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 --------- ------------- (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 8,526,697 shares outstanding as of November 1, 2000 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 -1- 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 - -------------------------------------------------------------------------------- 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 -2- 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 ------------ ----------- Total Current Assets 58,814 62,921 ------------ ----------- PROPERTY AND EQUIPMENT, At cost 234,086 232,508 Less accumulated depreciation 142,830 139,737 ------------ ------------ 91,256 92,771 ------------ ------------ OTHER ASSETS 87 87 ------------ ------------ $ 150,157 $ 155,779 ============ ============ See Accompanying Notes 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 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 ------------ ------------ Total Current Liabilities 16,196 17,832 ------------ ------------ LONG-TERM DEBT 15,908 18,181 ------------ ------------ POST-RETIREMENT BENEFITS 6,161 6,170 ------------ ------------ DEFERRED INCOME TAXES 11,218 11,218 ------------ ------------ 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) ------------ ------------ 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) ------------- ------------- 100,674 102,378 ------------ ------------ Total liabilities and stockholders' equity $ 150,157 $ 155,779 ============ ============ See Accompanying Notes to Condensed Consolidated Financial Statements and Independent Accountants' Review Report - 4 - MIDWEST GRAIN PRODUCTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (Unaudited) 2000 1999 ------------ ----------- (in thousands) NET SALES $ 58,297 $ 54,975 COST OF SALES 55,532 50,750 ---------- ---------- GROSS PROFIT 2,765 4,225 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,201 2,680 ---------- ---------- (436) 1,545 OTHER OPERATING INCOME (EXPENSE) (1) 20 ----------- ---------- INCOME (LOSS) FROM OPERATIONS (437) 1,565 OTHER INCOME (EXPENSE), NET Interest (344) (389) Other 128 65 ---------- ---------- INCOME (LOSS) BEFORE INCOME TAXES (653) 1,241 PROVISION (CREDIT) FOR INCOME TAXES (258) 490 ----------- ---------- 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 - 5 - MIDWEST GRAIN PRODUCTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (Unaudited) 2000 1999 ------------ ----------- (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) ----------- ----------- Net cash provided by operating activities 2,807 1,126 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (1,985) (1,259) ---------- ---------- Net cash used in investing activities (1,985) (1,259) ----------- ----------- 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 ---------- ---------- Net cash used in financing activities (2,596) (2,339) ----------- ----------- DECREASE IN CASH AND CASH EQUIVALENTS (1,774) (2,472) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,728 4,054 ---------- ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,954 $ 1,582 ========== ========== See Accompanying Notes to Condensed Consolidated Financial Statements and Independent Accountants? Review Report - 6 - 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 -7- 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 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 -8- 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. 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. -9- 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. -10- 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. -11- 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. -12- 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. -13- 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 -14- EXHIBIT INDEX Exhibit No. Description ------- ----------- 15.1 Letter from independent public accountants pursuant to paragraph (d) of Rule 10-01 of Regulation S-X (incorporated by reference to Independent Accountants' Review Report at page 2 hereof). 15.2 Letter from independent public accountants concerning the use of its Review Report in the Company's Registration Statement No. 333-51849. 27. Financial Data schedule for the quarter ending September 30, 2000. 99. Press Release dated November 2, 2000 (w/o financial statements).