-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, dxsND92TTWgKmEaNO0TuB5KozAvMvQVR35mdkekjiPdAbCY8MtUkJyJmIiFN/OiM wSsGKXCp23Sda3822kg/9w== 0000916002-95-000009.txt : 19950516 0000916002-95-000009.hdr.sgml : 19950516 ACCESSION NUMBER: 0000916002-95-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MIDWEST GRAIN PRODUCTS INC CENTRAL INDEX KEY: 0000835011 STANDARD INDUSTRIAL CLASSIFICATION: GRAIN MILL PRODUCTS [2040] IRS NUMBER: 480531200 STATE OF INCORPORATION: KS FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17196 FILM NUMBER: 95538469 BUSINESS ADDRESS: STREET 1: 1300 MAIN ST CITY: ATCHISON STATE: KS ZIP: 66002 BUSINESS PHONE: 9133671480 MAIL ADDRESS: STREET 1: 1300 MAIN STREET CITY: ATCHISON STATE: KS ZIP: 66002 10-Q 1 MIDWEST GRAIN PRODUCTS, INC. 3RD QTR 1995 10Q 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 - [LOGO] 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 - EX-99 2 EXHIBIT INDEX EXHIBIT 99 EXHIBIT INDEX Exhibit Number Description 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 six months ended March 31, 1995. 27 Financial Data Schedule for the nine months ended March 31, 1995. EX-4 3 LOAN AGREEMENT Exhibit 4(a) Exhibit 4(a) FIRST AMENDED LINE OF CREDIT LOAN AGREEMENT THIS FIRST AMENDED LINE OF CREDIT LOAN AGREEMENT (the "Agreement"), executed this 25th day of February, 1994, by and between MIDWEST GRAIN PRODUCTS, INC., a corporation organized under the laws of the state of Kansas and having its principal place of business in Atchison, Kansas ("Borrower"), and Commerce Bank of Kansas City, N.A., a national banking association, having its principal place of business in Kansas City, Missouri ("Bank"). WHEREAS, Borrower desires to establish a line of credit with Bank to provide working capital and capital expenditures; and WHEREAS, Bank desires to extend such line of credit upon the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and mutual agreements contained in this Agreement, the parties agree as follows: ARTICLE I Line of Credit Section 1.1. General Terms. Subject to the terms of this Agreement, Bank will lend Borrower, from time to time, until the termination hereof, such sums as Borrower may request, in minimum increments of $100,000, which shall not exceed in the aggregate principal amount at any one time outstanding the sum of Twenty Million and no/100 Dollars ($20,000,000.00) (the "Line of Credit Loan"). Bank's obligation to lend hereunder may be terminated by Bank at any time in Bank's sole discretion, or if no such termination is made, then on October 1, 1997. Each advance under the Line of Credit Loan is at the option of Bank and Bank has no obligation to make advances. In addition this Agreement shall be deemed to automatically terminate if the occurrence of an event pursuant to Section 4.1 causes the Line of Credit Note to become immediately due and payable. The inclusion of monthly interest payments, events of default and an alternate maturity date does not alter the discretionary nature of the line of credit. Section 1.2. Commitment Fee. Borrower shall pay a fee equal to 1/4% per annum on the unused portion of the Line of Credit Loan. Such fee shall be paid quarterly in arrears. Section 1.3. Note. Borrower agrees to execute and deliver to Bank the Line of Credit Note to evidence the Line of Credit Loan. Each advance made thereunder, together with each repayment made by Borrower, shall be evidenced by a notation dated the date of the advance or repayment and recorded by Bank on the schedule appearing on the reverse side of or attached to the Line of Credit Note. The aggregate unpaid principal amount of the Line of Credit Note set forth on the schedule shall be conclusively presumed to reflect the amounts advanced and repaid, and the outstanding principal balance of the Line of Credit Loan. Section 1.4. Principal Payment. In the event of a default as defined in Section 4.1 or on October 1, 1997, the principal balance of the Line of Credit Note together with all accrued interest shall become immediately due and payable. Section 1.5. Interest. If the outstanding balance is less than $500,000, the line of credit shall bear interest at a per annum rate equal to the Prime Rate. If the outstanding balance is $500,000 or greater, the line of credit shall bear interest at the greater of either (1) the Prime Rate, minus 1%, or (2) the Federal Funds Rate plus 1.50%. Interest will be payable monthly, in arrears, and at maturity, whether by acceleration or otherwise. Interest will be computed on the actual days outstanding based upon a year consisting of 360 days. "Prime Rate" means the Prime Rate of interest established from time to time by Commerce Bank and designated as such for its internal convenience, and no representation is made that the Prime Rate is the best, the lowest or a favored rate of interest. The rate of interest, if tied to the Prime Rate, shall change with and be effective on the date of each change in the