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, 1995 - Commission File No. 0-17196 MIDWEST GRAIN PRODUCTS, INC. ____________________________________ (Exact Name of Registrant as Specified in Its Charter) KANSAS 48-0531200 ______________________________ ________________ (State or Other Jurisdiction of IRS Employer Incorporation or Organization) Identification No. 1300 Main Street, Atchison, Kansas 66002 _____________________________________________________ (Address of Principal Executive Offices and Zip Code) (913) 367-1480 ______________________________________________________ (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to the filing requirements for at least the past 90 days. [x] YES [__] NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock, no par value 9,765,172 shares outstanding as of May 1, 1995. INDEX PART I. FINANCIAL INFORMATION Page ____ Item 1. Financial Statements ____________________ Independent Accountants' Review Report 2 Condensed Consolidated Balance Sheets as of March 31, 1995 and June 30, 1994 3 Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended March 31, 1995 and 1994 5 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 1995 and 1994 6 Note to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 12 - 1 - Baird, Kurtz & Dobson Certified Public Accountants Independent Accountants' Review Report Board of Directors and Stockholders Midwest Grain Products, Inc. Atchison, Kansas 66002 We have reviewed the condensed consolidated balance sheet of MIDWEST GRAIN PRODUCTS, INC. and subsidiaries as of March 31, 1995, and the related condensed consolidated statements of income for the three month and nine month periods ended December 31, 1995 and 1994, and the related condensed consolidated statements of cash flows for the nine month periods ended March 31, 1995 and 1994. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with STATEMENTS ON STANDARDS FOR ACCOUNTING AND REVIEW SERVICES issued by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of June 30, 1994, 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 11, 1994, 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, 1994, 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 25, 1995 City Center Square, Suite 2700, 1100 Main, 816 221-6300 Kansas City, Missouri 64105 FAX 816 221-6380 With Offices in: Arkansas, Colorado, Kansas, Kentucky, Missouri, Nebraska, Oklahoma Member of Moores Rowland International - 2 - MIDWEST GRAIN PRODUCTS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands) ASSETS March 31, June 30, 1995 1994 ___________ ________ (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 3,832 Short-term investments 339 339 Receivables 19,616 20,457 Notes receivable 814 814 Inventories 15,851 13,229 Prepaid expenses 780 576 Refundable income taxes 836 Deferred income taxes 876 876 _______ ______ Total Current Assets 39,112 40,123 _______ _______ INVESTMENTS 14,504 _______ LONG-TERM RECEIVABLES 442 961 _______ _______ PROPERTY AND EQUIPMENT, At cost 207,368 182,446 Less accumulated depreciation 73,944 69,888 _______ _______ 133,424 112,558 _______ _______ $172,978 $168,146 ======== ======== See Accompanying Note to Condensed Consolidated Financial Statements and Independent Accountants' Review Report - 3 - MIDWEST GRAIN PRODUCTS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Continued) (In Thousands) LIABILITIES AND STOCKHOLDERS' EQUITY March 31, June 30, 1995 1994 __________ ________ (Unaudited) CURRENT LIABILITIES Disbursements in excess of demand deposit cash $ 387 Accounts payable 4,307 $ 8,551 Accrued expenses 6,014 8,189 Income taxes payable 1,232 ________ ________ Total Current Liabilities 10,708 17,972 ________ ________ LONG-TERM DEBT 35,000 25,000 ________ ________ POST-RETIREMENT BENEFITS 5,513 5,045 ________ ________ DEFERRED INCOME TAXES 5,956 5,956 ________ ________ 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 106,597 104,969 _________ ________ 115,801 114,173 _________ ________ $172,978 $168,146 ======== ======== See Accompanying Note to Condensed Consolidated Financial Statements and Independent Accountants' Review Report - 4 - MIDWEST GRAIN PRODUCTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1995 AND 1994 (Unaudited) Three Months Nine Months _________ _________ _________ ________ 1995 1994 1995 1994 _________ _________ _________ ________ (in thousands, except per share amounts) NET SALES $42,005 $50,652 $132,477 $135,100 COST OF SALES 39,032 38,011 115,120 109,797 _______ _______ _______ ________ GROSS PROFIT 2,973 12,641 17,357 25,303 SELLING, GENERAL AND ADMINIS- TRATIVE EXPENSES 2,298 2,886 8,624 8,387 _______ _______ _______ _______ 675 9,755 8,733 16,916 OTHER OPERATING LOSS (36) (118) (23) (346) _______ _______ _______ _______ INCOME FROM OPERATIONS 639 9,637 8,710 16,570 OTHER INCOME (LOSS) (138) 92 182 12 _______ _______ _______ _______ INCOME BEFORE INCOME TAXES 501 9,729 8,892 16,582 PROVISION FOR INCOME TAXES 203 3,645 3,601 6,218 _______ _______ _______ _______ NET INCOME $ 298 $ 6,084 $ 5,291 $10,364 ======= ======= ======= ======= EARNINGS PER COMMON SHARE $.03 $.62 $.54 $1.06 ==== ==== ==== ===== See Accompanying Note to Condensed Consolidated Financial Statements and Independent Accountants' Review Report - 5 - MIDWEST GRAIN PRODUCTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED MARCH 31, 1995 AND 1995 (Unaudited) 1995 1994 ______ ______ (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 5,291 $ 10,364 Items not requiring (providing) cash: Depreciation 5,623 4,819 Gain on sale of assets (205) (36) Deferred income taxes (120) Changes in: Accounts receivable 841 (3,295) Inventories (2,622) (796) Prepaid expenses (204) (153) Disbursements in excess of demand deposit 387 Accounts payable (2,159) 178 Accrued expenses (1,707) (635) Income taxes payable (2,068) 1,512 _______ ________ Net cash provided by operating activities 3,177 11,838 _______ ________ CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (28,648) (32,995) (Purchase) sale of short-term investments, net 14,505 (19,891) Proceeds from sale of equipment 279 59 Proceeds from notes receivable 814 Payment received on note for sale of plant 518 5 _______ _______ Net cash used in investing activities (13,346) (52,008) _______ ________ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of long-term debt 10,000 25,000 Principal payment on long-term debt (50) Dividends paid (3,663) (3,663) _______ ________ Net cash provided by financing activities 6,337 21,287 _______ ________ DECREASE IN CASH AND CASH EQUIVALENTS (3,832) (18,883) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,832 20,074 _______ ________ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 0 $ 1,191 ======= ======== See Accompanying Note to Condensed Consolidated Financial Statements and Independent Accountants' Review Report - 6 - MIDWEST GRAIN PRODUCTS, INC. NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED MARCH 31, 1995 (Unaudited) NOTE: 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, 1995, and the condensed consolidated results of its operations and its cash flows for the periods ended March 31, 1995 and 1994, and are of a normal recurring nature. - 7 - MIDWEST GRAIN PRODUCTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1995 RESULTS OF OPERATIONS General _______ Sales and earnings for the third quarter of fiscal 1995 declined significantly compared to these same results for the third quarter of fiscal 1994. Lower sales of vital wheat gluten combined with reduced efficiencies associated with the start-up of new distillery equipment at the Company's Pekin, Illinois plant were principal causes for the decrease. The drop in wheat gluten volume resulted from reduced marketing opportunities due to increased gluten imports from Europe. The high sales of wheat gluten the Company experienced in the third quarter of fiscal 1994 resulted from an exceptionally large increase in demand during that period. This situation was principally caused by greatly increased requirements for gluten for use in fortifying flour due to poor protein levels in domestic and non-domestic wheat supplies. After a return to more normal crop conditions this past summer, the U.S. market began experiencing a substantial rise in imported wheat gluten from the European Union, where wheat starch and gluten capacities underwent sizeable increases. Profits from their highly subsidized and protected wheat starch business allow European producers to easily place their gluten surpluses in the United States market. Low U.S. tariff rates on wheat gluten provide little deterrence to this practice, while high tariffs in Europe effectively prohibit non-European Union member countries from competing in the wheat gluten and wheat starch markets there. Although the Company is actively seeking measures that would create a more level playing field, gluten imports from Europe continue to come into this country at a record pace. The Company's unit sales of alcohol products in the third quarter were up significantly compared to the prior year's third quarter amount. A significant increase in unit sales of fuel grade alcohol, which is sold as an octane additive commonly known as ethanol, offset a decrease in unit sales of food grade alcohol, which is sold for beverage industrial and commercial applications. While market opportunities for food grade alcohol have remained strong, the lower unit sales of this product in the third quarter resulted from a change in the Company's alcohol production mix, which was required to satisfy heightened customer needs in the fuel market. The Company expects growth opportunities in the fuel grade market to continue, but at a more gradual rate