0000916002-95-000015.txt : 19950915
0000916002-95-000015.hdr.sgml : 19950915
ACCESSION NUMBER: 0000916002-95-000015
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 4
CONFORMED PERIOD OF REPORT: 19950630
FILED AS OF DATE: 19950913
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-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-17196
FILM NUMBER: 95573369
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-K
1
MIDWEST GRAIN PRODUCTS, INC. 1995 FORM 10-K
As Filed with the Securities and Exchange Commission on September 12, 1995
__________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13
of the Securities Exchange Act of 1934
For the Fiscal Year Ended June 30, 1995
MIDWEST GRAIN PRODUCTS, INC.
1300 Main Street, Box 130
Atchison, Kansas 66002
Telephone: (913) 367-1480
Incorporated in the State of Kansas
COMMISSION FILE NO. 0-17196
IRS No. 44-0531200
The Company has no securities registered pursuant to Section 12(b) of
the Act. The only class of common stock outstanding consists of Common
Stock having no par value, 9,765,172 shares of which were outstanding at
June 30, 1995. The Common Stock is registered pursuant to Section 12(g) of
the Act.
The aggregate market value of the Common Stock of the Company held by
non-affiliates, based upon the last sales price of such stock on August 23,
1995, was $147,475,165.
The Company 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, and has been subject to such filing requirements for the past 90
days.
As indicated by the following check mark, disclosure of delinquent
filers pursuant to Rule 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge in a
definitive proxy or information statement incorporated by reference in Part
III of this Form 10-K: [X].
The following documents are incorporated herein by reference:
(1) Midwest Grain Products, Inc. 1995 Annual Report to Stockholders,
pages 17 through 36 [incorporated into Part II and contained in Exhibit
10(c)].
(2) Midwest Grain Products, Inc. Proxy Statement for the Annual
Meeting of Stockholders to be held on October 5, 1995, dated September 12,
1995 (incorporated into Part III).
___________________________________________________________________________
MIDWEST GRAIN PRODUCTS, INC.
FORM 10-K
For the Fiscal Year Ended June 30, 1995
CONTENTS
PAGE
----
PART I
Item 1. Business........................................ 4
General Information.................................. 4
Vital Wheat Gluten................................... 5
Premium Wheat Starch................................. 6
Alcohol Products..................................... 7
Flour and Other Mill Products........................ 9
Transportation....................................... 9
Raw Materials........................................ 10
Energy............................................... 10
Employees............................................ 10
Regulation........................................... 11
Item 2. Properties...................................... 11
Item 3. Legal Proceedings............................... 11
Item 4. Submission of Matters to a Vote of Security
Holders......................................... 11
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters..................... 12
Item 6. Selected Financial Data......................... 12
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations... 12
Item 8. Financial Statements and Supplementary Data..... 12
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......... 12
PART III
Item 10. Directors and Executive Officers
of the Registrant.............................. 13
Item 11. Executive Compensation......................... 15
Item 12. Security Ownership of Certain Beneficial
Owners and Management.......................... 15
Item 13. Certain Relationships and Related Transactions. 15
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K........................ 16
SIGNATURES.................................................. 18
FINANCIAL STATEMENT SCHEDULES............................... S-1
Report of Independent Public Accountants on Schedules.... S-2
Schedule VIII. Valuation and Qualifying Accounts........ S-3
____________________________
The calculation of the aggregate market value of the Common Stock of
the Company held by non-affiliates is based on the assumption that non-
affiliates do not include directors. Such assumption does not constitute
an admission by the Company or any director that any director is an
affiliate of the Company.
PART I
Item 1. Business.
General Information
Midwest Grain Products, Inc. (the Company) is a Kansas corporation
headquartered in Atchison, Kansas. It is the successor to a business
founded in 1941 by Cloud L. Cray, Sr.
The Company is a fully integrated producer of vital wheat gluten,
premium wheat starch, and alcohol products. These grain products are
processed at plants located in Atchison, Kansas, and Pekin, Illinois.
Wheat is purchased directly from local and regional farms and grain
elevators and milled into flour. The flour is processed with water to
extract vital wheat gluten which is dried into a tan powder and sold in
packaged or bulk form. The resulting starch slurry is further processed to
extract premium wheat starch which is also dried into a powder and sold in
packaged or bulk form. The remaining slurry is mixed with corn or milo and
water and then cooked, fermented and distilled into alcohol. The residue
of the distilling operations is dried and sold as a high protein additive
for animal feed. Carbon dioxide which is produced during the fermentation
process is trapped and sold. As a result of these processing operations,
the Company sells approximately 95% (by weight) of grain processed.
The table below shows the Company's sales from continuing operations
by product group for each of the five years ended June 30, 1995, as well as
such sales as a percent of total sales. The table does not reflect the
sales of McCormick Distilling Company, a business that was sold as of
December 31, 1992.
PRODUCT GROUP SALES
Year Ended June 30,
1995 1994 1993 1992 1991
------------ ------------ ------------- ------------- -----------
(thousands of dollars)
Amount % Amount % Amount % Amount % Amount %
------- ---- -------- ---- ------- ---- -------- ---- ------- ---
Vital Wheat Gluten ......... $49,957 27.7 $ 70,966 38.2 $54,156 33.1 $ 46,941 30.1 $27,833 0.9
Premium wheat starch ....... 23,403 13.0 21,110 11.3 18,423 11.3 17,578 11.3 16,068 12.1
Alcohol Products:
Food Grade Alcohol
Beverage Alcohol....... 32,573 18.1 29,536 15.9 27,142 16.6 26,437 17.0 25,994 19.5
Food Grade Industrial.. 23,379 13.0 22,585 12.1 17,123 10.5 17,974 11.5 19,391 14.5
Fuel Grade Alcohol ....... 28,120 15.6 19,273 10.4 24,468 15.0 21,069 13.6 15,697 11.8
Alcohol by-products....... 19,583 10.9 18,146 9.8 19,288 11.8 17,791 11.4 17,010 12.8
Total alcohol ------ ---- ------ ---- ------ ---- ------ ---- ------ ----
products.............. 103,655 57.5 89,540 48.2 88,021 53.9 83,271 53.5 78,092 58.6
------- ---- ------ ---- ------ ---- ------ ---- ------ ----
Flour and other mill
products ................. 3,237 1.8 4,352 2.3 2,826 1.7 8,004 5.1 11,127 8.4
------- ---- ------ ---- ------ ---- ------ ---- ------ ----
Net sales.................$180,252 100.0 $185,968 100.0 $163,426 100.0 $155,794 100.0 $133,120 100.0
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
During fiscal 1995 the Company completed $96.8 million of expansion
programs started in 1992 which have more than doubled the Company's 1991
capacity to produce all of its products. Although the Company expects that
it will take a number of years to develop profitable markets for all of the
new capacity, management believes that the expanded facilities have
positioned the Company for profitable growth as conditions in the market
place improve.
The Company's fiscal 1995 sales declined from the high levels
experienced during fiscal 1994 due primarily to lower sales of vital wheat
gluten as the result of increased foreign competition and a reduction in
market demand compared to the high demand for gluten in the latter half of
fiscal 1994. Profitability declined due to the reduced sales of vital
wheat gluten, significantly increased grain costs, less efficient
distillery operations due primarily to mechanical problems with two new
distillers feed dryers and a $5.0 million write off of an old coal fired
boiler at the Pekin plant.
The bulk of the Company's sales are made under informal arrangements
direct to large institutional food and beverage processors or distributors
with respect to which the Company has longstanding relationships. Under
these arrangements products are usually ordered, produced, sold and shipped
within 30 days. As a consequence, the Company's backlog of orders at any
time is usually less than 10 percent of annual sales.
Generally, the Company's sales are not seasonal except for minor
variations affecting alcohol and gluten sales. Beverage alcohol sales
tend to peak in the fall as distributors order stocks for the holiday
season, while gluten sales tend to increase during the second half of the
fiscal year as demand increases for hot dog buns, hamburger buns, and
similar bakery products. Certain environmental regulations also favor
greater use of ethanol during the winter months of the year. See "Alcohol
Products- Fuel Grade Alcohol."
For further information, see the Consolidated Financial Statements of
the Company and Management's Discussion and Analysis of the Company's
Financial Condition and Results of Operations which appear at pages 18
through 24 of the Annual Report.
Vital Wheat Gluten
Vital wheat gluten is a light tan powder which contains approximately
75% to 80% protein. It is the only commercially available high protein
food additive which possesses vitality. The vitality of the Company's
vital wheat gluten results from its elastic and cohesive characteristics
when added to dough or otherwise reconstituted with water.
Vital wheat gluten is added by bakeries and food processors to baked
goods such as wheat breads, and to pet foods, cereals, processed meats,
fish, and poultry to improve the nutritional content, texture, strength,
shape, and volume of the product. The neutral flavor and color of wheat
gluten also enhances, but does not change, the flavor and color of food.
It has been increasingly used in breads and pet foods. The cohesiveness
and elasticity of the gluten enables the dough in wheat and other high
protein breads to rise and to support added ingredients such as whole
cracked grains, raisins and fibers. This allows the baker to make an array
of different breads by varying the gluten content of the dough. Vital
wheat gluten is also added to white breads, and hot dog and hamburger buns
to improve the hinge strength and cohesiveness of the product.
The Company ships its vital wheat gluten throughout the continental
United States in bulk and in 50 to 100 pound bags. Approximately 35% of
fiscal 1995 gluten sales were made to a distributor for the bakery
industry, the Ben C. Williams Bakery Services Company, which in turn
distributes vital wheat gluten to independent bakeries. The remainder is
sold directly to major food processors and bakeries such as Kellogg Co.,
Continental Baking Company, Inc. and H. J. Heinz Co.
The Company's principal competitors in the U.S. vital wheat gluten
market consist of two other domestic producers and a number of foreign
importers. A fourth domestic producer is expected to enter the market in
the fourth calendar quarter of 1995 through a new gluten and wheat starch
production facility that is being constructed in western Kansas. Foreign
exporters provide significant competition from time to time due to low U.S.
tariffs and export incentives provided by foreign countries to their wheat
starch producers. Based on industry data, the Company believes that in
terms of fiscal 1995 sales it is the largest producer of vital wheat gluten
in the United States.
Competition in the vital wheat gluten industry is based primarily upon
price, quality, and service. Historically, gluten prices have been
affected by grain prices, grain quality, excess foreign capacity and by
subsidies provided to certain European exporters by their host governments.
The Company's vital wheat gluten processing operations are believed to
produce a quality of vital wheat gluten that is equal to or better than
that of any other wheat gluten on the market. The Company's location in
the center of the United States grain belt, its production capacity and
years of operating experience, enable it to provide a consistently high
level of cost effective service to customers.
The Company's sales of vital wheat gluten decreased by $21.0 million
during fiscal 1995 from the high levels of fiscal 1994, due to reduced
marketing opportunities resulting from significantly increased European
gluten imports which began during the second half of calendar 1994. The
high level of fiscal 1994 Gluten sales resulted from a worldwide shortage
of gluten due to poor quality, low protein-yielding wheat following the
extremely wet weather in the spring and summer of 1993.