Prime Rate. "Federal Funds Rate" means the effective Federal Funds Rate as quoted by the Federal Reserve Bank of New York on a daily basis. The Federal Funds Rate is adjusted daily. Section 1.6. Purpose. Borrower represents the purpose of the Line of Credit Loan is to provide short term working capital and capital expenditures. Section 1.7. Disbursements. Bank will credit the proceeds of any borrowing hereunder to Borrower's deposit account maintained with Bank. Section 1.8. Condition of Loans. Any advance under the Line of Credit Note is subject to the condition precedent that no event of default described in Section 4.1 shall have occurred, and that the Line of Credit has not been terminated. Each request for a borrowing under the Line of Credit Note shall be deemed to constitute a representation by Borrower at the time of the request that no event of default as defined in Section 4.1 exists or is imminent and that the representations and warranties of Borrower contained in this Agreement are true in all material respects on or as of the date of borrowing. ARTICLE II Warranties and Representations Section 2.1. Good Standing. The Borrower is a corporation duly organized and in good standing, under the laws of the state of Kansas, and has the power to own its property and to carry on its business and is in good standing in each jurisdiction in which the character of the properties owned by it or in which the transaction of its business makes such qualifications necessary. - 2 - Section 2.2. Authority. The Borrower has full power and authority to enter into this Agreement, to make the borrowing hereunder, and to execute and deliver the Line of Credit Note, all of which has been duly authorized by all proper and necessary corporate action. No consent or approval of stockholders is required as a condition to the validity of this Agreement or the Line of Credit Loan. Section 2.3. Binding Agreement. This Agreement constitutes, and the Line of Credit Note when issued and delivered pursuant hereto, for value received, will constitute, the valid and legally binding obligations of the Borrower in accordance with all stated terms. Section 2.4. Litigation. There are no proceedings pending, or, so far as the officers of the Borrower know threatened, which will materially adversely affect the financial condition or operations of the Borrower or any subsidiary. Section 2.5. No Conflicting Agreements. There are no charter, bylaw, or preference stock provisions of the Borrower and no provision of any existing mortgage, indenture, contract or agreement binding on the Borrower or affecting its property, which would conflict with or in any way prevent the execution, delivery, or carrying out of the terms of this Agreement and of the Line of Credit Note. Section 2.6. Taxes. The Borrower has filed all Federal, State and other tax and similar returns and has paid or provided for the payment of all taxes and assessments due thereunder including, without limitation, all withholding, FICA and franchise taxes. Section 2.7. Financial Statements. There have been no material changes in the Borrower's financial statements dated June 30, 1993. ARTICLE III Covenants So long as this Agreement remains in effect or as long as there is any principal or interest due on the Line of Credit Note, Borrower agrees as follows: Section 3.1. Comply with all Company Covenants as defined and contained in Section 5 of the Note Agreement dated as of August 1, 1993, between Borrower and the Principal Mutual Life Insurance Company (the "Principal Agreement") including, but not limited to, the following: (a) Current Ratio. Maintain a Current Ratio of not less than 1.50 to 1.00. (b) Consolidated Tangible Net Worth. Maintain Consolidated Tangible Net Worth at an amount not less than THE GREATER OF (I) $70,000,000 and (ii) the sum of $70,000,000 plus 50% of - 3 - Consolidated Net Income for the period from and after March 31, 1993 to the date of determination thereof (considered as a single accounting period). (c) Funded Debt. Not permit Consolidated Funded Debt to exceed 60% of total capitalization. (d) Debt/Worth. Maintain a ratio of Debt to Tangible Net Worth of not more than 2.50 to 1.00. (e) Fixed Charges Coverage Ratio. Maintain a ratio of Net Income Available for Fixed Charges of not less than 1.50 to 1.00. The Company Covenants as of the date of this Agreement shall survive any modification or termination of the Principal Agreement. Section 3.2 Promptly pay all taxes, assessments and other government charges (unless such payments are being contested in good faith). Section 3.3 Maintain insurance on all its properties in such amounts and against such hazards as is customary in Borrower's industry. Section 3.4 Maintain its books and records and account for financial transactions in accordance with generally accepted accounting principals. Section 3.5 Borrower shall furnish Commerce Bank with the following information: (a) Its annual audited financial statement within 90 days of its fiscal year-end, in a form and prepared by a certified public accounting firm acceptable to Commerce Bank; (b) Its quarterly financial statements within 45 days after the end of each quarter; and (c) Such other information as Commerce Bank may reasonably request from time to time. ARTICLE IV Defaults Section 4.1. Events of Default. The entire unpaid balance of the Line of Credit Note shall become immediately due and payable without demand, presentment, notice or protest of any kind (all of which are expressly waived), upon the happening of any of the following events of default: (a) Nonpayment of any interest or any principal payment owing under the Line of Credit Note whether at maturity or otherwise; or - 4 - (b) If any certificate, statement, representation, warranty or audit furnished by or on behalf of the Borrower in connection with this Agreement, including those contained herein, or as an inducement by Borrower to enter into, modify, extend, or renew this Agreement shall prove to be false in any material respect, or if Borrower shall have omitted the listing of a substantial contingent or unliquidated liability or claim against Borrower or, if on the date of execution of this Agreement there shall have been any materially adverse change in any of the facts disclosed by any such certificate, statement, representation, warranty or audit, which change shall not have been disclosed by Borrower to Bank at or prior to the time of execution; or (c) If Borrower shall default in the due performance or observance of any covenant undertaken by it under this Agreement; or (d) Default in the performance of the obligations of Borrower pursuant to any other note or agreement binding on Borrower including, but not limited to the Principal Agreement; or (e) Borrower shall be adjudicated a bankrupt, or make a general assignment for the benefit of its creditors, or there are instituted by or against Borrower any type of bankruptcy proceedings or any proceeding for the liquidation or the termination of Borrower's affairs, or the appointment of a receiver or trustee for Borrower or for any of Borrower's assets, or a properly filed petition for Borrower's reorganization under the Bankruptcy Code or otherwise is approved, or Borrower files a petition for arrangement under Chapter 11 of the Bankruptcy Code or any similar statute. (f) Any judgment or judgments, writ or writs, or warrant or warrants of attachment, or any similar process or processes shall be entered or filed against the Borrower or any Subsidiary or against any of their respective property or assets and remain unstayed and undischarged for a period of 60 days from the date of its entry. Section 4.2. Remedies. If any event of default occurs, Bank may resort to any remedy existing at law or in equity for the collection of the Line of Credit Note and enforcement of the covenants and provisions of this Agreement. Bank's resort to any remedy shall not prevent the concurrent or subsequent employment of any other remedy. Section 4.3. Waiver. Any waiver of an event of default by Bank shall not extend to or affect any subsequent default. No failure or delay by Bank in exercising any right hereunder shall operate as a waiver nor shall any single or partial exercise of any right preclude any other right hereunder. - 5 - ARTICLE V Miscellaneous Section 5.1. Amendments. This Agreement may be amended or modified in whole or in part at anytime, if in writing and signed by the parties. Bank may further consent in writing, or give written waiver to any covenant or event which might otherwise create a default. Section 5.2. Delay, Waiver. No omission or delay on the part of Bank in exercising any right, power, or privilege hereunder shall impair or operate as a waiver thereof; nor shall any single or partial exercise or any right, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power, or privilege. No waiver by Bank will be valid unless in writing and signed by Bank and then only to the extent specified therein. The rights and remedies herein expressly specified are cumulative and not exclusive of any rights or remedies which Bank would otherwise have. Section 5.3. Bank. Whenever in this Agreement reference is made to the Bank, such term shall be deemed for the purpose of benefits, powers, and privileges hereunder to include any firm, person, or corporation who may be the holder from time to time of the Note issued hereunder or a participation therein. Section 5.4. Governing Law. This Agreement and the Line of Credit Note shall be construed and interpreted in accordance with the laws of the State of Missouri. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. BORROWER: MIDWEST GRAIN PRODUCTS, INC. By: /s/ Ladd M. Seaberg Title: President - CEO By: /s/ Robert G. Booe Title: VP - CFO BANK: COMMERCE BANK OF KANSAS CITY, N.A. By: /s/ Fredrick J. Marston Title: Vice-President - 6 - EX-4 4 NOTE Exhibit 4(b) LINE OF CREDIT NOTE $20,000,000 February 25, 1994 FOR VALUE RECEIVED, the undersigned, MIDWEST GRAIN PRODUCTS, INC., a Kansas corporation ("Borrower") hereby promises to pay to the order of Commerce Bank of Kansas City, N.A. ("Bank") at its offices in Kansas City, Missouri, the aggregate unpaid principal amount and accrued interest of all borrowings hereunder. The aggregate unpaid principal amount shall also become immediately due and payable, without demand or further action on the part of Bank upon the occurrence of an event of default as set forth in Section 4.1 of the Line of Credit Loan Agreement, as amended, dated November 30, 1993 (the "Agreement"). Interest on this note shall be calculated on the actual number of days on the basis of a year of 360 days. If the outstanding balance is less than $500,000, the line of credit shall bear interest at a per annum rate equal to the Prime Rate. If the outstanding balance is $500,000 or greater, the line of credit shall bear interest at the greater of either (1) the Prime Rate, minus 1%, or (2) the Federal Funds Rate plus 1.50%. Interest will be payable monthly, in arrears, and at maturity, whether by acceleration or otherwise. Interest will be computed on the actual days outstanding based upon a year consisting of 360 days. "Prime Rate" means the Prime Rate of interest established from time to time by Commerce Bank and designated as such for its internal convenience, and no representation is made that the Prime Rate is the best, the lowest or a favored rate of interest. The rate of interest, if tied to the Prime Rate, shall change with and be effective on the date of each change in the Prime Rate. "Federal Funds Rate" means the effective Federal Funds Rate as quoted by the Federal Reserve Bank of New York on a daily basis. The Federal Funds Rate is adjusted daily. So long as the Agreement has not been terminated, Borrower may, from the date of this note through October 1, 1997 borrow, repay and reborrow sums, at any one time outstanding, not to exceed $20,000,000. All advances and repayments hereunder shall be endorsed on the reverse hereof (or an attached schedule) by the Bank or holder, and between the undersigned and Bank, such endorsements and the balances derived from such endorsements shall be conclusively presumed to reflect the amounts advanced and repaid hereunder and the then outstanding and unpaid balance of sums advanced or readvanced hereunder. The undersigned hereby waives presentment, protest, demand and notice of dishonor or default. This note is issued pursuant to the terms of the Agreement, to which Agreement, and any amendments thereto, reference is hereby made for a statement of the terms and conditions under which this borrowing was made, and is to be repaid. MIDWEST GRAIN PRODUCTS, INC. By: /S/ Ladd M. Seaberg _____________________________ Title: President - CEO __________________________ By: /s/ Robert Booe _____________________________ Title: VP-CFO __________________________ C:\B10\545 EX-20 5 LETTER TO STOCKHOLDERS EXHIBIT 20 Letter To Our Stockholders May 9, 1995 Dear Stockholder: Reduced production efficiencies and the continuance of strong competition from European wheat gluten producers caused results for our third quarter of fiscal 1995 to decrease significantly compared to the prior year's third quarter results. Our net income for the quarter was $298,000, or $0.03 per share on sales of $42,005,000. In the third quarter of fiscal 1994, our net income was $6,084,000, or $0.62 per share on sales of $50,652,000. A principal reason for the outstanding results we experienced in last year's third quarter was the extraordinary increase in demand for wheat gluten during that period. This mainly resulted from poor wheat protein levels domestically and abroad, requiring substantially more gluten than usual for use in fortifying flour. Following a return to more normal crop conditions this past summer, the U.S. market began experiencing a tremendous rise in imported wheat gluten from the European Union, where wheat starch and gluten capacities underwent sizeable increases. The escalation of this situation was a principal cause for a decline in our total results for the first nine months of fiscal 1995, which had net income of $5,291,000, or $0.54 per share on sales of $132,477,000. Our net income for the first nine months of fiscal 1994 was $10,364,000, or $1.06 per share on sales of $135,100,000. Although the intense competitive conditions in our wheat gluten market remain unchanged at this time, I am encouraged by the improved efficiencies we are beginning to experience through the increased utilization of our expanded distillery capacity in Pekin, Illinois. Completion of this expansion, which is designed to double our total alcohol production capacity, was delayed by mechanical equipment problems with new distillers feed drying equipment. Intermediate repairs to the equipment