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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 September 30, 2000
MIDWEST GRAIN PRODUCTS, INC.
-------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Commission File No. 0-17196
KANSAS 48-0531200
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(State or Other Jurisdiction of IRS Employer
Incorporation or Organization) Identification No.
1300 Main Street, Atchison, Kansas 66002
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(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
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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
8,526,697 shares outstanding
as of November 1, 2000
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INDEX
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Independent Accountants' Review Report.............. 2
Condensed Consolidated Balance Sheets as of
September 30, 2000 and June 30, 2000................ 3
Condensed Consolidated Statements of Operations for
the Three Months Ended September 30, 2000 and 1999.. 5
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended September 30, 2000 and 1999.. 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........ 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk.......................... 12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K............... 13
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Exhibit 23
[LOGO]
City Center Square
1100 Main Street, Suite 2700
Kansas City, Missouri 64105-2112
Baird, Kurtz & Dobson 816 221-6300 FAX 816 221-6380
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bkd.com
Independent Accountants' Review Report
Board of Directors and Stockholders
Midwest Grain Products, Inc.
Atchison, Kansas 66002
We have reviewed the accompanying condensed consolidated balance sheet of
MIDWEST GRAIN PRODUCTS, INC. and subsidiaries as of September 30, 2000, and the
related condensed consolidated statements of operations for the three month
periods ended September 30, 2000 and 1999, and the related condensed
consolidated statements of cash flows for the three-month periods ended
September 30, 2000 and 1999. These financial statements are the responsibility
of the Company's management.
We conducted our review 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 review, 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, 2000, 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
1, 2000, 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, 2000, 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
October 27, 2000
Solutions for Success
Member of Moores Rowland International [Logo]
an association of independent
accounting firms throughout the world
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MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
ASSETS
September 30, June 30,
2000 2000
------------------- --------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 5,954 $ 7,728
Receivables 27,662 30,272
Inventories 17,854 19,246
Prepaid expenses 2,380 1,617
Deferred income taxes 4,058 4,058
Income taxes receivable 906
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Total Current Assets 58,814 62,921
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PROPERTY AND EQUIPMENT, At cost 234,086 232,508
Less accumulated depreciation 142,830 139,737
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91,256 92,771
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OTHER ASSETS 87 87
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$ 150,157 $ 155,779
============ ============
See Accompanying Notes to Condensed Consolidated Financial
Statements and Independent Accountants' Review Report
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MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(In Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, June 30,
2000 2000
------------------ --------------
(Unaudited)
CURRENT LIABILITIES
Current maturities of long-term debt $ 2,273 $ 2,273
Accounts payable 11,352 10,563
Accrued expenses 2,571 4,044
Income taxes payable 952
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Total Current Liabilities 16,196 17,832
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LONG-TERM DEBT 15,908 18,181
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POST-RETIREMENT BENEFITS 6,161 6,170
------------ ------------
DEFERRED INCOME TAXES 11,218 11,218
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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 102,823 104,073
Accumulated other comprehensive income
(loss) -
Cash flow hedges (131)
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111,896 113,277
Treasury stock, at cost
Common;
September 30, 2000 - 1,218,675 shares
June 30, 2000 - 1,181,775 shares (11,222) (10,899)
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100,674 102,378
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Total liabilities and stockholders' equity $ 150,157 $ 155,779
============ ============
See Accompanying Notes to Condensed Consolidated Financial
Statements and Independent Accountants' Review Report
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MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
2000 1999
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(in thousands)
NET SALES $ 58,297 $ 54,975
COST OF SALES 55,532 50,750
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GROSS PROFIT 2,765 4,225
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,201 2,680
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(436) 1,545
OTHER OPERATING INCOME (EXPENSE) (1) 20
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INCOME (LOSS) FROM OPERATIONS (437) 1,565
OTHER INCOME (EXPENSE), NET
Interest (344) (389)
Other 128 65
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INCOME (LOSS) BEFORE INCOME TAXES (653) 1,241
PROVISION (CREDIT) FOR INCOME TAXES (258) 490
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NET INCOME (LOSS) $ (395) $ 751
=========== ==========
EARNINGS (LOSS) PER COMMON SHARE $(0.05) $ 0.08
======= =========
See Accompanying Notes to Condensed Consolidated Financial
Statements and Independent Accountants? Review Report
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MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
2000 1999
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(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (395) $ 751
Items not requiring cash:
Depreciation 3,276 3,379
Loss on sale of equipment 10
Changes in:
Accounts receivable 2,610 (1,507)
Inventories 1,261 (148)
Prepaid expenses (763) (552)
Accounts payable 1,003 1,118
Accrued expenses (2,328) (2,344)
Income taxes receivable (1,858) 490
Other (9) (61)
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Net cash provided by operating activities 2,807 1,126
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CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (1,985) (1,259)
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Net cash used in investing activities (1,985) (1,259)
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CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock (323) (1,048)
Net payments on long-term debt (2,273) (2,291)
Net proceeds from issuance of long-term debt 1,000
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Net cash used in financing activities (2,596) (2,339)
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DECREASE IN CASH AND CASH EQUIVALENTS (1,774) (2,472)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,728 4,054
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,954 $ 1,582
========== ==========
See Accompanying Notes to Condensed Consolidated Financial
Statements and Independent Accountants? Review Report
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MIDWEST GRAIN PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2000
(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 September
30, 2000, and the condensed consolidated results of its operations and its cash
flows for the periods ended September 30, 2000 and 1999, and are of a normal
recurring nature.
