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, 2001 - 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
8,032,454 shares outstanding
as of February 1, 2002
Index
Page
Part I. Financial Information
Item 1. Financial Statements
Independent Accountants' Review Report................................... 2
Condensed Consolidated Balance Sheets as of December 31, 2001 and
June 30, 2001......................................................... 3
Condensed Consolidated Statements of Income for the Three Months
Ended and Six Months Ended December 31, 2001 and 2000................. 5
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended December 31, 2001 and 2000............................... 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.......14
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K................................. 15
1
Independent Accountants' 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 December 31, 2001, and the
related condensed consolidated statements of income for the six-month periods
ended December 31, 2001 and 2000, and the related condensed consolidated
statements of cash flows for the six-month periods ended December 31, 2001 and
2000. 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 auditing standards generally
accepted in the United States of America, the consolidated balance sheet as of
June 30, 2001, 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, 2001, 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, 2001, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
/s/BKD, LLP
Kansas City, Missouri
January 22, 2002
2
Midwest Grain Products, Inc.
See Accompanying Notes to Condensed Consolidated Financial
Statements and Independent Accountants' Review Report 4
Condensed Consolidated Balance Sheets
(In Thousands)
Assets
December 31, June 30,
2001 2001
(Unaudited)
Current Assets
Cash and cash equivalents $ 29,391 $ 33,454
Receivables (less allowance for bad debts of $452 at
December 31, 2001 and June 30, 2001, respectively) 24,433 26,109
Inventories 22,149 18,230
Prepaid expenses 2,017 1,625
Deferred income taxes 2,484 2,451
Refundable income taxes -- 299
--------- ----------
Total Current Assets 80,474 82,168
--------- ----------
Property and Equipment, at cost 250,281 245,305
Less accumulated depreciation 160,290 153,181
--------- ----------
89,991 92,124
--------- ----------
Other Assets 247 158
--------- ----------
Total Assets $ 170,712 $ 174,450
========= ==========
3
Midwest Grain Products, Inc.
Condensed Consolidated Balance Sheets (Continued)
(In Thousands)
Liabilities and Stockholders' Equity
December 31, June 30,
2001 2001
-----------------------------------
(Unaudited)
Current Liabilities
Current maturities of long-term debt $ 3,202 $ 4,273
Accounts payable 11,061 10,446
Accrued expenses 3,505 4,008
Deferred income 13,437 15,951
Income taxes payable 1,262 --
--------- ---------
Total current liabilities 32,467 34,678
--------- ---------
Long-Term Debt 18,897 22,420
--------- ---------
Post-Retirement Benefits 5,932 6,034
--------- ---------
Deferred Income Taxes 10,769 10,774
--------- ---------
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 109,653 105,878
Accumulated other comprehensive income (loss) -
Cash flow hedges (59) 15
--------- ---------
$ 118,798 $ 115,097
Treasury stock, at cost
Common
December 31, 2001 - 1,626,018 shares (16,151) (14,553)
--------- ---------
June 30, 2001 - 1,585,518 shares 102,647 100,544
--------- ---------
Total liabilities and stockholders' equity $ 170,712 $ 174,450
========= =========
4
See Accompanying Notes to Condensed Consolidated Financial
Statements and Independent Accountants' Review Report
Midwest Grain Products, Inc.