The substantial increase in European gluten imports that the Company
experienced during the last half of fiscal 1995, and that are continuing
into fiscal 1996, are due to sizable increases in European capacity to
produce starch and gluten, high subsidies that enable the sale of excess
European gluten in the U.S. at low prices and low U.S. tariffs on that
gluten. The Company and the United States Wheat Gluten Council are engaged
in a variety of legislative and other initiatives to create a more
competitive environment in the United States for the European producers.
However, no assurances can be given with respect to when or whether any of
such initiatives will meet with success.
During fiscal 1995 the Company substantially completed the
construction of new wheat gluten production facilities at the Pekin
Illinois plant. The expansion will increase the Company's total gluten
capacity by approximately 40%. That project, together with other gluten
expansion projects that were completed at the Atchison facilities during
1993 and 1994, have approximately doubled the gluten capacity that was
available at June 30, 1991. However, due to the unusually high gluten
imports from Europe that were continuing at the end of fiscal 1995, and
unusually high grain costs, the Company does not expect to immediately use
the increased capacity.
Premium Wheat Starch
Wheat starch constitutes the carbohydrate-bearing portion of wheat
flour. The Company produces a pure white premium wheat starch powder by
extracting the starch from the starch slurry substantially free of all
impurities and fibers and then by spray, flash or drum drying the starch.
Premium wheat starch differs from low grade or B wheat starches which are
extracted along with impurities and fibers and are used primarily as a
binding agent for industrial applications such as the manufacture of
charcoal briquettes. The Company does not produce low grade or B starches
since its integrated processing facilities are able to process the
remaining slurry after the extraction of premium wheat starch into alcohol,
animal feed and carbon dioxide. Premium wheat starch differs from corn
starch in its granular structure, color, granular size and name
identification.
An increasing portion of the Company's premium wheat starch is also
chemically altered during processing to produce certain unique modified
wheat starches designed for special applications.
The Company's premium wheat starches are used primarily as an additive
in a variety of food products to affect their appearance, texture,
tenderness, taste, palatability, cooking temperature, stability, viscosity,
binding and freeze-thaw characteristics. For example, the Company's
starches are used to improve the taste and mouth feel of cream puffs,
eclairs, puddings, pie fillings, breadings and batters; to improve the
size, symmetry and taste of angel food cakes; to alter the viscosity of
soups, sauces and gravies; to improve the freeze-thaw stability and shelf
life of fruit pies and other frozen foods; to improve moisture retention in
microwavable foods; and to add stability and to improve spreadability in
frostings, mixes, glazes and sugar coatings. The Company's specialty
starches are also sold for a number of industrial and non-food uses, such
as an ink bearing coating in carbonless paper.
The Company's premium wheat starch is sold nationwide to food
processors, such as International Multi-Foods Corp., Pillsbury Company and
Keebler Company, to distributors, and for export to countries such as
Japan, Mexico and Malaysia which do not have wheat-based economies.
The Company believes that it is the largest producer of premium wheat
starch in the United States. Although wheat starch enjoys a relatively
small portion of the total United States starch market, the market is one
which is continuing to grow. Growth in the wheat starch market reflects a
growing appreciation for the unique characteristics of wheat starch which
provide it with a number of advantages over corn and other starches for
certain baking and other end uses. The Company has developed a number of
different modified wheat starches and continues to explore the development
of additional starch products with the view to increasing sales of higher
margin modified starches.
Premium wheat starch competes primarily with corn starch, which
dominates the United States market. Competition is based upon price, name,
color and differing granular and chemical characteristics which affect the
food product in which it is used. Premium wheat starch prices usually
enjoy a price premium over corn starches and low grade wheat starches.
Wheat starch price fluctuations generally track the fluctuations in the
corn starch market, except in the case of modified wheat starches. The
wheat starch market also usually permits pricing consistent with costs
which affect the industry in general, including increased grain costs. The
Company's strategy is to market its premium wheat starches in special
market niches where the unique characteristics of premium wheat starch or
one of the Company's modified wheat starches are better suited to a
customers requirements for a specific use.
Starch sales increased during fiscal 1995 by approximately $2.3
million, due primarily to higher volumes and increased sales of modified
wheat starches. The volume increases reflect a nearly full utilization of
increased starch production capacity installed at the Atchison facility in
fiscal 1992 and 1993.
During June, 1995, the Company completed the construction of a new
starch production facility at the Pekin plant. Previously that Plant was
equipped only to produce gluten, alcohol and alcohol byproducts. The
expansion is expected to increase total starch production capacity by 70%,
enable the Company to satisfy customers' wheat starch needs from two
locations and permit the Pekin plant to capitalize on the concurrent
expansion of its gluten and alcohol production facilities.
Alcohol Products
The Company's Atchison and Pekin plants process corn and milo, mixed
with the starch slurry from gluten and starch processing operations, into
food grade alcohol, fuel grade alcohol, animal feed and carbon dioxide.
Food grade alcohol, or grain neutral spirits, consists of beverage
alcohol and industrial food grade alcohol that are distilled to remove all
impurities and all but approximately 5% of the water content to yield high
quality 190 proof alcohol. Fuel grade alcohol, or "ethanol," is a lower
grade of grain alcohol that is distilled to remove all water to yield 200
proof alcohol suitable for blending with gasoline.
Food Grade Alcohol
Beverage Alcohol. Food grade beverage alcohol consists primarily of
grain neutral spirits and gin. Grain neutral spirits is sold in bulk or
processed into vodka and gin and sold in bulk quantities at various proof
concentrations to bottlers and rectifiers, such as Heublein, Inc. and James
B. Beam Distilling Co., which further process the alcohol for sale to
consumers under numerous labels.
The Company believes that in terms of fiscal 1995 net sales, it is one
of the two largest bulk sellers of grain neutral spirits, vodka and gin in
the United States. The Company's principal competitors in the beverage
alcohol market are Grain Processing Company of Muscatine, Iowa and Archer
Daniels Midland of Decatur, Illinois. Competition is based primarily upon
price and service, and in the case of gin, formulation. The Company
believes that the centralized location of its Illinois and Kansas
distilleries and the capacity of its dual production facilities combine to
provide the Company with a customer service advantage that is unique within
the industry.
Food Grade Industrial Alcohol. Food grade alcohol which is not sold as
beverage alcohol is marketed as food grade industrial alcohol. Food grade
industrial alcohol is sold as an ingredient in foods (e.g., vinegar and
food flavorings), personal care products (e.g., hair sprays and
deodorants), cleaning solutions, biocides, insecticides, fungicides,
pharmaceuticals, and a variety of other products. Although grain alcohol
is chemically the same as petroleum-based or synthetic alcohol, certain
customers prefer a natural grain-based alcohol. Food grade industrial
alcohol is sold in tank truck or rail car quantities direct to a number of
industrial processors, such as Integrated Ingredients, a division of Burns
Philip Foods, Inc., 7-Up Company, and Lehn & Fink, a producer of Lysol
based household cleaners, from both the Atchison and Pekin plants.
The Company is a minor competitor in the total United States market
for food grade industrial alcohol, which is dominated by petroleum-based or
synthetic alcohol. Food grade industrial alcohol prices are normally
consistent with prices for synthetic industrial alcohol.
Food grade alcohol sales increased by approximately $3.8 million
during fiscal 1995 due primarily to volume increases in the sale of
beverage alcohol. Those increases were primarily due to increased demand
and the availability of increased capacity derived from the distillery
expansion at the Pekin plant.
Fuel Grade Alcohol
Fuel grade alcohol, which is commonly referred to as ethanol, is sold
primarily for blending with gasoline to increase the oxygen and octane
levels of the gasoline. As an octane enhancer, ethanol can serve as a
substitute for lead and petroleum based octane enhancers. As an
oxygenate, ethanol permits gasoline to meet certain environmental
regulations and laws that regulate air quality by reducing carbon monoxide,
hydrocarbon particulate and other toxic emissions generated from the
burning of gasoline ("toxics"). Because ethanol is produced from grain, a
renewable resource, it also provides a fuel alternative that tends to
reduce the country's dependence on foreign oil.
Although ethanol can be blended directly with gasoline as an
oxygenate to enable it to reduce toxic air emissions, it also increases
the volatility of gasoline or its tendency to evaporate and release
volatile organic compounds ("VOC's"). This latter characteristic has
precluded it from meeting certain clean air act requirements for gasoline
that pertain to nine of the smoggiest US metropolitan areas during the
summer months (May 1 through September 15). Although in certain
circumstances this makes it difficult for ethanol to compete with the two
other principal oxygenates, methyl tertiary butyl ether ("MTBE") and ethyl
tertiary butyl ether ("ETBE"), ethanol is a principal ingredient of ETBE,
and therefore it is expected to be increasingly used in the production of
ETBE to meet clean air regulations and laws.
The cost of producing ethanol has historically exceeded the cost of
producing gasoline and gasoline additives, such as MTBE, all of which are
derived from fossil non-renewable fuels such as petroleum. Accordingly, to
encourage the production of ethanol for use in gasoline, the Federal
government and various states have enacted tax and other incentives
designed to make ethanol competitive with gasoline and gasoline additives.
Under the internal revenue code, and until October 1, 1999, gasoline that
has been blended in qualifying proportions with ethanol provide sellers of
the blend with certain income tax credits and excise tax reductions that
amount to up to $0.54 per gallon of ethanol that is mixed with the
gasoline. A mix of at least 10% ethanol by volume is required to receive
the maximum credit. In August the department of Treasury issued a ruling
which extends these tax benefits to producers of ETBE. Although the
Federal tax benefits are not directly available to the Company, they allow
it to sell its ethanol at prices competitive with less expensive additives
and gasoline. From time to time legislation is proposed to eliminate or
reduce the tax benefits enjoyed by the ethanol industry, and indirectly by
producers of the grain that is converted into ethanol. Producers of MTBE
are also contesting the recent DOT ruling that subsidizes ethanol used in
ETBE. No assurance can be given that such proposals and complaints will
not be successful or that Congress will continue the current subsidies
beyond September 30, 1999.
The Kansas Qualified Agricultural Ethyl Alcohol Producer Incentive
Fund, which expires in 1999, provides incentives for sales of ethanol
produced in Kansas to gasoline blenders. Fiscal 1995 payments to the
Company out of the fund totaled $355,000 for the ethanol produced by the
Company at the Atchison plant during that year. A few other states offer
ethanol blending incentives, which, in the aggregate, did not materially
add to the Company's ethanol revenues during fiscal 1995.
The Fuel grade alcohol market is dominated by Archer Daniels Midland.
In recent years other competitors have significantly increased domestic
fuel grade alcohol distillation capacity with even more capacity expected
during 1996. During fiscal 1995 the Company more than tripled its fuel
grade alcohol production capacity through the expansion of its distillery
operations at the Pekin plant. As a consequence, it moved from a very
small competitor in the fuel grade market to the smaller of a few other
larger second tier ethanol producers. The Company competes with other
producers of fuel grade alcohol on the basis of price and delivery
service. Fuel alcohol prices traditionally follow the movement of gasoline
prices.
During fiscal 1995 sales of Fuel Grade Alcohol increased by 46% or
approximately $8.8 million. The increase was due primarily to the
additional capacity that was made available at the Pekin plant. However,
the extent of the increase was negatively impacted by mechanical problems
with the new distillers feed drying equipment, which is expected to be
resolved during the second quarter of fiscal 1996. Fuel grade alcohol
operations for fiscal 1995 were also adversely affected by unusually high
grain costs and the reversal of an EPA ruling that had mandated the use of
ethanol in the new reformulated gasoline program mandated by the Clean Air
Act amendments of 1990.