NOTE 2: NEW ACCOUNTING PRONOUNCEMENT
During the first quarter of fiscal 2001, the Company adopted the provisions
of Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. The adoption of this
pronouncement did not have a material impact on the financial statements at
September 30, 2000.
See Independent Accountants Review Report
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MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000
RESULTS OF OPERATIONS
General
The Company had a net loss of $395,000 in the first quarter of fiscal 2001
compared to the prior year's first quarter net income of $751,000. The decline
was principally due to a significant rise in energy costs combined with
non-recurring expenses related to the start-up of new distillery equipment at
the Company's Atchison, Kansas plant in late August.
The higher energy costs were caused by a dramatic hike in natural gas prices,
which practically doubled compared to price levels experienced during the same
period the prior year. Since the end of the quarter, natural gas prices have
fallen modestly. Additionally, the Company has been able to switch over to less
expensive fuel oil to satisfy the majority of its energy requirements at the
Atchison facility.
The new distillery equipment in Atchison consisted principally of new
distillation columns to replace older equipment used for the production of food
grade beverage and industrial alcohol. However, the equipment start- up
necessitated a ten-day temporary shutdown of all plant operations in Atchison,
adversely affecting production efficiencies for the quarter. Efficiencies
plant-wide have since returned to their prior levels, with noticeable
improvements being experienced in the distillery operation. With the new
distillation columns, the Company now has the capability to meet market demand
for higher purity, high quality food grade alcohol, which increased in the first
quarter, and is expected to rise even more in the second quarter. Demand for the
Company's fuel grade alcohol, which rose well into the first quarter, also is
expected to climb during the current three-month period. This partially has been
due to a proposal by the Environmental Protection Agency (EPA) to phase out
MTBE, a synthetically derived fuel oxygenate, which has been shown to be a
groundwater contaminant and potential health hazard. Grain-based fuel alcohol,
or ethanol as it is commonly known, is considered the most reasonable and likely
replacement for MTBE.
Demand for the Company's vital wheat gluten dropped in the first quarter due
largely to a softening in the marketplace. The decline could have been more
severe but for President Clinton's decision to allocate imports of foreign
gluten on a quarterly rather than an annual basis with the start of the third
year of a three-year annual quota on June 1. In the first quarter of the prior
fiscal year, the U.S. was suddenly and rapidly inundated with gluten imports,
due mainly to the European Union's (E.U.) entire annual allocation entering the
market within just two weeks after the second year of the quota opened on June
1, 1999. Additionally, the U.S. saw a substantial increase in gluten imports
from other parts of the world, particularly Poland. In response, President
Clinton issued his decision to place imports of foreign wheat gluten on
quarterly allocations. He additionally added Poland to the list of countries
that are subject to the quota after determining that dramatically increased
shipments from Poland had impaired the quota's effectiveness.
In a related matter, a dispute panel of the World Trade Organization (WTO) on
July 28, 2000 challenged the
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safeguards decision under which the wheat gluten quota was implemented. The WTO
challenge is being appealed by the U.S. Trade Representative in a process that
could extend through December 2000. In the interim, the WTO ruling is not
expected to have an impact on the quota.
Demand for the Company's specialty wheat proteins continued a gradual rise in
the first quarter, principally due to increased customer interest and the
effects of intensified marketing programs. Produced for a variety of food and
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MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000
non-food applications, these value-added products include dough conditioners,
meat extenders and replacers, ingredients for hair care and skin care systems,
and biopolymers for producing degradable, plastic-like items.
Total wheat starch demand was essentially unchanged compared to demand
experienced in the first quarter of fiscal 2001. However, demand has
strengthened in the current quarter and the Company expects that starch sales
for the first half of fiscal 2001, especially sales of value-added specialty and
modified starches, may surpass levels reached in the first half of fiscal 2000.
Additionally, raw material costs for grain on a per bushel basis have continued
to remain relatively low, a situation which should benefit production cost
efficiencies throughout the Company's entire operation.