Condensed Consolidated Statements of Income
Three Months and Six Months Ended December 31, 2001 and 2000
(Unaudited)
Three Months Six Months
2001 2000 2001 2000
----------------------------------------------------------------
(in thousands)
Net Sales $ 54,394 $ 58,489 $ 108,688 $ 116,786
Cost of Sales 47,500 52,336 94,804 107,868
----------- ----------- ----------- -----------
Gross Profit 6,894 6,153 13,884 8,918
Selling, General and Administrative Expenses 3,548 3,220 7,699 6,421
----------- ----------- ----------- -----------
3,346 2,933 6,185 2,497
Other Operating Expense (42) 6 (63) 5
------------ ----------- ----------- -----------
Income From Operations 3,304 2,939 6,122 2,502
Other Income (Expense)
Interest (355) (304) (749) (648)
Other 1,268 215 2,884 343
----------- ----------- ----------- -----------
Income Before Income Taxes 4,217 2,850 8,257 2,197
Provision For Income Taxes 1,666 1,126 3,262 868
----------- ----------- ----------- -----------
Net Income 2,551 1,724 4,995 1,329
----------- ----------- ----------- -----------
Other Comprehensive Income (Loss) 365 40 (74) 55
----------- ----------- ----------- -----------
Comprehensive Income $ 2,916 $ 1,764 $ 4,921 $ 1,384
=========== =========== =========== ===========
Earnings Per Common Share
Basic $ 0.32 $ 0.20 $ 0.62 $ 0.16
========== ========== ========== ==========
Dilutive $ 0.31 $ 0.20 $ 0.61 $ 0.16
========== ========== ========== ==========
Dividends Per Common Share $ 0.15 $ 0.10
========== ==========
See Accompanying Notes to Condensed Consolidated Financial
Statements and Independent Accountants' Review Report 5
Midwest Grain Products, Inc.
Condensed Consolidated Statements of Cash Flows
Six Months Ended December 31, 2001 and 2000
(Unaudited)
2001 2000
-----------------------
(in thousands)
Operating Activities
Net income $ 4,995 $ 1,329
Items not requiring (providing) cash:
Depreciation 7,109 6,581
Loss on sale of equipment -- 6
Deferred income taxes (38) --
Changes in:
Accounts receivable 1,676 236
Inventories (3,993) (53)
Accounts payable and accrued expenses 756 (1,404)
Deferred revenue (2,514) --
Income taxes (receivable) payable 1,561 (732)
Other (583) (365)
-------- --------
Net cash provided by operating activities 8,969 5,598
-------- --------
Investing Activities
Additions to property and equipment, net (5,620) (3,397)
-------- --------
Net cash used in investing activities (5,620) (3,397)
-------- --------
Financing Activities
Purchase of treasury stock (1,598) (1,565)
Net payments on long-term debt (11,017) (2,273)
Net proceeds from issuance of long-term debt 6,423 --
Dividends paid (1,220) (856)
-------- --------
Net cash used in financing activities (7,412) (4,694)
-------- --------
Decrease In Cash and Cash Equivalents (4,063) (2,493)
Cash and Cash Equivalents, Beginning of Period 33,454 7,728
-------- --------
Cash and Cash Equivalents, End of Period 29,391 5,235
======== ========
See Accompanying Notes to Condensed Consolidated Financial
Statements and Independent Accountants' Review Report 6
Midwest Grain Products, Inc.
Notes To Condensed Consolidated Financial Statements
December 31, 2001
(Unaudited)
Note 1: Basis Of Presentation
The accompanying unaudited condensed consolidated financial statements
reflect all adjustments that are, in the opinion of the Company's
management, necessary to fairly present the financial position, results
of operations and cash flows of the Company. Those adjustments consist
only of normal recurring adjustments. The condensed consolidated
balance sheet as of June 30, 2001 has been derived from the audited
consolidated balance sheet of the Company as of that date. Certain
information and note disclosures normally included in the Company's
annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These
condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto in the Company's Form 10-K Annual Report for 2001 filed with
the Securities and Exchange Commission. The results of operations for
the period are not necessarily indicative of the results to be expected
for the full year.
Note 2: Bonds Payable
The Company has financed the new Wheatex production facility, acquired
in February 2001, through a capital lease financing involving the
issuance on August 22, 2001 of a $6.5 million industrial revenue bond
by the Unified Government of Wyandotte/Kansas City, Kansas. The bond
bears interest at a rate of 5.23% per annum and matures in September
2008. Under the lease, the Company will make monthly payments declining
from $114,200 in October 2001 to $77,700 in September 2008. In
connection with the financing, the Company must maintain certain
financial ratios, including a current ratio of 1.5 to 1, minimum
consolidated tangible net worth of $84 million and a debt service
coverage ratio of 1.5 to 1.
Note 3: Contingencies
There are various legal proceedings involving the Company and its
subsidiaries. Management considers that the aggregate liabilities, if
any, arising from such actions would not have a material adverse effect
on the consolidated financial position or operations of the Company.