Alcohol By-Products
The bulk of fiscal 1995 sales of alcohol by-products consist of
distillers feeds. Distillers feeds are the residue of corn, milo and wheat
from alcohol processing operations. The residue is dried and sold
primarily to processors of animal feeds as a high protein additive. The
Company competes with other distillers of alcohol as well as a number of
other producers of animal food additives in the sale of distillers feeds
and mill feeds. The 1995 expansion of the distillery at the Pekin plant
approximately doubled the capacity of the Company to produce distillers
feeds. Although unit production of distillers feeds increased during 1995,
the extent of the increase was negatively impacted by mechanical problems
with the new feed dryers that have been installed at the Pekin plant. As
indicated above, the repairs on those dryer are expected to be completed
during the second quarter of fiscal 1996.
The balance of alcohol by-products consists primarily of carbon
dioxide. During the production of alcohol, the Company traps carbon
dioxide gas that is emitted in the fermentation process. The gas is
purchased and liquefied on site by two principal customers, one at the
Atchison Plant and one at the Pekin Plant, who own and operate the carbon
dioxide processing and storage equipment under long term contracts with the
Company. The liquefied gas is resold by these processors to a variety of
industrial customers and producers of carbonated beverages.
Flour and Other Mill Products
The Company owns and operates a flour mill at the Atchison plant. All
of the mill's output of flour is used internally for the production of
vital wheat gluten and premium wheat starch. In 1993 the Company completed
the first of a two-phase expansion of the mill. The second phase of the
expansion was completed during the first quarter of fiscal 1995. The
entire project has increased the mill's total production by approximately
80%. All of the additional output of the mill is expected to be used
internally to satisfy existing requirements for the production of gluten
and starch and the additional requirements of the gluten and starch
facilities that have been added to the Pekin plant.
In addition to flour, the wheat milling process generates mill feeds
or midds and a small quantity of wheat germ. Midds are sold to processors
of animal feeds as a feed additive. Wheat germ is sold primarily for use
in vitamin E production.
Sales of flour and other mill products declined since 1991 due to the
increased usage of the flour mill's output for the production of other
grain products.
Transportation
The Company's output is transported to customers by truck, rail and
barge transportation equipment, most of which is provided by common
carriers through arrangements made by the Company. The Company leases 241
rail cars which may be dispatched on short notice. Shipment by barge is
offered to customers through barge loading facilities on the Missouri and
Illinois Rivers. The barge facility on the Illinois River is adjacent to
the Pekin plant and owned by the Company. The facility on the Missouri
River, which is not company-owned, is approximately one mile from the
Atchison plant. Previously the Company owned and operated a fleet of 32
tank and van trailers and 12 truck-tractors. The bulk of that equipment
was sold and all of the related trucking operations were dissolved during
fiscal 1995.
Income from discontinued trucking operations is included in Other
Operating Income shown in the Statements of Income. See in particular
Note 8 in the Notes to Consolidated Financial Statements in the Annual
Report.
Raw Materials
The Company's principal raw material is grain, consisting of wheat
which is processed into all of the Company's products and corn and milo
which are processed into alcohol, animal feed and carbon dioxide. Grain is
purchased directly from surrounding farms, primarily at harvest time, and
throughout the year from grain elevators. Historically, the cost of grain
is subject to substantial fluctuations depending upon a number of factors
which affect commodity prices in general, including crop conditions,
weather, government programs, and purchases by foreign governments.
Although significant variations in grain prices may temporarily affect
positively or negatively the results of the Company's operations, the
Company has usually, but not always, been able to compensate for such
variations through adjustments in prices charged for the Company's grain
products. During fiscal 1995 and continuing into fiscal 1996 wheat, corn
and milo prices increased to unusually high levels in the face of intense
competition from foreign exporters of vital wheat gluten and relatively
flat markets for fuel grade ethanol and poor markets for distillers feeds.
The combination of these factors have significantly restricted the ability
of the company to adjust the price of its gluten, fuel grade alcohol and
distillers feeds to compensate for the high grain costs. The Company is
responding to these circumstances by shifting as much of its production as
is possible to starch and food grade alcohol production, by restricting
the production of gluten and fuel grade alcohol and through the
implementation of other cost-cutting measures.
Historically the Company has not engaged in the purchase of commodity
futures to hedge economic risks associated with fluctuating grain and grain
products prices. However, due to the significantly increased volumes of
grain and grain products that are expected as a result of the expansion of
the Company's production facilities, the Company began during 1995 to make
limited investments in commodity futures, including wheat, corn and
gasoline futures.
Energy
Because energy comprises a major cost of operations, the Company seeks
to assure the availability of fuels for the Pekin and Atchison plants at
competitive prices.
All of the natural gas demand for the Atchison plant is transported
by a wholly-owned subsidiary which owns a gas pipeline. The subsidiary
procures the gas in the open market from various suppliers. The Atchison
boilers may also be oil fired.
In the past, the Company's Pekin plant generated the bulk of its
energy needs from coal and gas fired boilers. However, due to the
expansion of the Pekin plant, the Company entered into a long-term
arrangement in 1995 with an Illinois utility to satisfy the energy needs of
the entire plant with a new gas fired plant. Under the arrangement, the
utility constructed at the Pekin plant on ground leased from the Company a
gas powered electric and steam generating facility. The utility sells to
the Company steam and electricity, generally at fixed rates, using gas
procured by the Company. The old steam and electrical generating equipment
is being kept as an emergency standby, most of which was written off at the
end of fiscal 1995 through charges of approximately 5.0 million.
Employees
As of June 30, 1995, the Company had 429 employees, 290 of whom are
covered by three collective bargaining agreements with two labor unions.
The collective bargaining agreements expire on various dates from October
31. 1995, through August 30, 1996. As of June 30, 1994, the Company had
460 employees. The 6.5% decline in employees resulted primarily from the
dissolution of the Company's trucking operations in fiscal 1995. Although
the Company has expanded significantly the capacities of its plants, it
does not expect operations of the expanded facilities to necessitate
significant expansions in its work force.
During fiscal 1995, the Company reduced compensation expense for non-
union personnel, including managers and executives by over $2.0 million
through major reductions in its annual cash bonus program, a decision to
not implement the executive stock bonus program and through reduced
contributions to the Company's non-union Employee Stock Ownership Plans.
These reductions were primarily attributable to the decline in the
Company's operating results for the year.
The Company considers its relations with its personnel to be good and
has not experienced a work stoppage since 1978.
Regulation
The Company's beverage and industrial alcohol business is subject to
regulation by the Bureau of Alcohol, Tobacco and Firearms ("BATF") and the
alcoholic beverage agencies in the States of Kansas and Illinois. Such
regulation covers virtually every aspect of the Company's alcohol
operations, including production facilities, marketing, pricing, labeling,
packaging, and advertising. Food products are also subject to regulation
by the Food and Drug Administration. BATF regulation includes periodic
BATF audits of all production reports, shipping documents, and licenses to
assure that proper records are maintained. The Company is also required to
file and maintain monthly reports with the BATF of alcohol inventories and
shipments.
Item 2. Properties.
The Company maintains the following principal plants, warehouses and
office facilities:
Plant Area Tract Area
Location Purpose (in sq. ft.) (in acres)
-------- ------- ------------ ----------
-
Atchison, Kansas Principal executive offices,
grain processing, warehousing,
and research and quality
control laboratories. 494,640 25
Pekin, Illinois Grain processing,
warehousing, and quality control
laboratories. 462,926 49
Except as otherwise reflected under Item 1, the facilities mentioned
above are generally in good operating condition, are currently in normal
operation, are generally suitable and adequate for the business activity
conducted therein, and have productive capacities sufficient to maintain
prior levels of production. Except as otherwise reflected under Item 1,
all of the plants, warehouses and office facilities are owned. Although
none are subject to any major encumbrance, the Company has entered into
loan agreements which contain covenants against the pledging of such
facilities to others. The Company also owns transportation equipment and a
gas pipeline described under Transportation and Energy.
Item 3. Legal Proceedings.
There are no material legal proceedings pending as of June 30, 1995.
Legal proceedings which are pending consist of matters normally incident to
the business conducted by the Company and taken together do not appear
material.
Item 4. Submissions of Matters to a Vote of Security Holders.
No matters have been submitted to a vote of stockholders since the
last annual meeting of stockholders on October 6, 1994.
PART II
Item 5. Market for Registrants Common Equity and Related Stockholders
Matters.
The Common Stock of the Company has been traded on the NASDAQ National
Market System under the symbol MWGP since November 1988. The Company has
paid regular cash dividends on its Common Stock in each year since its
inception in 1957.
The following table reflects the cash dividends paid and the high and
low closing prices of the Common Stock for each quarter of fiscal 1995 and
1994:
Quarterly Cash Sales Price
Dividends High Low
--------------- ---------------
1994:
First Quarter ................. $ .125 $27.00 $22.25
Second Quarter ................ .125 29.75 22.75
Third Quarter ................. .125 32.75 26.25
Fourth Quarter ................ .125 36.00 29.25
----
$ .50
=======
1995:
First Quarter ................. $ .125 $36.25 $27.25
Second Quarter ................ .125 28.50 22.50
Third Quarter ................. .125 24.00 17.00
Fourth Quarter ................ .125 18.75 17.00
======
$ .50
At June 30, 1995, there were approximately 1,000 holders of record of
the Company's Common Stock. It is believed that the Common Stock is held
by more than 2,000 beneficial owners.
Item 6. Selected Financial Data.
Incorporated by reference to the information under Selected Financial
Information on page 17 of the Annual Report, a copy of which page is
included in Exhibit 10(c) to this Report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Incorporated by reference to the information under Managements
Discussion and Analysis of Financial Condition and Results of Operations on
pages 18 through 24 of the Annual Report, copies of which pages are
included in Exhibit 10(c) to this Report.
Item 8. Financial Statements and Supplementary Data.
Incorporated by reference to the consolidated financial statements and
related notes on pages 25 through 36 of the Annual Report, copies of which
pages are included in Exhibit 10(c) to this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The directors and executive officers of the Company are as follows:
Name Age Position
---- --- --------
Cloud L. Cray, Jr. 72 Chairman of the Board and Director
Laidacker M. Seaberg 49 President, Chief Executive Officer
and Director
Sukh Bassi, Ph.D. 54 Vice President - Vital Wheat Gluten
Marketing, Research and Development
and Corporate Technical Director
Robert G. Booe 58 Vice President - Administration,
Controller, Treasurer and Chief
Financial Officer
Norma C. Ewbank 61 Secretary
Gerald Lasater 57 Vice President - Wheat Starch
Marketing
Raymond Miller 61 Vice President - Purchasing and
Energy and President of
Midwest Grain Pipeline, Inc.
Anthony J. Petricola 59 Vice President - Engineering
Randy M. Schrick 45 Vice President - Operations
and Director
Robert L. Swaw 65 Vice President - Alcohol Marketing
Michael Braude 59 Director
Richard J. Bruggen 69 Director
F.D. "Fran" Jabara 70 Director
Tom MacLeod, Jr. 47 Director
Robert J. Reintjes 63 Director
Eleanor B. Schwartz, D.B.A. 58 Director
Mr. Cray, Jr. has been a Director since 1957, and has served as
Chairman of the Board since 1980. He served as Chief Executive Officer
from 1980 to September, 1988, and has been an officer of the Company and
its affiliates for more than thirty years.
