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.
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
[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
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
-2-
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
-3-
MIDWEST GRAIN PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(Unaudited)
Three Months Six Months
------------------------- ---------------------------
1999 1998 1999 1998
------- ------- ------- -------
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
= === = === = === = ===
See Accompanying Notes to Condensed Consolidated
Financial Statements and Independent Accountants'
Review Report
-4-
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
-5-
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
-6-
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.
-7-
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-
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-
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.
-10-
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.
-11-
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.
-12-
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
-13-
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).
-14-