The Company recently advised customers and the Food and Drug
Administration that certain products in one of its specialty protein
lines required relabeling because they contain sulfites, a potential
allergen. The products represented less than 1% of the Company's total
wheat protein product sales during fiscal year 2001. Certain customers
have advised the Company that they will expect indemnity against
resulting losses aggregating approximately $750,000 allegedly incurred
as a result of the mislabeling. Although the Company is unable to
estimate the costs that it might actually incur, after taking into
account anticipated insurance coverage the Company does not expect such
costs would be material to its financial condition or results of
operations.
See Independent Accountants' Review Report 7
Midwest Grain Products, Inc.
Management's Discussion And Analysis of
Financial Condition and Results of Operations
Six Months Ended December 31, 2001 and 2000
Item 2: Management's Discussions and Analysis of Financial Condition and Results
of Operations
Results Of Operations
General
The Company had net income of $2,551,000 in the second quarter of fiscal
2002 compared to net income of $1,724,000 in the second quarter of
fiscal 2001. The improvement was primarily attributable to heightened
demand for the Company's fuel grade alcohol combined with lower energy
costs and growth in sales of specialty wheat proteins. The recognition
of income from a United Sates Department of Agriculture Commodity Credit
Corporation program to support the development of value-added wheat
protein and wheat starch products also contributed to the improvement.
Details of this program are provided on the following page.
The heightened demand for fuel grade alcohol, or ethanol as it is
commonly known, resulted in improved second quarter sales of this
product compared to sales in the prior year's second quarter. The
increased market interest was partially attributable to the
Environmental Protection Agency's proposal to phase out MTBE, a
competing fuel oxygenate that is synthetically derived and has been
shown to be harmful to groundwater supplies. In response to the
increased demand, the Company raised fuel alcohol production levels
compared to the second quarter a year ago. The Company also experienced
improved selling prices for its food grade alcohol for beverage and
industrial applications. However, the unit volume of food grade alcohol
declined in the second quarter compared to a year ago.
A program developed by the U.S. Department of Agriculture and initiated
in December 2000, provides a two-year cash incentive for ethanol
producers who increase their grain usage by specified amounts to raise
fuel alcohol production. The Company presently satisfies the program's
eligibility requirements and began receiving payments in the third
quarter of fiscal 2001. Also in fiscal 2001, the Company's Board of
Directors approved a $2.1 million distillery improvement project at the
Atchison plant. Completed in December 2001, this project is designed to
enhance food grade alcohol production, while also strengthening the
Company's fuel grade alcohol production capabilities. The Board has
additionally approved plans for the installation of a new feed dryer at
the Company's Pekin, Illinois plant. Expected to be completed by the end
of fiscal 2002 at a cost of $5 million, the new dryer should improve
alcohol production efficiencies at that location. Distillers' feed is
the principal by-product of the alcohol production process.
The Company continually evaluates the market climate and growth
potential for its various market groups. The Company's strategy in
recent years has been to focus on the development and marketing of
specialty wheat protein and starch products for use in unique market
niches. Although it is strengthening its fuel alcohol manufacturing
capabilities, principally at its Pekin plant, the
8
Midwest Grain Products, Inc.
Management's Discussion And Analysis of
Financial Condition and Results of Operations
Six Months Ended December 31, 2001 and 2000
Company is also considering the current and anticipated market
environment for fuel ethanol in the context of the Company's overall
long-term growth strategies for specialty ingredient markets.
Due principally to increased customer interest and expanded marketing
programs, demand for the Company's specialty wheat proteins continued to
strengthen in the second quarter of fiscal 2002. As a result, sales of
these products showed an improvement over the prior year's second
quarter. Produced for a variety of food and non-food applications, these
value-added products include dough enhancers, meat extenders and
replacers, ingredients for hair care and skin care systems, and
bio-polymers for producing pet treats as well as degradable,
plastic-like items.
While second quarter sales of specialty wheat proteins increased, sales
of vital wheat gluten, the protein portion of flour that is principally
used in many types of bread, decreased. This occurred because the
Company elected to curtail production due to pricing pressures from
artificially low priced gluten imports from the European Union (E.U.).