Mr. Seaberg, a Director since 1979, joined the Company in 1969 and has
served as the President of the Company since 1980 and as Chief Executive
Officer since September, 1988. He is the son-in-law of Mr. Cray, Jr.
Dr. Bassi has served as Vice President of Research and Development
since 1985, Technical Director since 1989 and Vice President - Vital Wheat
Gluten Marketing since 1992. From 1981 to 1992 he was Manager of the Vital
Wheat Gluten Strategic Business Unit. He was previously a professor of
biology at Benedictine College for ten years.
Mr. Booe has served as Vice President, Treasurer and Chief Financial
Officer of the Company since 1988. He joined the Company in 1966 as its
Treasurer and became the Controller and Treasurer in 1980. In 1992 he was
assigned the additional task of Vice President - Administration.
Mrs. Ewbank has served as corporate secretary since 1987. She joined
the Company in 1981.
Mr. Lasater joined the Company in 1962. He has served as Vice
President - Starch Marketing since 1992. Previously he served as Vice
President in charge of the Wheat Starch Strategic Business Unit.
Mr. Miller joined the Company in 1956. He has served as Vice
President - Purchasing and Energy since 1992, President of Midwest Grain
Pipeline, Inc. since 1987, and as Vice President of the Company since 1967.
Mr. Petricola joined the Company in 1985. He has served as Vice
President - Engineering since 1992. Previously he served as Corporate
Director of Engineering.
Mr. Schrick, a Director since 1987, joined the Company in 1973. He
has served as Vice President - Operations since 1992. From 1984 to 1992 he
served as Vice President and General Manager of the Pekin plant. From 1982
to 1984 he was the Plant Manager of the Pekin Plant. Prior to 1982, he was
Production Manager at the Atchison plant.
Mr. Swaw joined the Company in 1989. He has served as Vice President-
Alcohol Marketing since September 1, 1995. Previously he was sales manager
of the Company's industrial alcohol division. Before joining the Company,
Mr. Swaw was general manager for the bulk alcohol division of Sofecia, S.A.
and general sales manager with Publicker Industries in Philadelphia.
Mr. Bruggen has been a Director since 1976 and is a member of the
Audit and Nominating Committees. He was Senior Vice President of Atchison
Casting Corporation from 1991 until his retirement in 1992. Previously he
was the General Manager of Rockwell International Plants at Atchison,
Kansas and St. Joseph, Missouri.
Mr. Braude has been a Director since 1991 and is a member of the Audit
and Human Resources Committees. He has been the President and Chief
Executive Officer of the Kansas City Board of Trade, a commodity futures
exchange , since 1984. Previously he was Executive Vice President of
American Bank & Trust Company of Kansas City. Mr. Braude is a director of
Country Club Bank, Kansas City, Missouri and National Futures Association,
a member and immediate Past Chairman of the National Grain Trade Council
and a trustee of the University of Missouri-Kansas City and of Midwest
Research Institute
Mr. Jabara has been a director since October 6, 1995, and is a member
of the Audit and Nominating Committees. He is President of Jabara Ventures
Group, a venture capital firm. From September 1949 to August 1989 he was a
distinguished professor of business at Wichita State University, Wichita,
Kansas. He is also a
director of Commerce Bank, Wichita, Kansas and NPC International, Inc., an
operator of numerous Pizza Hut and other quick service restaurants
throughout the United States.
Mr. MacLeod, Jr. has been a Director since 1986 and is a member of the
Audit and Human Resources Committees. He has been the President and Chief
Operating Officer of Iams Company, a manufacturer of premium pet foods,
since 1989. Previously, he was President and Chief Executive Officer of
Kitchens of Sara Lee, a division of Sara Lee Corporation, a food products
company.
Mr. Reintjes has been a Director since 1986, and is a member of the
Audit and Nominating Resources Committees. He has served as President of
Geo. P. Reintjes Co., Inc., of Kansas City, Missouri, for the past 23
years. The Geo. P. Reintjes Co., Inc. is engaged in the business of
refractory construction. He is a director of Butler Manufacturing Company,
a manufacturer of pre-engineered buildings, and Commerce Bank of Kansas
City.
Dr. Schwartz has been a director since June 3, 1993. She is also a
member of the Audit and Human Resources Committees. She has been the
Chancellor of the University of Missouri-Kansas City since May 1992, and
was previously the Vice Chancellor for Academic Affairs. She is a Trustee
of Midwest Research Institute and a director of Country Club Bank and
ANUHCO, Inc.
The Board of Directors is divided into two groups (Groups A and B) and
three classes. Group A directors are elected by the holders of Common
Stock and Group B directors are elected by the holders of Preferred Stock.
One class of directors is elected at each annual meeting of stockholders
for three-year terms. The present directors' terms of office expire as
follows:
Group A Directors Term ExpiresGroup B Directors Term Expires
Mr. Bruggen 1997 Mr. Cray, Jr. 1995
Mr. MacLeod 1995 Mr. Reintjes 1995
Dr. Schwartz 1996 Mr. Braude 1997
Mr. Jabara 1997 Mr. Schrick 1996
Mr. Seaberg 1996
Item 11. Executive Compensation.
Incorporated by reference to the information under "Executive
Compensation" on pages 6 through 10 of the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference to the information under "Principal
Stockholders" beginning on page 10 of the Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
The following documents are filed as part of this report:
(a) Financial Statements:
Auditors Report on Financial Statements.
Consolidated Balance Sheets at June 30, 1995 and 1994.
Consolidated Statements of Income - for the Three Years
Ended June 30, 1995, 1994 and 1993.
Consolidated Statements of Stockholders Equity for the
Three Years Ended June 30, 1995, 1994 and 1993.
Consolidated Statements of Cash Flow - for the Three Years
Ended June 30, 1995, 1994 and 1993.
Notes to Consolidated Financial Statements.
The foregoing have been incorporated by reference to the
Annual Report as indicated under Item 8.
(b) Financial Statement Schedules:
Auditors Report on Financial Statement Schedules:
VIII - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable
or the information is contained in the Consolidated Financial Statements or
notes thereto.
(c) Exhibits:
Exhibit No. Description
----------- -----------
3(a) Articles of Incorporation of the Company (Incorporated
by reference to Exhibit 3(a) of the Company's
Registration Statement No. 33-24398 on Form S-1).
3(b) Bylaws of the Company (Incorporated by reference to
Exhibit 3(b) of the Company's Registration Statement
No. 33-24398 on Form S-1).
4(a) Copy of Note Agreement dated as of August 1, 1993,
providing for the issuance and sale of $25 million of
6.68% term notes ("Term Notes", incorporated by
reference to Exhibit 4.1 to the Company's Report on Form
10-Q for the quarter ended September 30, 1993).
4(b) Copy of Term Notes dated August 27, 1993 (incorporated
by reference to Exhibit 4.2 to the Company's Report on
Form 10-Q for the quarter ended September 30, 1993).
4(c) 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 (incorporated by reference
to Exhibit 4.(a) to the Company's Report on Form 10-Q
for the quarter ended March 31, 1995.
4(d) Copy of Line of Credit Note Under First Amended Line
of Credit Loan Agreement (incorporated by reference to
Exhibit 4.(a) to the Company's Report on Form 10-Q for the
quarter ended March 31, 1995).
9(a) Copy of Cray Family Trust (Incorporated by reference to
Exhibit 1 of Amendment No. 1 to Schedule 13D of Cloud L.
Cray, Jr. dated November 17, 1995).
10(a) Summary of informal cash bonus plan (incorporated by
reference to the summary contained in the Company's
Proxy Statement dated September 12, 1995, which is
incorporated by reference into Part III of this Form
10-K).
10(b) Executive Stock Bonus Plan as amended June 15, 1992
(incorporated by reference to Exhibit 10(b) to the
Company's Form 10-K for the year ended June 30, 1992).
10(c) Information contained in the Midwest Grain Products,
Inc.1995 Annual Report to Stockholders that is
incorporated herein by reference.
22 Subsidiaries of the Company other than insignificant
subsidiaries:
State of Incorporation
Subsidiary or Organization
---------- -----------------------
Midwest Solvents Company of Illinois, Inc. Illinois
Midwest Grain Pipeline, Inc. Kansas
Midwest Grain Products of Illinois, Inc. Illinois
Midwest Purchasing Company, Inc. Illinois
25 Powers of Attorney executed by all officers and
directors of the Company who have signed this report
on Form 10-K (incorporated by reference to the
signature pages of this report).
27 Midwest Grain Products Financial Data Schedule as
at June 30, 1995 and for the year then ended.
No reports on Form 8-K have been filed during the quarter ended June
30, 1995.
SIGNATURES
Pursuant to requirements of Section 13 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, in the city of Atchison, State
of Kansas, on this 11th day of September, 1995.
MIDWEST GRAIN PRODUCTS, INC.
By s/Laidacker M. Seaberg
------------------------
Laidacker M. Seaberg, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Cloud L. Cray, Jr., Laidacker M.
Seaberg and Robert G. Booe and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
re-substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all reports of the Registrant on Form 10-K and
to sign any and all amendments to such reports and to file the same with
all exhibits thereto, and other documents in connection therewith, with the
Securities & Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated on the dates indicated.
Name Title Date
---- ----- ----
s/ Laidacker M. Seaberg President (Principal
-------------------- Executive Officer)
Laidacker M. Seaberg and Director September 11, 1995
s/ Robert G. Booe Vice President, Treasurer
--------------------- and Controller (Principal
Robert G. Booe Financial and Accounting
Officer) September 11, 1995
s/ Michael Braude
---------------------
Michael Braude Director September 11, 1995
s/ Richard J. Bruggen
--------------------- Director
Richard J. Bruggen September 11, 1995
s/ Cloud L. Cray, Jr.
--------------------- Director
Cloud L. Cray, Jr. September 11, 1995
s/ F D Jabara
--------------------- Director
F. D. "Fran" Jabara September 11, 1995
s/ Tom MacLeod
--------------------- Director
Tom MacLeod, Jr. September 11, 1995
s/ Robert J. Reintjes
--------------------- Director
Robert J. Reintjes September 11, 1995
s/ Randy M. Schrick
--------------------- Director September 11, 1995
Randy M. Schrick
s/ Eleanor B. Schwartz
--------------------- Director September 11, 1995
Eleanor B. Schwartz
MIDWEST GRAIN PRODUCTS, INC.
Consolidated Financial Statement Schedules
(Form 10-K)
June 30, 1995, 1994 and 1993
(With Auditors' Report Thereon)
[LOGO]
Baird, Kurtz & Dobson
Certified Public Accountants
Report of Independent Accountants
on Financial Statement Schedule
Board of Directors and Stockholders
Midwest Grain Products, Inc.
Atchison, Kansas
In connection with our audit of the financial statements of MIDWEST
GRAIN PRODUCTS, INC. for each of the three years in the period ended June
30, 1995, we have also audited the following financial statement schedule.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits of the basic financial statements.
The schedule is presented for purposes of complying with the Securities and
Exchange Commission's rules and regulations and is not a required part of
the consolidated financial statements.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the information required
to be included therein.