were completed by the supplier at the end of the third quarter. Production should further improve when permanent repairs to the equipment are completed late this summer. Our total alcohol unit sales were up substantially in the third quarter as the result of a large increase in the fuel grade alcohol category. We are now also experiencing an increase in unit sales of food grade alcohol for industrial and beverage applications, principally as a result of new capacity we have gained from our expansion in Pekin. Growth opportunities in the fuel market, for which the majority of our expanded capacity is designed, remain viable but will occur more gradually due to a recent ruling by the U.S. Circuit Court of Appeals for the District of Columbia. On April 28, the Court reversed the Environmental Protection Agency's regulation requiring that renew- able fuel oxygenates such as grain-based ethanol play a larger role in satisfying future Clean Air Act requirements in nine of the nation's smoggiest metropolitan areas. The Court's decision resulted from a suit filed against the EPA regulation last September by two groups representing the petroleum industry. Favorable conditions continue to exist in our wheat starch market, where growth in our multiple modified and specialty varieties has occurred throughout the current fiscal year. Our ability to increase wheat starch production will be strengthened by the new starch processing capacity that we plan to have installed at our Pekin plant by the end of this year's fourth quarter. Our planned wheat gluten capacity increase in Pekin remains on hold until greater stability returns to the market. Through our membership in the U.S. Wheat Gluten Industry Council, we are actively raising awareness of policies and practices that allow our European counterparts overwhelming competitive advantages. In concert with this program, we are seeking reasonable solutions to the problem with assistance from leading government officials. In the meantime, with increased use of our expanded distillery operation, our overall operational efficiencies should steadily improve. While we don't expect marked improvements in results for this year's fourth quarter compared to the third quarter, we do expect more favorable conditions to prevail long-term. As previously announced, a dividend of $0.125 per share was declared and is payable May 9, 1995 to stockholders of record April 7, 1995. Sincerely, /s/ Ladd M. Seaberg Ladd M. Seaberg President and CEO Corporate Profile Founded in 1941, Midwest Grain Products, Inc., is a fully integrated producer of vital wheat gluten, premium wheat starch and alcohol products. In addition to its major product lines, the Company also produces flour for internal use, and several by-products, including wheat bran, mill feeds, distillers feeds and carbon dioxide. The Company's principal raw material is grain, consisting of wheat, which is processed into all products, and corn and milo, which are processed into alcohol and alcohol by-products. Vital wheat gluten and premium wheat starch are sold primarily as food additives to enhance the nutritional value, appearance, texture, taste, and a variety of other characteristics of baked and processed foods. Alcohol products are produced as part of the gluten and starch processing operations. They consist of food grade alcohol for beverage, industrial and commercial applications, and fuel grade alcohol, which is sold as an octane additive for motor fuel. The Company operates two processing plants in the United States. The corporate headquarters and original plant are located in Atchison, Kan. The plant located in Pekin, Ill., was acquired from the American Distilling Company in June, 1980. These facilities are operated 24 hours each day of the year and enable utilization in the Company's products of approximately 95% (by weight) of grain processed. Midwest Grain Products, Inc. 1300 Main Street PO Box 130 Atchison, Kansas 66002-0130 Phone: 913-367-1480 Symbol/Market: MWGP/NASDAQ EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MIDWEST GRAIN PRODUCTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED MARCH 31, 1995 AND CONDENSED CONSOLIDATED BALANCE SHEET AS AT MARCH 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000835011 MIDWEST GRAIN PRODUCTS, INC. 1,000 9-MOS JUN-30-1995 JUL-01-1994 MAR-31-1995 0 339 19,616 0 15,851 39,112 207,368 73,944 172,978 10,708 35,000 6,715 0 4 109,082 172,978 132,477 132,636 115,120 115,120 8,624 0 0 8,892 3,601 5,291 0 0 0 5,291 .54 .54 After deduction of allowances and addition of Notes Receivable. See Note F1. Reflects Retained Earnings and Additional Paid In Capital. Reflects net sales plus Other Operating Loss and Other Income. Consists of Selling, General and Administrative Expenses. Total revenues includes "Other Income." Other Income reflects excess Other Income after deducting interest expense.
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