Sales
Net sales in the first quarter of fiscal 2001 increased by approximately $3.0
million above net sales in the first quarter of fiscal 2000. The increase
resulted principally from higher sales of all alcohol products. Sales of food
grade alcohol for beverage and industrial applications climbed as the result of
higher unit sales, which helped to offset slightly lower selling prices. The
rise in fuel alcohol sales, on the other hand, was due to an improved selling
price, while unit sales in this category were essentially even with unit sales
realized in the first quarter of the prior year.
Sales of wheat gluten products decreased, principally as the result of lower
unit sales and lower prices for vital wheat gluten. This decline was partially
offset by increased unit sales of the Company's value-added specialty wheat
proteins. Wheat starch sales, meanwhile, were approximately even with sales
experienced in the first quarter of fiscal 2000.
Cost of Sales
The cost of sales in the first quarter of fiscal 2001 rose by approximately $4.8
million above the cost of sales for the same period in the prior year. This
principally was due to higher energy costs resulting from a substantial increase
in natural gas prices, and nonrecurring costs related to the final installation
of new distillation equipment at the Company's Atchison, Kansas plant. Lower raw
material costs for grain partially offset the higher costs resulting from the
above.
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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.
Additionally, the Company uses gasoline futures to hedge fuel-grade alcohol
sales contractually sold at prices fluctuating with gasoline futures. For the
first quarter of fiscal 2001, raw material costs included a net loss of $96,000
on contracts compared to a net hedging loss of $674,000 on contracts for the
first quarter of fiscal 2000.
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MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000
Selling, General and Administrative Expenses
Selling, general and administrative expenses in the first quarter of fiscal 2001
rose by approximately $222,000 compared to selling, general and administrative
expenses in the first quarter of fiscal 2000. The increase was due largely to
increased marketing activities, industry-related fees and higher technology
costs.
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 a net loss of
$395,000 in the first quarter of fiscal 2001 compared to a net income of
$751,000 in the first quarter of fiscal 2000.
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MIDWEST GRAIN PRODUCTS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000
LIQUIDITY AND CAPITAL RESOURCES
The following table is presented as a measure of the Company's liquidity and
financial condition:
September 30, June 30,
2000 2000
---------------- --------
Cash and cash equivalents $ 5,954 $ 7,728
Working capital 42,618 45,089
Amounts available under lines of credit 23,000 23,000
Notes payable and long-term debt 18,181 20,454
Stockholders? equity 100,674 102,378
The Company continued to decrease inventory levels as the previously high levels
of alcohol were reduced due to increased food grade alcohol sales. Additionally,
the scheduled plant shutdown in Atchison lowered production levels.
Short-term liquidity was also impacted by open market purchases of 36,900 shares
of the Company's common stock. These purchases were made to fund the Company's
stock option plans and for other corporate purposes. As of September 30, 2000,
the Board has authorized the purchase of an additional 781,325 shares of the
Company's common stock.
At September 30, 2000, the Company had $12.7 million committed to improvements
and replacements of existing equipment. Included in this amount is the
construction of a new facility designed to increase production capacity for the
Company's Wheatex series of specialty wheat proteins.
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 complete capital
improvements and to effectively supply customer needs for all products.
FORWARD-LOOKING INFORMATION
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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MIDWEST GRAIN PRODUCTS, INC.
SEPTEMBER 30, 2000
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, 2000, as presented in
the annual report, is not significantly different from September 30, 2000.
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MIDWEST GRAIN PRODUCTS, INC.
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of the Company was held on September 15,
2000. The following actions were taken at the meeting:
1.Linda E. Miller was elected to the office of Group A Director for a term
expiring in 2003 with 7,545,056 common share votes for her election and 83,107
votes withheld.
2. Daryl R. Schaller, Ph.D. was elected to the office of Group A Director
for a term expiring in 2003 with 7,545,056 common share votes for his election
and 87,739 votes withheld.
3. Michael Braude was elected to the office of Group B Director for a term
expiring in 2003 with 410 preferred share votes for his election and no votes
withheld.
In addition, the term of Michael R. Haverty as a Group A Director continued
after the annual meeting and the terms of Cloud L. Cray, Jr., Robert J.
Reintjes, Randall M. Schrick and Laidacker M. Seaberg as Group B Directors
continued after the annual meeting.
Item 6. Exhibits and Reports on Form 8-K
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.
27. Financial Data schedule for the quarter ending September 30,
2000.
99. Press Release dated November 2, 2000 (w/o financial
statements).
Reports on Form 8-K
The Company has filed no reports on Form 8-K during the
quarter ended September 30, 2000.
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SIGNATURES
Pursuant to the requirements on 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.
Date: November 13, 2000 By s/Ladd M. Seaberg
Ladd M. Seaberg, President
and Chief Executive Officer
Date: November 13, 2000 By s/Robert G. Booe
Robert G. Booe, Vice President
and Chief Financial Officer
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EXHIBIT INDEX
Exhibit
No. Description
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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 September 30,
2000.
99. Press Release dated November 2, 2000 (w/o financial
statements).
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