S/BAIRD, KURTZ & DOBSON
Kansas City, Missouri
August 4, 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
VIII. VALUATION AND QUALIFYING ACCOUNTS
Additions
___________________
Balance, Charged to Charged Balance,
Beginning Costs and to Other Deductions End of
of Period Expenses Accounts Write-Offs Period
_________ __________ _________ __________ ________
(In Thousands)
Year Ended
June 30, 1995
Allowance for
doubtful
accounts $25 $101 $41 $85
=== ==== === ===
Year Ended
June 30, 1994
Allowance for
doubtful
accounts $25 $59 $59 $25
=== === === ===
Year Ended
June 30, 1993
Allowance for
doubtful
accounts $200 $375 $550 $25
==== ==== ==== ===
EX-10
2
EXHIBIT 10(C)
Exhibt 10(c)
SELECTED FINANCIAL INFORMATION
YEARS ENDED JUNE 30,
_______________________________________________________________________________
1995 1994 1993 1992 1991
_______________________________________________________________________________
(In Thousands, Except Per Share Amounts)
INCOME STATEMENT DATA:
NET SALES $180,252 $185,968 $163,426 $155,794 $133,120
COST OF SALES 159,149 148,320 130,551 127,883 108,963
_______________________________________________________________________________
GROSS PROFIT 21,103 37,648 32,875 27,911 24,157
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 10,553 12,212 10,677 9,794 8,083
OTHER OPERATING INCOME (EXPENSE) (107) (669) (264) 17 135
_______________________________________________________________________________
INCOME FROM OPERATIONS 10,443 24,767 21,934 18,134 16,209
OTHER INCOME (LOSS), NET (4,225) 924 1,045 1,191 501
INTEREST EXPENSE 606 127 71 93 123
_______________________________________________________________________________
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 5,612 25,564 22,908 19,232 16,587
PROVISION FOR INCOME TAXES 2,273 9,713 8,278 7,020 5,977
_______________________________________________________________________________
INCOME FROM CONTINUING
OPERATIONS 3,339 15,851 14,630 12,212 10,610
DISCONTINUED OPERATIONS 1,665 1,294 530
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLES--
POST-RETIREMENT BENEFITS (2,241)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLES--
INCOME TAXES 2,182
_______________________________________________________________________________
NET INCOME $ 3,339 $ 15,851 $ 16,236 $ 13,506 $ 11,140
_______________________________________________________________________________
_______________________________________________________________________________
EARNINGS PER COMMON SHARE
Continuing operations $.34 $1.62 $1.50 $1.25 $1.09
Discontinued operations .17 .13 .05
Cumulative effect of changes in
accounting principles (.01)
_______________________________________________________________________________
$.34 $1.62 $1.66 $1.38 $1.14
_______________________________________________________________________________
_______________________________________________________________________________
Cash dividends per common share $.50 $.50 $.50 $.48 $.47
Weighted average common shares
outstanding 9,765 9,765 9,765 9,765 9,765
BALANCE SHEET DATA:
Working capital $ 26,955 $ 21,951 $ 41,580 $ 37,021 $ 36,928
Total Assets $176,749 $168,146 $126,671 $115,626 $109,690
Long-term debt, less current
maturities $ 38,908 $ 25,000 $50 $ 1,093
Stockholders' equity $112,628 $114,173 $103,206 $ 91,853 $82,986
1995 Annual Report 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
The following table sets forth items in the Company's consolidated
statements of income expressed as percentages of net sales for the years
indicated and the percentage change in the dollar amount of such items compared
to the prior period:
PERCENTAGE OF
NET SALES PERCENTAGE
YEARS ENDED JUNE 30 INCREASE (DECREASE)
______________________________________________
FISCAL 1995 FISCAL 1994
1995 1994 1993 OVER 1994 OVER 1993
_______________________________________________________________________________
Net Sales 100.0% 100.0% 100.0% (3.1%) 13.8%
Cost of sales 88.3 79.8 79.9 7.3 13.6
_______________________________________________________________________________
Gross profit 11.7 20.2 20.1 (43.9) 14.5
Selling, general and
administrative expenses 5.8 6.6 6.5 (13.6) 14.4
Other operating income (loss) (.1) (.3) (.2) 84.0 (153.4)
_______________________________________________________________________________
Income from operations 5.8 13.3 13.4 (57.8) 12.9
Other income (expense) (2.7) .4 .6 (706.1) (18.2)
_______________________________________________________________________________
Income from continuing
operations before income taxes 3.1 13.7 14.0 (78.0) 11.6
Provision for income taxes 1.2 5.2 5.1 (76.6) 17.3
_______________________________________________________________________________
Income from continuing operations 1.9 8.5 8.9 (78.9) 8.3
_______________________________________________________________________________
_______________________________________________________________________________
FISCAL 1995 COMPARED TO FISCAL 1994
The Company's sales and earnings in fiscal 1995 declined significantly
compared to these same results in fiscal 1994. Lower unit 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 unit sales
of wheat gluten which the Company experienced in the latter half of fiscal 1994
resulted from an exceptionally large increase in demand during that period.
This situation was caused by a worldwide shortage of gluten due to poor
quality, low protein-yielding wheat. After a return to more normal crop
conditions during the summer of 1994, 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
18 Midwest Grain Products, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
highly subsidized and protected wheat starch business have allowed 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 have continued to steadily flow
into this country. Because of this situation, and due to higher per bushel
costs for wheat, the Company does not expect to immediately begin utilizing the
40% increase in gluten production capacity which was added at the Pekin plant
late this summer. However, plans are to shift production from the Pekin plant's
older gluten processing equipment to the new, more efficient equipment until
market conditions require that more of the total capacity be utilized.
The Company's unit sales of alcohol products in fiscal 1995 were up
significantly compared to the prior year's amount. Substantial increases
occurred in unit sales of both fuel grade alcohol, which is sold as an octane
additive and oxygenate commonly known as ethanol, and food grade alcohol, which
is sold for beverage, industrial and commercial applications. The increase in
the food grade category resulted from higher unit sales of beverage alcohol,
which more than offset a slight decrease in industrial alcohol volume. That
decrease resulted in a change in the Company's alcohol production mix in the
second and third quarters, which was required to satisfy heightened customer
needs in the fuel market during those periods. Demand in the food grade markets
remains strong. The Company's ability to meet this demand has been enhanced by
the availability of additional production capacity at its Pekin plant. Future
growth opportunities are also expected to occur in the fuel grade alcohol
market, but at a more gradual rate than previously anticipated due to the
reversal this past spring 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.
Designed to substantially increase Midwest Grain's total alcohol
production capacity, the distillery 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 dryers. At the end of the third
quarter of fiscal 1995, intermediate repairs to the dryers were completed by
the equipment supplier. Final repairs to the equipment are expected to be
completed early in the second quarter of fiscal 1996, substantially improving
production capabilities. However, due to depressed market prices and increased
grain costs, the Company expects to minimize its production of fuel grade
alcohol until more favorable conditions materialize.
The Company's unit sales of wheat starch in fiscal 1995 rose considerably
above the prior year's level. The increase resulted mainly from higher volumes
of modified wheat starches which are sold in a variety of special market
niches. A 70% increase in wheat starch production capacity, that was originally
slated for completion at the Pekin plant toward the end of the third quarter of
1995 Annual Report 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
fiscal 1995, was delayed until the end of the fourth quarter. The postponement
was in part due to the delay in the distillery expansion. With the additional
wheat starch capacity now available, the Company's ability to satisfy current
and future demand for modified and unmodified wheat starch is greatly enhanced.
While the Company believes unfavorable conditions, namely reduced
efficiencies, intense foreign competition and higher raw material costs for
grain, will continue to have negative impact on results during the first part
of fiscal 1996, it expects gradual improvements to occur from its projected
higher capacities, assuming an improvement in market conditions and a
continuation of strong demand for its food grade alcohol products and wheat
starch. Additionally, in response to the unfavorable conditions, the Company is
implementing measures to reduce costs and improve cash flow.
Net sales in fiscal 1995 decreased by approximately $5.7 million below
sales in fiscal 1994. The decrease was principally due to lower sales of vital
wheat gluten, which fell nearly 30% as the result of increased foreign
competition and a reduction in market demand compared to the extraordinary
demand experienced in the latter half of fiscal 1994. A 16% increase in sales
of alcohol products compared to the prior year principally resulted from a
significant jump in fuel alcohol volume. Sales of distillers feeds, a
by-product of the alcohol production process, rose modestly compared to feed
sales in 1994. A continued increase in sales of modified wheat starches pushed
total wheat starch sales approximately 11% above the prior year's level.
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.
During fiscal 1995 and continuing into fiscal 1996, grain costs increased
to unusually high levels in the face of intense competition from foreign
exporters of vital wheat gluten and relatively flat markets for fuel grade
ethanol and poor markets for distillers feeds. The combination of these factors
have significantly restricted the ability of the Company to adjust the price of
its gluten, fuel grade alcohol and distillers feeds to compensate for the high
grain costs.
The cost of sales in fiscal 1995 rose by approximately $10.8 million above
cost of sales in fiscal 1994. Principal causes were increased raw material
costs for grain, a $2.6 million increase in maintenance and repair costs and a
$2.2 million increase in energy costs. The higher maintenance and repair costs
were mainly due to work associated with the distillery expansion at the
Company's Pekin plant. The higher energy and raw material costs resulted mainly
from increased alcohol production, which was made possible by the distillery
20 Midwest Grain Products, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
expansion in the second half of fiscal 1995, and increased grain prices. 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.
Selling, general and administrative expenses in fiscal 1995 were down
approximately $1.7 million compared to the prior year. This principally was due
to a decrease of approximately $2 million in the Company's management and
employee incentive programs as a result of the decline in the company's
earnings performance. These reductions helped to more than offset increases
which were incurred generally throughout the remainder of the expense
categories.
Other income in fiscal 1995 was down approximately $5.1 million compared
to the prior year. This resulted primarily from a non-recurring write-off for
the remaining book value of an inactive coal-fired boiler in the fourth quarter
amounting to $5.0 million. This write-off was made after negotiations with a
local utility culminated in 15- and 7- year fixed pricing agreements for steam
heat and electricity, respectively, with the option to renew the steam heat
agreement for an additional 19 years.
The consolidated effective income tax rate increased as a result of state
tax rates.
The general effects of inflation were minimal.
As the result of the foregoing factors, the Company realized net income of
$3,339,000 in fiscal 1995 compared to net income of $15,851,000 in fiscal 1994.
FISCAL 1994 COMPARED TO FISCAL 1993
Results of operations in fiscal 1994 surpassed the prior year's results,
placing sales and income from continuing operations at record levels. Growth in
sales was spurred by strengthened demand for the Company's vital wheat gluten,
mostly in the second half of fiscal 1994, and increased production capacities.
