statement of the
terms and conditions under which this borrowing was made, and is to be repaid.
MIDWEST GRAIN PRODUCTS, INC.
By: S/Ladd M. Seaberg______________
Title: _President - CEO____________
By: S/Robert G. Booe_______________
Title: _VP-CFO_____________________
<PAGE>
Exhibit 15.2
[LOGO]
Baird, Kurtz & Dobson
City Center Square
1100 Main, Suite 2700
Kansas City, Missouri 64105
816 221-6300 FAX 816 221-6380
www.bkd.com
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
We are aware that our report dated January 26, 2000 on our review of
the interim financial information of Midwest Grain Products, Inc. for the
periods ended December 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 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
Member of
Moores Rowland International
Kansas City, Missouri
January 26, 2000
Solutions for Success
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
MIDWEST GRAIN PRODUCTS, INC. CONSOLIDATED STATEMENT OF INCOME FOR
THE SIX MONTHS ENDED DECEMBER 31, 1999 AND CONSOLIDATED BALANCE
SHEET AS AT DECEMBER 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,303
<SECURITIES> 0
<RECEIVABLES> 29,500<F1>
<ALLOWANCES> 285
<INVENTORY> 22,365
<CURRENT-ASSETS> 60,143
<PP&E> 227,247
<DEPRECIATION> 133,059
<TOTAL-ASSETS> 154,468
<CURRENT-LIABILITIES> 18,183
<BONDS> 18,681
<COMMON> 6,715
0
4
<OTHER-SE> 96,392<F2>
<TOTAL-LIABILITY-AND-EQUITY> 154,468
<SALES> 114,937
<TOTAL-REVENUES> 114,937
<CGS> 104,757
<TOTAL-COSTS> 110,438<F3>
<OTHER-EXPENSES> (44)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (761)
<INCOME-PRETAX> 3,824
<INCOME-TAX> 1,510
<INCOME-CONTINUING> 2,314
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,314
<EPS-BASIC> .25
<EPS-DILUTED> .25
<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.
</FN>
</TABLE>
<PAGE>
Exhibit 99
[LOGO and Letterhead for Midwest Grain Products, Inc.] PRESS RELEASE
FOR IMMEDIATE RELEASE: MIDWEST GRAIN POSTS SECOND QUARTER EARNINGS INCREASE
ATCHISON, Kan., February 7, 2000--Ladd Seaberg, president and chief
executive officer of Midwest Grain Products, Inc., announced today that results
for the company's second quarter of fiscal 2000 moved ahead of results for the
same period the prior year.
The company's net income for the quarter, which ended Dec. 31, 1999,
was $1,563,000, or 17 cents per share, on sales of $59,962,000. That compares to
net income of $1,430,000, or 15 cents per share, on sales of $53,917,000 that
Midwest Grain experienced in the second quarter of fiscal 1999.
For the first six months of fiscal 2000, the company had net income of
$2,314,000, or 25 cents per share, on sales of $114,937,000, compared to net
income of $2,096,000, or 22 cents per share, on sales of $105,855,000 for the
first six months of fiscal 1999.
Seaberg attributed the second quarter earnings improvement to the
effects of heightened demand for the company's wheat gluten, specialty wheat
proteins and wheat starches combined with lower raw material costs for grain.
"The reasons for our improvement were essentially the same as those we
experienced in the current year's first quarter," Seaberg said. "Similarly," he
added, "these positive factors were partially offset by the impact of reduced
selling prices for our alcohol products due to the continuation of excess
supplies throughout the industry."
Recently, selling prices for fuel grade alcohol have stabilized, and in
some instances increased, according to Seaberg. "While this situation is not
expected to have an immediate effect on our results, it could have some
measurable impact during the final quarter of the year," Seaberg said.
Meanwhile, work continues at Midwest Grain's Atchison plant to enhance the
company's alcohol distillation process and further improve alcohol production
cost efficiencies.
The realization of even greater demand for the company's wheat gluten
throughout the first six months of fiscal 2000 was largely prevented by a huge
surge of gluten imports from the European Union (E.U.) just prior to the start
of the year, Seaberg explained. As previously reported, during the month of
June, 1999, which marked the opening of the second year of a three-year annual
quota on imports of foreign gluten, the E.U.'s entire allocation of 45 million
pounds entered the United States market. "This surge reduced our potential to
realize a more substantial increase in gluten sales in the first half of the
year" he said. "I remain hopeful, however, that more favorable conditions in the
gluten market may yet materialize during the remainder of fiscal 2000," he
added.
The company also expects to realize continued growth in sales of its
specialty wheat-based ingredients, which are produced and marketed for use in a
variety of value-added food and non-food applications. "We're making good
progress in this area," Seaberg said, "and, as a result, are solidifying our
position in the marketplace as a customer-oriented solutions provider."
<PAGE>
This news release 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 marketing
conditions, operating efficiencies, access to capital and actions of
governments. Any changes in the assumptions or factors could produce materially
different results than those predicted and could impact stock values.
###