due to the recent reversal of an Environmental Protection Agency regulation requiring that renewable fuel oxygenates such as grain-based ethanol play a larger role in satisfying future Clean Air Act requirements in certain areas of the country. The EPA regulation was rescinded by the U. S. Circuit Court of Appeals for the District of Columbia on - 8 - MIDWEST GRAIN PRODUCTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1995 April 28, several months after a suit contesting the EPA's authority to issue the regulation was filed by two groups representing the petroleum industry. With completion of the distillery expansion in Pekin, which is designed to double Midwest Grain's total alcohol production capacity, the Company expects to improve its ability to satisfy demand in all of its alcohol markets more effectively. This expansion was scheduled to be on line by January 1995. However, the completion was delayed by unanticipated mechanical equipment problems with two new distillery feed driers. At the end of the quarter, intermediate repairs to the driers were completed by the equipment supplier. Since then, the Company has experienced increased alcohol production levels. Production is expected to improve further when final repairs to the equipment are completed late this summer. Substantial improvements in operational efficiencies should occur as a result. The Company's unit sales of wheat starch in the third quarter rose above the prior year's third quarter level. The increase resulted mainly from higher volumes of modified wheat starches which are sold in a variety of special market niches. A planned 70% increase in wheat starch production capacity, that was originally slated for completion at the Pekin plant toward the end of this year's third quarter, was rescheduled for completion at the end of the fourth quarter. The postponement was prompted by the delay in the distillery expansion. A planned 40% increase in total gluten production capacity also was postponed from the third quarter, principally due to weakened unit sales caused by increased foreign competition. The rescheduling of this project will be based on a return to greater stability in the gluten market. While the Company believes unfavorable conditions, namely reduced efficiencies and intense foreign competition, will continue to have significant negative impact on results for the current quarter, it expects gradual improvements to occur from its projected higher alcohol capacities, and assuming a continuance of strong demand for its alcohol products and wheat starch. Sales _____ Grain products sales for the third quarter of fiscal 1995 decreased by approximately $8,647,000 below sales in the third quarter of fiscal 1994. The decrease was principally due to lower sales of vital wheat gluten, which fell nearly 50% as the result of reduced marketing opportunities caused by a large increase in gluten imports from Europe. An 18% increase in sales of alcohol products compared to the prior year's third quarter resulted from a significant jump in fuel alcohol volume. Sales of food grade alcohol for beverage, industrial and commercial applications declined, as a sizeable percentage of the Company's - 9 - MIDWEST GRAIN PRODUCTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1995 alcohol production was shifted to the fuel category in response to pre-established customer requirements. Sales of distillers' feeds, a by-product of the alcohol production process, remained approximately even with levels experienced in the third quarter of fiscal 1994. A continued increase in sales of modified wheat starches pushed total wheat starch sales in this year's third quarter almost 7% above the prior year's third quarter level. The majority of the decrease in grain products sales for the first nine-month period of fiscal 1995, amounting to approximately $2,623,000, was experienced in the third quarter. This mainly resulted from decreased volume sales of vital wheat gluten due to increased foreign competition and a reduction in market demand compared to the extraordinary demand experienced during the same period a year ago. Changes in selling prices of the Company's vital wheat gluten generally are due to fluctuations in grain costs and competition. Wheat starch prices traditionally track corn starch prices, with the exception of the Company's specialty modified starches. Fuel alcohol prices traditionally follow the movement of gasoline prices. Prices for food grade alcohol for beverage applications normally follow the movement of corn prices, while prices for food grade alcohol for industrial and commercial applications are normally consistent with prices for industrial alcohol derived from synthetic products such as petroleum. Cost of Sales _____________ The cost of sales in the third quarter of fiscal 1995 rose by approximately $1 