This resulted in increased volumes and greater production efficiencies,
substantially improving the cost effectiveness of Midwest Grain's fully
integrated production processes. The improved efficiencies helped to offset
higher raw material costs for grain resulting mainly from the adverse effects
of unusually wet weather and floods in the Midwest in the Summer of 1993. Costs
for wheat, which the Company mills into flour and then processes into vital
wheat gluten and premium wheat starch for food and some non-food applications,
were significantly higher in fiscal 1994 compared to costs experienced in
fiscal 1993. Because of the wheat's poor milling and protein yield, the Company
had to pay substantially higher prices for moderate to high protein wheats,
while using more wheat than normally would be necessary to satisfy production
requirements. Additionally, costs for corn and milo, which the Company uses for
alcohol production, rose considerably in the third and fourth quarters while
prices for food grade industrial and fuel grade alcohol declined. The negative
impact of these raw material cost increases was somewhat reduced by improved
alcohol production efficiencies resulting from higher alcohol volumes in the
food grade industrial category. The higher raw material costs for wheat, corn
1995 Annual Report 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
and milo began to subside after the end of fiscal 1994 due to improved crop
conditions throughout the Midwest generally. However, because the higher
quality wheat from the 1994 harvest required that less gluten be used to
fortify flour, demand for gluten decreased somewhat. Additionally, the Company
began experiencing growing competition from European wheat gluten producers,
who are able to take advantage of inequitably low tariff rates to ship their
excess product into the United States market. The threat and frequent
materialization of this situation has been ongoing, but has ranged in severity
depending on the size and quality of European wheat crops and associated
factors.
The increase in net sales for the 12-month period of fiscal 1994,
amounting to approximately $22.5 million, was largely experienced in the third
and fourth quarters. The remainder of the increase was experienced in the
second quarter. This was mainly due to substantially increased demand for vital
wheat gluten and increased production of all three of the Company's principal
products, significantly improving operational efficiency. Sales in the first
quarter were more severely affected by conditions resulting from the summer's
excessive moisture and flooding. In addition to experiencing higher grain
costs, the Company was forced to use more expensive methods for routing
shipments of raw and finished goods due to damaged rail lines and highways
across the country's midsection. More abnormal first quarter costs resulted
from a four-day shutdown of the Atchison plant, which occurred when nearby
pumping stations which supply water for the plant's distillery process were
flooded by the rain-swollen Missouri River.
Sales of wheat gluten in fiscal 1994 rose by approximately 31% as the
result of increased demand and higher volumes. The increased demand resulted
partially from increased market needs, principally in the baking industry where
more gluten was required to fortify flour due to the poor quality of available
wheat during most of the year. Premium wheat starch sales increased by 15%,
mainly as the result of higher volumes and increased sales of modified starch
varieties in special market niches. Sales of alcohol products climbed 4% in
spite of reduced demand, with a substantial increase in food grade industrial
alcohol volume and a slight increase in beverage alcohol volume. These
increases more than offset a decrease in fuel alcohol volume and added
substantially to improvements in the Company's total operational efficiencies.
Sales of distillers feed, a by-product of the alcohol production process, were
approximately even with the prior year's sales, while all of the Company's
flour was used internally as a raw material for the gluten production process.
Sales of flour mill by-products, namely mill feeds, rose significantly due to
higher volumes resulting from increased flour production to satisfy heightened
gluten processing needs. During fiscal 1994, the Company's results were
negatively affected by low gasoline prices coupled with increased grain costs.
Raw material cost increases in fiscal 1994 accounted for slightly more
than $16 million of the approximately $17.8 million increase in cost of sales
compared to fiscal 1993. This was principally due to higher wheat costs and
lower protein yields, and increased costs for corn and milo. The lower protein
yields caused more wheat to be used than normally would have been required to
produce enough flour for wheat gluten processing. A rise in employee insurance
costs of approximately $1.6 million also contributed to the increase in total
cost of sales in fiscal 1994. This was partially offset by a decrease of
22 Midwest Grain Products, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
$709,150 in maintenance and repair costs compared to fiscal 1993. Other
manufacturing cost increases were due to increased production volumes.
Selling, general and administrative expenses in fiscal 1994 increased by
approximately $1.5 million compared to fiscal 1993. The majority of the
increase, approximately $1.1 million, resulted from contributions to the
Company's management bonus program, which is designed to recognize the
accomplishment of specific, pre-established Company goals. Goals in fiscal 1994
were made exceptionally challenging by conditions related to the adverse
effects of unusually wet weather and record floods in the Midwest. The
remainder of the increase was experienced generally throughout the expense
categories.
Pre-tax income for fiscal 1994 increased by approximately 11.6% due
primarily to increased volumes and demand for vital wheat gluten offset by
reduced prices for food grade industrial and fuel grade alcohol and increased
grain costs.
The consolidated effective income tax rate is consistent for the two
fiscal years.
The general effects of inflation were minimal.
As a result of the foregoing factors, the Company realized income from
continuing operations of $15,851,000 in fiscal 1994 compared to $14,630,000 in
fiscal 1993.
Quarterly Financial Information
Generally, the Company's sales are not seasonal except for minor
variations affecting beverage alcohol and gluten sales. Beverage alcohol sales
tend to peak in the fall as distributors order stocks for the holiday season,
while gluten sales tend to increase during the second half of the fiscal year
as demand increases for hot dog buns and similar bakery products. The following
table shows quarterly information for each of the years ended June 30, 1995 and
1994.
Quarter Ending
_______________________________________________________________________________
Sept. 30 Dec. 31 March 31 June 30 Total
_______________________________________________________________________________
(In Thousands Except Per Share Amounts)
Fiscal 1995
Sales $45,984 $44,488 $42,005 $47,775 $180,252
Gross Profit 7,650 6,734 2,973 3,746 21,103
Net Income (Loss) 2,756 2,237 298 (1,952) 3,339
Earnings (Loss) Per Share .28 .23 .03 (.20) .34
Fiscal 1994
Sales 39,162 45,286 50,652 50,868 185,968
Gross Profit 4,577 8,085 12,641 12,345 37,648
Net Income (Loss) 1,093 3,187 6,084 5,487 15,851
Earnings (Loss) Per Share .11 .33 .62 .56 1.62
1995 Annual Report 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
The following table is presented as a measure of the Company's liquidity
and financial condition:
At June 30,
______________
1995 1994
______________
(In Thousands)
Cash, cash equivalents and short-term investments $460 $3,832
Long-term liquid investments 14,504
Long-term debt 38,908 25,000
Working capital 26,955 21,951
_______________________________________________________________________________
The Company has expended almost $85 million in the past two years toward
its significant capital improvement projects while incurring long-term debt of
$38.9 million. Cash generated from operating activities and cash received from
the disposal of McCormick Distilling Company were also used to fund the plant
expansion, thus reducing short-term liquidity. An additional $5.8 million was
needed at June 30, 1995 to make final payments against the project and to fund
other normal capital needs expected through fiscal 1996.
At June 30, 1995, the Company had $10.0 million available under existing
long-term lines of credit, $2.0 million under short-term lines of credit which
expire in fiscal 1996, and approximately $27.0 million of working capital.
Management believes the available lines of credit, existing working
capital and working capital to be generated from future operations will
allow the Company to complete its ongoing capital improvement projects and
meet expanded working capital needs.
24 Midwest Grain Products, Inc.
INDEPENDENT ACCOUNT'S REPORT
Board of Directors and Stockholders
Midwest Grain Products, Inc.
Atchison, Kansas
We have audited the accompanying consolidated balance sheets of Midwest
Grain Products, Inc. as of June 30, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended June 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Midwest
Grain Products, Inc. as of June 30, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1995, in conformity with generally accepted accounting principles.
As discussed in Notes 6 and 10 to the consolidated financial statements,
the Company changed its methods of accounting for income taxes and
post-retirement benefits other than pensions during fiscal 1993.
S/BAIRD, KURTZ & DOBSON
BAIRD, KURTZ & DOBSON
Kansas City, Missouri
August 4, 1995
1995 Annual Report 25
FINANCIAL REVIEW
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
1995 1994 1993
_______________________________________________________________________________
(In Thousands, Except Per Share Amounts)
NET SALES (Note 15) $ 180,252 $ 185,968 $ 163,426
COST OF SALES 159,149 148,320 130,551
_______________________________________________________________________________
GROSS PROFIT 21,103 37,648 32,875
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 10,553 12,212 10,677
_______________________________________________________________________________
10,550 25,436 22,198
OTHER OPERATING INCOME (EXPENSE) (Note 8) (107) (669) (264)
_______________________________________________________________________________
INCOME FROM OPERATIONS 10,443 24,767 21,934
OTHER INCOME (LOSS), NET (Note 9) (4,225) 924 1,045
INTEREST EXPENSE 606 127 71
_______________________________________________________________________________
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 5,612 25,564 22,908
PROVISION FOR INCOME TAXES (Note 6) 2,273 9,713 8,278
_______________________________________________________________________________
INCOME FROM CONTINUING OPERATIONS 3,339 15,851 14,630
DISCONTINUED OPERATIONS (Note 15)
Income from operations of McCormick Distilling
(less applicable income tax) 616
Gain on sale of certain assets of McCormick Distilling
(less applicable income tax) 1,049
_______________________________________________________________________________
INCOME BEFORE CHANGE IN ACCOUNTING PRINCIPLE 16,295
CHANGE IN ACCOUNTING PRINCIPLE
Cumulative effect of change in method of accounting
for post-retirement benefits
(net of income tax benefit of $1,288) (Note 10) (2,241)
Cumulative effect of change in method of accounting
for income taxes (Note 6) 2,182
_______________________________________________________________________________
NET INCOME $ 3,339 $ 15,851 $ 16,236
_______________________________________________________________________________
_______________________________________________________________________________
EARNINGS PER COMMON SHARE
Continuing operations $ .34 $ 1.62 $ 1.50
Discontinued operations .17
Cumulative effect of changes in accounting principles (.01)
_______________________________________________________________________________
$ .34 $ 1.62 $ 1.66
_______________________________________________________________________________
_______________________________________________________________________________
See Notes to Consolidated Financial Statements
26 Midwest Grain Products, Inc.
FINANCIAL REVIEW
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1994
ASSETS
_______________________________________________________________________________
1995 1994
(In Thousands)
CURRENT ASSETS
Cash and cash equivalents $ 460 $ 3,832
Receivables (less allowance for doubtful accounts;
1995 - $85; 1994 - $25) 21,550 20,457
Notes receivable 919 814
Inventories (Note 2) 14,690 13,229
Prepaid expenses 560 715
Deferred income taxes (Note 6) 875 876
Income taxes receivable 2,338
_______________________________________________________________________________
Total Current Assets 41,392 39,923
_______________________________________________________________________________
INVESTMENTS 14,504
_______________________________________________________________________________
PROPERTY AND EQUIPMENT, At cost (Note 3) 206,336 182,446
Less accumulated depreciation 71,424 69,888
_______________________________________________________________________________
PROPERTY AND EQUIPMENT, NET 134,912 112,558
_______________________________________________________________________________
OTHER ASSETS 445 1,161
_______________________________________________________________________________
TOTAL ASSETS $176,749 $168,146
_______________________________________________________________________________
_______________________________________________________________________________
LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1994
_______________________________________________________________________________
(In Thousands)
CURRENT LIABILITIES
Accounts payable $ 7,807 $ 8,551
Accrued expenses (Note 4) 6,630 8,189
Income taxes payable 1,232
_______________________________________________________________________________
Total Current Liabilities 14,437 17,972
_______________________________________________________________________________
LONG-TERM DEBT (Note 5) 38,908 25,000
_______________________________________________________________________________
POST-RETIREMENT BENEFITS (Note 10) 5,449 5,045
_______________________________________________________________________________
DEFERRED INCOME TAXES (Note 6) 5,327 5,956
_______________________________________________________________________________
STOCKHOLDERS' EQUITY (Note 4)
Capital stock (Note 7)
Preferred, 5% non-cumulative, $10 par value;
authorized 1,000 shares; issued and outstanding 437 shares 4 4
Common, no par; authorized 20,000,000 shares;
issued and outstanding 9,765,172 6,715 6,715
Additional paid-in capital 2,485 2,485
Retained earnings 103,424 104,969
_______________________________________________________________________________
TOTAL STOCKHOLDERS' EQUITY 112,628 114,173
_______________________________________________________________________________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $176,749 $168,146
_______________________________________________________________________________
_______________________________________________________________________________
See Notes to Consolidated Financial Statements
1995 Annual Report 27
FINANCIAL REVIEW
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
ADDITIONAL
PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
_______________________________________________________________________________
(In Thousands)
BALANCE, JUNE 30, 1992 $4 $6,715 $2,485 $82,649 $91,853
1993 net income 16,236 16,236
Payment of cash dividends
of $.50 per share (4,883) (4,883)
_______________________________________________________________________________
BALANCE, JUNE 30, 1993 4 6,715 2,485 94,002 103,206
1994 net income 15,851 15,851
Payment of cash dividends
of $.50 per share (4,884) (4,884)
_______________________________________________________________________________
BALANCE, JUNE 30, 1994 4 6,715 2,485 104,969 114,173
1995 net income 3,339 3,339
Payment of cash dividends
of $.50 per share (4,884) (4,884)