Competitive pressures from the E.U. intensified following the expiration
of a three-year-long quota on gluten imports in early June 2001. Unless
future conditions warrant otherwise, the Company plans to maintain a
reduced presence in the more traditional, commodity-related gluten
markets while continuing to broaden its presence in specialty,
value-added markets.
In lieu of a gluten quota extension, the White House approved a funding
program to support the development of value-added wheat gluten and
starches. Administered by the U.S. Department of Agriculture's Commodity
Credit Corporation, the program began in June 2001 and is scheduled to
end May 31, 2003. Under the program, the Company is eligible for
approximately $26 million of the program total of $40 million. For the
first 12 months of the program, approximately $17.3 million has been
allocated to the Company. The remaining amount is expected to become
available to the Company starting in June 2002. The funds are to be used
for capital, research, marketing and promotional costs related to
value-added wheat protein and starch products. Funds received will be
recognized in income during the period during which they are expended
for a permitted purpose. However, funds that are used for capital
expenditure projects will be recognized in income over the periods
during which those projects are depreciated. They are not intended to be
used to reduce production and marketing-related costs for commodity
vital wheat gluten and wheat starches which could extend the U.S.
industry's participation in these markets.
At this time, the Company expects that approximately 80% of the first
year's allotment under the program will be used for capital projects,
including the $8.3 million expansion project described below. The
remaining 20% of the first year's funds are expected to be applied
toward research and marketing related costs and, therefore, will be
reflected in earnings.
On October 10, 2002, the Company's Board approved plans for an $8.3
million expansion project that is expected to substantially strengthen
production and sales capabilities for certain of the Company's specialty
wheat proteins. The expansion will occur at the Company's Atchison plant
and is scheduled for completion in early fiscal 2003. The project will
involve the installation of additional processing and drying equipment
for the production of ingredients for bakery, pasta and noodle and
related food markets, both domestically and abroad. The cost of the
project is expected to be offset by funds provided through the USDA
program described above.
9
Midwest Grain Products, Inc.
Management's Discussion And Analysis of
Financial Condition and Results of Operations
Six Months Ended December 31, 2001 and 2000
Last February, the Company was named the successful bidder on a
state-of-the-art manufacturing facility owned by a Kansas City, Kansas
firm that entered Chapter 11 bankruptcy proceedings. The Company is
using the facility, which is operated by its subsidiary, Kansas City
Ingredient Technologies, Inc., primarily for the production of Wheatex,
the Company's unique line of textured wheat proteins that are sold to
enhance the flavor and texture of vegetarian and extended meat products
as well as wheat-based bio-polymers. Finalized in the third quarter of
fiscal 2001 at a cost of approximately $6.5 million, the purchase
replaces the Company's earlier plan to build a Wheatex plant at a
similar cost. The Company expects the acquisition will allow it to
increase the production of textured wheat proteins and bio-polymers at a
more accelerated rate. Also, the Company anticipates that, in addition
to providing more space than was incorporated into the design for a new
plant, the facility will provide greater flexibility for producing other
lines of value-added specialty wheat proteins.
The Company's wheat starch sales in the second quarter of fiscal 2002
were approximately even with the sales in the second quarter of the
prior year. Responsibilities in this area have recently been
restructured and additional personnel have been added to strengthen
future sales and marketing capabilities.
Although slightly higher than they were during the second quarter of the
prior fiscal year, per unit raw material costs for grain continued to
remain relatively low in the second quarter of fiscal 2002. Assuming the
continuation of more normal energy costs combined with reasonable grain
costs, favorable market conditions for alcohol products and growth in
sales of specialty wheat-based products, the Company expects to
experience improved results in the second half of fiscal 2002 compared
to the second half of fiscal 2001. However, actual results could vary
from our expectations in this forward-looking statement if such
assumptions prove incorrect.