million above cost of sales in the same period the preceding year. Increased maintenance and repair costs, amounting to approximately $832,000, and increased energy costs amounting to $410,000 were offset by decreased raw material costs for grain. The higher maintenance and repair costs were mainly due to work associated with the distillery expansion at the Company's Pekin plant. Other manufacturing cost increases were due to higher costs for chemicals and additives resulting from increased production of modified wheat starches, and depreciation of buildings and equipment. The cost of sales for the first nine months of fiscal 1995 increased by approximately $5.3 million over costs for the first nine months of fiscal 1994. The majority of this increase was primarily due to volume increases in the first quarter, as well as increased maintenance and repair costs in the second and third quarters. Selling, General and Administrative Expenses ____________________________________________ Selling, general and administrative expenses in the third quarter of fiscal 1995 were down approximately $588,000 compared to the same period the prior year. This principally was due to a decrease of approximately $302,000 in the Company's management - 10 - MIDWEST GRAIN PRODUCTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1995 bonus program accrual, and a decrease of approximately $265,000 in sales subject to commissions. The $237,000 increase of expenses for the nine month period was primarily experienced during the first quarter and was incurred generally throughout the expense categories. The consolidated effective income tax rate increased as a result of federal and state tax rates. The general effects of inflation were minimal. Net Income __________ Primarily as the result of the foregoing factors, net income in the third quarter of fiscal 1995 declined to $298,000 from $6,084,000 realized in the third quarter of fiscal 1994. Net income for the first nine months of fiscal 1995 decreased to $5,291,000 from $10,364,000 in the first nine months of fiscal 1994. - 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, 1995 LIQUIDITY AND CAPITAL RESOURCES The following table is presented as a measure of the Company's liquidity and financial condition: March 31, June 30, 1995 1994 _________ _________ (in thousands) Cash, cash equivalents and short-term investments $ 339 $ 4,171 Long-term liquid investments 14,504 Long-term debt 35,000 25,000 Working capital 28,404 22,151 While the Company's working capital position improved during the nine month period, expenditures for plant additions, including the Pekin expansion, totalled $28.6 million resulting in reduced investments held for this purpose and operating cash balances and increased borrowings. Higher inventory balances, primarily increased quantities of milo, and increased income tax payments during the first nine months also impacted short-term liquidity. At March 31, 1995, the Company has amounts remaining to spend under capital improvement projects totalling approximately $10.9 million. The expenditures in Pekin primarily relate to the new wheat starch facilities and expansion of the gluten facilities. Capital improvement projects in Atchison include normal improvements and expansions primarily in the gluten and starch processes and expanded storage facilities for gluten and starch. After borrowing $10 million on its lines of credit during the third quarter, remaining available balances total $15 million. Midwest Grain Products believes the above borrowings, existing working capital and working capital to be generated from future operations, will allow it to complete its expansion projects and meet expanded working capital needs. - 12 - PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K ________________________________ (a) Exhibits 4(a) Copy of First Amended Line of Credit Loan Agreement providing for the Issuance of a Line of Credit Note in the amount of $20,000,000. 4(b) Copy of Line of Credit Note Under First Amended Line of Credit Loan Agreement 15 Letter from independent public accountants pursuant to paragraph (d) of Rule 10-01 of Regulation S-X (incorporated by reference to Independent Accountants' Review Report at page 2 hereof) 20 Report to stockholders for the nine months ended March 31, 1995. 27 Financial Data Schedule for the nine months ended March 31, 1995. (b) Reports on Form 8-K The Company has filed no reports on Form 8-K during the quarter ended March 31, 1995. 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. 5-9-95 By /s/ Ladd M. Seaberg __________________________ ______________________________ Date Ladd M. Seaberg President and Chief Executive Officer 5-9-95 By /s/ Robert G. Booe __________________________ ______________________________ Date Robert G. Booe, Vice President and Chief Financial Officer - 13 -