_______________________________________________________________________________
BALANCE, JUNE 30, 1995 $4 $6,715 $2,485 $103,424 $112,628
_______________________________________________________________________________
_______________________________________________________________________________
See Notes to Consolidated Financial Statements
28 Midwest Grain Products, Inc.
FINANCIAL REVIEW
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
1995 1994 1993
_______________________________________________________________________________
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $3,339 $15,851 $16,236
Items not requiring (providing) cash:
Depreciation 8,681 7,160 6,201
(Gain) loss on sale of assets 4,696 (513) (1,119)
Deferred income taxes (628) (742) (677)
Changes in accounting principle 59
Discontinued operations 10,414
Changes in:
Accounts receivable (1,198) (2,452) (4,861)
Inventories (1,461) (2,356) (2,294)
Accounts payable 1,780 (111) (1,699)
Income taxes (receivable) payable (3,570) 993 (1,087)
Other (929) 985 2,001
_______________________________________________________________________________
Net cash provided by operating activities 10,710 18,815 23,174
_______________________________________________________________________________
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (38,870) (45,690) (12,190)
Proceeds from sale of equipment 615 738 150
Proceeds from sale of McCormick Distilling Company
net of cash sold 645 1,089 5,088
Change in current and non-current investments, net 14,504 (11,260) (2,465)
_______________________________________________________________________________
Net cash used in investing activities (23,106) (55,123) (9,417)
_______________________________________________________________________________
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (50) (1,043)
Proceeds from issuance of long-term debt 13,908 25,000
Dividends paid (4,884) (4,884) (4,883)
_______________________________________________________________________________
Net cash provided by (used in) financing activities 9,024 20,066 (5,926)
_______________________________________________________________________________
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,372) (16,242) 7,831
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,832 20,074 12,243
_______________________________________________________________________________
CASH AND CASH EQUIVALENTS, END OF YEAR $ 460 $3,832 $20,074
_______________________________________________________________________________
_______________________________________________________________________________
See Notes to Consolidated Financial Statements
1995 Annual Report 29
FINANCIAL REVIEW
Notes to Consolidated Financial Statements
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION. The activities of Midwest Grain Products, Inc. and its
subsidiaries consist of production of vital wheat gluten, premium wheat starch,
alcohol products and by-products, and flour mill products. The Company sells
its products on normal credit terms to customers in a variety of industries
located primarily throughout the United States. Through its wholly-owned
subsidiaries, the Company operates in Atchison, Kansas and Pekin, Illinois
(Midwest Grain Products of Illinois, Inc.). Additionally, Midwest Grain
Pipeline, Inc., another wholly-owned subsidiary, supplies natural gas to the
Company.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of Midwest Grain Products, Inc. and all subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
INVENTORIES. Inventories are stated at the lower of cost or market on the
first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT. Depreciation is computed using both straight-line
and accelerated methods over the estimated useful lives of the assets. The
Company capitalizes interest costs as a component of construction in progress,
based on the weighted average rates paid for long-term borrowing. Total
interest incurred each year was:
Years Ended June 30,
______________________
1995 1994 1993
______________________
(In Thousands)
Interest costs capitalized $1,570 $1,328
Interest costs
charged to expense 606 127 $71
______________________
$2,176 $1,455 $71
______________________
______________________
EARNINGS PER COMMON SHARE. Earnings per common share data is based upon
the weighted average number of shares totaling 9,765,172 outstanding for each
year.
CASH EQUIVALENTS. The Company considers all liquid investments with
maturities of three months or less to be cash equivalents.
INVESTMENTS. Non-current investments consisted primarily of money market
funds intended for construction projects and were valued at cost which
approximated market.
INCOME TAXES. Deferred tax liabilities and assets are recognized for the
tax effect of the differences between the financial statement and tax basis of
assets and liabilities. A valuation allowance is established to reduce deferred
tax assets if it is more likely than not that a deferred tax asset will not be
realized.
RECLASSIFICATION. Certain reclassifications have been made to the 1994 and
1993 financial statements to conform to the 1995 presentation. These changes
had no effect on net income.
30 Midwest Grain Products, Inc.
FINANCIAL REVIEW
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: INVENTORIES
Inventories consist of the following:
June 30,
__________________
1995 1994
__________________
(In Thousands)
Whiskey, alcohol and spirits $ 4,035 $ 3,798
Unprocessed grain 5,785 5,248
Operating supplies 2,645 2,206
Gluten 1,524 1,460
By-products and other 701 517
__________________
$14,690 $13,229
__________________
__________________
NOTE 3: PROPERTY AND EQUIPMENT
Property and equipment consists of the
following:
June 30,
__________________
1995 1994
__________________
(In Thousands)
Land buildings and improvements $17,568 $16,890
Transportation equipment 11,224 7,239
Machinery and equipment 157,011 105,804
Construction in progress 20,533 52,513
__________________
206,336 182,446
Less accumulated depreciation 71,424 69,888
__________________
$134,912 $112,558
__________________
__________________
NOTE 4: ACCRUED EXPENSES
Accrued expenses consist of the following:
June 30,
__________________
1995 1994
__________________
(In Thousands)
Excise taxes $ 602 $ 768
Employee benefit plans (Note 10) 998 2,098
Salaries and wages 1,138 1,354
Dividends declared 1,221 1,221
Property taxes 573 511
Insurance 1,258 1,045
Interest 782 696
Other expenses 58 496
__________________
$6,630 $8,189
__________________
__________________
NOTE 5: LONG-TERM DEBT
Long-term debt consists of the following:
June 30,
__________________
1995 1994
__________________
(In Thousands)
Senior notes payable $25,000 $25,000
Line of credit 13,000
Other 908
__________________
$38,908 $25,000
__________________
__________________
The unsecured senior notes payable are payable in annual installments of
$2,273,000 from 1999 through 2008 with the final principal payment of
$2,270,000 due in 2009. Interest is payable semiannually at 6.68% per annum for
the fifteen-year term of the notes.
At June 30, 1995, the Company had a $20 million unsecured revolving line
of credit expiring on October 1, 1997, with interest at 1% below prime on which
there was $13.0 million in borrowings at June 30, 1995. The Company had two
additional lines of credit totaling $5 million expiring on dates through
September 1, 1996, with interest at 1.0% below prime on which there were no
borrowings.
In connection with the above borrowings, the Company, among other
covenants, is required to maintain certain financial ratios, including a
current ratio of 1.5 to 1 and a minimum consolidated tangible net worth of $80
million.
The fair value of the senior notes payable debt, based upon the borrowing
rate of 7.0% available to the Company at June 30, 1995, was $24,800,000.
1995 Annual Report 31
FINANCIAL REVIEW
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Aggregate annual maturities of long-term debt at June 30, 1995 are as
follows:
(In Thousands)
1996 $ 0
1997 0
1998 13,823
1999 2,296
2000 2,335
Thereafter 20,454
____________
$38,908
____________
____________
NOTE 6: INCOME TAXES
Effective July 1, 1992, the Company elected early adoption of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
The cumulative effect at July 1, 1992 included in the accompanying consolidated
statements of income was a $2,182,000 reduction in previously recorded deferred
tax liabilities, or $0.22 per share. Prior years' financial statements have not
been restated to apply the provisions of SFAS No. 109.
The provisions for income taxes are comprised of the following:
Years Ended June 30,
________________________
1995 1994 1993
________________________
(In Thousands)
Income taxes
currently payable $2,901 $10,455 $9,913
Income taxes deferred (628) (742) (677)
________________________
$2,273 $ 9,713 $9,236
________________________
________________________
The income tax expense is reflected in the accompanying consolidated
statements of income as follows:
Years Ended June 30,
________________________
1995 1994 1993
________________________
(In Thousands)
Continuing operations $2,273 $9,713 $8,278
Discontinued operations
Income from operations 354
Gain on disposal 604
________________________
$2,273 $9,713 $9,236
________________________
________________________
The tax effects of temporary differences related to deferred taxes shown
on the consolidated balance sheets are as follows:
June 30,
___________________
1995 1994
___________________
(In Thousands)
Deferred tax assets
Accrued employee benefits $ 244 $ 456
Post retirement liability 2,179 2,007
Insurance accruals 647 415
Other 137 110
___________________
3,207 2,988
___________________
___________________
Deferred tax liabilities
Accumulated depreciation (7,197) (7,564)
Deferred gain on
involuntary conversion (462) (504)
(7,659) (8,068)
___________________
Net deferred tax liability $(4,452) $(5,080)
___________________
___________________
The above net deferred tax liability is presented on the consolidated
balance sheets as follows:
June 30,
___________________
1995 1994
___________________
(In Thousands)
Deferred tax asset - current $ 875 $ 876
Deferred tax liability - long term (5,327) (5,956)
___________________
Net deferred tax liability $(4,452) $(5,080)
___________________
___________________
No valuation allowance has been recorded at June 30, 1995 or 1994.
A reconciliation of the provision for income taxes from continuing
operations at the normal statutory federal rate to the provision included in
32 Midwest Grain Products, Inc.
FINANCIAL REVIEW
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the accompanying consolidated statements of income is shown below:
Years Ended June 30,
_________________________
1995 1994 1993
_________________________
(In Thousands)
"Expected" provision at federal
statutory rate (34%) $1,908 $8,694 $7,790
Increases (decreases)
resulting from:
Effect of state income taxes 223 760 871
Other 142 259 (383)
_________________________
Provision for income taxes $2,273 $9,713 $8,278
_________________________
_________________________
NOTE 7: CAPITAL STOCK
The Common Stock is entitled to elect four out of the nine members of the
Board of Directors, while the Preferred Stock is entitled to elect the
remaining five directors. Holders of Common Stock are not entitled to vote with
respect to a merger, dissolution, lease, exchange or sale of substantially all
of the Company's assets, or on an amendment to the Articles of Incorporation,
unless such action would increase or decrease the authorized shares or par
value of the Common or Preferred Stock, or change the powers, preferences or
special rights of the Common or Preferred Stock so as to affect the holders of
Common Stock adversely.