Sales
Net sales in the second quarter of fiscal 2002 decreased approximately
$4.1 million below net sales in the second quarter of fiscal 2001. The
decrease resulted mainly from a 52% reduction in sales of vital wheat
gluten and an 18% decline in sales of food grade alcohol for beverage
and industrial applications. These decreases were partially offset by a
7% increase in fuel alcohol sales and a 41% increase in sales of
specialty wheat proteins compared to a year ago.
Sales of vital wheat gluten dropped due to reductions in both unit sales
and selling prices. This decrease was partially offset by increased unit
sales of the Company's specialty wheat proteins. Wheat starch sales were
essentially equal to wheat starch sales a year ago as the selling prices
and unit volume remained virtually unchanged. Sales of food grade
alcohol fell as the result of decreased unit sales in the beverage and
industrial markets, which offset higher selling prices in both markets.
Sales of fuel grade alcohol rose compared to the second quarter of
fiscal 2001 as the result of higher unit sales and higher prices caused
by increased demand. Sales of distillers' feed, the principal by-product
of the alcohol production process, rose substantially due to increased
unit sales.
Net sales for the first six months of fiscal 2002 decreased by
approximately $8.1 million compared to the net sales for the first six
months of fiscal 2001, principally for the same reasons cited above.
10
Midwest Grain Products, Inc.
Management's Discussion And Analysis of
Financial Condition and Results of Operations
Six Months Ended December 31, 2001 and 2000
Cost of Sales
The cost of sales in the second quarter of fiscal 2002 decreased by
approximately $4.8 million below the cost of sales in the second quarter
of the prior fiscal year. This principally was due to a decrease in
energy costs resulting from lower natural gas prices and reduced raw
material costs for grain. The average per unit price of natural gas was
44% lower in the second quarter compared to a year ago. The lower grain
costs were primarily due to decreased requirements for wheat resulting
from reduced production of vital wheat gluten. Additionally, the reduced
raw material costs were further decreased by approximately $1.9 million
as a result of the U.S.D.A. cost incentive for ethanol producers
discussed previously.
The cost of sales for the first half of fiscal 2002 dropped by
approximately $13.1 million compared to the cost of sales for the first
half of fiscal 2001, due mainly to the same factors outlined 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
alcohol sales contractually sold at prices fluctuating with gasoline
futures. In the second quarter of fiscal 2002, raw material costs
included a net hedging loss of $1.2 million compared to a net hedging
loss of $233,000 on contracts in the second quarter of fiscal 2001. In
the first six months of fiscal 2002, raw material costs included a net
hedging loss of $1.0 million compared to a net hedging loss of $330,000
in the first six months of the prior fiscal year.
Selling, General and Administrative Expenses
Selling, general and administrative expenses in the second quarter of
fiscal 2002 were approximately $328,000 higher than selling, general and
administrative expenses in the second quarter of fiscal 2001. The
increase was due largely to various factors, including marketing-related
expenses, costs associated with employee-related benefits and higher
research and development costs.
Selling, general and administrative expenses for the first six months of
fiscal 2002 increased by approximately $1.3 million over selling,
general and administrative expenses for the first six months of fiscal
2001. The reasons for this increase were principally the same as those
cited above and included a $310,000 bad debt expense in the first
quarter of fiscal 2002.
Other Income
The increase in other income relates to the recognition of $1.1 million
of pre-tax income from the previously discussed USDA Commodity Credit
Corporation program for value-added wheat gluten and wheat starch
products.
11
Midwest Grain Products, Inc.
Management's Discussion And Analysis of
Financial Condition and Results of Operations
Six Months Ended December 31, 2001 and 2000
Net Income
The consolidated effective income tax rate is consistent for all
periods. The general effects of inflation were minimal.
As the result of the foregoing factors, the Company experienced net
income of $2,551,000 in the second quarter of fiscal 2002 compared to
net income of $1,724,000 in the second quarter of fiscal 2001. For the
first six months of fiscal 2002, the Company had net income of
$4,995,000 versus net income of $1,329,000 for the first six months of
fiscal 2001.