NOTE 8: OTHER OPERATING INCOME (EXPENSE)
Other operating income (expense) consists of the following:
Years Ended June 30,
_________________________
1995 1994 1993
_________________________
(In Thousands)
Truck operations $(222) $ (88) $ (31)
Warehousing and
storage operations 41 (632) (328)
Miscellaneous 74 51 95
_________________________
$(107) $(669) $(264)
_________________________
_________________________
NOTE 9: ENERGY COMMITMENT
During fiscal 1995, the Company negotiated an agreement to purchase steam
heat and electricity from a utility for its Illinois operations. Steam heat
will be purchased for the next 15 years for a minimum monthly charge of
$114,000, with a declining fixed charge for purchases in excess of the minimum
usage. Electricity purchases will occur at fixed rates through May 31, 2002. In
connection with the agreement, the Company leased land to the utility company
for 15 years so it could construct a co-generation plant on the Company's
Illinois facility property. The Company has also agreed to reimburse the
utility for the net book value of the plant if the lease is not renewed for an
additional 19 years. The estimated net book value of the plant would be $10.6
million at that date.
As a result of the above agreements, the Board approved the disposal of
the coal boiler which previously supplied the majority of the Illinois plant's
energy needs. The Company recorded the estimated effect of the disposal as a
non-recurring expense of approximately $5.0 million in the fourth quarter of
1995.
1995 Annual Report 33
FINANCIAL REVIEW
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10: EMPLOYEE BENEFIT PLANS
The Company has a noncontributory defined benefit pension plan covering
union employees. The plan provides benefits based on the participants' years of
service. The Company only contributes amounts deductible for federal income tax
purposes.
Pension cost included the following components:
Years Ended June 30,
_________________________
1995 1994 1993
_________________________
(In Thousands)
Service cost benefits
earned during year $58 $53 $56
Interest cost on projected
benefit obligations 144 142 136
Actual investment income
earned on plan assets (233) (83) (203)
Amortization of transition
liability and difference between
actual and expected
return on plan assets 121 (28) 105
_________________________
Pension cost $ 90 $ 84 $ 94
_________________________
_________________________
The funded status of the plan is as follows:
June 30,
________________
1995 1994
________________
(In Thousands)
Accumulated benefit obligations,
including vested benefits
of $2,078 and $1,976 $2,082 $1,983
________________
Plan assets at fair value $1,888 $1,727
Projected benefit obligations for
participants' service
rendered to date 2,082 1,983
________________
Projected benefit obligations
in excess of plan's assets (194) (256)
Unrecognized gain (loss) (30) 21
Unrecognized prior service cost 64 71
Unrecognized net obligation at July 1,
1987 being recognized over the
participants' average remaining
service period 124 141
Adjustment required to recognize
the minimum liability (158) (233)
________________
Minimum pension liability $ (194) $ (256)
________________
________________
Plan assets are invested in cash equivalents, U.S. Government securities,
corporate bonds, fixed income funds and common stocks.
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.5%. The expected long-term rate of return on
the plan's assets was 8.0%.
The Company and its subsidiaries have employee stock ownership plans
covering all employees after certain eligibility requirements are met.
Discretionary contributions to the plans totaled $998,000, $1,323,000 and
$1,163,000 for the years ended June 30, 1995, 1994 and 1993, respectively.
Contributions are made in the form of cash and/or additional shares of common
stock.
The Company and its subsidiaries provide certain post-retirement health
care and life insurance benefits to all employees. The liability for such
benefits is unfunded. The Company adopted the accounting provisions of the
Statement of Financial Accounting Standards (SFAS) No. 106, "Employer's
Accounting for Post-Retirement Benefits Other Than Pensions," during fiscal
1993. This standard requires that the expected cost of retiree health and life
insurance benefits be charged to expense during the years that the employees
render service rather than the Company's past practice of recognizing these
costs on a cash basis.
The cumulative effect of this accounting change reduced net income for the
year ended June 30, 1993 by approximately $2.2 million ($3.5 million less
34 Midwest Grain Products, Inc.
FINANCIAL REVIEW
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
related deferred income taxes of $1.3 million), or $.23 per share. The Company
elected to record the transition obligation as a one-time charge against
earnings rather than amortize it over a longer period. If the 1993 expense had
been determined under the cash method previously used, the amount recognized
would have been $187,000 before taxes.
The status of the Company's plans at June 30, 1995 and 1994 was as
follows:
June 30,
________________
1995 1994
________________
(In Thousands)
Accumulated post-retirement
benefit obligations:
Retirees: $3,374 $2,854
Active plan participants: 2,237 2,645
________________
Undefended accumulated
obligation 5,611 5,499
Unrecognized actuarial loss (162) (454)
________________
Accrued post-retirement
benefit cost $5,449 $5,045
________________
________________
Net post-retirement benefit cost included the following components:
June 30,
________________
1995 1994
________________
(In Thousands)
Service cost $201 $153
Interest cost 414 388
________________
$615 $541
________________
________________
The weighted average annual assumed rate of increase in the per capita
cost of covered benefits (i.e., health care cost trend rate) is assumed to be
13.0% (compared to 13.5% assumed for 1994) reducing to 11.0% over five years
and 6.0% over 23 years. A one percentage point increase in the assumed health
care cost trend rate would have increased the accumulated benefit obligation by
$447,000 at June 30, 1995, and the service and interest cost by $61,000 for the
year then ended.
A weighted average discount rate of 8.0% was used in determining the
accumulated benefit obligation.
NOTE 11: MAJOR CUSTOMERS
During the years ended June 30, 1995, 1994 and 1993, the Company had sales
to one customer accounting for approximately 10.7%, 14.5% and 13.0%,
respectively, of consolidated sales.
NOTE 12: OPERATING LEASES
The Company has several noncancellable operating leases for railcars which
expire from August 1995 through October 1999. The leases generally require the
Company to pay all service costs associated with the railcars. Rental payments
include minimum rentals plus contingent amounts based on mileage.
Future minimum lease payments at June 30, 1995 are as follows:
(In Thousands)
1996 $1,701
1997 1,645
1998 1,550
1999 1,312
2000 398
_____________
Future minimum lease payments $6,606
_____________
_____________
1995 Annual Report 35
FINANCIAL REVIEW
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Rental expense for all operating leases with terms longer than one month
totaled $951,000, $686,000 and $136,000 for the years ended June 30, 1995, 1994
and 1993, respectively.
NOTE 13: ADDITIONAL CASH FLOWS INFORMATION
Years Ended June 30,
_________________________
1995 1994 1993
_________________________
(In Thousands)
Noncash Investing and
Financing Activities:
Purchase of property
and equipment in
accounts payable $1,407 $3,931 $ 2,045
Notes received from
sale of subsidiary 4,557
Dividends declared 1,221 1,221 1,221
Additional Cash Payment Information
Interest paid (net of
amount capitalized) 519 127 67
Income taxes paid $4,200 $9,460 $10,648
NOTE 14: 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.
NOTE 15: SALE OF McCORMICK DISTILLING COMPANY
On December 31, 1992, the Company's wholly-owned subsidiary, McCormick
Distilling Company, sold its principal operating assets consisting of
inventories, property and equipment, trademarks, patents and licenses to MDC
Acquisition Company (now known as McCormick Distilling Company), an independent
business formed by a group of private investors. The Company retained accounts
receivable and assumed accounts payable while MDC assumed certain accrued
liabilities, including excise taxes, of approximately $1.7 million. In
addition, the Company received cash of approximately $3.1 million, a $1.6
million 30-day note at prime and a three-year note for approximately $3.0
million, collateralized by bulk whiskey, with interest payable at prime. The
sale resulted in a gain of $1.0 million after taxes of approximately $600,000.
The three-year note receivable had a balance due of approximately $919,000
at June 30, 1995 and is included in notes receivable in the consolidated
balance sheet.
The disposal is being accounted for as a discontinued operation and,
accordingly, its operating results are segregated and reported as discontinued
operations in the accompanying consolidated statements of income.
Summarized results of operations of McCormick Distilling Company are as
follows:
Year Ended
June 30,
____________
1993
(In Thousands)
Results of operations:
Net sales:
Grain products sales: $13,167
Excise taxes: 26,133
____________
39,300
Income before income taxes 971
Provision for income taxes 355
____________
Income from operations $ 616
____________
____________
36 Midwest Grain Products, Inc.
EX-27
3
MIDWEST GRAIN PRODUCTS, INC. FDS
5
0000835011
MIDWEST GRAIN PRODUCTS, INC.
1,000
YEAR
JUN-30-1995
JUL-1-1994
JUN-30-1995
460
0
21,635
85
14,690
41,392
206,336
71,424
176,749
14,437
38,908
6,715
0
4
105,909
176,749
180,252
180,252
159,149
159,149
107
0
606
5,612
2,273
3,339
0
0
0
3,339
.34
.34
Consists of trade receivables and does not include notes
receivable.
Reflects retained earnings and additional paid in captial
EX-99
4
EXHIBIT INDEX
Exhibit 99
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
3(a) Articles of Incorporation of the Company (Incorporated
by reference to Exhibit 3(a) of the Company's
Registration Statement No. 33-24398 on Form S-1).
3(b) Bylaws of the Company (Incorporated by reference to
Exhibit 3(b) of the Company's Registration Statement
No. 33-24398 on Form S-1).
4(a) Copy of Note Agreement dated as of August 1, 1993,
providing for the issuance and sale of $25 million of
6.68% term notes ("Term Notes", incorporated by
reference to Exhibit 4.1 to the Company's Report on Form
10-Q for the quarter ended September 30, 1993).
4(b) Copy of Term Notes dated August 27, 1993 (incorporated
by reference to Exhibit 4.2 to the Company's Report on
Form 10-Q for the quarter ended September 30, 1993).
4(c) 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 (incorporated by reference
to Exhibit 4.(a) to the Company's Report on Form 10-Q
for the quarter ended March 31, 1995.
4(d) Copy of Line of Credit Note Under First Amended Line
of Credit Loan Agreement (incorporated by reference to
Exhibit (a) to the Company's Report on Form 10-Q for
the quarter ended March 31, 1995).
9(a) Copy of Cray Family Trust (Incorporated by reference to
Exhibit 1 of Amendment No. 1 to Schedule 13D of Cloud
L. Cray, Jr. dated November 17, 1995).
10(a) Summary of informal cash bonus plan (incorporated by
reference to the summary contained in the Company's
Proxy Statement dated September 12, 1995, which is
incorporated by reference into Part III of this Form
10-K).
10(b) Executive Stock Bonus Plan as amended June 15, 1992
(incorporated by reference to Exhibit 10(b) to the
Company's Form 10-K for the year ended June 30, 1992).
10(c) Information contained in the Midwest Grain Products,
Inc.1995 Annual Report to Stockholders that is
incorporated herein by reference.
22 Subsidiaries of the Company other than insignificant
subsidiaries:
State of Incorporation
Subsidiary or Organization
---------- -----------------------
Midwest Solvents Company of Illinois, Inc. Illinois
Midwest Grain Pipeline, Inc. Kansas
Midwest Grain Products of Illinois, Inc. Illinois
Midwest Purchasing Company, Inc. Illinois
25 Powers of Attorney executed by all officers and
directors of the Company who have signed this report
on Form 10-K (incorporated by reference to the
signature pages of this report).
27 Midwest Grain Products Financial Data Schedule as
at June 30, 1995 and for the year then ended.