Liquidity and Capital Resources
The following table is presented as a measure of the Company's liquidity
and financial condition:
December 31, June 30,
2001 2001
----------------------------
(in thousands)
Cash and cash equivalents $ 29,391 $ 33,454
Working capital 48,007 47,490
Amounts available under lines of credit 12,000 5,500
Notes payable and long-term debt 22,099 26,693
Stockholders' equity 102,647 100,544
Cash generated from operations was partially offset by increased working
capital requirements through increased inventories. Payments for
equipment additions, debt reductions and treasury stock purchases
reduced cash balances. The comparatively high cash balances resulted
from cash flows generated during fiscal 2001 combined with $17.3 million
received in June 2001 as a result of the program administered by the U.
S. Department of Agriculture's Commodity Credit Corporation.
The Company made open market purchases of 144,700 shares of its common
stock during the six-month period. These purchases were made to fund the
Company's stock option plans and for other corporate purposes. As of
December 31, 2001, the Board has authorized the purchase of an
additional 269,782 shares of the Company's common stock.
At December 31, 2001, the Company had $13.2 million committed to capital
improvements, including the $8.3 million expansion project in Atchison
that is designed to strengthen production and sales capabilities for the
Company's specialty wheat proteins and the acquisition of a new feed
dryer at Pekin, Illinois to improve alcohol production efficiencies at
that location. The Company is also developing plans for other additions
relating to value-added wheat gluten and wheat starch products.
The Company has financed the new Wheatex production facility acquired in
February 2001 through a capital lease financing involving the issuance
on August 22, 2001 of a $6.5 million industrial revenue bond by The
Unified Government of Wyandotte/Kansas City, Kansas. The bond
12
Midwest Grain Products, Inc.
Management's Discussion And Analysis of
Financial Condition and Results of Operations
Six Months Ended December 31, 2001 and 2000
bears interest at a rate of 5.23% per annum and matures in September
2008. Under the lease, the Company will make monthly payments declining
from $114,200 in October 2001 to $77,700 in September 2008. In
connection with the financing, the Company must maintain certain
financial ratios, including a current ratio of 1.5 to 1, minimum
consolidated tangible net worth of $84 million and a debt service
coverage ratio of 1.5 to 1.
The Company has added to its normally strong equity and working capital
positions while continuing to generate strong earnings before interest,
taxes and depreciation. Management believes the Company is well
positioned to effectively expand its production of specialty products as
well as supply customer needs for all its other 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.
Future Changes in Accounting Principles
The Financial Accounting Standards Board (FASB) has issued four new
accounting pronouncements that will become effective in the fiscal year
commencing July 1, 2002.
In June 2001, the FASB issued SFAS No. 141, Business Combinations, and
No. 142, Goodwill and Other Intangible Assets, effective for fiscal
years beginning after December 15, 2001. Under the new rules, goodwill
(and intangible assets deemed to have indefinite lives) will no longer
be amortized but will be subject to annual impairment tests in
accordance with the Statements. Other intangible assets will continue to
be amortized over their useful lives. SFAS No. 143, Accounting for Asset
Retirement Obligations, was issued in August 2001 and deals with the
recognition and remeasurement of obligations associated with the
retirement of tangible long-lived assets. SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, was issued in October
2001 and applies to all long-lived assets, other than goodwill, and
discontinued operations, and develops one accounting model for
long-lived assets that are to be disposed of by sale. The adoption of
these statements is not expected to have a material impact on the
Company's financial statements.
13
Midwest Grain Products, Inc.
December 31, 2001 and 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, 2001, as presented in the annual report, is not significantly
different from December 31, 2001.
14
Midwest Grain Products, Inc.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 Form of Memorandum of Agreement Concerning Options approved
on December 10, 2001 between the Company and certain
members of senior management, including the following named
executive officers: Ladd M, Seaberg, Robert G. Booe,
Randall M. Schrick and Dr. Sukh Bassi.
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.
(b) Reports on Form 8-K
The Company has filed no reports on Form 8-K during the quarter
ended December 31, 2001.
15
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.
By /s/ Ladd M. Seaberg, President
Ladd M. Seaberg, President
Date: February 11, 2002 and Chief Executive Officer
By /s/ Robert G. Booe
Robert G. Booe, Vice President
Date: February 11, 2002 and Chief Financial Officer
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